Good day and thank you for standing by. Welcome to Boston Properties’ Fourth Quarter and 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to Ms. Helen Han, Vice President, Investor Relations. Ma’am, please go ahead.

Thank you. Good morning, and welcome to Boston Properties’ Fourth Quarter and Full Year 2021 Earnings Conference Call. The press release and supplemental package were distributed last night and furnished on Form 8-K. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G. If you did not receive a copy, these documents are available in the Investor Relations section of our website at investors.bxp.com. A webcast of this call will be available for 12 months. At this time, we 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. 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 obtained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements were detailed in yesterday’s press release and from time to time in the company’s filings with the SEC. The company does not undertake a duty to update any forward-looking statements. I’d like to welcome Owen Thomas, Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer. During our Q&A portion of our call, Ray Ritchey, 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, Helen, and good morning, everyone. I’d like to start by introducing Helen Han, who is our new Head of Investor Relations. Helen was formerly Head of Marketing for our western region has been with BXP for over 15 years and has a deep wealth of knowledge about our company and people. Welcome, Helen, great to have you here. So today, I am going to cover BXP’s operating momentum, the economic conditions that serve as a backdrop for BXP’s operations as we enter 2022, the current private equity capital market conditions for office real estate as well as BXP’s capital allocation activities and growth potential. BXP’s financial results for the fourth quarter reflect the impact of the recovering U.S. economy and increasing needs for our clients for securing high quality office space. Our FFO per share this quarter was above market consensus and the midpoint of our guidance. We completed 1.8 million square feet of leasing, our third consecutive quarter of significantly higher leasing activity. It was 55% above the fourth quarter of 2020 and in line with our pre-pandemic leasing level. With an average term of 8.6 years on the leases signed this past quarter, lease commitments by our clients continue to be long-term in nature. This success can be attributed to not only our execution, but also the enhanced velocity and economics achieved in the current marketplace for premium quality assets with great amenities and transit access, which are the hallmarks of BXP strategy and portfolio. Now turning to 2022, we believe the market and economic factors which impact BXP are on balance very favorable. Though the Omicron variant has been a setback in the course of the pandemic has proven hard to forecast, most experts believe conditions will improve in 2022, resulting in more workers returning…

Thanks, Owen. Good morning, everybody. Hope you all had a good new year. I’m going to focus my remarks this morning on our leasing activity. As was evident in the second press release, we set on last night, our leasing activity press release, we had a pretty strong fourth quarter with activity spread around Boston, New York, San Francisco and the metropolitan Washington DC regions. We ended the year with an occupancy pick up of about 40 basis points. As we sit here today in the end of January, we have signed leases for our in-service portfolio that have yet to commence, so they’re not in our occupancy figures of more than 925,000 square feet; that 925,000 square feet represents an additional 180 basis points of potential occupancy increase, and includes about 115,000 square feet of 2023 commencement so the majority of it is 2022. We begin 2022 with over 1.4 million square feet of leases in negotiation on space in the in-service portfolio, more than 425,000 covers currently vacant space, and about 450,000 covers 2022 expirations. During 2022, we have about 2.8 million square feet of expirations in the in-service portfolio. Over the last decade, total leasing for this company has ranged between 3.7 million square feet in 2020. So that’s in the midst of the early pandemic and the economic shutdown and over 7.7 million square feet in those years, where we’ve signed some pretty large built those leases. Now, it’s true some of the leasing we do each year encompasses early renewals, and we’ll talk about some of that today and leases on new developments. But a significant portion of this leasing we do each year is our near-term renewals in available space in the portfolio. So with 2.8 million square feet of exposure, 925,000 square feet…

Great. Thank you, Doug. Good morning, everybody. So this morning, I plan to cover the details of our fourth quarter performance and the changes to our 2022 earnings guidance. For the fourth quarter we announced funds from operations of $1.55 per share, which exceeded the midpoint of our guidance range by $0.05 per share and was $0.03 per share above consensus estimates. The performance of our portfolio drove $0.04 of the improvement and higher than projected management and development fees added $0.01. I would place the portfolio outperformance in 4 buckets. First, income from earlier than anticipated leasing, particularly in San Francisco and Reston. In San Francisco we executed 2 10-year renewals aggregating 65,000 square feet at a significant pickup in rent and several smaller new leases with immediate delivery. And in Reston, we signed a 90,000 square foot new lease with a technology company with space delivery on lease signing. We also collected payments from several tenants on receivables that we had written off in 2020. Second, we achieved higher service income due to an increase in utilization from better physical occupancy in New York City during the quarter. Just prior to the impact of the Omicron variant, our New York City portfolio census was running close to 70%, which represented a big pickup from the third quarter. Third, we experienced stronger parking revenue and hotel performance. Parking revenue totaled $23 million for the quarter, up 8% from the third quarter. It’s now running at 82% of its pre-pandemic rate. So that means there’s an incremental $20 million or $0.11 per share on an annual basis, we should be able to recapture to reach prior levels. Our hotel operated at 50% occupancy during the quarter for the full year 2021, it operated just above breakeven, only contributing $600,000 to…

Thank you, sir. [Operator Instructions] And, sir, we have our first question from Manny Korchman from Citi. You may ask your question.

Great. It’s Michael Bellman here with Manny. Owen, if I can get your opinion, Boston Properties has always been focused on the highest quality office space, the highest quality building from the top markets, which has been very good for the company over the history. As we think about going post-pandemic, you talked about the desire of companies to have great space to encourage and provide a reason for their employees to come back. How do you think this bifurcation in the marketplace is going to play out in terms of the types of spaces that you own today and then AA plus arena, and then everything else, and because that Class AA plus is a minority of the entire office stock? How do you think all of that Class B and C office space will trend? Is it just going to be a rent inducement, which may depress rents overall? Or are you just going to need a substantial amount of capital to redevelop those assets either into more modern office space, or into other property types? And how do you think all of that’s going to ultimately affect the broader office market?

Yeah. A lot there to unpack, Michael, but I’ll do my best. So agree with what you said at the outset, BXP strategy back to our founders is to have great buildings and great locations, we say it today more great place and space. It’s always been a hallmark of the company strategy. It’s always worked, and it’s actually even more important, because of the pandemic. Doug and I, in our remarks kind of articulated, what you said, which is we do think companies are going to return to the office, we do think hybrid is here to stay. And we do think it’s going to be very important for CEOs and company leadership to have great offices that their employees want to work in. So having buildings that have great amenities that are located near transit, all those things are going to be increasingly important to entice workers to come back to the office. So I think the bifurcation between the top of the market and the rest of the market is growing right now, and it’s going to grow further. Doug gave you the very interesting stat on San Francisco, the aggregate availability stats on San Francisco are 27%. And he gave you the data on the top 20% of the market, which is actually 5% vacant, that’s incredible, if you think about it. So the bifurcation is increasing. So now coming to your question, what’s going to happen with the more modest quality buildings, I think it’s very case by case, building by building, city by city, and neighborhood by neighborhood, I do think the office markets will recover, the economy will grow, some of those buildings will get leased as office, I do think it’s going to be very competitive, and probably harder to push rents. Land in places like Manhattan is incredibly valuable, so there could be a reuse of a lot of these properties. I mean, office, many offices that were created for large corporate users have large floor plates, and they don’t – they’re not very well suited for conversion to residential, because of the bay depth, but there are exceptions to that. And I’m sure we’ll see creative developers, change some of these buildings to residential, some may get torn down and made into something else. Some may be made into – there have been buildings in New York that have been renovated, where setbacks were put into an older building and floor is added to the top. So there’ll be a lot of creativity that goes into it. And I think slowly over time, you’ll see some conversion of this stock, and between the economy growing and some stock being taken offline, I think the markets will ultimately firm up. But this bifurcation between quality and commodity is going to continue and widen.

Hey, guys, it’s Manny here. Just, Mike, I have a question for you, if I think about your guidance, in totality, I think everything you mentioned on the call today was a positive in a lift to guidance, notwithstanding the ranges given a better 2021. Now, what are the negatives offsetting some of that, because if I add together all the positives, I’m getting more lift than sort of the lift to your midpoint? So are there negatives, we need to think about? Is it something else within the range that’s keeping you from raising more? Or is it just conservatism like how do we think about that? Thanks.

Look, I mean, sure, there’s conservatism in this environment. I mean, we’re delighted to see the increase in the leasing activity. And that leasing activity that Doug is talking about is – will result in signed leases, but the question for us is, when did those leases go into occupancy? And so how much of that goes into 2022? And how much of it is a little bit later? Because in many cases, we have to wait until the tenants build out the space to start recognizing revenue on these spaces. So we have to judge how long that is going to take. So I think our trends are very positive. But the sales cycle and the build out cycle is not immediate, in all cases. So we have to judge that into our guidance. So I think that’s part of it. We brought up the low-end of our guidance pretty significantly. The reason that we’re doing that is some of the activity that we’re seeing and getting leads us to the computation that we don’t believe it’s possible to be at that low end that we had before, because we’ve gotten some of the stuff. We haven’t gotten enough at this point to feel like we should be increasing the high ends, so we’ve kept the high end where it is. And so that’s how we kind of build our guidance ranges. There really hasn’t been any kind of meaningful negative occurrences that are in our guidance. We talked a little bit about the same store, which is mostly due to positive things that happened. So there’s really no negative occurrences that we put in any of the items that we put in our guidance that were at all meaningful.

Right. Thanks very much.

And, sir, we have our next question from Nick Yulico of Scotiabank. You may ask your question.

Thanks. I just had first a question or maybe you can give us a feel for what the rent spreads were on new signings, not just the commenced statistics that you give for the fourth quarter?

Okay. I thought I did that all the way along. If you just sort of go back and look at my remarks, I basically said that, leases that we signed this quarter were, I think I said, between 7% and 14%, in the greater suburban Boston market, it was up 5% plus or minus in certainly the assets in New York City and flat in other assets in New York City, 7% in Embarcadero Center, Washington DC, the issue is that all the space that we leased was vacant. So you can’t have a mark up on a vacant space, obviously, because it’s infinite. So in general labor, trending positive, call it 2%, at 250 West 55th Street in some leases and negative 70% on a couple of other leases to positive 71% on the lease that we signed at 601 Lexington Avenue with the tenant that had short-term space today that we kind of good deal on for them a year ago, so it was really variable, but in net-net, it was all positive.

Okay. Thanks, Doug. Second question is just going back to San Francisco. And you kind of have this interesting dynamic going on there where your rents are up at Embarcadero Center, even look like they’re up, average rents and the buildings up versus the end of 2019 at this point yet. The occupancy is down – it’s down – looks like it’s down like over 700 basis points on average for those buildings. So sort of worse than the overall portfolio also looks like the vacancy there is around 11% for those buildings, which I’m trying to square away with when you talk about 5% vacancy for some of the premier buildings in San Francisco. And so, I’m just trying to understand like what’s going on with those buildings and versus the market out there?

So just to sort of refresh what I said, so the top call it, 20 million square feet of space includes the vacancy at Embarcadero Center, so that’s in that statistic of 5% overall for that quote unquote, portfolio of premier buildings. The vast majority of our availability at Embarcadero Center with a low rise of EC 1 in the low rise EC 2. Unfortunately, we don’t have very much in the way of blocks of space, so it’s a floor here and a floor there. We have activity on some of that space, some of that space is needs to be fully demolished, because it’s got in some cases had the best from the original user of the space 25 years ago, and where the tenant moved out and some of it is a space with just an installation, that doesn’t make sense anymore. We will make hay on some of that space during 2022. We don’t have ROCE projections for getting to 5% availability in those buildings in during the year. But we’re pretty confident that the space is going to lease at healthy rent. Obviously, low rise Embarcadero Center 1 is different than the top of EC 4, right. So the there’s a rent differential between those 2 kinds of space.

Okay. Really helpful. Thank you.

And, sir, our next question from Craig Mailman of KeyBanc Capital Markets. You may ask your question.

Thanks. Mike, maybe just a follow-up. How much of that $0.04 kind of upside in the quarter was from the collection of payments? And how big is that bucket as we headed to 2022?

I would say it was close to $0.01 for the quarter. And, I don’t think I can tell you right now exactly how big that is, we’re not assuming that we’re going to be really collecting anything more. So I’m not looking at anything that I don’t – that I think is significant that would be coming in 2022 on collections. So, we’re projecting zero effectively for that number. But I wouldn’t say that, the one thing that could happen in 2022 is the return to accrual of some of the tenants that are non-accrual. And we’re not projecting any of that either, but we’re watching these tenants, some of the retail tenants and other tenants that we have, that we’re not accruing rent for right now, as they continue to kind of be successful and pay rent and generate sales. There’s the ability for us to bring those tenants back to accrual, which will in certain cases have an impact on our earnings, although be a non-cash impact on our earnings, it just bringing back kind of a former straight line. So that’s another impact that will come – some of the things that happened in last few years.

Okay, so you don’t necessarily need to do a blend and extend. You just have to feel better about their ability to pay for the flip back to accrual?

Yeah, I mean, we may do an analysis and make judgments every quarter on all the tenants that we wrote up their accrue rent balances in 2020. And try to figure out when the right time when it’s justified for us to bring them back.

I think, Mike talked about in the past that there are sort of 3 primary buckets of tenants that are in that those areas co-working is one, it’s the largest. Then what I guess you would refer to as entertainment retail, so we have a number of cinema operators in all of our markets that we’re on nonaccrual with. And then we have a number of local operators, mostly in the food and beverage that still are struggling relative to where they were in 2019 from a revenue perspective, because of the lack of foot traffic in certain parts of the country.

Okay. That’s helpful. And then, just separately, it seems like you guys got approvals at the FDA side or continues to move along. Can you just kind of give us some thoughts on how to think about maybe that site or in general, how you guys are thinking about developments here, as construction costs are rising, rents on, new space are holding steady, but kind of just your thoughts on what required returns to be to think about starting that in more near and medium term?

So let me give you a general comment. And then I’ll ask Hilary, who was officially here as our new regional leader in New York to comment on 343 Madison Avenue. So it is quite clear that construction costs have been going up at, call it, very high single digits on an annual basis. And if you don’t have rents that are appreciating at a commensurate rate, your returns are going to be challenged, right, unless you have great land basis. We happen to have that in our portfolio across our life science development platform, because we have lots of embedded opportunities in the portfolio. So we have a long runway to go. I describe what’s going on with Platform 16. And our calculus there is that market continues to have some real strength to it. And we probably will see outsize rental rate growth over the next couple of years because of the lack of Class A inventory. And therefore, we will likely with our partners have decision in the next couple of months as to whether or not we want to move forward with that, because it’s not going to deliver until 2025. Those are the kinds of conversations we’re having. I’ll let Hilary describe sort of a timing associated with 343 Madison, because that’s a decision that’s really not in front of us tomorrow. And there’s some work to do with regards to getting the site, quote unquote, enabled to truly commence construction. Hilary?

Thanks, Doug. I would, first of all echo what Owen’s said about high quality new construction office assets, commanding premiums and rents relative to more commodity. So that’s something that obviously weighs in favor of the potential at 343 Madison, but in terms of our ability to launch construction of the project, we do have some legwork ahead of us in terms of demolition, and in terms of some work that we have to do with the MTA to be ready to proceed. So it’s a decision that we’ll be making in the sort of I’d say near to medium future, but it’s not an immediate decision ahead of us.

Thanks.

And, sir, we have our next question from Steve Sakwa of Evercore ISI. You may ask your question.

Thanks. Good morning. Maybe the first question just broadly on San Francisco, it’s been the biggest kind of urban city that’s really struggled to bring people back; and crime and homelessness have really kind of deteriorated the living conditions in the city. So I’m just curious sort of owner, Doug, what your sort of conversations are with the mayor, other business leaders in the city kind of right the ship in San Francisco. And what do you think that timeline looks like for that?

Good morning, Steve. Look, I think, I would acknowledge what you’re saying. And I’ve said it on previous earnings call San Francisco, the city of San Francisco and up to Silicon Valley has been hit the hardest of all of our markets, because of the pandemic. And I think it’s related to one technology companies being, frankly, behind the other clients that we have in terms of returning people to office. And also I would say, very restrictive COVID regulation, very conservative COVID regulation in San Francisco, occupancy requirements, mask wearing all that kind of thing. So look, I and Bob may want to comment on this, I think there’s an increasing voice in San Francisco that is concerned about the issues that you raised around homelessness and crime and getting the city open. And it is our hope, over time that those voices will be heard, and San Francisco will be able to recover. Again, we look at the whole bay area as the leading computer science knowledge cluster in the world. And we do think that bodes very well for the city of San Francisco, but acknowledge that these factors that you mentioned, do need to be addressed. Bob, is there anything you want to add?

Yeah, the mayor has publicly stated that things have to change. And she’s working on a plan right now to get more policing, and more cops out on the street. So I think you will see a change, Owen and I were on a call with other business leaders in San Francisco yesterday. And there’s clearly an outcry from the business community that things have changed. So I think given some time, you will see a change. And hopefully the DA gets recalled and we get somebody in there that will start enforcing the laws.

Yeah. I also think, Steve, I would just also add too, I think there’s a circular logic around the crime, homelessness situation and return to office. I mean, obviously, the streets need to be safe for people to return, but the more people that you have on the streets go into the office. I would allow that I think that creates safety, because policing is obviously important. But also protection from each other is also a key to security in city, so both of these things need to happen in tandem.

Okay, thanks. Second question, maybe, Doug, you talked about the large pipeline of deals that you’ve got. And I know, it’s hard to maybe just collectively talk about deals or put averages, but when you think about the space needs and how people are planning, and whether they’re downsizing or upsizing. Just what’s sort of the general discussion that you’re seeing kind of with the deals that are sort of in progress today? And what are the changes that sort of expect from a design perspective and kind of space utilization?

I would say categorically that 80% of the tenants that we are having conversations with today are growing, not shrinking. And I would say that most of those customers are in the finance, asset management, VC, private equity world in both New York, San Francisco and Boston, and then some tangential professional services companies. And I would say the professional services companies are probably the 20% that is probably not growing and would consider some modest reduction in their space. The architectural decisions associated with planning for 2022 and beyond, believe it or not, are very, very consistent with what they were in 2019. The ways people are planning to space are for the most part the same. On the margin, there is no question that architects are talking to their clients about trying to create better and more interesting quote unquote, common areas or community areas or gathering areas or conference rooms, however you want to define it from a client perspective, but the physical space that’s being utilized by these companies that are in our portfolio growing right now, I don’t think you would be able to distinguish much about what is being built in 2022 versus what was built in 2019. And to some degree, it’s a little bit of a surprise. I – if you go back to listen to my comments in calls, over the last call it 6 to 8 quarters, I think that we’re still not in a position where anybody who is in what I would refer to as a technology or a corporate business understands what the cadence of their team is going to be, as they come back to the office. And it’s very hard, I think, to make monumental changes until you really understand what the impacts of that cadence is, and whether or not it works. I mean, people truly don’t know, I believe how productive and how accepting a quote unquote, hybrid or a partial workday in-person is going to work through lots of industries, until they start to encourage and get their folks back. And we’re not – we’re unfortunately, we’ve been delayed and delayed and delayed and getting there. So I wouldn’t be surprised for there to be changes in the next cycle, but it’s not there yet.

Great. Thanks. That’s it for me.

And speakers, our next question from John Kim from BMO Capital Markets. You may ask your question.

Thank you. Good morning. Owen, you mentioned in your prepared remarks, the widespread corporate dissatisfaction with reduced efficiency and employee retention. I was wondering if you could elaborate on that statement. Is this purely anecdotal? And does that include tech companies who have been really pressing the snooze button on returning to work?

Yeah, well, I think by definition, it’s anecdotal, although there is surveys that have been done by various service providers and architecture and real estate. But it is from a – we have 53 million square feet filled with some of the leading companies around the country, and we speak to our clients, and we speak to potential clients as well. And I think we have a good handle on this. And I would just summarize it by saying that I have not spoken yet to a business leader who thinks working fully remote is good for their companies, and they want to make change. I think what’s been making the change more difficult to happen are really 2 things: one, these new variants that keep coming up, so we had Delta at Labor Day, and we’ve had Omicron, over the most recent holiday, and that’s delayed the return to work. And I think the other thing that’s out there is the tight labor market. You watched all the NFL playoff games over the last couple of weekends, I don’t see a lot of MTC theaters in New York are full restaurant reservations are hard to get. People are certainly comfortable doing a lot of things in-person, yet, they’re not coming back to the office. So I do think the tight labor market is impacting business leaders’ willingness to be more aggressive about having their employees come back to work. But I do hear from them concerns about the retention that they’ve had, the difficulty in training new employees, turnover rate for employees that have been hired, post pandemic versus turnover rates that were – employees that were with the company. Before the pandemic, all these metrics, when CEOs look at them, they have concern. And yes, by the way, on the technology side, we have spoken with many, many corporate leaders at major technology firms. And I would describe that as slightly differently in that they had a remote enabled workforce before the pandemic, because their technology companies and look at the kinds of spaces that they all created with all of the collaboration space, the amenities they provide food service and all those things. That was all going on even before the pandemic. So I think what the pandemic is driving is those kinds of strategies by companies. In other industries, it’s migrating across the industry landscape. Bryan Koop?

Bryan Koop from Boston. A trend that we’re definitely seeing and it started probably 90 days ago, but is accelerated over the last 30s, every time our team comes back from a tour. There is a noticeable change in who’s on the tour. Tremendous amount of c-suite players, many leadership’s of all departments, et cetera. We’ve done tours with as many as 10 to 15 people highly unusual in the past where the leaders would definitely come in later. They’re coming in much earlier. And they are far more proactive about the design of the space, what the goals are and what their intentions are. And there’s a real realization, we think by these leaders that going to work is no longer an obligation, going to work as a destination. And they want to make sure this is many things at that destination as humanly possible for them. And it’s been really refreshing to see this pro-activity of the leaders and our team has been really having a lot of fun coming back going, you wouldn’t believe who was on this first tour.

That’s great. Thank you. My second question is a follow-up on the positive commentary you’ve had versus your guidance that you mentioned 180 basis points of embedded occupancy uplift from signed leases not commenced. I think that number increased a little bit from the prior quarter. But you kept your occupancy guidance, basically flat from current levels at the midpoint? Is this purely just due to timing of leases that you plan to sign? Or do you also expect termination – leases terminated to increase as well?

It’s actually 100%, John, based upon the timing of when the when the actual rent commencement is going to be. I’ll just sort of give you the kind of example that sort of that we’re working on, and how it sort of manifests, right? So we have a lease expiring at 601 Lexington Avenue in the latter half of 2022. We are already in discussions, lease negotiations like paper is moving back and forth with a tenant on 150 out of 200,000 square feet of space that’s expiring. I don’t know how that is going to shake out as to whether or not we’re going to end up demoing the space and then delivering to them or they’re going to take it assets. The difference between those two things is 18 months potentially of term in terms of when we are able to recognize the revenue. So we have so many of those kinds of quirky transactions, if you will going on that you’re going to hear me talking about, I suspect, as we move into the year, larger and larger amount of space that we have leased, that is where – that’s signed that’s not yet in occupancy, that number is going to grow, which I think is a great thing, and because that revenue is surely coming in, and it’s very contractual and it’s very long term. But it’s in the short-term, it’s hard for us to sort of gauge, how it’s going to impact our occupancy numbers.

Great. Thank you.

And speakers, our next question from Jamie Feldman from Bank of America. You may ask your question.

Great, thank you, and good morning. I’ll just talk about CapEx and improving assets. How are you thinking about just the cost to run your business and the CapEx load for your business versus history? Is it going to cost a lot more to stay competitive in this new environment? Or the kind of similar to what it’s always been?

I think it’s – for our portfolio is probably similar to what it’s been because we’ve done so much already, right? I mean, I don’t mind doing this, because I think it’s important, when you look at our major CBD assets, which is where the bulk of the cost will be, the new project has occurred, right? So if you go, for example, to market [Arrow Center] [ph], we just – we spent a lot of money and a lot of time rebuilding all of the lobbies of EC 1, 2, 3 and 4. If you go to 100 Federal Street, you see that we rebuilt and created this really unusual place at the base of the building. If you go to New York City, and you look at what we did at 601 Lexington Avenue with the hue and the redo of the lobby that was done at 399 with a facade and the changes that were made to 599, we’ve been doing this work on a consistent basis. So I don’t think you’re going to see a major change in the way we are continuing to want to do that to all of our buildings on a consistent basis. And so I don’t think you’re going to see a quote unquote, big spike in CapEx, but I do think it’s going to be consistent. And we think of it that way, you have to be refreshing your buildings, and thinking about how you can maintain and upgrade your mechanical systems, your destination, which is your elevator systems, your lobby entrances, the amenities in the buildings. We’ve talked earlier, I think, in past calls about, what we’re doing at the General Motors Building, right, where we’ve got a major amenity center that we’ve been working on for three years, and it’s going to hopefully be opening up at the end of this year. And it’s going to be from our perspective, a real change for what those tenants have literally in their building for both health and fitness and conferencing, as well as food and beverage. So it’s like we’re just doing that all the time everywhere. And I don’t think you should anticipate that it’s going to stop, but I don’t think you should anticipate that’s going to somehow increase.

Okay. And in terms of your comments about people wanting more common space, you think that affects just the TI load or not necessarily?

Well, I can tell you TI – there are 2 reasons TIs are going up across the board. The first is, it’s a more competitive market, right? There is more available space and therefore economics are more competitive. And, two, it’s a lot more expensive to build out space today. I mean, the increases that we’re seeing in the escalation on that the TI side for any kind of installation are very significant. And so, our contribution to that is not even making up for what the tenant is ultimately going to be putting in their space. So it’s all sort of part of the same challenge, which is the issues associated with the supply chain, and the amount of people who are working across all kinds of industries and all kinds of trades and labor.

Okay. And then I appreciate your comments, it sounds like you generally think there’s more, at least flat or maybe even expansion on the leasing you’re seeing. What our tenant saying about the hoteling decision? Do you think that that decision has been made for a lot of people already? Or do you think that’s something that they’re going to figure out as time goes on, just in terms of the people sign up for spaces needed? Or do they have dedicated spaces?

So I think that there are companies who are predicting that they will have space that is not necessarily available to every person every day, meaning there’s going to be have to be some sharing of space, I think that it’s on the margin. But I think it’s absolutely happening. And it’s going to be, I think, not for the entire organization, it’s going to be for certain components of it. So let me give you an example. We have a customer who’s in the asset management business, and I think their portfolio managers are going 100% have dedicated offices, I think if they have a group of people who are in the technology side of their business, who don’t necessarily have to be in the mother ship anymore in a CBD location, they may take some suburban space, and those people may not have a physical permanent home as a seat, but they’ll have a place where they can go when they want to go to work, right? You’re going to see those types of decisions that are being made. But we’ve seen very little decision by large companies that are saying, okay, no longer, are we allowing people to have their physical space dedicated to them on a day to day basis. And they’re going to have to sign up on a daily basis that you’re not seeing that with the Google’s or the Facebook’s, or that the large tech companies, we’re seeing those people continue to want their groups together and want their people, again, as Bryan said earlier, be encouraged to come to work. And if you’re being encouraged to come to work, you want to have a physical place where you’re going to be going when you’re there.

Okay, great. Thank you.

And our next question from Alexander Goldfarb from Piper Sandler. You may ask your question.

Great. Good morning and thank you. So 2 questions. Big picture one, Owen; and then Mike, a guidance question. Owen, I understand the need for companies to get people back to the office, culture perpetuation of the company training and all that stuff. But we’re now going on the third year of this sort of new normal, and absent a weaker economy that suddenly weakens the labor market and gives your managers more leverage. At what point do the tenants suddenly say this new normal is the new normal? And maybe we do need to adjust how we lease space or use space. That part I’m sort of curious, because we’re now on, as I say, year 3 of this sort of new normal?

Yeah. Good morning, Alex. Yeah, look, I think a lot of our clients are predicting a new normal, and that’s from full time in-person work to more hybrid work. But as we’ve talked about over and over again, we don’t see our clients saying, we don’t need an office anymore. Again, we keep talking about this leasing statistic for the fourth quarter of 1.8 million square feet. Its pre-pandemic levels for us if people weren’t going to use their offices, why are they making these lease commitments. So we see employers bringing their employees back to the office. And again, as I mentioned, I think there’s an either way, I think, with many workers today, there’s pandemic fatigue. I don’t think this is true across the board, it’s very anecdotal. But you hear that more and more of employees wanting to come back, for the camaraderie for the learning, the training that goes on in the office. So I do think this will change, I look we need this Omicron variant to cool off. We need some of these health security issues to get back into a position closer to where they were last fall when we started to see some very serious increases in our census and we think that will be going on as the winter and spring progress in 2022.

Well, I mean, there’s definitely mask and COVID fatigue. That’s for sure. Mike on the guidance front. It’s a 3-parter, so to channel [John Guinee] [ph] on a 3-parter. So first is what degree of dispositions are in the guidance and if you guys do the elevated dispositions without impact guidance? The next is, you mentioned $11 million of missing parking is that quarterly or annual? And then finally, on the third quarter call, you mentioned $52 million to go on the COVID recovery? So just curious how much of that is in your 2022 guidance?

So there’s no dispositions in the guidance. We never kind of guide to dispositions, because we don’t know when they’re going to happen, not necessarily similar to acquisitions. We just don’t put it in, and in our press release, we indicate that that is the case. With respect to the parking, it’s $20 million and $0.11 that we’re still short and we’ve been kind of seeing an improvement of couple of million dollars a quarter, I would say, between $2 million and $3 million a quarter? I think in the first quarter, we may take a little bit of a step back. Because in January, there’s been a little bit of a step back and Doug talked about that. But, our expectation is that later in the first quarter, we’re going to see that start to improve again. So I think that, we will get some out of that, certainly not the entire $20 million, yeah.

And then what about the $52 million of total of COVID recovery that you mentioned on the third quarter call?

I think that we’re about at $45 million right now. We’ve got, again, parking is $20 million. Hotel is – if you look at the fourth quarter hotel, we earned about $1 million. So that’s $4 million annually, it should be $15 million, so that’s $11 million. And then the retail is the rest of that, so it’s about $14 million. And I think from the retail, I don’t think there’s that much in 2022. I think we got some big retail that we’re working on where we’re signing leases where the income is going to come in 2023. So I would expect that we won’t get much of that in our guidance in 2022, but it’ll come in 2023.

Okay, so basically, you’re at $45 million to go now.

Yeah.

Great. Awesome. Thank you.

Yeah.

And, sir, we have a question from Rich Anderson from SMBC. You may ask your question.

Thanks. Good morning, everyone. So a lot of talk about what’s the future for office and we don’t know, hybrid, so on. But, let’s say, you get some clarity about where offices going at some point in the future. Can you see Boston Properties making some strategic shifts in how you go about things? In other words, maybe you entered Seattle, maybe you think about a Sunbelt market like some of your multifamily brethren have been doing? Or perhaps is the belief in hybrid long term, that you do more in a way of close in residential to sort of capture that angle of the business? Just any comments on that would be helpful. Thanks.

Yeah, we have a well thought through perimeter of our business, which is the gateway market, so the country and we did it enter Seattle, because we felt it was in that category. And in our strategy, we have businesses that we think have strong growth potential Seattle’s one, LA’s another, life sciences another, we also have a multifamily business. That has been growing slowly, primarily off sites that we have under our control. So we would certainly be interested in additional multifamily. But we’re going to be devoting our investment capital to building out in the perimeter that we currently have. And we have a wealth of opportunities of sight in our core markets and in some of these growth areas that I’ve described.

Okay, fair enough. And then just a quick one, when you look at the entirety of the portfolio, what do you estimate the mark to market to be today? And perhaps a comment on market rent growth kind of aggregating up all the observations that were made today?

I’ll let my financial folks tell me what they think the current mark to market is, I mean, it’s a mathematical exercise that we do every quarter, I don’t know what the results are.

It’s somewhere around 5% in the overall market.

But we are not projecting growth in rents across any of our markets other than in the life science business in calendar year 2022. We think that that there is enough supply on the market that there’s going to be continued pressure. And that doesn’t mean rents aren’t going down, and concessions probably aren’t going up much more than they currently have gone up? We’ve talked about this before. I mean, there’s – let’s use New York City as the poster child example. I think everybody knows where you can cut a 10 or a 15 year deal relative to concessions in a high quality building in midtown Manhattan. And that’s where the deals are getting cut, and the rents are, what the rents are. We’ve talked about before, when the overall vacancy gets to a point where there feels like there’s a tightness in the market, then rents will start to raise rise that we’re not there yet. So I think we’re being honest about our expectations, again, for our portfolio the bulk of our availability is in the suburban Boston market, where we’re transferring, what were office building rents into lab rents and getting tremendous embedded growth. Obviously, we’re putting capital into those buildings. And we continue to have lots of embedded growth in California, in our CBD portfolio there as well. And we’re seeing it also in our portfolio in the Downtown Boston Market at buildings like the Prudential Center, and 111 Huntington Avenue, and 200 Clarendon Street. So we’re feeling good about the short term prospects for continued, relatively speaking mark to market upsides. But we’re not anticipating a strong recovery in overall market rents in the next year to sort of drive that any further.

Okay. Good enough. Thanks very much.

And our next question from Caitlin Burrows from Goldman Sachs. You may ask your question.

Hi, good morning, maybe just a question on value added development, wondering how big of a value add opportunity just like the quality and the obsolescence that creates in the lower quality and of the broader office market represent for BXP opportunities like 360 Park Avenue stuff? And then how do you balance that opportunity with the risk that comes with having to re-tenant the buildings making it maybe more like effective development project?

Yeah, Caitlin, I think the answer to that is case by case. We have all of our regions are tasked with trying to find opportunities like 360 Park Avenue South and we pursue most of the deals that we think. At the end of the day that we can create one of those top 20% buildings that don’t described earlier. And if sometimes those deals we’re disciplined about how we invest our capital and our return requirements. And sometimes all the stars align, and we get deals done like 360 and sometimes they don’t. So we’re going to continue to chase them. And, as I said in my remarks, I have every anticipation that we’ll do some more deals this year.

I do think some of the opportunities are not necessarily going to be empty buildings. The 360 was a little unique from that perspective, and it creates a great opportunity for us to have a blank slate to rebuild this thing, right? But Safeco Plaza was another one that is value-add and it’s 90% leased. And the opportunity there is really to improve the asset enrolled the rents over time. So, we have very, very interesting opportunities that we underwrite, and look at and try to figure out a way that we can invest capital and generate, again, as Owen said, the discipline return that we’re looking for.

Got it. And then maybe just one on same store occupancy following up on some of the past questions, I know you and peers continue to give encouraging details and all the leasing progress. But so far the same store or same property occupancy is down, suggesting so far that move outs are happening at a faster rate. So just wondering if you could give some further detail on the same store, what has driven that, I guess, offset of leasing progress, and how you do expect it to change?

So my view on this is, during 2020, we’re in the middle of a pandemic, and leasing velocity and activity slowed down. And so we did have leases that were expiring during that time. And we had tenants in that portfolio that had already made a decision that they were going to move somewhere else, right? So those tenants moved out and the velocity during 2020 was not there to replace those tenants at that time. So you started to see our same store occupancy slip a little bit, right? And what we’re seeing now is an acceleration of leasing velocity. And what Doug went through was a description that based upon what we have expiring over the next couple of years, the velocity we’re seeing is going to be higher than what is expiring. So our expectation is that we’re going to start to increase the same store occupancy as we complete those leases. So it’s really about the leasing velocity, and the fact that our kind of cycle from signing a lease to getting occupancy could be 6 to 18 months, right? So the stuff that the slower velocity in 2020 shows up in our occupancy in 2021 and the acceleration that we’re seeing in 2021 is going to show up in our occupancy in 2022 and 2023, in my view.

All right. Thank you.

And our next question from Vikram Malhotra from Mizuho. You may ask your question.

Thanks so much. Just maybe two bigger picture questions. A lot of my other questions have been answered. In the past, you’ve commented that San Francisco is more cyclical on the upswing and downswing new and spirit to still recover faster than say, New York, is that still the case, given sort of what you hearing and seeing in both markets?

I think the distinction I would make is San Francisco clearly has the potential to increase much more rapidly. I mean, just to sort of ground everybody 40% plus of the embedded occupancy in CBD San Francisco are technology companies. If someone were to put a chart up that showed, utilization of space and the NASDAQ composite, there’s a pretty there had been historically a pretty strong correlation, it got decoupled in 2020 with the pandemic. And so, as I said, the technology companies have largely been absent from policing markets in greater San Francisco for the past 2 years. And I can’t tell you what the potential demand is from those sectors, but it typically can be very significant. And it can be dramatic in very short periods of time. So I would tell you that I think San Francisco’s volatility, clearly could have dramatic positive going forward in 2023, 2024, or whatever you think the right timeframe is. New York City has a growing technology base, but it’s primarily still a financial services, professional services, led demand base. And so it’s going to have a more granular recovery relative to San Francisco. So that’s sort of how we think about both those markets.

Okay, thanks. And then where does flex by BXP go from here? Is it going to be a much bigger piece of the equation? Are you putting more capital? Would you look to maybe have partnerships with other flex providers down the road just in this new environment of tenants? In most standards, still going back to signing long term leases, like you signed? But maybe there’s some need for more flex? Can you give us your thoughts on how flex changes from here on?

Yeah, so Vikram, as we’ve said before, we believe in flexible workspace, we think that’s a market that was created pre-pandemic, and it’s here to stay for small companies and also larger users, I think, it’s going to be something like a single-digit percentage of the market, but an important product. What needs to happen is that the flex space that’s out there needs to refill both our own flex space, as well as the flexible space that’s been provided by the other operators. Given the pandemic, the occupancy of many flexible office offerings went down, because tenants are less likely to pay rent if they don’t have to. So that occurred, I think, what’s going to happen is it’s going to refill, right now, we’re not investing additional capital in flex by BXP. But that’s our decision today. We’re going to see how this market shakes out and revisit that decision in future quarters as the flexible office space market recovers.

And I just make one last comment, which is most of the flexible space operators have, I would say, transitioned their philosophy from we’re going to take a lease and we’re going to put money in and then we’re going to lease that space someone else to, hey, Mr. landlord or Mrs. landlord, we’d like you to put all the capital in and we’d love to become your management partner, AKA, the hotel chains, right? And so I find it hard to think there are going to be a lot of landlords who are going to be prepared to enter into a new arrangement. Now, there are obviously a lot of orphaned flexible space spaces in all of our markets that have been basically let go by the original landlord – the real original tenants, and are now in the hands of landlords. And so in many cases where that has occurred, those landlords may say, well, I’d rather not operate this myself. So I’m going to let you know company X Y and Z become my manager for this. And I think you’re going to see that happen before you’re going to see new installations being can tribute it to the market with landlords who are prepared to basically do management deals.

Great. Thanks so much. Just to clarify, Mike, the comment you made the 5% is that a cash mark to market?

That’s the mark to market if you took the whole portfolio, and what the rents were getting today, and said, we think the market rent today for every single one of these buildings is, what we have today plus approximately 5%. That’s what that is. And it excludes all the vacant spaces, only spaces currently leased.

Okay. Thanks so much.

And our next question from Ronald Kamdem from Morgan Stanley. You may ask your question.

Great. Just 2 quick one from me. Just scrolling back to DC, I think last quarter you talked about some of the concession trends there. Any update, any color, what you’re seeing in the market and how that’s trending?

Well, I’d like to tell you, there’s been a total recovery, and concessions are back to 2013 levels, but Jake, I think this one for you. I don’t think that’s the right answer, right?

Yeah, that’s correct. Yeah, I would say that the concessions continue to remain escalated. What we are seeing, though, is that the actual lease terms are extending. So, we rode the wave, sort of north of $300 a foot in concessions, but a lot of times those lease terms are in excess of 15 years.

And just to put some clarity, Jake is referring to both the 10 improvement in the free rent, right? So there’s a lot of that concessions not in cash it’s in downtime associated with when the commencement we would be beginning for our new lease.

Great. The second question, just one on clarifying for the 1Q guidance, I think you’d mentioned that there’s a seasonal drop. So if I think about the feedback out the sort of for 4Q 2021, you do 181 if you back out sort of the debt extinguishment. So from the 181 to 173, was there anything else that’s baked in there other than sort of the G&A and the hotel that you called out? Or was that all of it? Just want to make sure I got that, right?

I think that the G&A in the hotel will be between $0.08 and $0.10 of it, and then there’s some growth in the portfolio. That would offset it.

Got it.

The negatives on the G&A and the hotel are greater, right, than the difference between I think the $1.80 and the $1.73 at the midpoint. So there are some positive things from the portfolio interest expenses a little bit lower too.

Yeah. Makes sense. Thanks. That’s all my questions.

And our next question from Derek Johnston from Deutsche Bank. You may ask your question.

Hi, everyone. Thank you. So, hey, so we’re intrigued by the 360 Park Avenue South acquisition than JV. Can you discuss the strategic thoughts to expand in this New York City submarket? And, really, secondly, how the repositioning of the asset, the design or amenities has evolved versus maybe the more legacy or pre-pandemic projects?

So I’m going to allow, Hilary to talk about our plans for 360 Park Avenue South. But you want to just make a comment on our interest in expanding that marketplace?

Yeah, in New York, we all talk about New York as a market. Well, it’s 3 times bigger than all the other cities that we operate in. It’s got 300 million square feet, and it’s a number of markets in and of itself. So I’ve said on prior calls going into Midtown South is like entering a new market for Boston Properties based on its scale relative and New York scale relative to all the other cities. Midtown South has been a very attractive market to technology and to a lesser extent life science companies, and the primary growth in the office business since the GFC has been in those 2 sectors, and we think that’s an important District of New York, important submarket of New York to participate in and we were delighted to be able to complete the 360 deal in December. Hilary, do you want to talk about some of our plans for the building?

Sure. So we will be undertaking a complete repositioning of the asset both in terms of the building systems and in terms of the common areas and the tenant places and that will be designed as Owen said, to attract that that tech tendency and media tendency that prefer to be located in Midtown South, we’re already seeing interest from tenants in the marketplace for the space. And so, the building when we’re finished with it will be for all intents and purposes, a new building in terms of the systems and the finishes. And so I think, from that perspective, it’s entirely consistent with what Boston Properties owns in the rest of New York and across the country. So the distinction here is just the submarket and the types of tenants that prefer to be offered in that sub-market.

Okay. Thank you. And the second question, what will it takes to get office utilization back to 60%, 70%? And do you see that happening in 2022? And there really are slim pickings, guys, so please bear with me. So if hybrid is here to stay, and I do agree with you, if I’m allowed to work from home 2 days a week, and I show up to the office 3 days a week, is my office utilization 60% or is it 100%? Based on that agreement with management? Thank you.

Okay. So I think the answer to your question is more people coming to work will be the thing that drives utilization, I’m being somewhat tongue in cheek, but that’s honestly the answer. The way people define utilization depends upon their technology and the way they think about utilization of space. So the way we think about it is how many seats are there in a particular building, and how many people use those seats on a daily basis, it may very well be that there are more people with card access to use those seats than there are seats. So for example, if you have a floor with 100 seats on it, but you give 125 cards out, you may have 100% utilization of that space, but you’re only going to be using 80% of your employees on a daily basis. So I think the math is going to be somewhat hard to get a feel for until we really understand how individual companies are choosing to use their space. But we could certainly see situations where you have utilization that 60%, because every single person has an assigned seat, and only the days that they’re there are those cards being used. On the other hand, we may see installations where they have over allocated the number of seats, or the number of access cards for the number of seats they have. So they may be full more times than not, and you’ll have a higher number. So it’s going to be very difficult to judge what’s going on until these companies decide what their own philosophy is with the prospective how they’re going to use their space.

So I would just add, the important point to what Doug said is, what we’re seeing so far with clients that are utilizing hybrid work is they’re saying, look, we’d like you to come in 2, 3, 4 days a week, but you have to be there on a certain day like a Tuesday or a Wednesday, because why do you want people to come in the office, you want them to be with each other and collaborate. And so you want at least a day or two or more for everyone to be in the office. And I think that’s so if you look at our census trends that Doug talked about, it’s always lower on Monday and Friday, then it is in the middle of the week, because of these – I think because of human preference, but also because of some of the policies that companies and our clients are taking as it relates to hybrid work.

Thanks, guys. Thank you.

And our next question from Michael Lewis from Truist Securities. You may ask your question.

Thank you. I almost feel bad asking a question at this point. So I appreciate your time for thoughtfully and turn off the questions. I just I’m going to ask one, it’s something you touched on a little earlier. But, every time I see a headline that a company is pushing back the return to work. I think the implication is that that’s supposed to be concerning. And, at this point, when returned to office gets pushed back, is that simply a timing issue? Or do you think there’s a risk that it’s still causing more tenants to kind of figure things out and potentially cut or leave their office space? So, for example, if companies returned, at Labor Day versus today, with the demands have been stronger longer term, it gets pushed back from today for the summer with demands have been stronger if they came back today. Basically, are we losing demand as the duration wears on longer? Or do you think at this point that’s kind of less relevant?

So I would tell you that I think it’s less relevant in terms of how employers are thinking about their space. I think it becomes more challenging depending upon the labor movements that are going on with particular companies. So as companies are having a more and more challenging time dealing with their labor is coming from, I think that has a more pressing implication on their utilization of space and where they want their space to be in the short term, then what the date is per se, because people need to fill jobs. And, I mean, there are – we’re aware of organizations that are saying, okay, we can’t fill the jobs in this particular market, and we have to fill them with a work from home or a remote location, we’ll fill them in that way, right? I mean, so those are the kinds of things that I think are on the margin, and it’s going to impact the amount of space someone takes in the short-term, but not the planning, because the delay in itself is impacting what their business model is.

That makes sense. Thank you.

And our next question from Anthony Powell from Barclays. You may ask your question.

Hi, thank you. You talked a lot about how there’s increasing demand for prime office buildings in most your markets. Do you think this could lead to another cycle of new construction of office buildings of that type? Or is that maybe limited, given some of the rent dynamics? And if so, when did that start to come online?

I think that, as I mentioned in my remarks, given the pandemic, given the uncertainties about office demand that we’ve discussed on this call, I do think it’s slowed down the development pipeline in general. But that being said, I do think there will be demand for new office space in the future particularly as technology and life science companies grow, and new at least today is very attractive to those customers, and I do think there will be development, we’re going to be doing some of it ourselves. But I don’t see it as “driving a whole wave of new development”.

Thanks. So maybe just one more on pricing, I think you mentioned that you expect gets rents really go up meaningfully this year given the vacancies. That said we spread them in positive and given the uncertainty, some of them may argue that there should be been more pressure on the rent. So when you negotiate new leases with tenants, do you get tenants trying to take discounts? Or do people kind of accept the market rents and go from there? I’m just curious about the pricing psychology, given all the uncertainty around office right now.

Well, we’re so good at what we do that once we put a number on the table, they just say yes, every time. Every deal is different. Most of our clients are in the perspective that if they feel like they’re getting a market transaction, they are going to transact at this point. And they understand that depending upon what their choices are, some of our space may be at a premium, or some of it may be at a discount to something else they’re looking at. And they are able to rationalize whatever that premium or discount is. So we have enough transaction volume in our own portfolio, where we can point to look, this is where we are doing deals, this is what the concession packages, this is what the rent is, this is how much available downtime we might be able to give you, this is how much we’re prepared to put into the deal for ancillary costs that there quickly as a meeting of the minds with somebody who’s ready to transact. And again, because there’s been enough transaction volume, you sort of know where the market is, at any one time. I can’t tell you if that’s going to get better or worse in 2022. But it’s sort of how we’re dealing with things today. Thank you.

All right. Thank you.

And, sir, our last question from Daniel Ismail from Green Street. You ask you question.

Great, thank you. Maybe just to go back to the quality theme. How much is tenant mobility increase your quality space within a market? For example, is it your sense that tenants are more likely today to move around the city? Or leave a sub market for a better space?

I guess, so let’s just use San Francisco as the example right now. I think what you’re seeing is that the market has gotten smaller from a geographic perspective and some of the ancillary areas that were considered to be up and coming and a little bit on the sort of transitional edgy side are less attractive than the very sort of core marketplace. I think a lot of it has to do with the things that Owen described which were access to transportation and access to amenities, obviously in San Francisco things are slow in terms of the amenitization of the streets, but it will come back. So when I think that probably a similar construct in a place like New York, I would tell you that Third Avenue is probably not nearly as interesting as Park Avenue is, in a very hot market, where there’s lots of activity, Third Avenue has a lot more interest. But as again, as the markets get softer, there’s a necessity to sort of go to better buildings and better spaces, and that generally means the core markets, not the peripheral markets. And I don’t know if any of our – my leasing colleagues would like to comment on that. Ray, Bob, Jake, Hilary?

Well, I think that clearly is the case in Reston, Doug, we saw our portfolio there materially outperforms both in terms of occupancy deal flow, and especially rental rates, and we’re attracting the tenants may be in an unamenitized suburban campus coming back to the urban core in Reston Town Center. So from our perspective in DC, Reston is really the poster child for that point.

Right. Thank you. And then maybe just how does that impact capital deployment in the near term for BXP, say for instance, 3 Hudson versus 343 Madison? Does that make you less concerned? Or to be more interested in either one of those projects or perhaps a rule out any in the near term?

I think, Danny, to answer that question is it’ll depend on the facts at the time. I mean, 3 Hudson, as we’ve been saying, was going to given the size of that project at 1.8 million square feet, we want to anchor tenant to go forward with that, and we’ll evaluate the economics of that deal at the time. I do think new is of increasing interest all over the country and in New York. So that’ll help on the rents. But as Doug described, costs are up, and then 343, again, it’s brand new building, it’s got direct access into transit. It’s got everything that we’ve been talking about on this call about of quality, but we’re going to have to assess the economics at the time. As Hilary described, we’ve got some demolition and additional approval that we have to put in place there before we can consider going forward.

Great, thank you. And just last one for me, Mike, I believe you mentioned 70% utilization in New York. I’m just curious if that was – if I heard you correctly. And then maybe if you guys can give a utilization rate for the total portfolio.

So the New York City in the fall before Omicron, we were in the high-60s, October, November timeframe.

I mean, it dropped precipitously, we were struggling to get to 25% in any one of our markets in the first, second and third week of January. But it’s started to rebound. I mean, it’s going up relatively slowly. On a sequential basis, the number of card swipes we’re seeing is up probably 10% or 15% each week, but it’s not anywhere close to where it was in October and November.

Got it. That makes sense. Thanks, guys.

There are no further questions at this time. I will now turn the call over back to Owen Thomas for closing comments.

I think, we’ve said enough, operator. There will be no closing comments. And I thank all of you for your questions and your interest in Boston Properties. Thank you.

Thank you. This concludes Boston Properties conference call. Thank you all for participating. You may now disconnect.