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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, and welcome to Boston Properties' First Quarter Earnings Call. This call is being recorded. All audience lines are currently in a listen-only mode. Our speakers will address your questions at the end of the presentation during the question-and-answer session.
At this time, I'd like to turn the conference over to Ms. Sara Buda, VP of Investor Relations, for Boston Properties. Please go ahead.
Hi. Thank you. Welcome everybody to the Boston Properties first quarter 2020 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 Web site at investors.bxp.com. A webcast of this call will the available for 12 months.
At this time, we'd like to inform you that certain statements made during this conference call which are not historical may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements involve known and non-known risks and uncertainties and although Boston Properties believes the expectations reflected in the forward-looking statements are based on reasonable assumptions. We can not assurance you that the expectations will be attained.
Risks and uncertainties 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 filing with the SEC. In particular there are significant risks and uncertainties related to the scope, severity and duration of the COVID-19 pandemic, the actions taken to contain the pandemic will mitigate its impact and then direct and indirect economic effects of the pandemic and containment measures on Boston Properties and on our tenants. Boston Properties does not undertake a duty to update any forward-looking statements.
I'd like to welcome Owen Thomas, Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer. During the Q&A portion of our call, Ray Ritchey, Senior Executive Vice President and our regional management teams will be available to address any questions.
I'd like to turn the call now over to Owen Thomas for his formal remarks.
Thank you, Sara, and good morning everyone. I'm dialed in from Westchester County in New York. I would normally point out at the start of our earnings call, that we once again beat our estimates and explain to you how well we performed in the first quarter as well as our growth expectations for 2020.
However, we recognized all our world changed in March, and our focus this morning will be on the state of the COVID-19 pandemic, impact on markets and Boston Properties business, what we're doing in response and how we see the future unfolding. Despite the near-term challenges of the crisis, which I'm about to describe, I'm optimistic about the future and remain confident of Boston Properties ability to both weather current and coming market uncertainty, as well as to pursue over time new opportunity that will undoubtedly present themselves as a result of the crisis.
The COVID-19 pandemic took the world, the U.S., the business community and the real estate industry by surprise. It's a good lesson on the difficulty in predicting downturns and the importance of always being prepared for them. The COVID-19 recession is different from past downturns and that it was sparked and is driven by science, not economics, making its future course more difficult to predict. The precipitous drop in economic activity globally has had significant negative impact on many industries such as energy, retail and travel and 26 million U.S. jobs have been lost at least in the short-term.
So how does this economic downturn progress from here? The answer is science-based and entirely driven by the fight against the virus. Our economy cannot fully return to normal until individuals feel safe, which can only come with the development of a vaccine, therapies, testing and/or a better understanding of the danger of the virus. With these solutions is likely months down the road, our elected officials at the federal and state levels are faced with very difficult decisions as they analyze imperfect data and balance the need to either extend the lockdown for health safety or reopen the economy risking further outbreaks.
So the strategy to shut the economy through remote work has been successful so far in reducing infection rate. The process is slow and economically challenging for many industry. If proper balance is achieved, the economy will likely be opened up slowly over the next few months. But new normalcy cannot be achieved until a medical resolution is discovered and distributed probably in 2021.
A downside case would be the economy has opened to swiftly and we have another spike in infection causing further shutdown later in 2020. Its upside case is the more rapid achievement of a medical solution sometime this year. And lastly, the new normal economy will likely be reset below pre-pandemic level given elevated unemployment and restructuring in many factors. These science driven scenarios, which are difficult to predict, create a wide range of macroeconomic outcome and resultant operating environment for Boston Properties in 2020.
And lastly on the economy, rapid intervention by the Fed and Treasury with aggressive monetary and fiscal stimulus have been impressive, important and very helpful in mitigating the impact of the crisis as has as the relative health of the U.S. banking system.
The Fed quickly reduced the federal fund rate to zero and has provided significant liquidity through a number of measures to ensure functioning markets across the capital market spectrum. Fiscal stimulus, including the Treasury lead CARES Act has brought so far over $2 trillion of needed financial support to small businesses, individual and industries most affected by the crisis.
So now moving to the impact on the markets, let me start at the property level lease. As in past recessions and economic slowdown created uncertainty, which reduces some users need for space, business leaders can become more cautious and reluctant to invest capital in new offices. Incremental growth slows putting pressure on market rents, the renewal probabilities for expiring tenants will likely ripe. It is currently very difficult to determine where market rents are today or where they will settle as a result of the crisis as leasing volumes have slowed and very few new leases those price after the onset of the pandemic have been completed.
The good news is that the majority of our core markets were healthy entering the pandemic. Further, not all markets will be impacted equally and regions with industries less affected by the crisis such as life science, government and technology should outperform.
In terms of private capital markets for real estate, there were a number of sales of Class A office buildings completed in the first quarter in our core markets and pricing consistent with 2019 level. But these transactions are not particularly relevant for thinking about current valuation. As of late March, building sales have essentially stopped offerings have been withdrawn and most buyers for deal agreed before late March have either walked on contract deposit, sort price reductions are delayed closings to seek financing. With the prospect of lower rent expectations of future property cash flows will be reduced and coupled with decreased access to secured financing and nervous buyers, private market values for assets with leasing risks have likely fallen.
We are still very early in the correction sellers are probably still in the denial phase and there are limited post-pandemic transaction to provide new pricing guide. Low interest rate and historically wide cap rates spreads were undoubtedly push in the glove. Public office retrading values could provide a marker though the magnitude of the price reduction due to the pandemic being severe relevance to potential reforecast cash flows.
Now turning to impact on Boston Properties business, let me start with operations. The most notable change for the majority of us working remotely for the last six and a half weeks, though the arrangement is clearly less efficient and all of us are anxious to return to the camaraderie of our offices. We have been able to effectively operate our business and accomplish important goal.
Our buildings have remained fast and open throughout the crisis for customers who need access. I want to thank Boston Properties essential workforce and our heroes of the COVID-19 crisis, our property management organization, for their can do attitude and vigilance under stressful conditions.
Our most important activity at this time is planning for the safety and health security of our customers and employees as they return to work in our building likely in the next few months. We have formed an internal cross Regional Health Security task force that is ensuring best practices, which Doug will cover.
On the leasing, as of late March new requirements and tour activity largely disappeared. But we continue to close many of the deals we had negotiated before the crisis. There are significant pending leases underway, particularly for our Reston portfolio.
The other significant leasing activity has been restructuring short-term cash payment requirements for our customers experiencing financial difficulties largely in our retail portfolio. These deals generally entail deferring several months of 2020 rent into 2021 and later or abating rent in return for lease extension.
Non-essential construction activity has been halted by government order in all our markets except Washington DC. Assuming the orders are lifted in the next couple of months, this delay will offset some of the achieved construction schedule cushion on our base building projects out side of the Washington DC region. But we still have sufficient contingency in our project schedule to meet customer delivery day. The greater impact from the construction halt is on tenant work for customers planning to occupy or vacate our portfolio in the coming month. This will cause delays and revenue recognition for several new tenants and hold over rent opportunities for tenants who have delayed leaving.
Moving to financial impact, Boston Properties has the scale, market diversity, revenue stability, credit and access to liquidity to navigate the turbulence of the current market storm. First, we have a very high quality portfolio of buildings in the most vibrant cities in the U.S. filled with industry leading tenant. This is demonstrated by the fact that we have collected 95% of April rent due in our office portfolio as of yesterday. And office tenants represent 86% of our total revenue. Further, only 5% of our portfolio roll between now and year-end.
The balance of our revenue comes from retail and residential tenant, parking, service fees and a hotel which are more economically sensitive. Doug and Mike will be providing more detailed building blocks for our revenue stream.
Our access to liquidity is also very strong at over $2 billion with $661 million of cash on our balance sheet $151 million in a 1031 escrow account, and a billion and a quarter dollar of funding available in our credit facility. In terms of need, we have $1.2 billion remaining to fund on our development pipeline over the next three years and our next unsecured debt maturity of $850 million is not until May of 2021. The unsecured debt market is also available to issue insights at low coupon rates.
In terms of Boston Properties investment activity, we raised $254 million from the sale of new Dominion Technology Park in February. We intend to complete a lifetime exchange with this asset for 880 and 890 Winter Street which we purchased last year and the site underlying the 4th and Harrison Development in San Francisco suffering a substantial tax gains.
We are also negotiating the sale of a small number of additional assets, which, if completed, would raise over $250 million in net sale proceeds, further disposition activities essentially suspended given market conditions.
In terms of new investments, our focus at this time is preserving resources and managing our buildings to ensure health security. We have limited new investments under consideration. So I would expect that will change later in 2020, as the crisis will likely create interesting acquisition opportunities that reset pricing level. We continue to formalize relationships with private equity partners to help capitalize new investments down the road.
Our existing development pipeline, which currently stands at 11 projects, 5.2 million square feet, $2.9 billion in total investments and 73% pre-leased will continue to be a strong growth driver for Boston Properties. We just delivered into service last quarter 1750 President, a 276,000 square foot office building located in Reston and 100% leased to Leidos at more than a 7% initial cash yield.
Due to the pandemic, we are suspending investment in new vertical development for projects with material [indiscernible]. As you know, we have two significant projects we are planning to launch in 2020, subject to market conditions. The first is our 835,000 square foot 4th and Harrison project in Central Sonoma, where we have completed entitlement and plan for the first phase and expect to purchase the site later this year. We have responded to RFPs from potential anchor tenants, but will not commence vertical development without a significant pre-leased commitment. With second at Platform 16, a 1.1 million square foot three phase office development San Jose, where we have entitlements, plans and own a 55% interest in the site.
So we have completed site preparation work in consultation with our partner, we have paused construction activities and we'll revisit our plans once we get through the current phase of the crisis.
As a final point, much is being written and speculated about the future use and need for office space as a result of the pandemic. Several business leaders have commented on their success and operating remotely and claimed to be reevaluating their future office space needs. Further urbanization as well as office densification have been questioned, given the imperative of spacing during a viral pandemic. Though no one including myself knows the answers to these longer term questions, it is instructive to focus on what we know today.
The biggest impact to the office market near-term is recession, which as I discussed previously will adjust rent and capital value. Low interest rates definitely help. Second, our customers with dense layout including Boston Properties are removing workstation and will return to work in a less dense environment. Some of these users will have a portion of their workforce continue to work remotely and some will require more space.
Third, modern healthy and well-managed building with state-of-the-art health security will be at a premium like never before.
Lastly, and anecdotally, so this practice has improved our skill at using remote work tools and procedures. It has also made apparent that collaboration, productivity and cultural benefits of working with others in an office environment.
So in summary, the widely speculated market correction has arrived, though in a form few predicted. As we've communicated to you over the years predicting downturns is difficult and you must always be prepared. As a result Boston Properties is ready for the COVID-19 recession given our high quality tenancy, long-term leases, modest leverage, access to liquidity and pre-leased development pipeline.
Let me turn it over to Doug in Western Mass.
Thanks Owen. Good morning, everybody. I'm in suburban Boston. If you hear noise behind me, it's the Robin that keeps smacking against the window in my study.
I want to make a few comments on what we're doing to enhance our health security activities as our buildings begin to refill as well as our current leasing activity, but I'm going to focus my remarks this morning on the context behind our decision to withdraw our guidance for 2020.
The health and safety of our employees, tenants, service providers and visitors is first and foremost on our minds. Over a month ago, we formed an Internal Health Safety Task Force comprised of Boston Properties employees from around the company, as well as outside experts in industrial hygiene, cleaning and security. We designed standard operating procedures that will include but are not limited to air filtration, water quality, janitorial products and procedures, social separation during building access and use of vertical transportation, the use of PPE, signage and management of construction activities in our in service building. All of these activities are currently being validated by outside experts.
It's possible that some of our procedures may get relaxed over time. As we are being guided by the health and medical experts and acting with an abundance of caution. We will be releasing our plan over the next week to our entire community.
Leasing activity for the first quarter was anticipated to be like pre-COVID-19. We ended the year just under 93% occupancy and from a seasonal perspective, the first quarter is typically our quietest period. Recognizing our occupancy levels, leasing in Boston was concentrated on renewal at our Walton asset. In San Francisco, we also had a number of renewals and one modest recapture and release where the rent increased by 50% on a net basis, this was negotiated in late 2019.
In New York, we completed our forward lease at 399 Park Avenue on October 2021 expiration, with an 8% increase on a gross basis, again, negotiated in late 2019. In Washington DC, more than 50% of our leases were from GSA renewals. I think a little bit more interesting perspective is really what's going on right now. As Owen cleared, what we know is that the economy is in a recession and many organizations have either laid-off or furloughed their staff. There are no in person tours of space and the implications of social distancing on space planning and utilization are uncertain.
In spite of this, during the month of April, we signed another floor lease at 399 Park Avenue with a hedge fund. The office space at 399 is now 100% leased. We also signed a full floor new tenant lease at Time Square Tower with a law firm. We completed the 20,000 square foot extension and expansion with an investment banking firm at Embarcadero Center.
We completed 135,000 square foot relocation and 11-year extension in the Reston Town Center with a defense contractor. And we have captured 120,000 square feet of space in suburban Boston with a late 2022 expiration and did a new 12-year lease with a technology company starting in June of 2020.
We are actively working to find the leases that are in progress. So the paper is moving back and forth, on 50,000 square feet of leases in New York City, 40,000 square feet in San Francisco, 235,000 square feet in Boston, 200,000 square feet in Los Angeles and almost 900,000 square feet in Northern Virginia, including backfills for significant portions of our Leidos expiration in Reston Town Center and an additional occupant at our Reston mix development.
Separately about 300,000 square feet of signed LOIs are currently on what we refer to as COVID-19 pause across our regions.
So let's discuss our 2020 revenue. We have a very strong base of revenue, but the economic uncertainty that Owen described, coupled with the variability that has created in certain areas of our revenues is simply too unknown for us to provide tight forecast at this time. And as you know, quarterly and annual guidance is all on the margin. I believe that if we provide you with the data for '19, you will be able to make individual judgments about the COVID-19 impacts on 2020, and more importantly, have visibility on 2021.
If you start with our supplemental disclosure, we break out revenues into four categories, lease, parking, hotel, development and management services. I'm going to comment on those first three.
In 2019, the lease category made up the majority of our revenues at 93% of the total. And if you break down that a little bit further 92% of that 93% is office and represented retail, and 1% is our apartments. So in bottom-line, office revenues make up 83% of our total revenue base including our unconsolidated asset JVs.
So let's focus for a few minutes on that office portfolio. The composition of that office portfolio our share, I'm going to use data from our April 2020 cash billings to give you a perspective of the segmentation again, this is a cast perspective based upon this last month of collections and billings.
So financial services make up about 25%, technology and life science companies make up about 24%, the legal profession makes up 22.5%, other professional services which are accounting firms and major consulting firms and other engineering kind of firms make up about 8.5%, manufacturing and retail companies that make things make up about 4.6%, real estate and insurance 4.2%, media and telecommunications or flexible office space providers 2.5%, government 2.5% and education [0.3%] [ph]. So that's a good sense of the where our money is coming from a revenue perspective.
2019 revenues from office leases, including our share of unconsolidated JVs totaled more than $2.657 billion. Office portfolio ended the first quarter 2020 at 92.9% occupied essentially flat to the end of 2019.
Owen gave you our baseline April collections for the company. We collected rent in 95% to 100% of all of those office buildings that I just described those categories with the exceptions of our flexible space operators and manufacturing/retail. The manufacturing/retail category includes retail and consumer product tenants with office leases. So those are companies like Aramis and Taylor, Macy's.com, Saucony Clark Jewel and JAKKS Pacific, which is a toy company, those are sort of the larger ones to that category, as well as industries as diverse as the defense sector and electric battery manufacturing. So it's a pretty broad base.
Our share of the accrued red balance of those manufacturing/retail tenants that did not take a grant and they're all in the retail oriented businesses stood at $7.6 million at the end of the quarter.
In our share of unpaid flexible space operator, accrued rents stood at 4.5 million. 29 days into the quarter, it's not clear those tenants are simply not paying, but we'll catch up, have a short-term liquidity issue for more significant business challenge.
We've reviewed our accrued rent balances and our accounts receivable, but the full impact of the COVID-19 shutdown on many businesses is still not yet happening. And while we've increased our reserve this quarter and written up some AR, we have additional reserves we expect will take over the next quarter that we really can't identify today. And those decisions impact our net income and our funds from operations. But bottom line is, we have a really strong set of tenants where we collected the vast majority of our cash rent in 2020 April.
I want to repeat that the foundation of Boston Properties ongoing revenues and cash flow is our contractual office lease book with an average lease length of approximately 8 years. One challenge with forecasting short-term revenue of our office leases is knowing the revenue recognition base on many of the newly signed leases. At the moment, we have over 500,000 square feet of sciences with annualized revenues of $37 million on spaces that we have delivered in sell condition and are being constructed by 10th. We are receiving cash rent for some of this phase, but not booking any GAAP revenue. So it's not "occupied" yet.
As Owen mentioned, construction has been shut down in New York and Boston and San Francisco and we don't have clarity on when local authorities will allow a restart. How long it might be before contractors can fully mobilize on in-service asset and equipment job and most importantly, when those tenants will complete their work and we could commence revenue recognition. So again, on an annualized basis, about $37 million of uncertainty there.
Our current baseline office revenue for 2020 assumes virtually no additional leasing other than the volumes I described earlier, the deals we're working on and no contribution from this 500,000 square feet of space that have been delivered in sell condition. Occupancy at year-end is assumed to be modestly lower than our current level.
The revenue fixtures including annualized contribution from properties that were brought into service in '19, as well 8 months of contribution from 1750 in Reston, the baseline consolidated office rental revenue contribution including our share and consolidated JVs is approximately $2.683 billion. So 2020 is about 1% higher than 2019 that's sort of our baseline building block for the company's revenues.
Okay, so that's the office side.
After breaking out financial institutions, telecom and technology tenants with the retail operations, our remaining retail exposure is about $144 million annually and $108 million for the remainder of 2020. This is made up of 275 tenants with more than 40% of the revenue in the fast casual and sit down restaurants sectors. Logically, we have a lot of urban buildings with street level retail and the majority of that is in food services.
In April, we collected 23% of rent from its [men's ] [ph] retail group, again, this is after having broken out all the banks and the telecom and the technology companies aka the Apples and the Microsofts, the Verizons and AT&Ts. So with that group of tenants where we collected the 23% of rent, we have an accrued rent current balance of about $30 million for those retail spaces.
Now if you add back all the other retail categories, our collections jumps to somewhere between 35% and 40% depending upon the day we collected some more money yesterday. We are working proactively with many of these tenants on lease modifications to ensure their continued operation when we get back to the new normal.
We also earned percentage rent in some of the clock leases that we have with high performing tenants. We don't expect to receive any percentage rent in 2020. Okay, so I talked about office revenue, then I talked about retail revenue, next is parking.
Total parking revenue in 2019 was $113.5 million. We have two primary components of parking monthly passes and transient or hourly, daily parking revenue. Consolidated transient parking in 2019 totaled $40 million. In April and May with stay at home orders and business closures, we expect our transient income to be non-existent. Some of our monthly parking revenues are contractual agreements, investment leases, and some are at will individual agreements.
In the short-term, we have seen some monthly agreements cancelled as well. We don't know if the gradual build up of office occupants will coincide with a slow ramp up in transient parking and monthly parking or potentially a much more rapid increase as our customers choose to drive to work as opposed to take public transportation.
Our apartments, our apartment portfolio only contributed 35 million in consolidated revenue in '19. Again 1% of total lease revenue. Virtual leasing is occurring across the portfolio, but not at the pace of in-person leasing that we experienced in early 2020 or '19 and we are in the initial lease up of hub house and had hoped to commence leasing at Skyline in Oakland in May. Construction stoppage of those new developments will impact leasing and delay it and the additional contribution from this portfolio that we had expected in 2020.
Finally, we have one fully-owned hotel that contributed $14 million of net operating income in 2019. The hotel closed in early March and it's running at a monthly deficit. It's unclear when it will reopen. And what's the ramp up in business travel, leisure travel and tourism will be in 2020.
Mike will discuss our liquidity and capital commitments in a few minutes. But suffice it to say our development capital spend has slowed in New York, Boston and San Francisco. Construction activities have continued as Owen said in Greater Washington DC, albeit with significant health, safety precautions and intermittent work stoppages necessary to clean sites due to COVID-19 impacted workers.
So again, I think I've given you the building blocks, where you can pretty quickly come up with your own views on what you think the economic impacts will be of COVID-19 and provide yourselves with estimates for our earnings in 2020 should you choose to do so as well as give you a sense of the baseline for 2021.
I'm going to stop here and hand the call over to Mike who is in Medfield, Massachusetts, home of that famous Disney movie, The Computer Wore Tennis Shoes, put in 1969 starring Kurt Russell as a student at Medfield College. Mike take it away.
Thanks. Thanks, Doug.
I really thought you'd go with the Shaggy Dog. But I'm just happy to see that you're spending your time while at home, catching up on your Disney Classics.
Good morning, everybody. First we truly hope that all of you and your families are safe and healthy as we experienced this really tough time.
This morning I'm going to go through three topics. Our first quarter performance, more details on changes from our prior guidance and our balance sheet and access to liquidity.
We had a strong first quarter reporting FFO of $1.83 per share, which is $0.02 greater than the midpoint of our guidance are about $3 million. The office portfolio exceeded our assumptions by approximately $6 million or $0.03 per share. About $0.02 of this was from lower expenses, primarily utility due to the milder winter and lower R&M expense, and a $0.01 per share was from higher rental revenues. This was offset by $3 million of lost income related to the shelter in place orders from COVID-19 which impacted parking income by $2 million and caused us to close our Cambridge Hotel, costing us a $1 million compared to our budget for the quarter.
Doug did a great job describing our revenue profile. Our current exposure areas during this crisis are primarily retail parking, and our hotel, which as of the first quarter comprised 11% of our consolidated revenue for the first quarter.
To assist you with your model, I want to summarize what we expect the impact on our quarterly run rate will be from these exposure areas so you can get a sense of the change from our guidance last quarter. What is not clear is how long the shutdown of businesses will last. But this information will help you calculate the impact on us based on your own views.
Retail is about 7% of revenue. As Doug described there are segments of our retail portfolio with tenants that have justifiable financial needs were actively working on lease amendments. There are a number of alternative structures, but in most cases there will be a pause cash rent followed by a feature increase in rent, term or both.
The result will be the loss of near-term cash income. But a more modest impact on GAAP income as we straight line the rent for those tenants we believe will resume operations. We estimate the impact on our quarterly GAAP revenue related to our retail exposure will be $3 million to $5 million per quarter.
Parking is typically about 4% of our revenue or $28 million per quarter approximately $17 million of this is a mix of longer term corporate tenant leases and month-to-month leases, where today we've seen only modest impact. The remaining parking revenue is daily transients, which is more heavily impacted and totaled about $10 million per quarter.
Our hotel is currently closed, the negative quarterly impact to our FFOs is approximately $7 million versus our prior assumption.
With regard to office leasing, Doug also described the impact of the current environment on tour activity that is affecting the pace of new leases for vacant and expiring space. In addition, he described the construction delays are likely to impact our revenue recognition related to tenants who are currently building out space. We expect a reduction of $25 million to $35 million of revenue for the full year 2020. From a slowdown in the pace of new leasing, and TI construction delays combined. This is compared to our prior assumptions for 2020.
On the positive side, lower interest rates should result in reduced interest expense on our floating rate debt. The vast majority of our debt is fixed rate, but we have $750 million of floating rate corporate debt, and approximately $200 million in our share, the floating rate joint venture debt where interest is not being capitalized. The drop in one month LIBOR to approximately 50 basis points is expected to reduce our interest expense assumption, but $7 million to $10 million from our prior assumptions for the year.
These numbers do not include the risk of reserves we may take associated with the accrued rent for tenants where we may see a dramatic change in their business prospects or actual defaults we may encounter due to the economic impact of the environment our tenants face.
Hopefully, the information we provided on tenant collection, leasing and development provides perspective on the current impact of COVID-19 on our business. Overall, I would say we are fortunate. BXP was built to withstand such situations. We've always maintained a conservative balance sheet, a base of strong creditworthy tenant and an appropriate level of pre-leasing to mitigate development risk.
Given the uncertainty associated with the timing and pace of returning to work and the unknown depth of the economic recession we believe there are too many variables to provide prudent guidance for 2020 at this time. As a result, we are withdrawing our 2020 guidance and we will revisit this decision in future quarters as we develop more clarity on the economic trajectory of the pandemic.
I also want to remind you of the trend in our same property performance. In the first quarter, our same property NOI growth was up 4.8% over 2019, which was slightly better than our expectation. As we described last quarter, we have known move outs in the second quarter, including 250,000 square feet in Reston Town Center, and 85,000 square feet at the GM building. This combined with losses related to COVID-19 is expected to turn our same property NOI growth negative in the second quarter.
The last thing I want to cover is the strength of our balance sheet and our liquidity. As a core philosophy, we prepare our balance sheet to fund new investment in good times, but also to be ready from economic disruption so that we are not in a position to be forced to raise capital in a bad market.
As evidenced, we raised $2.2 billion of debt capital in 2019 to refinance our 2020 unsecured debt maturities and put cash on our balance sheet to fund our future development investments. We currently have $661 million of cash and $1.25 billion available under our line of credit. We also have $151 million from the sale of our [indiscernible] properties sitting in 1031 escrow account. So in aggregate, our current liquidity exceeds $2 billion.
We're also working on the disposition that Owen described it can raise another $250 million. And our external funding needs for the rest of 2020 include approximately $500 million for development that we currently have in our pipeline and $130 million for the land acquisition in 4th and Harrison in San Francisco that we expect to fund with the 1031 escrow account.
Our 2020 debt maturities are modest, with only $200 million representing our share of five joint venture mortgages that we expect to have extend or refinance. Our next sizable debt maturity is not until May of 2021. When we have $850 million of unsecured bonds expiring that have a GAAP interest rate of 4.3%. The investment grade unsecured bond market has been one of the most resilient capital markets during this crisis. The market has remained open throughout providing liquidity to corporates. And while 10-year credit spreads for us widened from the low 100s pre-crisis to a wide point about 400 basis points. They have now settled down into the high 200s. Based upon where treasuries are today, we could price the 10-year bond at under 3.5% still near historic lows and lower than the yield on a 10-year bond we issued in mid-2019. We will continue to monitor the market and the potential to layer in additional liquidity in 2020.
In conclusion, I want to reiterate that while we are certainly not immune to the economic impacts of COVID-19, office rents comprised 86% of our total revenues and come from an array of mature primarily credit companies with long-term leases in diverse industry groups. April collections from these clients exceeded 95%. And our balance sheet liquidity and access to capital remain a strength of the company providing us with comfort and our ability to ride out a challenging time period and to be ready for opportunistic investment when the clouds clear.
Thank you. That completes our formal remarks. Operator, can you open the line for Q&A?
[Operator Instructions] Your first question comes from the line of Jamie Feldman with Bank of America.
Great. Thank you and we appreciate all the detail and thoughts. I guess just to start out, as you think about, you could see more reserves going forward, you could see tenant bankruptcies going forward, you pulled your guidance. Just how do you think about how long your tenants that kind of are on that list, that watchlist can make it before you really do start to see the wave of or I shouldn't say wave but maybe just to pick up in bankruptcy volumes and greater reserves on your end.
So Jamie, this is Doug. I think that we are not sanguine about what's likely to happen. We do expect there to be some amount of restructuring going on with some of the tenants that I described. But we also think that the office space that they have in our locations may be critical to their ongoing restructuring to the extent that they're able to do that, and so we think we're going to see some of this over the next couple of months or quarters as people understand the severity of the situation. But it's hard for us to tell you one way or another whether particular tenants restructuring is going to involve a major disruption in their use of office space at this point because they are using it although everyone is effectively done the shelter and space -- shelter in place workflows and so they're not currently using that space today, but we expect they'll go back to it.
And then what about the retail side?
So our retail side is, I would say in terms of where we collected or we haven't collected. Again, we have an awful lot of service and/or restaurants that are sit down or fast, casual. And we recognize that that's going to be a slow come back. And so we are really trying to work thoughtfully and constructively with those organizations to make sure that we are not the problem that that puts them into a more difficult financial situation. And I think that our locations, from a business perspective are good ones for those businesses where they were doing very well. And I think it's a question of how long it's going to be before people get comfortable going back and being in more crowded areas with regards to eating and getting takeout.
And so I think it's going to be a longer road for those companies to figure out whether or not their businesses are going to be "sustainable" indoor, they're going to just sort of decided it's not good enough for them to move forward. But, again, we're having very constructive conversations with those operators and where we know that they -- in almost every case they want to come back.
Okay. That's helpful. And then, I guess, second for me, Owen, you had commented on initially, you think tenants come back with much less dense layouts? Can you just provide more color on the conversations you're having in terms of the amount of space that they do feel like they will need per employee? And just, it seems like the pendulum has gone too far here in density, just what the initial discussions are on that and even from work from home on the longer term.
Yes. So, Jamie, I think there's speculation in some of that question. And the way I tried to focus my remarks is, acknowledge the questions out there and then focus on what we know today. And I do think there's some short-term and long-term answers.
So first, on the densification. Social distancing is going to continue in our core markets even after we go back to work. So employees are going to have to work plus minus six feet apart. So even in our own workspaces, we're looking at that and trying to figure out how we're going to configure space, or how we're going to have our workers come to the office such that that distancing can be accomplished.
And, again, I think it will be early days, I think both landlords and customers are figuring this out right now, because the return to work is happening. But we've seen some customers literally just going to going to take out chairs, they're not going to rebuild their space, they're going to take out chairs, or in some cases, they may take more space, or figure out temporary issues.
So that's what we know today. Longer term assuming that the virus goes away, we get a vaccine and we're in a real post-pandemic period. My guess is the six foot distancing won't be as important. They'll always be sensitivity to the virus into help. I think everyone's focused on health security will be greater, but I doubt that six foot social distancing requirement will remain. And but I don't think that in general, companies are going to be seeking to densify further from where they were in February of 2020. And frankly, as we've said on these calls before, we thought that trend was sort of sliding anyway.
And I think your last question was on the work from home and what impact that's going to have? Again, we don't know there's lots of speculation about it. I think there's no doubt that we all are better at it. We have the tools, we understand its value. But I also don't think there's any doubt that every -- anecdotally, all of whom I speak with want to go back to their office. They miss the efficiency of it, the camaraderie of it. So I don't certainly don't think that the need for office space is going to go away.
But I do think that work from home is going to accelerate a trend, maybe you won't travel to that next meeting, if you can do it on Zoom. If someone needs to work from home for a personal reason, or otherwise, one day a week, that's now going to be easier to accomplish. So I think there'll be some trends like that as opposed to wholesale changes in office demand.
Okay. But you're not really having those initial discussions yet with tenants in terms of how they're thinking about the world. It's just too early, it's my guess.
Well, the short-term is one we're having that now. That's why broken into -- we absolutely know of customers that are taking out the Boston Properties and taking out [lease] [ph]. And we also are having, not a tremendous number at this point. But we are having conversations with customers that want more space to deal with distances. So we know that.
And Jamie, we've had conversations with some of our technology tenants, and there is no question that the technology tenants are looking to increase the amount of space per employee. And they're clearly thinking about reducing the "areas of collaboration" and increasing what you would refer to as personal space.
My own personal view is, there is a short-term issue and then there's a much longer term issue. I think the longer term issue is, it is less of a concern because I do believe that there -- once we get through this particular virus, people will get back, could be comfortable, not wearing masks in their offices and being able to be in close proximity to each other. But I think that the -- what this crisis has created is a realization that you have to be prepared for something like this happening in the future. And so I think that will impact densities in a more meaningful way because I think people are going to look and say, okay, I know that we don't have any problems now, but what if we get another one of these kinds of problems? We want to be positioned to be able to recover much more quickly from it.
And your next question is from Vikram Malhotra with Morgan Stanley.
Thanks for taking the questions. And again, thanks for all the details "coordination." Maybe just going back to one of the original comments, which talked about certain markets and sectors will probably do better than others. I think tech and government were mentioned. I know why it's hard to comment on kind of rent growth, how they will trend, maybe give us some relative color. Just thoughts on how you view your markets on a relative basis today from a rent growth and a value perspective?
Yes. I think -- Vikram, it's Owen. That's hard to rank them up based on a future state that depending on a lot of different factors that I outlined in my remark. But I do think as you suggest that I think it is instructive to look at each region and understand what the industry drivers are for demand in those regions. And as I suggested in my remarks, I do think there are industries like life science, like technology, like government that will likely outperform because they either been enhanced or not nearly as heavily impacted by this crisis.
In the converse, it's also true. There are industries like energy, like travel, like retail that I think are more heavily impacted. And I think those cities that have higher and lower percentages of those industries, I think that's going to be instructive to think about how the office markets are going to perform over time.
Doug, [indiscernible] more you'd like to add?
Yes. I would just add that you do have to look at the current condition of those markets from a supply perspective as well. And so markets like San Francisco and Boston and Cambridge, which are obviously very tight today will have less of that -- there'll be less of an impact relative to the recession than a market like CBD Washington DC from a real estate perspective.
On the other hand, people typically look at Washington DC as a better market from a demand perspective during a recession. And it'll be interesting to see whether or not the government reaction to what has been going on will be to invest in infrastructure that will be helpful to the United States and the world going forward. And that would mean office space and job growth. And the question is where might that be if it's in the Washington DC area. But I will tell you that we continue to get inquiries from both technology and life science companies and interestingly in Reston, and in Boston, and in -- to some degrees in the Silicon Valley about additional space requirements, none of them moving quickly. But there are tenants that are thinking about growth.
At the same time, there are also tenants that are in the "New Age economies" like, in the travel industry or in the food industry that are that were "Techno" technology-oriented companies that are obviously going in the other direction based upon their industry sectors.
That's really helpful. And then just maybe building on the inquiries. Can you maybe give us a bit more granular color on the kind of development pipelines, that leads up trajectory from here and given the inquiries, can you maybe give us some color on -- how you were thinking about sort of new starts just prior to this. And what we should be kind of viewing as we think about 2021 and '22 as well.
Let me answer the first question and then Owen, you can take the second, I'll just give the specifics. So in our existing development platforms, the only place where we have "available space" today of any significance is at Dock 72, which is in the Brooklyn Navy Yard. And if you've noticed our supplemental, our occupancy was down in Reston because Fannie Mae gave us back a couple of floors. Interestingly, we are in lease negotiations for a tenant who would take that space plus virtually all of the remaining portions of Reston Mex. So aside from that, the only other exposure we have is in our CityPoint property, where we have two floors or 60,000 square feet of space. So our existing development pipeline is basically full or close to committed other than Dock 72.
Yes. And then, Vikram, just to add to that to think going forward, there are three projects that I would mention. And I would just say, as I mentioned in my remarks as an overlay, understandably, given the crisis, we're much more reluctant to take speculative development risk. And so when you look at our pipeline, on the last quarter call, we mentioned two projects 4th and Harrison and our Platform 16 project in San Jose, that we were considering launching, at least in the case of Platform 16 first phase without tenant. And we put that on pause, because we want to see how this marketplace unfold before advancing either one of those projects further. We are going to buy the site under 4th and Harrison, we have all the plans and the entitlement for the first phase. We own the land under Platform 16, we're ready to go, but we're going to wait for -- in this market environment significant pre-lease.
The other project that I'm sure someone's going to ask about is 3 Hudson Boulevard in New York City. And that, I would say hasn't changed that as much because we've been saying on that project, we needed a significant pre-lease to go forward. And that continues to be the case.
Your next question comes from the line of Steve Sakwa with Evercore ISI.
Thanks. Good morning. I guess first as it relates to co-working, I realize it's not a big -- it's not necessarily a big part of the portfolio. But could you just maybe speak to co-working in general and how you guys are sort of thinking about that in the marketplace, the space that could come back into the market, the impact that could have on some of your key gateway markets.
Owen, you want to go first?
Yes. Sure. I think Steve, sorry, we're in a different location. So I didn't know whether Doug or I going to address this. So look, I think there's no doubt that this environment is challenging for co-working. And because, there was always a debate before the crisis about how well co-working would withstand an economic recession. But what none of us really thought about was how would co-working performed not only in economic recession, but a recession that required social distancing, which is certainly counter to the approach of co-working. So I don't think there's any doubt that it's a going to be a challenged industry during the term of this recession. That being said, I do think long-term there is a role and a place for shared workspace in the real estate market.
There are individual small company that like the flexibility and the speed to market of that product. I don't think that's going to go away. And I think there are cuts, there are enterprise customers, larger companies that will continue to want to procure a small percentage of their space on a short-term basis. So I don't think those demand drivers are going to go away. So I think that the industry over the long-term will still be around. But in the short-term, it's challenged and clearly there is limited growth, probably contraction, amongst the co-working operators. And there may be some consolidation in the sector, and it's not going to be a source of net absorption for the office markets for the foreseeable future.
And Steve, relative to supply, I think it's a fair question. There's no question that some of the operators are probably going to reduce the number of locations that they currently have leases to. And as you know, they have the ability to do that relative to "leaving" their LLCs out there and continuing to operate their "overall mothership". And that space, in many cases is probably not, as it's currently configured very amenable to a new installation. Now, that doesn't mean that it can't be retro fitted, with the reasonable amounts of capital put into it to make it very functional.
But the landlords are going to have to make those decisions as to whether or not they want to spend the money to redo those types of spaces because obviously, they were constructed from a different kind of a utility. And so I do think that there will be some of that space in the major markets that will come back and that we will have to deal with that from a supply perspective. The good news is that I think we've talked about in the past.
In markets like Boston and San Francisco, the relative amount of that stuff, compared to the total overall market wasn't that great, because the markets were so tight. I think New York City obviously is going to have more of an issue with the number of installations that are there. And then, clearly, some of the other markets where the co-working flexibility as operators have had a larger proportion of the absorption are going to have some impact.
Okay. And just maybe as a follow up on that, to the extent that you did get back into co-working space, would it be your, I guess, intention to sort of reconfigure it into sort of, the flex by BXP product, or do you think you'd have to sort of reconvert it to just traditional office space and release it in the market?
I think it'll depend on what it is and where it is and if in fact, we were in a position where we get some of those spaces back. I mean, we're relatively little exposure and the spaces that we do have are relatively small, there's sort of a floor here and a floor there. So we feel like we'll be able to adjust appropriately, I will tell you that today, I'm not entirely sure what the right configuration for a new floor space and we're going have to figure that out as time goes on based upon the way the customers are looking at what they want and what they need. And so we would be probably somewhat reluctant to take one of these spaces back and just and got it and put it into "selected" by BXP configuration in the short-term.
Okay. And then just one question for Mike, I guess on the -- thanks for laying out some of the retail that you talked about and some of the troubled operators to guard. I'm just curious to the extent that you're restructuring leases, I mean, how are you thinking about -- sort of thinking about what the right sales levels are for these restaurants or other retailers? And are you structuring these more as percentage rent deals? So the new benefit is sales improved for them? Or are you trying to just recut sales at a much lower level? And we reset pace rents? I'm just curious how you guys are sort of thinking about the impact of the retailers and what sort of flexibility they have on new lease terms going forward?
Yes. So Steve, this is Doug. So the only company's work that we're having those types of conversations with are the food service operations, we're not having that conversation with Sephora or with a BonoBos or any of that sort of whatever sort of soft food retailers. With regards to our restaurant retailers, we think that making sure that they are not overpaying when they start to operate makes a lot of sense. And so we are orienting our deals into percentage rent types of clauses for periods of time, with an expectation that should feel good to certain levels, we'll start to get paid back.
Your next question comes from the line of Craig Mailman with KeyBanc Capital Markets.
Hey guys. Just circling back to density. And I'm just curious kind of thoughts here as it relates to, maybe development, demand and pricing here, the ability to pack more people into less space clearly brought down occupancy cost and allowed a new supply some of these higher rents. So just curious what you think early thoughts and just the impact of that could be as you guys look to start either 4th and Harrison or Platform 16, how you go about designing and kind of coming to a potential yield.
I think it's too early to address that question. I think there are -- as I mentioned, there are a handful of places where we're talking to customers and responding to RFPs. For major requirements 4th and Harrison, 3 Hudson Boulevard are two examples. But I'm not aware that we have had those kinds of impacts in those discussion. So I think it's just too early to suggest that rents are less affordable because of less density. We certainly haven't seen that impact yet.
Okay. And then, I don't know if you guys have these figures handy, but I'm just curious in terms of your portfolio, specifically, kind of where average tenant densities have gone this cycle maybe knowing that you guys have more law firms in your portfolio that, just getting rid of law libraries would naturally brought down density anyway. Just curious is what you think maybe the impact could ultimately be on your portfolio knowing kind of where tenants are today?
So we actually did a study for our Board in the middle of last year. And it was, I think it was surprisingly interesting to see that while density has come down over time, it has not come down to nearly the extent that people thought it would come down. There are very different density levels for very different types of industries. And that the most interesting, I guess, realization that we came to, was that density is a definition that is hard to get your arms around because there are two different kinds of workers. There are people who you would refer to as traditional workers, who are people that are expected to "come to their space every day and work in the same space". And then there are, what you would refer to as dynamic workers, who are people who may not very frequently be in the office, or when they are in the office, they are using different kinds of spaces for different kinds of needs.
And so the real issue is going to be how and Owen talked about it earlier, as well as, some of the other questions that were raised, which is how does working from home and/or working remotely impact overall density, because our expectation is, there will actually be a lot more people who are assigned to a particular space, but the way the space is built out may be much more wide open, not in terms of open office. But in terms of giving people elbow room and that space will have a higher density of people who are using it in a different manner, not necessarily on a day to day to day basis. And so it's very hard to sort of understand how those relationships are going to work in the future.
But we can tell you that prior to COVID-19 we were seeing significant numbers of people that were assigned to spaces and that we're not using those spaces on a frequent basis, but that viewed themselves as having "office at a particular location."
I would summarize that by saying that and we were saying this before COVID-19, physical densification is was likely over before COVID-19 densification was coming from increases in occupancy. So I think that will accelerate, I think the physical densification can actually go in the other direction and get more spread out. And I do think they'll continue to be a focus on occupancy, which will be partially facilitated by all the work from home tools that we're all using.
That's helpful. Then, just one quick one for Mike. As we think about bad debt, you didn't really put a number out there. Just thoughts on where that could ratchet up this cycle. Maybe look at what happened to the financial crisis, and just any significant tenants going on non-accruals that we need to worry about with your cash accounting versus GAAP?
We do it on a tenant-by-tenant basis and in Doug's remarks, he really tried to provide some guideposts for those industries that we thought would potentially see more distress. I think Doug came up with accrued rent balances of somewhere in the low 40 million for kind of those areas that we focused on. So that's kind of the number that we're thinking about. I mean, at this point, it's kind of early to determine. Overall, we feel very, very good about the creditworthiness of the overall portfolio. And Doug tried to go through that and you look at the top tenants that we have, they're all very, very strong, again, mature, long-term companies, for the most part. That doesn't mean that something is not going to happen, right?
I mean, if you look at the last cycle, the last downturn, which was a different kind of downturn, certainly it was a financial downturn. And I think the financial community is in much better shape this time. But we didn't get credit losses from places that, you wouldn't have necessarily expected, like Lehman Brothers, for example. But, overall, I think we are well positioned. And there's just a few areas where we're monitoring closely. And we wanted to give you that insight that was the whole purpose of providing you some of those numbers to give you some insight.
Your next question comes from the line of Rich Anderson with SMBC.
Thanks. Good morning. Just on further on that one, Mike. The 40 million accrued rent balance that Doug kind of went through in the office space and then you had this $25 million to $35 million, his range for the office sector that you went through, is that incremental to the starting point, I'm just trying to reconcile those two observations.
So I mean, they are separate, because the $25 million to $35 million that I described is basically a reduction of revenue from last quarter's guidance that we gave you that we think we are likely to have because the pace of leasing is slower. So, we expected to have tenants coming in either vacant space, or expiring space where no tenants are leaving, we may have expected those spaces to be filled and starting revenue in 2020. And with what's going on and the lack of ability to kind of do tours and our expectation is a lot of stuff's going to be pushed off. I think it will still be leased, but it may not occur till 2021.
And then, from a TI perspective, we have a 30 to 90-day disruption of construction on tenants that we have to wait until they complete their spaces. Until we can start revenue, we've got to push those dates out. So many of those tenants were expected to complete their work at the end of the year, and now they're getting pushed down in 2021. So that was really the $25 million to $35 million, whereas the accrued rent is basically a separate item that at this point, we are comfortable with where our accrued balance is on our balance sheet. But as I said, we're monitoring certain industry sectors that we think are a little bit more exposed.
Okay, got it. Thanks. When you think about the development pipeline Dock 72 was mentioned earlier, but are there any in your in the pipeline that you look at that maybe not right now, but perhaps down the road if this thing drags out for any length of time that just fundamentally won't work and then you could be looking at like a stoppage and an exit from a project down the road, or do you feel like everything you got on the Dock right now eventually in some way, shape or form will restart depending on how long this thing lasts?
We are highly confident that that the developments that we have underway in the Northern Virginia and Maryland marketplaces and in the Greater Boston marketplaces with the credits that we have in place are going to be finished and those tenants are going to continue to pay rent. Obviously, they haven't started their built out of their tenant improvement.
Construction, yes, so it may very well be that the way they approach their installation of their own spaces, it is going to change. So the use doesn't work. I'm not sure how you're referring to. From a financial perspective they're going to work. From how they're building out space, I would expect that there will be lessons learned and there will be a pause and a review of those types of improvements so that they can make sure that they're prepared for today as well as tomorrow. But we have no concerns relative to the financial feasibility of the tenants that we have entered into leases with for any other developments.
Okay, great.
And also, just I think part of your question was about the prospective pipeline. As I described, we're suspending significant investments in the future pipeline, unless we get a material pre-lease, such that the project would have the same characteristics that Doug described, so they would have been, quote, the risk. Now we do have a very significant land bank of over 10 million fee. And as we've described before, we control a lot of that land not through -- not in all cases, but we try to minimize our cash investment in that portfolio and try to control it more through options or covered land play.
So, I don't think we can at this stage piece through every one of those projects and tell you, yes, this is viable, this is not. Bu, again, I remain optimistic about the long-term, this recession, we will work through it. And my guess is these projects will be viable in the future. Again, they're subject to entitlement planning and pre-leasing.
Okay. Last question for me, the world famous NOI bridge over the past several years. And I'm wondering, do you feel like you kind of just got under the wire there in terms of completing that or will there be some lingering issues perhaps at 399 Park where that might get kicked down a little bit longer? Or do you feel like you kind of got that pretty much buttoned up the nine assets.
Every single space and every single one of those leases is done. And the only question we have in front of us is when the tenants on some of the spaces will actually be occupying their space or having completed their TIs. So that from a revenue recognition perspective, we will have be able to start booking the rent.
Interestingly, we will -- in many cases, we will start to see -- we may actually start to see cash rent like we are now in certain cases prior to when that case is done. So, from an economic perspective, we are two years past those issues.
Your next question comes from the line of Alexandra Goldfarb with Piper Sandler.
Hey, good morning. So, a few questions first, Doug, in response to your development question on you specifically said Maryland. So I assume that you're comfortable with Marriott and taking their development headquarters in Bethesda. But maybe you could talk a little bit about Under Armour. I don't know if that, if that's part of the 40 million rent accrual. But, is that lease of the GM, is that one of the leases that within discussions for restructuring or, as far as you guys are aware they are current on their expectations to start paying cash rent at the end of the year.
So, we have not added any additional conversations with Under Armour since their last quarterly call. And well, our expectation is that, obviously they're not -- there's no cash rent right now. So there is no "collection issue". And we fully expect that they will continue to be a thriving retailer and we'll be in a position to live up to all their commitments.
Okay. The second question is from Mike LaBelle. Mike, you guys, you walk through guidance, and you walk through all the variables and why you guys chose to rescind it. At the same time, if we look at your development spending and the fact that you only drew a little bit on your line of credit, it seems that you have a lot more confidence in your ability to fund development and the credit market versus the variability in the income statements. So maybe you could just sort of juxtapose that because a lot of companies are seeming very cautious on their balance sheet in light of COVID, whereas you guys seem to have a lot more confidence in your balance sheet. And your funding is not needing to draw downs heavily have a line of credit, versus the variables that you outlined on rent collection.
Alex, I think, as I said, we feel like we entered this period of time in great shape from a balance sheet perspective. Because we raised a lot of capital last year, that doesn't mean that we're not going to continue to think about ways to raise capital, because in periods like this, I don't think you can have too much cash per se. So, we're going to be evaluating all the thing to make sure that we have as much liquidity as possible to go get through this event and then be ready for whatever happens on the other side.
I mean, there was talk a minute ago about development starts and whether we would start developments during a recession or after a recession. And if you look at our history, our history is that we don't really start a lot of developments in a recessionary environment that we hold those land parcel we think -- till things improve, but there's other opportunities for the company to invest capital in because there's certain situations where we can be opportunistic.
So I think we want to make sure that we have capital available for that. We feel really good about where we are, and feel really good about our access. So we're quite pleased with our partners that work with us on those things.
This is Doug. You shouldn't construe our decision not to provide guidance, with any discomfort with our income, and our receipt of cash and our ability -- our abilities to forecast. You should look at it as the following. In a traditional, non-COVID-19 environment, we would be giving guidance that has a pretty tight range. And the things that we would be thinking about on the margin are, are we going to be able to lease a little bit more space this quarter or this year, when the seven or eight projects that we have under construction going to be completed? And when can we start recognizing the revenue? How many of the renewal conversations that are currently in place are going to happen in this month versus next month, so we can start recognizing the accrued rent balance increase or things like that, right? Those are the kinds of things we sort of deal with when we're coming up with our numbers. We're not dealing with -- we had $40 million of transients -- parking revenue. And in the month of April and May it went to negligible numbers because people were told they weren't allowed to go to work. Or we had a hotel that was operating instead of that $14 million, $13 million or $12 million and suddenly we closed the hotel, right? So the economic uncertainties associated with what's going on, or what is giving us pause to provide, "a guidance level." And I don't think you should consider that is any reflection on our comfort level with our income on a relative basis relative to our balance sheet. So we're -- those are sort of two discrete issues.
Okay. Thank you.
And I would add to Doug's point. The other thing I was trying to make the point in my remarks, the future is also science driven. There's rumors about a new therapy or drug for COVID-19 and markets rally and everyone gets excited. And then there's new news, but it didn't work. They're factors that are going to drive the economic outcome that are not economically driven, they're science driven and they're harder for us to estimate the timing and the impact. So that was certainly the driver of the decision.
Your next question comes from the line of Derek Johnston with Deutsche Bank.
Hi, everyone. Thank you. So what are some of the increased expenses, including new technology systems that you expect to incur from let's say, new practices or procedures, that you're putting in place to fully reopen? Can you share any details on these expenses and systems and any options to reduce G&A and potentially offset?
So, this is Doug. Let me just give you comments. So much of what we are going to be doing are going to be standard operating procedures and uses of different materials and different processes, in accessing and cleaning our buildings and moving air around our buildings. The vast majority of that will be showing up in changes to operating the expenses.
And so there's not a lot of "new technology" associated with that. But the one area that we're considering and we haven't made final decisions on are temperature checks and effectively thermal screening. And again, those are -- that is not a high tech instrument at the moment, we're not looking at doing thermal screenings relative to having the types of screens that you're seeing in airports in China and things like that, because quite frankly, they're not available. And the technology's not at a point where we're comfortable laying it out.
So I think in the short-term, the cost increases will go -- will be seen in our operating expense side of our income statement, not on the CapEx side of it. And we have to be thoughtful about making sure we're doing the right amount of health, safety work and not be so concerned about dollar cost until we're really satisfied that we're giving people the best possible environment to work in.
They're also held in, as you suggested in your question, operating expense saving during a crisis because obviously the buildings are less occupied. So tower users just down, certain tenants wanted to have less janitorial so that expenses down. So there have been some savings that have occurred on the OpEx related to the lower occupancy.
Okay, great. And can you comment on your pipeline how it looks today versus how it looks pre-COVID, do you believe that demand will return to previous levels maybe late in 2020 or, tended to be pushed out to 2021 or is it still may be a disconnect?
As I discussed in my remarks that -- when I assume when you say demand, you talk about leasing. Since the crisis started, as I mentioned, new requirements, other than a handful of developments that we're working on are few and far between very limited tour activity. We are having success completing leases that work underway before the pandemic. So, I think for leasing volumes to return, you have to decide what economic scenario is going to unfold over the next year. So I've described three in my remark, the base case being we have a slow return to work over the next couple of months, and then there's some kind of medical solution or some kind of solution where people feel safe by 2021. And I think if the safety occurred, yes, I think we can go back to a pre-pandemic level of leasing sometime next year. But, there are other outcomes that could slow that down or speed it up.
And in the financial projections that I went over what was the assumption that we made was that we were not going to be doing any additional incremental leasing in 2020. So that can sort of give you a baseline on that number relevant to '19 and then obviously, to the extent that we're increasing occupancy in 2021. And then, you can make an assumption for what that means from a revenue perspective. But look, the fact of the matter is, as Owen said, physical tour activity is non-existent today. There's a little bit of virtual leasing that's going on and that just means everything's going to get postponed, right?
But there are lease explorations in the marketplace to happen every single year. And those lease expirations are going to require leasing activity be a renewals or be a moves to different locations. Again, as Owen described, that may be very possible that if we're in a recession, many companies will say, I'd rather not spend the money on the new installation. I'm not entirely sure what that new installation should look like. And I'm just going to renew for a year or two years or three years or something short-term. So it's hard to say how that leasing activity will manifest itself, but it will happen.
Your next question comes from the line of Manny Korchman with Citi.
Hey, it's Michael Bilerman here with Manny. I had a few topics that I wanted to go over the first, Owen in your comments, you talked about looking at potential acquisitions and maybe setting planting some seeds today to look at something maybe down the road. And you also commented about reset pricing referring to deal that happened pre-COVID and when sellers need to reset their expectations?
So you clearly were active post the GFC, think about the GM building, Macklowe portfolio that you purchased. What do you need to see to become aggressive, right? So what are the goalposts from a pricing perspective? What do you need to see in the market to actually go out and try to transact? And how active are you doing that today?
Yes. So I would say that, in general, we are going into a recession and that usually creates, as I mentioned in my remarks, reductions in rents and reductions in values for certain types of buildings. We do have a lot lower interest rate, which is very helpful. So I do think that it's likely that as a result of this crisis, we will identify an interesting acquisition opportunity as a result.
So your question on timing today is too early. This just started six weeks ago. There's a period of time where that -- where the market needs to settle and new pricing needs to be established. So we are simply staying in the market, making sure we understand what's going on, trying to understand any new leases that gets done, whereas the rental rate, those types of things. But I think our desire to pursue something is months away.
I think the drivers of it Michael will be first, which of those economic scenarios that I described in my opening remarks. When do we know which one of those we're on, because that's going to have a big impact on how this recovery goes. So we're going to want some more clarity on that. And then second, I think it would be helpful to have some new leasing activity and maybe some other transaction activity so we understand valuation. But we think they're going to be interesting opportunities and we want to be well prepared for that.
You talked a little bit about, the different sectors that are getting impacted by this energy and oil being one of them. Number of your partners that you have in from a joint venture perspective highly tied to the oil market in terms of their wealth and their denominator effect, obviously, is taking a pretty big hit. How do you sort of see those sovereigns acting in this, does that provide you opportunities to buy back stakes in your existing ventures at attractive pricing, if they need to liquidity? Will there be other sort of distressed sellers coming out of this, where you may not have all the answers to how everything is going to transpire. But you do have capital and history where you may want to act before you have everything in place because by the way, once everything is known, the markets already corrected.
Yes. Look, I agree with your last statement is, you can't wait for it to be perfect because it's too late. Look, I think your question on different investors and what their behavior will be during this crisis is very case specific. As you said, there are certain sovereign investors that are driven by oil revenues. And my guess is that will have some bearing on their appetite to do new business or maybe even to change the composition to their portfolios. We don't know the answer to that.
I think another factor is, how is the -- what is the performance? What did that sovereign invest in? What did that portfolio look like? How is it performed? And how does that affect the appetite of that investor for further investment? I think that's part of it. As I mentioned in my remarks, we are staying active in the private equity market talking to major investors and understanding their interest level and I would say it before, the most part, there is still enthusiasm for investing in U.S. real estate and an appreciation for the dynamics of the market and the opportunities that are going to result. So, obviously not a lot of deals are getting done right now. So these investors haven't been able to demonstrate from -- in terms of writing checks, their desire to do this, but there's certainly a lot of enthusiasm and interest in pursuing the opportunities as they arrive.
And the second topic is, just going back to the whole office utilization. And I appreciate the fact that you split it into both the near term, which is clearly impacted by a recessionary environment as well as the social distancing aspects and more of a longer term. And so I wanted to focus in on the longer term where I think you've talked about that there -- you don't anticipate a wholesale change in the way office demand is going to be used. And I understand that from a Boston Properties perspective, your portfolio is very high quality and on a relative basis, you should fare better given the investments that you're making, all the air quality and space and management of your buildings. But putting that part aside, really just trying to understand the dynamics from an office utilization perspective, you have 100% of corporate America that is going through this trial and experiment of having people work from home.
And I would think that coming out of it that we're not going to go back to 100%, of office normalcy, that there could be some levels of more willingness to have people in remote locations. So incremental net hiring will not translate into the same level of square footage per employee. Again, post-COVID, right, where we're not having social distancing. Just a level of willingness and then maybe there's more satellite offices because you realize you can get good employees that can be productive, not have the time -- not have the cost of commute or the time to commute. Maybe we'll take care of and have more childcare and things like that. I don't see why there wouldn't be a wholesale change in the way office is being used in the future.
Yes. Michael, I would address your question in the following manner in terms of thinking about the future. First question is, are we in markets where there are industries that are growing, is that the most important thing that the customers are growing their businesses and they are need -- they're going to hire new people and they need more space. So I think that the key driver number one.
Number two, what's the densification of the build out? And I firmly believe that the desertification I frankly, we thought it was over before the crisis. We thought occupancies were going up but physical densification was stopped. I think there's no doubt that densification is going to go in the other direction as a result of this crisis and as a result of some frustration some of our customers were having with their debt environments, even before the crisis. So I think that's a change.
And then the third is, what you're talking about, which is work from home and the ability for companies or groups within companies to work together in remote location. And look, I agree with you, I think that we've all gotten better at it, we understand the power of the tool. And I think we also understand what's not great about it in terms of being with colleague? Can you really manage and lead an organization or a group remotely over the long term? Can a company build culture by not being in person over the long-term? Is it really more efficient for everyone to be working remotely? I think these are the questions that business leaders are going to have to answer for themselves as they work through the question that you postulate.
So I'm not saying things aren't going to change, things always change in real estate and in the use of office buildings. But again, I think the viability of the office is not questioned, by what we're experiencing.
Okay. And then just on a short-term basis, if you looked at the square foot per employee, for your footprint today, when you impose the social distancing in that environment, what percentage of the workforces could come back, right? So do you believe in the current construct that with a six foot social distance in use of the assets that your current tenants can only bring back let's say, 50% of the employees and amount to it, or is it 75? Or is it only 25? Where I guess in your planning, what percentage of employees could come back and still be safe?
I think that is hard to answer, Michael because it is highly dependent on the physical workspace that a customer is in. I mean, we've got some customers that are primarily in individual offices and they don't have to adjust at all. And there are others that are in bench seating and packed in at 100 square feet per person or less So, I can't give you a finite number answer to that question.
Okay. Thank you.
Okay. No, I can't give a final answer. I can tell you that the issues with people's installations, our customers installations are not necessarily contained just in where their physical sitting, their seat is, right? How is the space set up? And are there, how do you provide services, how do you deal with bathrooms, all the other sort of ancillary areas which are the things that we're thinking about. And so I think it's going to be a little bit of a test case. And people are going to sort of figure it out as they go. And I would expect people will have the operating with an abundance of caution. And so they will make sure that they don't put themselves in situations where lots of people are congregating in enclosed small areas. And so to the extent that there are concerns about that, that will limit the number of people who are coming back at any one particular time not necessarily during a day, but you may see people elongating the work hour and the work day and/or asking people to come in at different hours, not necessarily moving, from floor to floor, if at all possible. And there are all kinds of operating procedures that I expect people and businesses will create to allow people to come back feel comfortable, most importantly and safe, where they are and get accustomed to the situation where until, again, there's a medical treatment and/or vaccine puts people in a much better and healthy perspective.
That's helpful. If I can just sneak one quickly from LaBelle just in terms of the financing side of it from a non-guidance perspective, or you -- should we expect an unsecured -- a large unsecured debt offering to take out the 2021 bonds and also build up additional cash liquidity? And would you have a sense of timing? You talked a bit about sort of where rates are, so I didn't know if you're sort of tipping your hand a little bit to doing an unsecured debt issuance from that.
Michael, we're always as you know almost every year we're looking ahead to deal with our debt maturities before they happen. So this year is no different than that. We do think about what the volatility in the markets might be depending on different outcomes with respect to the economic environment. And the COVID-19 virus, if you get bad news, what's it going to do with the bond market? What does that mean? So, we're always thinking about those things. I can't say whether we're going to do any kind of capital raise or not.
But, it's not out of character for us in the back half of a year, if we have a debt maturity in the first half of the following year, to be starting to think about that and thinking about what windows of time in the market might make sense.
Your next question comes from the line of Blaine Heck with Wells Fargo.
Great. Thanks. Good morning. Clearly, there's a more cautious stance emerging on the development side of things, land values are typically the first to decline in these situations. Do you guys have any sort of thoughts on the magnitude of that decrease in land values? And do you think there'll be any opportunity throughout this crisis to find land sites that significant discounts that maybe you didn't want to reach for in the last few years to kind of lengthen that potential development runway as we come out of this? Or, is your focus mainly going to be on more of the existing buildings, whether they be stabilize the value-add?
I think you're right. I think the land values used in a downturn get impacted more negatively than building, understandably, they don't generate cash flow. And it is a possibility, that there may be a site that we identify at an attractive price during this downturn. So I think most of the remarks I've made about chasing new opportunities that cycle were more directed at existing buildings, which is something that as you know, we've been more reluctant to do in the up market. So that could be a switch. But yes, we will be looking at sites as well.
In many specific markets that you guys might be targeting?
Well, we -- I think the opportunities for new investment, whether they be site or what I'd call bottom up. They're very opportunity specific. What is the building? What is the opportunity? What is the insight that we have? What is the relationship we have with the seller, those tend to drive the decisions as much as anything. But as, from our development pipeline and the deals that we've done, pre-pandemic, we have been focusing on California, we have been focusing on Boston, and less so on New York and Washington DC. And pursuant to my remarks earlier, where we think the industry that are going to perform better are primarily government and maybe more importantly, life sciences and technology. I think that when we would have more confidence in them after the cycle that would probably dictate what areas would be of more interest to us on the margin.
All right, great. That's helpful. Then maybe for Doug. Can you just talk about the Fannie Mae situation? And how were they able to decrease their commitment to the rest in gateway development? Was that something you guys agreed on mutually just given some of the other activity you mentioned on that project? Or was there some sort of construction milestone maybe that wasn't met that opened up that optionality? Just any color on that situation would be helpful?
Sure. So the project is way ahead of schedule. And Fannie Mae when they negotiated their lease negotiated for the right to give back, 85,000 square feet of space, I think that's the right number. And so they had a contractual right. As part of their original lease discussion, interestingly, we're in conversations with another tenant who wants all of that space plus the remaining space in the building. And then, we're actually trying to figure out whether or not we'll have enough space to accommodate both Fannie Mae's growth in the future if they needed it as well as other tenants. And we're working actually, on those types of issues, as opposed to worrying about Fannie Mae not needing their space or having any outs in the lease. So there's actually a lot of positive things going on with it right now.
Yes. The other thing I would just say is, when you do a deal that size that was one of the largest non-government leases ever in the state of Virginia, but if you do a deal that size, it's not uncommon for the customer to have the right at some point during the development to give back or to take more space. It's usually -- obviously a small percentage of the total commitment, but it's not uncommon to provide that to a customer as they determine what their space needs are during the term of the development. So, just want to add that to Doug's remarks.
Yes. No, that makes sense. Are there any other situations where you have a tenant that is committed to space and either your development pipeline or maybe even signed leases that haven't commenced? And they have the optionality to either decrease or increase their requirements?
In our development pipeline there are no such requirements like that in our portfolio of 45 million square feet or in service properties, lots of tenants have contraction rights in their leases, based upon notice and timeframes. And those are just an ordinary course of business lease discussion that gets negotiated on a deal by deal basis.
Your next question comes from the line of John Kim with BMO Capital Markets.
Good morning. A number of companies in the media tech industries have already announced that employees are not coming back to work until at least September. I'm wondering if you're seeing this portfolio at all. And, whether or not it's September of earlier, do you anticipate more office tenants will be requesting either abatement [indiscernible] deferral?
So, that's a very broad question. I'll try and give a broad answer. In some of our markets, some of our tenants have made those types of, I guess releases and in other markets, we actually have tenants who are telling us that they're going to be coming back earlier than then we would have expected and we're actually making accommodations for them filling the buildings up before we are in a position where we can really roll out all the things that we would like to roll out. So it is very much a market by market determinant.
The concept of abatement or deferment really isn't the one that we're talking about with regards to office tenants, other than in a very unique situation where a particular customer has significant financial challenges at the moment and where we think it's constructive for us to be helpful.
I'm just wondering if that becomes the industry norm and a lot of companies not going back to the workplace in a five or six month timeframe. How many of them can actually stay current on the web?
Well, if they're not going back to the office and they're actually working, presumably they're working because they have revenues and/or business operations that would allow them to continue to work on a remote basis. So I'm not sure if it necessarily impacts their financial viability. Obviously, if it's a retail organization or a consumer product organization that would have a brick and mortar selling channel, that's a substantial amount of what they're doing. That's a different situation. But I'm not aware, for example, about a media company that's telling their people that they can't go back to work, they shouldn't go back to their office that that is not in a very strong revenue situation.
Okay. And the leases that you signed in April, were there any changes to the lease term, but it's the COVID-19 signed across any pandemic related clauses for instance?
So, to-date, we have not seen any COVID-19 clauses, we do expect that going forward, there will be a realization that this not unlike terrorism, risk insurance and issues associated with those types of problems will have to get addressed in leases and will have to figure out what the right industry mechanism for dealing with those that will be in and to-date it has not occurred.
Your next question comes from the line of Omotayo Okusanya with Mizuho.
Yes. Good morning. Just a couple of quick one, call is running long. This may not be on people's minds anymore, given everything that's happening with the pandemic, but any thoughts about the Prop 13 split roll now that we're getting closer and closer to the national elections.
Rob Pester, are you on the line?
Yes. I'm here. Yes, it will be on the ballot. The polling that we're seeing right now shows that it will not pass -- I think California per se people are tired of the increased taxes, so we don't see it passing.
Got you. That's helpful. And then, the other question I wanted to ask is, just on the accounting for the JV with Alexandria, could you walk us through with the 50% ownership? Are you going to consolidate that, is Alexandria going to consolidate that or how's that going to work?
This is Mike. I don't want to speak for what Alexandria is accounting is, but our accounting is, we will treat it as an unconsolidated joint venture. And so that's how we'll treat it. We treated it as kind of a contribution of 50% of our properties into that and as you might have noticed, there was a pretty significant gain on that contribution for our gateway assets, which is really a non-cash gain because it went right into acquiring their share -- their 50% share of their assets. So that's kind of how the transaction is accounted for.
Your next question comes from the line of Peter Abramowitz with Jefferies.
Hi, thank you. I just want to ask a small question on your parking other income. What's the breakdown for the parking income? How much is month-to-month and how much is kind of built into the leases?
So, I think I gave a number for 2019. And I said, we had $113 million in total and $40 million of it was transient or hourly parking, that's about as much break down as we can give you.
Your next question comes from the line of Daniel Ismail with Green Street Advisors.
Great, thank you. Other than a few immediate reports lately on the MTA sites and I was hoping to see if you can provide any update on the status of that transaction.
John Powers, you are still on?
I'm still on, yes. It seems that our governor, when our mayor in the midst of this decided that they would move forward and made a deal on how the tax revenue would be distributed. And that's been holding this up to us for a couple of years. So we're going forward but we have to go through a whole unit process there. So this is a multi-year project.
Okay. So still not close but advanced a little further?
Advanced further, yes, it will take more time multi-years.
Great. And then just a follow-on from that, state and local budgets are clearly under pressure in this environment, which might be a driver of you permitting the rezoning. Are there any short or long-term opportunities here for Boston Properties say at the Santa Monica Business Park, for instance?
Danny, I think it's an interesting question. And I think you're right, it could potentially create some opportunities in a lot of different areas. I think the situation at the MTA that John just went through perhaps is one of them, in other words, a project that that all of a sudden, we've made a lot of headway on. I think it's too early to conjecture what those might be, but I don't disagree with the concept.
Your next question comes from the line of Nick Yulico with Scotiabank.
Thanks. Just I want to ask about sublease space in your portfolio and in any markets where you are, maybe on a real-time basis if you're seeing any pickup in sublease space?
So, Nick, this is Doug. The only place that we have immediately seen some pickup has been in San Francisco, where there were actually some organizations that were planning on subletting space and it's come to the market, I think more quickly based upon COVID-19, and their employment headcounts, but we have not seen any significant [lot] [ph] of space come on the market in our other locations to-date. I mean, again, that the fact that there's no "physical tour activity," I'm guessing has probably created a situation where there's not an impending need to quickly put some space on the market and the company is thinking about that, because there's nothing -- it's not actionable at the moment.
Okay, thanks. Just one follow-up on that is, if you had any update on Macy's at 680 Folsom, I think they were planning to sublease that space, any latest thoughts there?
Yes. So we actually we checked in and there's no "lease yet" that we're aware of on the Macy's.com space at 680 Folsom Street. I think that, again, that space was put on the market pre-COVID-19 as they made a decision to move those people to a different location from a regional perspective. And so what we anticipate that that space will still be on the sublet market and it's great space and that it will lease whether the economics hold for what Macy's thought they were going to get relative to where they will ultimately do a deal. That's hard to defend.
And there are no further questions at this time would you like to continue with closing remarks?
Thank you very much operator. Our call is pushing two hours. So I'm going to minimize my closing remarks and simply thanking everyone for staying with us for all these minutes and your interest in Boston Properties. Thank you everyone.
This concludes today's Boston Properties conference call. Thank you again for attending and have a good day.