Good morning, everybody. Great. That was excellent. I didn't know I have that much power. I want to welcome all of you. Thank you for coming to our Investor Day. We had a fantastic start yesterday. For those of you who made it out to Reston, it was a great day, very beautiful out. We actually got a little bit of a reversion back to our childhood. We've got to have cupcakes, lemonade. It was a lot of fun. A couple of people had some difficulty on the bus, I heard, but the bus that I was on was just fine. So I'm hoping it wasn't too bad on the other bus.
Today, we have a very, very full day planned. There's an agenda that's in your information packet. We're going to start with some comments from Mort, and then Mike Walsh, Doug and myself are going to talk a little bit about the capital markets, about the performance of some of the recent acquisitions that we've made and about some other general trends and the environment that we're working in. And then after that, Mitch Norville, who's our Chief Operating Officer, he's going to talk a little bit about the achievements in our operations areas and some of our sustainability efforts in our program. And then we're going to have representatives from each of our regions come up, talk about their markets, talk about what activities they're involved in and really talk about what their goals and objectives are over the next 12 to 18 months. And then we're going to have lunch, and the D.C. team is going to talk and have a case study about Reston Town Center, where we expect that we're going to have a significant opportunity for new development over the next 5 to 10 years. We're pretty excited about that. And then we're going to have some tours of the D.C. assets, hopefully wrap everything up by about 4:00 and get everybody out of here. A lot to get done, though.
Before we get started, I do want to direct your attention to our Safe Harbor statement. There may be certain forward-looking statements that are contained in our presentation. And it also may contain certain non-GAAP measures that may be different than other REITs use. So in the back of the presentation, there's an appendix that provides some additional information, some definitions, and you can also refer to our Supplemental Financial Package dated June 30. That's on our website as well.
I also want to thank the entire team here in D.C. for everything they've done, the team in Boston that helped out and Arista Joyner, who's out there somewhere, Arista, for all the efforts of putting this together. This takes -- it's a huge job to put this together, and everybody worked really, really hard. So we appreciate that. And the last thing, I want to thank you for joining us. And obviously, we appreciate your continued support. That's incredibly important to us and delighted to have you all here. So I think I'll start things off now. It's my pleasure to introduce Mort Zuckerman, our Chairman and Chief Executive Officer. Mort?
Mortimer B. Zuckerman
Good morning all. Thank you all for joining us. I want to particularly thank one of the newest members of Boston Properties, Ray Ritchey, who has come to us in a revised form. I met Ray about 30 years ago. We -- our first building here was a building we now call Capital Gallery, and at that point, I was coming down and helping out with the lease negotiations, and Ray was the broker on the first 2 deals that we did. And he was such a terrific broker, talking me into rents that I never thought I would be willing to concede to that I decided we'd better have him on our side. And we're now -- I don't know how many million feet later, and Ray has just done an amazing job, and so I just wanted to acknowledge his presence. That transaction started -- actually, I was just remembering there's a fellow named Dick Ravitch in New York who's a major developer, and he and I were longtime friends, and he was originally involved in that transaction. And he had come to Boston for some reason or other and I was driving he and his son around. At that point, I had a car -- a phone in the car, one of the few people who did. And his son was about 8 or 9 years old. He couldn't get over the fact that there was a phone, but at some point, I understood that he had a different view of why there was a phone because at one point, he said to his father, "Daddy, does he have a bathroom in the car?" I knew I was in great shape. But we have really had a wonderful experience here in this city and its environment, and Ray has really been a critical player for us, and he's a critical player here in Washington. And I think what we have done here is sort of a role model for what we would like to do in any and every city that we are in because we have, I think, emerged with some of the best assets, and if I may say so, because of Ray, as good a reputation as any other firm in this city. And it really helps a lot to have that kind of record of achievement, an achievement in the best sense of it, which is building the highest-quality assets in the market and in what we hope are the best locations. And then it really is a template for all of what we do. It is no great insight what was -- what our philosophy has been. I think the real interesting part of it is that by and large, we've been able to execute it for almost from day one, which was to focus in on the highest-quality assets, either assets that we build, which is what made up the largest portion of our assets, or those that we buy, where we also try and stay in supply-constrained markets or supply-constrained portions of the market. So the Upper East Side of New York or the Back Bay or Cambridge, Massachusetts or the difficulties of assembling and building sites in Washington where you have a natural constraint on supply, which is called a height limit. And we've sort of kept to that particular discipline in virtually every market that we are in. It's never a perfect template, but you do the best you can. And frankly, in terms of the experience that we've had and all the ups and downs of the market, we have had a fairly simple lesson to learn, which is that the best assets in the supply-constrained markets, like everybody else, will do well in a good market. But in a bad market, these assets generally tend to do relatively much better. And that's certainly been our experience over the last several years.
I will also say that we've had a fairly conservative approach to our finances. Now a part of that is because we've been able to create a fair amount of value with the assets that we've done and in part because when A, we went public, it was a great opportunity for us to raise a lot of money and keep our financial statements fairly simple and fairly conservatively constructed. And also, I remember that actually, when we went public, we had 2 investment bankers, Goldman Sachs and Merrill Lynch. They were the 2 leading bankers. And Linde and I had done all the road to her, and we realized the role of investment bankers, which essentially is to point to the various investments today. They're somewhere out there, Mort, and why don't you go and meet them? So we really had kind of an interesting relationship with them, and when it came to making the New York presentation, there must have been 200 people in the room. And the 2 bankers had a big argument over who is going to introduce us because whoever introduced us was apparently going to get credit for this transaction. And they couldn't agree. Finally, I sort of resolved it, and I said that one of you can introduce the company. The other will introduce the team. And that's the way it worked out, and then I got up to make the first presentation. And it -- I couldn't tell you this. I said that -- I got up, and my opening line was, "You know, those 2 introductions cost me $48 million." I didn't have to say another word. I said, "Help me, God." That was what sold the deal right on the spot because they knew exactly what was going on.
Anyway, we, at that point, though, became a public company and, again, have had a wonderful run as a public company. And so we're really pleased and honored to have all of you here to get a sense of what we've been doing in that particular market like Washington, which has been such a core market for us and a market that we're very happy to participate in. And I think we've really done some outstanding work in the real estate side of things as well as on the financial side of things, and that's really a tribute to Ray and his team.
Now we're in a very strange environment. In fact, it's unprecedented and, therefore, unpredictable, but it's not happened, at least in all the years that I have been in the real estate business, which is probably as much as most people in this room. I started in 1961. I know it's a much of an amazing passage of time for me as could be, and it's wonderful, wonderful business to be in. And then we've, frankly, had a hell of a good time and done fairly well in the process. But we're in a time now where the macroeconomic forces are just huge and, the last couple of years, very negative. And it's not been easy to sort of manage your way through all of this because nobody knew where it was going. I mean, the good news is that when we had a sense that we might be in a more, shall we say, problematic environment, we decided to sell some assets. Frankly, in part, it came out of an editorial that I did in May of 2006 for U.S. News, in which I was very apprehensive about the housing bubble. And I thought it was going to burst, and I said to my wonderful partner, I said, "You know, there's a bubble in real estate, commercial real estate as well. We have to sell some of these assets." Which we did, and we sold, literally, several billion dollars of assets. And it left us in a very, very strong position to go through the subsequent turmoil that we've seen in the economy. Now the question is how long is it going to last. And my first comment on that is nobody knows. My own view and my own view has been much more pessimistic than most, and I'm still more pessimistic than most. In fact, these days, I distinguish, when it comes to the economy, the optimist from the pessimist in the following way: The optimist thinks this is the best of all possible worlds, and the pessimist fears they may be right. I think we have really, really come to a very, very dangerous sort of plateau, if you want to call it, in our current economy, where you have something that has happened now that is going to make it very, very difficult to turn things around. And that is -- that attitude have hardened and confidence which is really a critical part of both business decisions and consumer decisions. Confidence levels have fallen so dramatically that no matter what the public policy interventions will be, if there can be any major ones, the confidence and the attitude of the people is going to impede or constrain whatever the normal benefits would be of the public policy. If you look at consumer confidence -- excuse me. Just give me a second.
So if you look at the consumer confidence numbers, they are -- 2 major surveys of consumer confidence have been around for years. One is the National Industrial Conference Board, and the other, University of Michigan. And they sort of measure, they translate them usually in terms of numbers. So the Industrial Conference Board, for example, in good times, without going into how they get to the numbers, in good times, it's around 102. In recessionary times, if you look at the recessions, it's somewhere in the mid-70s, at the trough of the recessions. These numbers today are around 45. So we have not seen consumer confidence at the levels they are certainly not in the last 50 years. And the same thing is true of the University of Michigan numbers. The same numbers are in that range. Now 70% of the economy is based on the consumer, and the consumer, of course, is responding to, more than anything else, to 2 things. One is for those who have a home where the net asset value of the home, the home equity, that is, was the largest asset on the balance sheet of the average American family, we have seen peak to trough a drop in home values of 32%. Give or take a little bit, it's at 33% now, 32%. Just by way of reference, during the Great Depression, it was 31%. So you had, when you have an average mortgage, home mortgage of 50% of the home value and you have a 32% drop in overall prices, it means everybody has lost 64% or roughly 2/3 of their home equity. And that's going to have a huge effect on the consumer, and it sure does. And there are millions of homes today that still have to clear the market, roughly 3 million that are empty and 3 million that are in what they call a strategic default, where the people are allowed to stay in because the banks don't know whether they're going to have somebody occupying the homes, and another -- in those 2 to 3 million homes that are in one stage of default or delinquency. So this market has not cleared, and generally speaking, the only way to clear the market is to lower prices. So that's still, it seems to me, a great big question mark. And the other one which affects equity or asset values or wealth but income is employment. And the employment numbers are not -- they're 9.1%. The employment numbers are really, really serious. The 9.1% represents those people who have actively applied for a job in the last 4 weeks. Now the medium term of unemployment today is about 40 weeks. When you've been out of a job for 40 weeks on average, you don't apply for a job every 4 weeks, but the 9.1% represents what they call U3. These are government numbers. U6 measures 2 things. One is people who have applied for a job in the last 6 months and people who are working part-time who originally were working full-time or could only get a part-time job that called involuntary part-time workers, that number, 16.1%. And that doesn't tell the whole story because there's another thing called labor force participation rate, which reflects those people who were in the workforce and now are out of the workforce because they've given up. If the workforce was at the same size than it was when President Obama came forth with his original stimulus program, the unemployment rates, both of U3 and U6 would be 2.9% higher, which means a lot of people have just given up, and they're not counted. So if you add that altogether, you're looking at a 19% unemployment rate or a 12% unemployment, depending on which one you want to use.
Now we haven't seen those numbers, folks, frankly, since the Great Depression. But there's an even worse dimension to the numbers. Since Obama has been in office, we have not created a single net full-time employment job. All the jobs that have been created are part-time. And part-time employment, just to give you some idea of the numbers, the median income is in the $20,000, $22,000 a year, and they have no healthcare. They have basically no severance. These are not jobs on the basis in which people can maintain families.
And if you look over the last 5 months, we've lost a million full-time job just slightly under that. Now we've made them up, if you want to call them that, by part-time jobs. But it's the full-time jobs that, really, is what we are looking at. In addition to which, if you look at poverty rates, poverty rates are 15.1% of the American public. Now, by the American definition of poverty, which is a family that are in the $21,000 to $22,000 or less, that's 46 million people. So in my judgment, and I've written this and stated this, we are in what I would call a modern-day depression.
Now it's not a depression in the sense that you see soup lines. But the soup lines have been replaced by the fact that we're sending out 10 million checks every week for unemployment. And if we didn't have that, you'd have the soup lines. But that's a replacement for the soup lines. So we are in a very, very troubled economic times. Now the good news is that we now understand better how to get the economy, or we think we did, how to get the economy out of this kind of recession or depression. The question is -- are the processes that the government has proposed working, and so far, by and large, they haven't worked in large part because it takes a long time to work through the extraordinary excess of debt that we accumulated in the economy and that the households accumulated. The normal relationship of household debt to household income is somewhere around 75%, and that's been what it was for most of the period after World War II. Given the housing bubble and the consumer credit bubble and the credit card lines bubble, it got up to 136%. I mean, that's a gigantic amount of increasing indebtedness in relation to income. It's now down somewhere to around 115%. Nobody knows, again, the exact number. It's maybe 120%. It's a big drop. But to get it down to the mid-70s where it's typically been, we have to get liquidation of another $6 trillion of household debt, which means we're going to have a constrained consumer economy for quite awhile. And as I say, when you have the lack of confidence, the consumer confidence but also the lack of confidence in the government, where the president now has a 26% approval rating in terms of the management of the economy, you have to wonder how long it's going to take before the confidence builds up so that consumers are going to begin to spend again. And that's what makes me nervous and made me nervous now almost 5 years ago. So we've been very careful about how we'd manage what we do and how we do. The question is, from my point of view, is how to translate it into the commercial office space, which is where we are. Well, that's a very unpredictable question. We have found in some of the market, there was a shock, a period of shock when the -- first, you had a huge crash in a very short -- in the financial terms in a very short period of time. And there was a period when everybody thought -- nobody knows where the bottom is. So there were massive stimulus program. We had the feds take money down to the lowest rates, virtually no interest. I mean, the lowest level of interest rates that we've seen since, God knows, the Great Depression, right? And it had some effect. It sort of stabilized it. And the question is now, since we still haven't liquidated enough the debt, particularly the consumer, and since the confidence level that it's going to persuade the consumer to start spending instead of saving -- or our savings rate which was down to 1%, 1.5% is now up to around 4% or 5% and may be going higher in order for people to rebuild their individual balance sheet and for companies to rebuild their balance sheets. Now how long is it going to be before we get back with, we would like to call, the animal spirit. It does not help that the business community, whether it's valid or not, thinks that this is an administration which is, by and large, hostile to business. And at the beginning, I think they were. And I have had a number of meetings in the White House on this very subject because they were almost puzzled. They think, we're not hostile to business. We're just hostile to certain practices of business, which, unfortunately, covers the whole business world. We're above [indiscernible], and we don't think we're hostile to business. And I don't think they really understood, in part, what they were saying. They came into it with a particular sort of political success. And I have to say that they still have this sort of focus, not so much on the policies but on the politics of policies. And at some point, I think there was some instinctive moment in the country where the country sort of said, "Wait, hey, they're not really dealing with these issues." And the politics of the country are as poisonous as anything that I can ever recall. So you do have a sense that the politics of the country are preventing us from really dealing with the issues in a serious way. And we saw it most recently, not only with the debt crisis, which was a huge issue in the country, not so much as to what happened but what it said about our political process, where we had the feeling, almost all of us, that we have a dysfunctional government, that we are in a serious crisis. And you can't get these people to agree on anything. And there were a few moments where there was an agreement, and the next morning, one side would break, and the other side will walk out of it. But the one that was, for me, the worst example, in fact, was the recent speech of the president to a joint session of Congress on television in which he's putting forward his jobs program. Now if you know anything at all about negotiations and deal-making, you have to understand that you have to develop a relationship with the people on the other side. He had no relationship with the Democrats, with the Republicans, even the Democrat, but Eric Cantor and John Boehner and Mitch McConnell, Mitch McConnell being the leader in the Senate -- there was a front page story in the New York Times that the president had not had a one-on-one meeting with Mitch McConnell in the first 18 months of his presidency. Now that's just insane because if you -- you just cannot expect to do business, to do deals, to do whatever you have to do, business to the government and have a personal relationship. I mean, I remember the relationship that President Reagan had with Tip O'Neill. In 1983, when we had trouble with the solvency of the Social Security Trust Fund, the 2 of them, literally, did a deal. They had one person as an intermediary, but they both liked each other. Reagan had established a great relationship with Tip O'Neill, and they worked it out. Because under circumstances like that, both parties have to share the credit and the blame. And if you want to get out of the deal, if you want to get a deal done, what you have to do is you call the members of Congress and the leadership and say, "Look, we've got a real crisis on our hands. I don't want to get the credit. I don't want to get the blame, and neither do you. Let's work out a joint program, and we'll go to the country and say, this is it. And we know it will get done." Instead, when you have a big, big, shall we say, public presentation and a speech, you make it much more difficult for the Republicans to join in on it, and since you need them, you've got a real problem. So you -- and then to go ahead as the president did and campaign the next day in Eric Cantor's district, Eric Cantor being the leader of the Republican party in the House. And then subsequently, Cantor -- and think that you're going to campaign in John Boehner's district. Well, then they're going to say, "You're playing a different kind of game. You're playing mano a mano in politics. You want to kill us, you're not going to get any program or any progress through us." And that's not just the way to do it. So I don't know where we come out of this. And it's made us very, very cautious about what we've been doing. Now just because I say cautious doesn't mean we haven't been doing anything because it also is an opportunity for us. Because we sold a lot of assets before the bubble burst, we had 16 properties that we were going to -- we've decided we were going to sell in the height of, shall we say, exuberance of our real estate. We sold 15 of them, and we raised quite a few billion dollars, and we were in a position to do things as a lot of other people weren't. And we were able to buy the General Motors Building in New York and several other buildings in New York, 510 Madison Avenue most recently and the John Hancock building and various other wonderful buildings in Waltham, Massachusetts. So we've been in a position to take advantage of our relative financial strength. We're not the only people who have that kind of capability of accessing capital or bringing equity capital into it. And there was a period when interest rates went down and feds were flooding the system with money. A lot of people began to think about going back into real estate, and real estate values and cap rates went down and values went up again. I don't know where that's going to go. We're going to watch that very carefully. We're always on the lookout for the kind of assets that we would like to buy. And one of the things that we've also been looking at, frankly, are other markets to see where we can continue to grow the company because we believe we have the kind of capability that we can extend to other markets. I mean, we're going to be very cautious about it. When we enter markets, we understand that we're not people who can just walk in and, 48 hours later, understand all the practices of the local market. We have to sort of absorb our local knowledge and understand how to work in different markets, and we've done that very slowly and very cautiously. And if we have more opportunities in the markets we're in, that's going to be our first priority. But our basic strategy, frankly, is A, to be very, very conservative with our finances because we don't know what's going to happen, and I believe we are in that place and in that position. And I think we're going to be very careful about making sure that we have a lot of liquidity in the company so that we can handle whatever the -- who knows whatever may happen. And B, we're going to take advantage and be in a position to take advantage of acquisitions and be very selective about the developments we're going to do. Washington is a unique market. And we've had -- you're going to see, if you haven't seen it yet, I don't think you have seen yet the things that we've been doing in the district. I think you went to Reston yesterday. And we're going to look for these opportunities, and we're fortunate to have somebody like Ray Ritchey, who is just so well established in the market and well respected and liked that we have an opportunity to look at various things. And every now and then, we have been able to work together with the President of George W., GWU. He was formerly the President of Boston University. And so we used some people here, and that helped us in terms of gaining a good relationship with them, and we're going to continue to try and develop that. And in general, we hope that our record of performance will give us an opportunity to do things that wouldn't necessarily be available to everybody else. So the growth, however, is going to be a little bit more cautiously reviewed and viewed in the context of the kinds of, at least, sentiments or judgments, call it what you will, that we now feel about where the economy is. And where the economy, frankly, is, nobody knows. I mean, I think the kind of weak economy that we're going to have, that we have is going to continue for a while. And we've felt this way for a longer time than most other people, and we still probably feel this way. So we're going to be very cautious and very careful. And we think it's a combination of 2 things. There is also going to be opportunities that we would not have otherwise had. We would never have had the opportunity to buy the Hancock Building in Boston or the General Motors Building in New York, just to pick 2 very well-known buildings. And we've done very well with both of them, and we'll continue to do well with both of those buildings. And we hope that some of those opportunities will come up again, and we're going to be in a position to be very aggressive when we see those kinds of opportunities. So that's sort of been the general atmosphere in our own sort of inner sanctums other than the fact that we still try and have a good time and, by and large, do in the real estate work that we do. It's been a wonderful business. I've loved it, and I think most of the people in the company really enjoy it. And we look forward to the chance to make a lot of you people very happy investors. So with that, I'll stop, and if anybody wants to ask questions, I'll be happy to do that. Thank you all very, very much.
We have time for questions probably in 30 minutes. Mike and Doug and I are going to make some remarks, and then you can have questions with all of us.
Mortimer B. Zuckerman
No, it's fine. You can ask questions on an alphabetical basis. It's fine with me.
Thank you, Mort. I'm going to try and provide an update on what we're seeing on the debt markets. In addition, I'll walk through in a little bit of detail how we have strengthened our balance sheet, as Mort said, in order to be in a great, solid position for us to work in what is clearly a continued challenging macro environment, as well as take advantage of investment opportunities that we might uncover as we have over the last several years. And then I'm going to turn it over to Mike and Doug, who will discuss the performance of some of our recent investments and the general environment we're seeing.
The debt markets have been pretty volatile of late, especially in the last, I'd say, 4 to 6 weeks in the public side. It's pretty clear that investors do have capital that they want to put to work, but they're very cautious and they're very selective about their investment. There's a clear preference for higher-quality opportunities, and it shows in both how debt is being priced and how available debt is today. If you look at credit spreads on the public side, they've gapped out pretty dramatically. And you're also seeing new issue premiums, which is something that, over the last 5 or 6 years, we haven't talked about that much. I mean, historically, you're talking 0 to 10 basis points, and on our side we're always pushing as hard as we can to get those as low as possible. But today, you're seeing them as high as 70, 80 basis points in some cases, and for higher-quality issuers, it's probably 10 to 30 basis points. So that just kind of adds to the volatility out there in the marketplace and kind of the uncertainty as to what the real pricing of new issue debt is in the market today. There's also a question about debt availability. With so much volatility in the equity markets and so much headline, news and risk out there today, issuers like ourselves and any other issuer, we have to be very, very thoughtful about how we enter the market, when we enter the market. If you look at September, there was about $57 billion of corporate investment-grade debt that was issued, so the market is clearly open. That's not a record by any means, but it's probably 75%, 80% of your average typical month. So there's capital out there. But you have to be careful, and you have to look at the right day. And if you look at the last month, there's probably only 6 or 7 days where people have issued debt out of the 20 or 25 days that's there in a month. So it's clear that people are really, really closely watching and being careful.
On the private side, I would say it's more stable. The private lenders, banks and insurance companies are definitely out there seeking opportunities. They're being careful. They're being discerning with their capital, but they're out there.
Just looking at the performance of the bond market. This is the treasury rate and then our credit spread over the last 12 months. I mean, you can see that our spreads have been no exception to the rule. Our spreads have been as tight as 120 basis points. They've been as wide as 260 basis points, which is basically around where they are today. Most issuers have really not benefited much from the rally in the treasuries. All-in coupons on average this year for us are somewhere around 4.5%. That excludes the new issue premium, though. So if you look at what we could issue at today, it's probably somewhere in around 4.75% range for 10 years, which is 260 basis points over plus 15 to 20 basis point premium. So that's where we are today. Still, a fantastic coupon, honestly. If you look out at historical borrowing rates, it's still a good time to raise capital. On the secured side, the secured market's in reasonable shape, again, on the private side. With banks and insurance companies active in the market, looking to bid on opportunities, the banks, in particular, are very, very liquid today. They've got more deposits than they need. In fact, they're not even paying anybody for deposits. Some of them are getting paid to take money. If you look at their ratios, their deposit ratios, they're incredibly high. So they're really trying to put money out. They have to be careful that the credit side of house is still very, very involved, but they need to improve interest margins. They need to get money out at something higher than the LIBOR rate, which is where much of their money is going today.
Life companies are definitely still out there. They have responded, though, to the treasury environment, and they have instituted floors in their programs. So our view on 10-year money and life insurance company market is floors of somewhere in the mid-4s typically today. If you look at what we've done, we just closed our 601 Lexington Avenue loan, which is the $725 million loan with 3 life insurance companies, 10.5-year term at 4.75%. So we're thrilled with that execution. It was a great opportunity for us. As you look at some of these charts on this page, the CMBS market is somewhat of a different story, much tougher shape, serious spread widening going on, and then it's very, very difficult for originators of this paper to be comfortable originating when they don't know where spreads are going. So you were seeing quotes out there that are way, way wide where a life insurance companies or a bank market is. And you can see on the new issuance side, it continues to be very, very slow. There was a time earlier in the year when most people in the market thought that that market would come back, and we have over $50 billion of issuance this year. I think that we'll be lucky to get the $30 billion now based on what's going on in kind of a slowdown in issuance.
If you look at refinancing these in that marketplace, 2011 through 2014 aren't too bad. I mean, people have talked for the last few years about this wall of maturities coming. People have really been able to deal with it. There's a low-interest rate environment. If you're willing to put a little bit of capital into your deal, you're getting extensions. But as you look at 2015 through 2017, there's still a big problem out there that needs to be dealt with, mostly with issues that were underwritten in the high times of 2005 through 2007, so higher leverage rates, more interest-only, less restrictive underwriting on those issues. For us today, the CMBS market is really not a factor. We -- it really can't compete for deals we have because the life insurance companies are really seeking the higher-quality assets and assets in markets like ours. So we don't have to really deal with the fact that spreads are widening in the CMBS market at this point.
I'll just talk a little bit about the convertible debt market. This market has been open all along. It has been the least volatile in terms of where coupons are. Coupons, for us, in this market are somewhere between 1% and 2%. One thing, though, is the market has shrunk pretty dramatically, which has actually helped, if you're an issuer, but people still aren't issuing in the marketplace. Issuance has been pretty anemic as you can see on that slide. Even with the improvement in the equity markets earlier this year, obviously, the last 4 to 6 weeks has been a little bit different. But issuance still has not picked up in the marketplace. So the supply and demand dynamics are pretty strong. The investors are seeking to find new issuance. We track the market. We monitor the market, though our focus has been to extend our maturities. Our focus has been looking at low coupons and wanting to extend those debt maturities out. And this is really a 5- to 7-year term market, so not necessarily an efficient market to go long on, which is why we really haven't been active in it at all until recently.
Just to look at borrowing cost, all-in borrowing cost. There's something in the middle of the page. All-in borrowing cost for us continues to be very attractive compared to other places. If you look at this slide, there's -- the blue line is our 2021s and what they're trading at. It's about 50 basis points better today than the average investment-grade realty investment trust, which is at about 5.21 today, and then significantly better than the CMBS market, which is the top chart. So we still have what we see as an advantage of cheaper capital and the ability to extend out and still maintain a pretty cheap source of capital and cheap price of capital.
This is our debt profile. We currently have a $9.5 billion debt portfolio, and that includes our share of our joint ventures. As you can see, we've been active in all the kind of major markets, the convertible market, the unsecured senior bond market and the secured market. We continue to weigh the benefits of each any time that we have a need. We feel like it's important for us to be in all of those markets and stay close to those investors, so they're in tune with us. They understand us. And if we want to enter those markets, they're going to be ready for us.
One of our key strategies over the last couple of years has been to take advantage of the historically low-interest rate environment, reduce our portfolio borrowing cost and extend out our debt maturities. So what this slide demonstrates is what our maturity schedule looked like in late 2008. As I turn the slide over to today, you'll see a much smoother schedule than we had then and a longer-term maturity ladder. So we've worked very hard over the last few years to kind of extend this stuff out and achieve this type of profile. We've extended out nearly 35% of our debt beyond 2019. I mean, if you look at our weighted average maturity, it's almost 6 years, so we've extended that out to almost by a year in the last 3. If you look at 2012, we've got $625 million of our unsecured exchangeable notes that are callable in February, so we're thinking about those. And we've got a couple of mortgages coming due in the first half of the year totaling about $230 million. The biggest one is our Bay Colony mortgage, which is $140 million.
As we mentioned on our last earnings call with you all, we've been watching the market for good opportunities to refinance the exchangeable notes. We continue to monitor that. It continues to be possible that we will do something early if we see a good opportunity to access that marketplace to refinance that debt. Alternatively, we've got a strong amount of liquidity. If things deteriorate and we're not thrilled or happy with what the market is looking like, we could pay those off in cash, and we have the ability to do that.
Not only have we been able to extend out our debt maturity profile, but we've also reduced our overall cost of capital substantially over the last few years. This is another goal of ours as we saw what was going on in the interest rate environment. So this chart demonstrates the cash coupon for our debt portfolio over the past 4 years, and it's reduced by 56 basis points. So if you think about a $9.5 billion debt portfolio that represents a reduction of $53 million in annual interest expense that we've been able to achieve over the last few years.
As Mike and Doug are going to talk about, on the investment side, we really haven't modified what our long-term investment return targets are. So to us, this has generated the ability to really, really improve our profitability, reduce our interest expense and improve our FFO over the long term with a lower cost of debt capital.
Turning to our capital structure. We're comfortable with our balance sheet and our metrics that are improving despite the increase in the overall debt levels that I mentioned. These are cash NOIs increasing. On a debt-to-market cap basis, we've been in the 35% to 40% range. We see our fixed charge ratio as a great check for our leverage. And if you look at this fixed charge ratio, what this is a cash fixed charge ratio, so it excludes all the FASB 141 straight-line rent, noncash interest expense, all that to get down to cash. Our ratio has improved from a low point in 2010. A couple of things have happened. One, we started to deliver parts of our development pipeline. So Atlantic Wharf, a good portion of that has been delivered. 2200 Pennsylvania Avenue that you guys will see today has started to deliver. And then we had a lot of free rent in 2010 from our leasing program that has burned -- started to burn off. If you think about our development pipeline, which is still pretty significant, I mean, it really has a short-term negative impact on our coverage levels and as we've raised the capital already to fund the program and we haven't seen the income start yet. So if you kind of do a pro forma calculation and look at what our fixed charge ratio would be once that development stabilize, it is north of 2.5x.
And just the last thing, the FAB ratio there, very, very healthy, consistently below 100%, demonstrating the cash flow that our portfolio has able to generate so that we can reinvest that cash flow, and we do not have to raise as much debt and equity to fund our new investment program because we've got positive cash flow in the portfolio.
This is just a snapshot of what we've done in 2008. We've been very, very active in the capital markets throughout this time period. We've raised the combination of both debt and equity to fund our investment program and our development program and provide additional liquidity to do additional investments that we may find. We've raised a total of $7.6 billion of debt and equity over the last 3 years. This slide shows $3.3 billion, which is the incremental new capital above what we refinanced. How we've done it, well, we've obviously raised that capital in the unsecured market. We've done an underwritten equity offering a few years ago. We've used our ATM equity program, all to fund a prudent portion of our investment program, keeping our balance sheet strong, providing ongoing capacity and, as you can see, increasing our liquidity pretty dramatically by almost $1 billion.
Going forward, as I said, we still have a pretty substantial development pipeline. We've got 8 projects that are going or that we have announced. Those projects have $825 million of cost, cash cost left to fund. And as you can see, we have already raised the capital that is required to complete that program and still have substantial sources of excess liquidity left over. We also continue to have significant balance sheet capacity. And again, when we think about balance sheet capacity, we look at our cash fixed charge ratio and we also looked at the adjusted debt-to-cash EBITDA ratio. So if you think again, pro forma for the stabilization of these developments where we've already raised the money to fund these, you look at our pro forma fixed charge ratio north of 2.5x and you look at our pro forma net debt-to-cash EBITDA ratios, it's about 7x. Both of these all well within our comfort zone and provide us with a lot of comfort that we can do new things, that we have capital available to us and our balance sheet is strong.
Just in summary. As I said, the capital markets are much more volatile than they have been. We think they're open for us. We think that we can issue 10-year papers somewhere in the 4.75% range. We plan to continue to access the debt markets, with our eye towards reducing overall borrowing cost, extending on our maturities, and we're focused on maintaining a strong and secure balance sheet to protect us against further potential economic weakness that Mort spoke of and also provide us opportunistic capital if we find new investments to look at. With that, I'm going to turn it over to Mike, who's going to talk a little bit about some of the new investments that we've made over the last year or so --
Thanks, Mike. We've been very active deploying the capital that Mike talked about raising into $1.5 billion of core Boston Properties acquisitions, with the acquisition of the John Hancock Tower in Boston's Back Bay, with Bay Colony in Waltham, Massachusetts and 510 Madison Avenue, with each transaction presenting us with an opportunity to re-lease, redevelop or complete the development of a project. Interestingly, as we enter the downturn, there was a thought that those with access to capital could once again reap the rewards of a distressed situation. However, as lenders extended maturities with the hope of a better day, we found that there were limited opportunities to do such a thing. So each of our regions create a acquisition target list of assets that we would like to acquire, that we would like to know that capital structure. We want to understand the asset and if it's an asset we would like to bring into our portfolio. And what we did with this list is we completed out some of our own underwriting, for example, in the case of the John Hancock Tower and Bay Colony. Before those assets even came onto the market, we had completed our own Argus models and underwriting of the assets. In the acquisitions that we closed and in the acquisitions that we didn't close, we maintained our underwriting discipline. We utilize our in-house expertise of capital markets, leasing, development, construction and property management because we believe a successful transaction is much greater than throwing some assumptions into an Argus model. It's the thought and the knowledge behind those assumptions that makes for a successful transaction.
In each of the transactions, we considered all valuation metrics. The question we always get is what's the going-in cap rate, well that really doesn't help the story. We looked at IRRs, we looked at price per pound and in many of these we look at what the stabilized return upon completion of our business strategy for each of the assets.
The largest of the transactions was the John Hancock Tower. It's one of the most striking, iconic buildings in all the United States, not just Boston. It's located in Boston's Back Bay and with the acquisition of this transaction, we increased our ownership percentage in Boston's Back Bay to 50% of the overall Back Bay market with the Prudential Center. And if you look for our tower space, floors 16 and above, we control 100% of that market. The asset is about 1.7 million square feet and includes a newly constructed 160 stall garage in the base of the building. And in addition, it includes a separate parking structure for 2,000 spaces. If you assume a $60,000 per stall value for the standalone garage and the stalls below, and you subtract that from our purchase price of $930 million, you arrive at a purchase price per foot of $475 a foot. That's for a 95% leased building. That's building in the market with below market leases that expire in '14 and '15. And in addition to that, the seller had recently invested $50 million on new chillers, the parking stalls below that I mentioned, lobby upgrades, the cafeteria and also paid for all of the contribution for Bain, who occupies above 240,000 square feet before they move in.
Now our strategy for this project was threefold: One, apply Boston Properties property management strategy of reviewing and reducing operating costs; 2, lease the available space; and 3, approach tenants with 2014 and 2015 lease expirations, which total about 900,000 square feet or a little over half the project. And our property management team, in 9 short months of ownership can already chalk up 2 wins. The first is they've saved $5 million in operating costs versus what the seller was offering the building in 2010. Due to the rebid of the electricity contract, they've made some staffing changes and also the bulk buying of Boston Properties, where we have a portfolio insurance program versus a standalone program. Now the vast majority of these savings will not flow to our bottom line because the building, as I said, is 95% leased. However, it benefits our tenants, it reduced their operating costs, and probably more importantly, it demonstrates what active property management can do and we hope that it will improve our tenant retention rate ratio as we talk to these tenants with 2014 and 2015 lease expirations.
Our parking income is up about $1 million as well. Again, active property management. Our team went in and looked at the discounted programs, they adjusted the hours of the early bird special to more convenient hours, they looked at the rooftop which is exposed to the weather, created a special program there, and they enhanced several of the flexible programs for frequent parkers.
To date, we've leased 30,000 square feet of previously available space, bringing the occupancy to 98%. In addition, we signed an extension for the tenant in the tower for 40,000 square feet. Now the majority of the 2014 expirations, which is in the red, in the bottom, is occupied by State Street. We're actively courting large users that are typically lease-expiration driven including State Street. In addition, we're trying to piggy-back some of our success that we've had at the Waterfront building over at Atlantic Wharf and the Boston team will go into a little bit more detail on that. The 2015 expirations, which is in the mid-rise and in the tower, 2/3 of that is from sub-tenants of Manulife John Hancock. Now the majority of these sub-tenants have no renewal rights. However, we're providing an opportunity to sign leases today beginning in 2015. The economics of these transactions will include a reasonable increase over today's market rents and provide the tenants with certainty for their space needs in one of the top buildings in the market. We have several deals in the pipeline and with these renewals, it will eliminate costly downtime and tenant improvements.
Now the going-in return for this project, we talked a little bit about that, is hampered because the sellers signed a lease with Bain Capital for 15% of the project and the lease includes a little over 2 years of free rents. So if you adjust for that, the going-in return is closer to 5.7%.
The second acquisition in Massachusetts is Bay Colony Corporate Center that we acquired in February of 2011. Now the story begins much before our involvement. The asset was sold 4 times in the last several years with no capital investment and most recently was part of another broken capital stack with a deteriorating cash flow, it had to work their way through the stack to the eventual equity owner. During this ownership period, Bay Colony was effectively off the market. Our focus, which is already underway is to restore Bay Colony back to its position as one of the best buildings in the market. And I have to admit, I really like this building because it's 1 million square feet and it keeps the math simple for me, so I can do the per square foot calculation. We purchased the property for $185 million or $185 a foot. We expect to spend between $40 million and $50 million in leasing costs, deferred maintenance and market improvement, and the Boston team will go into some more detail in this in a little while. Market rents today are in the low- to mid-30s, operating costs are between $11 and $12 a foot. So our net rents are around, in the low 20s per foot. If you include the current vacancy and the lease expirations, we have about 400,000 square feet of leasing to accomplish and we expect our stabilized returns to be between 8.5% and 9.5%. And we're well on our way having signed leases for 75,000 square feet in only 8 months of ownership. And as we discussed, we're experiencing growth from existing tenants specifically technology tenants, where we cannot accommodate their space needs in our existing portfolio but we have a high-quality solution in Bay Colony. We project our leasing and capital plan will take between 3 and 5 years and then our returns will improve from the current 4.3%.
510 at Madison Avenue was a partially completed, 30-story, state-of-the-art office building in the Plaza District across from our 540 Madison Avenue. Once again, the capital stack was not supported by its value. The first mortgage and the senior mezzanine note, totaled $844 a foot. On top of that, was a junior mezzanine position, which if you included the accrued but unpaid interest was $110 million or $314 a foot, for a total debt was about $1,160 a foot. Again, through our regional team, identifying assets and utilizing internal relationships, we've purchased the junior mezzanine note for $22.5 million or 80% discount to what the face value was. In early September, we worked through the repayment process for the first mortgage, the senior mortgage, we paid both of those at par, we reached an agreement with the existing equity owners, so we could gain quick ownership of the asset. The partially completed project, required a developer to enter the process, which we believe we're unique to complete the construction, commission the building, open a fitness club and a pool, and begin leasing of this great new asset. At the time of our underwriting and today, our project costs are estimated to be about $375 million or $1,080 a foot. Upon acquisition, we estimated that our returns with operating costs in the high 20s to low 30s, that our returns would be in the low 6% range.
Since our acquisition, we've completed the construction of the base buildings, leased almost 40% of the available space at rents that are 15% above our original underwriting. We're continuing to market the building and recognize that high rent, boutique market tenants are typically less than full floor users and are very visual and want to see their space, and Andrew Levin of New York will cover this in a minute. We've started a pre-build program and we're completing the tenant set-out and continue our leasing progress. Based on leases signed in the current market, we project our return which will be about 100 basis points above our original underwriting in the low 7% range. And this is in a market where new assets of this quality and location would trade for significant lower cap rate.
So all 3 of these transactions are really indicative of Boston Properties. They're top-tier assets in our core markets that require a talented team of real estate professionals to enhance their position in the marketplace, and with returns that will improve and create value over time.
Now I'll turn it over to our President, Doug Linde.
Douglas T. Linde
Good morning, everybody. Thanks, Mike. So typically, you get to hear me talk about the markets and I try and synthesize to what our regional teams do into about a 10- to 12-minute canned presentation when we have our conference calls and when we do our power lunches at many conferences and industry events. None of that is going to happen today. We have decided that we're going to give you the full frontal assault. You're going to hear more than you probably ever wanted to about the regions that we operate in and what those people do and how well they do it. And so I hope that what you get out of that experience is not only a better sense of what's going on in those markets today but a real sense of our team, the talent level associated with the regions that we operate in and the breadth and depth of both their understanding of the market, and how they do their business. And I think if there's one takeaway today, I hope you appreciate, it's that -- while, Mort explained our financial -- our sort of overall, corporate overall operating philosophy strategy and Mike talked about our financial strategy. We've created the brand at this company and the guys and women that you're going to hear from in the regions are the reason that, that brand has become something different and unique and we have a different type of approach to what we do in our business. And I think that as hard as it is to believe, there are actually customers, tenants of ours, who say, "We'd rather be in a Boston Property building." They don't say that about generic developer X, Y and Z and the people you hear from today are the reason that we have that type of a reputation and that type of a branding. And it's really, really important and that's why we're going to spend so much time talking about that over the next couple of hours.
We think really long and hard about the assets that we buy, the assets that we develop and the way that we deal with those assets. And when we think about the approach, what we try and do is we try and couple that operating strategy, that financial strategy and that planning together to create a company and a set of cash flows that allow us to create value over the long term.
What I'm going to talk about the next couple of minutes is how we preserve value, how we create value, and what it is that we hope differentiates our approach to the business to what you might see in the typical office investment environment.
Protecting value. So back in -- excuse me, in 2008, it was pretty ugly out there. I was actually listening to CNBC yesterday morning and there was a technical analyst on saying, "Well, the S&P is right where it was in October 2008 and the VIX is basically where it was. " And 3 weeks later, we were down 20%. Well, we were in a market where we got -- we took some pretty big hits and as you see in this slide, the assets that we have, the markets that we picked and most importantly, our strategy with putting tenants in our buildings, where we do long-term leases, which tend to allow for long-term capital investments in those particular pieces of space in those buildings are highly attractive commodities that are not just commodities in the market but commodities for tenants to look at when they're thinking about their real estate needs and decisions. And so, when we hit the sort of bubble of bad news in late 2008, look how quickly we re-let all of that space. We protect value. It's what we think about, it's the approach we take to our buildings, it's the approach that we take to the markets we're in. We're about protecting value.
We also find the right markets with which to grow. Even in a market like today, where Mort described the rather challenging macroeconomic environment. There are companies that are making real estate decisions. There are companies that have lease expirations. There are companies that are the beneficiaries of M&A transactions and there are in fact, companies that are growing. So in this 5 year, 2 examples in Cambridge, Massachusetts. The building at 75 Ames Street, is a building that is being broken ground on, on the 20th of October. It's the Broad Institute, it's a think tank for genetic research. They're going to take 250,000 square feet of new space in 2014 and 2015 in Kendall Square. The building called 17 Cambridge Center is a new building that we're building for Biogen. Biogen is committed to 500,000 square feet of space in Cambridge as we speak. That's a increase of about 150,000 square feet from the relocation that they're doing from a suburban property, which also happens to be ours. And they are just one example of a tenant that's growing in that marketplace. As we think about Cambridge today, we think about Pfizer, which just took 190,000 square feet of space from a new building from MIT. We think about the Ragon Institute, which is a new think tank associated with HIV Research, which took 100,000 square feet of space that was vacated from Forrester Research, who are building a new building for themselves in Cambridge. We think about aventis, sanofi-aventis, which just purchased Genzyme and are now talking about potentially moving 1 million square feet of space from Bridgewater, New Jersey to Cambridge, Massachusetts. So even in a really challenging macroeconomic environment, there are markets and there are locations where in fact, you can do very well and we happen to find those types of places, where we make our investments on a daily basis.
In the heart of this uncertainty, with consumer confidence at its all-time low, with an unemployment rate of 16%, if you sort of look at the big picture numbers, there are tenants in our portfolio who are growing every day. On Friday, we signed a lease with a data mining software company in Lexington, Massachusetts, that's currently in a 106,000 square feet of space, they just took another 50,000 square feet. So even in the heart of this storm that we are in, there are in fact tenants that are taking active decisions to grow their businesses. Why? Because they happen to be in industries that are being able to maintain a profitability and a growth in their top line of revenues even in the heart of what's going on. And what we have tried to do at Boston Properties, not only in picking our locations, not only in taking the types of buildings that we operate in, but in the tenants that we actually are doing business with, we think really long and hard about whether or not those tenants are possible growers in our portfolio. Because we want to be lucky and right at the same time, and if those -- if we picked the right credits, we have a fighting chance even in the challenging economic times that we're in today on a macro basis, to be doing very well, to increasing our occupancy, to increasing our total revenues and to increasing the cash flow from the company. And this is the list of tenants across the portfolio from San Francisco, to Boston, to Washington, D.C., to New York City, who have all -- will be in more space in 2012 than they are in 2011.
How do we create value? What do we do? Well, here's a great example. You've heard a couple of things about 601 Lexington Avenue from Mike in terms of our debt. But this is sort of a snapshot of where we were and where we are today. We bought the building for $750 million. Today, we have an $869 million investment in. The point being, we have to invest a lot of capital on these buildings on a going-forward basis. These things are not simply you buy it and you put it to bed and there's no more capital. We've leased almost 1.2 million square feet of space or re-let 1.2 million square feet of space in that building and you're putting about $100 per square foot of TIs in. We re-did the lobby in this building. We've done major changes to the physical plant in light of what's going on since 2001, 9/11. And guess what, we got lucky too with interest rates. And so interest rate, when we bought the building, 7.19%. Interest rate today, 4.75%. Notice that debt service number. So we borrowed an incremental $225 million or paying less debt service for the next 11 years than we paid for the last 7.
Look at the return on equity. It's not insignificant. It's how we make money on a day-to-day basis. It's what happens when you buy the right property, with the right bones, in the right location and you put the right operating team together to change the profile of those tenants in terms of who they are, as well as what they're paying and you think about things on a long-term basis. If you think about the cash on cash return, this thing on an annualized basis, we went from, call it a, 7.4% to somewhere north of 9%. But given the amount of leverage we've been able to put on the asset and increases in the cash flow, it's a tremendous, tremendous way to create value through acquisition and operating assets and it's what we try and do when we buy buildings, and that's why we don't get preoccupied with what's the original NOI, return on an asset. We think about things on a long-term basis. We think about IRRs on a leveraged basis but we really think about IRRs on an unlevered basis and that's how we make our investment decisions.
Development. You're going to hear a lot about development today from our regions. We have an intrinsic ability to create value not just by buying, but by doing and figuring out the locations and the opportunities. NPR, 4 years ago, went to market and said, we're looking for someone to buy our old headquarters and build the building for us. There weren't a lot of choices in the city who could execute on that. We happen to be one of the ones that was selected as part of their RFP process and we fought like hell to get this site. Ray and his team did a masterful job of convincing them that we were the right people to develop their headquarters building and we're in the midst of doing that right now, and we have the capital and the strength of will to decide that we should be buying the site and carrying that site in what now looks like an amazing return for a building in Washington D.C., a 5% cash on cash return. You look at the asset acquisitions that have been made in the last 2 years, I don't think anybody is getting an NOI return of 5%, let alone a cash on cash return of 5%. And yet, you will see the ability to build another building and to create value. Here's a building that we're going to be deliver sometime between 2015 and 2016 at an average cost per square foot of $725, $730 a square foot hopefully, assuming Jonathan Kurtis can do his magic, he's our Head of Construction in D.C. And we're going to be generating hopefully 8.5%, 9% cash on cash return. What are the last buildings of quality trade for in Washington, D.C.? Somewhere close to $900 a square foot with an NOI return of somewhere below 5%. When it rolls over and it's fully leased, and it gets to a point where maybe the cash on cash return is 6.5%, they'll be well over $1,000 per square foot. Again, it's how we're going to create value, it's what we're about.
We do a lot of development. And sometimes our timing is good, and sometimes our timing isn't so good. The last 2 major developments we've had, I'm the first to admit, our timing wasn't great. We got hit by the wave of not terribly good news in the world. 250 West 55th Street, we sat on for the last year and a half and we're restarting again. Atlantic Wharf, we did a great job leasing space to the lead tenant and then we hit a tough cycle and we're re-letting that other space in the midst of a more challenging market in the downtown market. We're leasing space by the way we're others aren't But we're leasing space that rents are significantly below what pro-forma was. Net-net, we're going to yield on 2.7 million square feet including those 2 major developments, which again, we didn't hit at the right time, in excess of a 7% cash on cash return. If we pull out 250 West 55th Street, it's over 7.5%. Again, protecting value, creating value, doing it in a thoughtful way is what this company is about and what our mission is.
Thinking about how we deploy capital is a really hard topic today because we have just not been able to be price competitive with what has been going on with regards to the owners of assets and the competition on the side from the new buyers' perspective. When we think back at who was buying assets and what the strategy and the profile of those purchasers were in 2006 to 2008, they were really leverage buyers. They were operators who are operators only in theory not in practice. And they generally were looking to flip. They were looking to make a quick buck. Today, really different perspective. The people who are competing and winning bids are really core, core buyers who are thinking about their capital and they're thinking about overall return expectations and they're looking at real estate on a long, long-term investment perspective. In fact, they're probably looking on it on not even a 7- to 10-year hold but more like a 15- to 20-year hold. In fact, based upon what they're paying for these assets, our perspective is they've also returned, reduced the return requirements from -- we are underwriting every asset in the market, we are looking at these assets, we're thinking about what the right levels to bid are, and we're just not price competitive. I think as the guys who are operating on a day-to-day basis in these assets, in these asset markets, we appreciate what it really takes to lease space. We appreciate how much capital is required to reposition an asset. We appreciate what the challenges of many of the buildings that are being put on the market are. Outside third parties who are pension funds, Canadians sovereign wealth or pension funds, folks from the Middle East, core advice funds in the United States, they have a different perspective. They're all assuming that the sun is going to rise tomorrow and things are going to be better in the relative short term. Now they may not be aggressively better but they're going to be better. We don't necessarily have that perspective. We're thinking realistically about what's going to be happening in the markets and you're going to hear about that today. And so our view on these assets is that the right level of pricing may not be where these things are trading today. And if that's the case, as Mort said, we're going to be very thoughtful about how we deploy our capital. And as we do that, it may take us longer, we may not deploy capital in the short term. But when we do deploy capital, it's going to be based upon solid underwriting and an expectation that we're going to be able to generate high single-digit IRRs on an unlevered basis and hopefully, low double-digit IRRs on a leverage basis, which I think is what, you, as shareholders are looking for us to try and produce. We'll put more money to work in our development profile platform, we'll look for additional sites, we'll do build-to-suits, as you saw in that 2 slides ago, there are plenty of tenants out there who are expanding and they would like to expand with a landlord like Boston Properties. So to the extent that we can position ourselves to be their landlord of choice, we are going to do that and we will work really, really hard to deploy your capital and our capital as smartly and as aggressively as we can without simply looking to make deals or grow the company for growth sake. And with that, I'm going to stop and we will give the microphones out, and the 4 of us will answer as many questions as you have. Mr. Sakwa.
Steve Sakwa - ISI Group Inc., Research Division
I guess, it's a 2-part question. Mort, as you think about the 4 major markets you're in today and the headwinds that face each of them. If you could sort of talk about the market you think might exhibit the best strength over the next 5 years and which of your major markets might face the most challenges. And then I guess, to the point about underwriting, as you kind of look at the deals today, what kind of changes have you made to rent growth assumptions or lease-up assumptions in the models as you're targeting this mid- to high-single digit IRRs?
Mortimer B. Zuckerman
Well, I think, if I had to pick a single market that I think has a combination of considerable growth, lack of the ability to bring on a lot of new supply, and the least downside risks, I would have to say would be Washington. They are still -- at least one major tenant in this city that seems to have a very big effect on all of the space in this market, particularly the kind of space that we like to be involved with and the offshoots of that particular activity are still very, very important and will continue to be that way. So I would pick Washington as the best market. However, frankly, we like all the markets we are in on one level or another, and I mean, I think myself that New York is going to continue to be a very good market for us. That we've gone through all the major tenants in New York. The larger tenants, 100,000 square feet and up and there are heck of a lot of them are going to be looking for space within the next 3 years. So we think we're going to be able to, shall we say, garner our fair share of that market. And by and large, I have to say that New York has done very well to -- in the handling of this particular tsunami of bad economic news, this is particularly in the financial sector, the New York City financial world which is still the most important part of the local economy, not the only part. That market has really been -- those tenants have really been amongst the most who have benefited from the financial policies of the government. Ben Bernanke is going to become a heroic figure in all of the history of these different companies, because his monetary policies have really made a great deal of difference in keeping these companies going, and the margins that they have and what their activities and we see that in terms of the future of the city. I guess I would have to say that Cambridge is another outstanding market for us as Doug was already pointing out. For a while, frankly, our weakest market was out in the San Francisco area and that market has in the last couple of years, just really taken on a whole new growth pattern and impetus and so we think that, that market is going to pick up and it has picked up quite a bit and we're kind of looking forward to seeing what else we could do there. So by and large, for reasons that we went into these markets, they are all I think in one stage or another, are going to do fairly well in whatever the economy is that we have going forward, and we're very comfortable with that. As Doug was just saying, we do have a long-term perspective on this and we really think we can be very, very competitive given our financial strength, given our management team, given our reputation in terms of how we're going to do in each of the markets but that's the priority that I would probably give. Doug, you want to add?
Douglas T. Linde
Sure. So, Steve, when it comes to underwriting, I don't want to sound immodest. But if you go back to what we talked about in January of this year in terms of our views and what's going on in these markets. It is highly consistent with exactly what is going on right now except we were wrong on the -- in terms of being under more conservative about what happened in San Francisco. We said, we thought Washington, D.C. was going to be at best stable. We thought New York City was going to have de minimis amount of growth versus where we sort of were projecting rents, and we thought that the suburbs on the technology side of Boston in the Back Bay, we're going to be pretty healthy. And we've said, we don't understand why the San Francisco market hasn't started to perform because they're typically is the leader but it seems to be lagging in a significant way, what's been going on in the 128 in the Boston markets and lo and behold it took off to a wherewithal that nobody has ever anticipated. I mean as you'll hear later, it is clearly moved its way into the city itself. So in terms of sort of our rental rate assumptions and our growth rates, I don't think we've changed anything. I think the one thing that we have changed is we've increased the amount of time we think it's going to take to lease up space, and that is the fundamental sort of change that we sort of pushed through all of our underwriting. Because quite frankly, what we are seeing today, in terms of demand is not a reduction in demand per se but an expectation of there being a more elongated decision-making time frame. So where there might have been brokers in the market telling their tenants, you really should do something because we think that things are going up even though we at Boston Properties didn't think things going up meaning increases in rental rates were really going to be happening. There was a tendency to sort of try and push the transaction through and that given the uncertainty in the market and the volatility, they've we've taken their foot off the pedal and so things have just slowed down from that perspective.
Unknown Analyst -
Mort, going to your initial comments, as you think about the '12 election, your view with the status quo remains in the White House. Is the overall environment, business environment economy the same or worse?
Mortimer B. Zuckerman
No, I think it will get better after the election to be honest with you. I know, of course, I don't want to make political judgments but as long as you're asking. There was big real estate conference in Boston a couple of weeks ago and I was one of the speakers and one of the questions was, what do you think this administration could do? Or if you were the principal adviser to the President, what would you recommend that he do to improve the economy? I said I'd go over to him and say, don't run for a second term, that would be the best thing you could do. Look I think we -- nobody knows because we're going to see who is going to be the nominee of the Republican Party but my sense is that the President is in a very, very, very difficult position politically. And I think the odds are and we don't know for sure as I said, but I think the odds are there'll be a change and that the Republicans will take over. And whoever the Republican is, it will at least transform the attitude of the business community to the administration. And that I think will be a real bolster to the general sense of confidence that the business community has that they're going to be in a more friendly environment to invest and to start up companies. So in that sense, I think that will be a plus. Again, there's no predictability and you should know that I have been a Democrat my entire life. I worked for the Obama campaign and I supported this President and the Daily News endorsements, so just goes to show you how wrong I can be. Because frankly, I'm surprised and disappointed at his performance in the White House, and I think a lot of people are. And I don't think that's going to change and it's gotten to the point it hardened, the political attitudes have hardened. So unless there is a major fundamental event, I just don't see that the outcome is going to be different from the one I just suggested, and I think it will improve the business environment. I'm not sure what they can do in terms of macroeconomic policies, because I do think that, that is, we are very limited. We have the monetary policies is it's easy as it can be. Fiscal policies have been a simulating as it could be, and it had virtually no effect. So we are going through longer-term process of working through something that is not totally affected by these 2 policies, namely the resolution of the overhang of debt and that generally takes a much longer time than typical recessions. So I don't think the economy is necessarily just going to take off. But I think it will affect the sense of confidence in the business community, and I think that will make a big difference. I have never witnessed the kind of anger in the business community towards an administration that we've had towards this administration. And it goes to levels that, frankly, are just -- that don't even make sense, I think as somebody who doesn't understand this country, doesn't know what the country is about. I don't think that's it -- I just they have a different ideological view that is at odds with the business community whom they have felt is responsible for a lot of what's happened. And I mean, I have various friends in the corporate world and one of them who was the most gentle and easy going recently called me up, literally and said, "What can I do to go after this administration?" He was in a rage over this. Well, this doesn't happen casually. And I think that attitude again, has hardened. If you look at the level of confidence in the business community and the attitudes towards this administration, it's like nothing I have ever seen in the 50 years that I've been in business. So I do think there is going to be that change. Exactly how much of an effect that will have and how quickly they'll take to have an effect is something that you just can't judge. But I think it's going to be a positive, and I think we will therefore, be helped after the next election, and I think that will give a little bit more energy to what I always referred to as the animal spirits of the corporate world.
Unknown Analyst -
But what if there is no change [indiscernible]?
Mortimer B. Zuckerman
Well, then I would have a slightly different opinion.
Unknown Analyst -
This question is I think for Doug and for Mort. Doug, you had talked about extending out potentially the time it takes to lease up space and if I think about an IRR calculation, that might imply that if the cash flow growth perhaps is coming a little later than one would have expected, in order to achieve the same IRR, one has to see a higher going-in yield. And I guess, Mort, maybe part 2 of that question is you would, I think, tried to suggest that housing prices might be falling here going forward. Is the same going to be happening to commercial real estate pricing if I start putting these comments together?
Douglas T. Linde
Well, I'll try and answer the first question and give Mort a good opportunity to answer the second question in a firmer statement. So you may have noticed that we haven't bought anything recently. So at least from our perspective, those return numbers haven't changed. Other people, in my opinion, have been more aggressive about what their growth rates have been and I am sure they have been much more aggressive about what they think it will take to do in terms of leasing up space. And if they do that, then their number will be higher technically than what the number would be if we were to that same underwriting. I think that to some degree there's a little bit of -- well, we're hopeful that things will be better. On the other hand I think they're saying, you know what, on the downside, and this is again, this is an opinion, not I can't demonstrably say this is what's going on. They look at themselves in the mirror and say, if we're wrong, so instead with being a 7% IRR, it's a 6% IRR, it's a 5.75% IRR. My investment committee is telling me invest the capital in the real estate. And am I going to get hurt here? Other than the opportunity cost and they say, probably not. And I'm being told, invest the capital in real estate and so they're making these acquisitions. And if you look at who the buyers have been most of these buildings, it tends to fall into that type of a time frame. So my view is that the one thing that may affect real estate pricing is interest rates. And that's the question as to how long will we sort of be in a position where we're in this low interest rate environment. We saw a 200 basis point spike in interest rates. Clearly, it's going to affect valuations.
Mortimer B. Zuckerman
That's the point that I would underscore and you saw it with 601 Lexington, what we used to call the Citicorp building. I mean, whatever we did with that building, one of the huge impacts on our IRR has been the change in the interest rate environment because we were able to do that financing on terms that frankly, we had not imagined. And I think the fairly low rates are going to be prevalent for quite a while and so I think whatever is going to happen to rents, the effect of the different financial markets is going to be very significant to our IRRs and we don't see that the fact, that the rent growth may be a little bit slower than what had been occasionally in the past. It's going to be, shall we say, a countervailing force to the benefits of the better financing and as you've heard all of us say, we really do have a longer-term perspective. And if we can do the financing on very good terms, even though the rents may not be everything that we would like, we will still have a positive influence in terms of leverage on our IRRs and over time, if we have the right real estate, we think we'll pick up the revenue line a lot more dramatically and have that as a long-term aspiration, at which has worked out over and over and over again and we think that will happen again. This is not a permanent problem that we're facing here. It may be a longer-term problem than any of that we faced in any previous recession. But it's not a permanent problem, and I think therefore, that we can anticipate that over time when you have the -- or try and have the best assets, in the best markets, in the best location, there will be times when there will be that enhanced revenue growth beyond what we would normally put into the projections at this point. And the long-term view of it, that's been our experience, and we think that we'll continue to be the experience.
Unknown Analyst -
A couple of quick questions, Mort, going back to your favorite subject. First you noted, Ray Ritchey was a 50-office, 52-week high you talked a little bit about Ray being a great deal maker, great relationships. You then went and talked about the White House really having no deal-making ability, do you see him as a viable candidate in the November of '12?
Mortimer B. Zuckerman
Well, actually, we are submitting his name to head the Social Security Administration. Listen, I do think that -- look, anybody who's read about the relationship between President Reagan and Tip O'Neil would get an understanding of what it takes to be effective in government. They were people on the opposite sides of the spectrum and President Reagan, I have the -- really the -- it turned out to be a real privilege to work with him for 4 weeks because the Moscow Bureau Chief of U.S. News & World Report was jumped by the KGB and I immediately flew over to Moscow to try and negotiate his release since I had a membership there in something called the USA Canada Institute, which was a clearing ground for all of the people who worked with that government at that point and I knew the head of -- the leaders of it very well. Anyways, I go through the foreign office and the Foreign Minister says to me, there's no point talking to me, it's KGB, might as well talk to the KGB. Our next meeting with the KGB and I meet a 3-star general. So, look, it's very simply, you caught one of our guys, we caught one of your guys. You want your guy back, you got to give us our guy back. So I came back and ended up, not even anticipating spending the next 3 or 4 weeks in the White House and meeting virtually every day with Reagan and George Schultz and Bill Casey and John, not Poindexter. I'll tell you just one little story about Bill Casey. I met him there and every time he came to my office at the end of which was 4 times, at the end of the day, every time he was wearing a black tuxedo and every time his fly was open. You're sitting there dealing with the Head of the CIA and you don't know quite what to say to him. And -- but Reagan, was absolutely fabulous at these meetings. He got the point every time, every single time, and he was very decisive and everybody liked working for him so much that he really was able to get the staff not only to support him but to really find every way they could to help his decisions come out better and to have him look better. And he was a wonderful, wonderful storyteller. So as long as we're on the subject, I have to tell you his favorite story, which I told the gang 2 years ago. I was asked to speak at the annual Reagan Library dinner because I got to know both him and Nancy Reagan. So he loved to tell stories about the breakdown of the Soviet economy particularly under Gorbachev because this is the man he was dealing with and they had so much trouble with their agriculture that they decided to experiment with a large swath of agricultural land up at the Soviet Union instead of the collective, they broke it into smaller areas and turned them into family farms because that was what worked so well, in Europe and indeed in the United States. And unfortunately the people who then had to make the decisions on their own weren't used to making decisions, so they had almost a complete breakdown and grain production dropped. And as a result of that, they didn't have enough food, enough grain to feed both the people and the cattle. And so what do they do, they had to kill the cattle. At that point milk production dropped. And in this particular part of the Soviet Union, a farmer had 3 young children, he decided he couldn't depend on the milk supply, so he was going to go and buy his own cow and he goes to the place where they sell farm animals and get down to 2 cows and he says, "How much are these cows?" "Well, this one," they said, "is 10,000 rubles, this one 2,000 rubles." "So why the difference? Does it produce more milk? Or better quality milk?" "No, no, no. The same quantity, the same quality." "And why the differences?" "The more expensive one is from Moscow, the other one is from Ossetia?” "For that price differential, I'll buy the cheaper cow," which he does. And it does produce the amount of milk and the quantity and the quality that he'd been promised. He's so pleased, so he decides to bring in a bull to increase the size of his herd. And that's when his troubles began. The bull went into the barn, the cow went into the field. The bull went to the side of the field where the cow was. Cow goes to the other side of the field. Bull goes to the other side, cow goes to the -- couldn't get the 2 of them together. And one of his neighbors, who is the expert in animal husbandry. And he says, "What shall I do? I don't know what to do. " "Is your cow from Ossetia?" He said, "Yes, how'd you know that? " He Says, "My wife is from Ossetia." I don't know where I was, I got caught up on that story. But I think my colleague tells me that I answered the question.
Unknown Analyst -
Well done. Doug, a serious question. Dispositions obviously, you guys did it, knocked the cover off the ball in the last cycle selling high. That's something really hasn't come up much this morning. Can you elaborate on your thoughts there, if pricing continues?
Mortimer B. Zuckerman
Yes, I think, when we -- what we have tried to do and I'm not saying we have succeeded perfectly but we really worked hard at this. As we say, to have 8 buildings in A locations. And sometimes you have a B building in an A location, or an A building in a B location and it doesn't mean they're bad locations. We have the largest office building in Richmond, Virginia, Chevy Chase or Baltimore. These we think are -- we had terrific buildings but we didn't think these were A markets, and so we sold them. And we are very careful about both the markets and the buildings. Why you don't have the total ability to pick out every building that you want in every market, it just doesn't work that the way. So it never works out exactly perfectly but you try and approach it as closely as you can. We do think that there will be opportunities for purchases and we are trying to make sure that we are positioned in terms of our capital availability to be in a position to do that and to move quickly and not to have to rely on financing. And those opportunities in terms of the quality of the assets that we want are few and far between frankly.
What we have found though is that we saw what the market was. There was a kind of, shall we say, a lot of enthusiasm, even a certain amount of froth in the market, I think there will be, over time, the opportunities to make those kind of purchases and we'll be present. We are also, at least, exploring the possibility of going into 1 or 2 other markets. We looked at Canada, for example as another market. Toronto would've been a perfect market for us for various reasons because it was very high-quality buildings in a very supply-constrained market in the downtown area, but they had tax problems that would've made it difficult for us. So we're open to other markets in the United States and we've even looked in other English-speaking countries like France. Think about that. Anyways, we're open. But frankly, our best, sort of -- if I have to pick out a sort of our preferred approach, our preferred approach is to stay in the markets that we are in and try and expand the activities, either through acquisitions or developments or development sites in the markets that we are in. That's our #1 choice. It doesn't mean we're going to restrict ourselves to that, but that's basically our -- that's the A-list for us. And you never know. I mean, we are looking and we're trying to be competitive sometimes. We haven't always won, but I think we can be competitive in the markets we are in and be able to make some acquisitions. We'll just have to see how that plays out.
Douglas T. Linde
And on the sales side? We look -- I mean, it's common knowledge that Two Grand Central Tower is on the market. We are working through that, hopefully the end of a transaction. I'm a little gun shy about announcing deals, even though if we have a signed PNS, that sort of thing, given the experience we have with Carnegie [ph]. There's no reason to expect that we won't consummate a transaction, but you never know. There are other assets that are less strategic in some of our suburban markets that are probably the kind of assets that we would not mind disposing of. I will tell you that the capital markets, from a purchaser perspective, are wholly different when you talked about suburbia, particularly non-core suburbia, meaning -- it's one thing to talk about Reston, Virginia, as suburban. And we're told that Verisign, for example, is going to pay over $500 a square foot to purchase their headquarters building in Reston Town Center, a building that P. Dopney [ph] and Peter Johnston built for them, and that's a fee development just as a little plug, 7 years ago for Sallie Mae. But that's different than a building that's leased to a moderate credit on a 7-year basis in suburban Maryland or suburban Boston not in Waltham, Massachusetts, which is quite frankly the kind of buildings that we wouldn't mind disposing of. So we're going to be thoughtful about it. They're not of a size that are going to make much of a difference in terms of our capital availability, but from a management perspective, it would be nice to sort of move out of some of these assets and focus more of our management attention on the core clusters of areas that we really think are going to be high-growth places for us.
Joshua Attie - Citigroup Inc, Research Division
Can you talk about your thoughts on the residential business? You had success at 2200 Pennsylvania Avenue, and I know you're doing more at Reston. How big of a piece of the business do you see this becoming? And would you consider doing stand-alone residential as not part of a mixed-use development?
Douglas T. Linde
So Josh, just to give everybody a sort of quick update, we have 2 residential projects. We have Atlantic Wharf, The Lofts at Atlantic Wharf, which opened up in July, I think. There are 86 units and we've leased 58 of them, okay? And we, I think, gave ourselves a year to lease those units up so we're 67% leased, and we are somewhere between 5% and 7% above our pro forma. And we had reasonably lofty expectation, no pun intended, for those units. And then the second project is called The Avenue and it's 2 blocks away. You'll walk by it, I think, today, right? And that's 335 units and we've leased 213 of those, and that opened up the last week in May, right? And we are about 65% leased there, and we're probably 20% above our expectations in terms of the velocity of leasing, and we're about 10% to 15% above in terms of what our market rate pro formas are. Just as we were not terribly lucky in terms of our timing on the office space at Atlantic Wharf and our 250, we've been really, really fortunate on the timing of these residential projects. And these both are going to generate cash on cash returns close to, if not in excess of 7% in the case of the building in Washington D.C. and close to, if not in excess to 6% in Atlantic Wharf. And 2 years ago, we identified Block 16. Mike was talking about places we thought we should be identifying distressed pieces of opportunity for us, and we purchased a note from a triumph [ph] from our banks and went about designing and permitting a project in Reston, Virginia, which is an infill location but it's a standalone building, but it is a part of a cluster where we operate. And we're going to be breaking ground, knock on wood, sometime in late December on 350-unit apartment building in Reston Town Center. We get the development business on the apartment side. We understand how to do it. We have people who've done it in past lives. We get the construction. We get the marketing in terms of unit layout. We don't operate apartments. So we do not have an expertise, and there's a VIG that we lose on the operating side, and we try and hire smart third-party people to do all of the sort of hand-to-hand combat on the marketing side. So would we do a standalone building in one of our markets? Absolutely. Are we looking for sites? We are. Are we going to acquire sites to do stick-building construction in suburbia? I don't think so. So it's an important opportunity for us to pursue. It's something that we are thinking about. There are sites that probably don't make sense necessarily today as office sites that could work as apartments. We're obviously cognizant of the fact that everybody is building apartments all over the place right now. And so you've got to be thoughtful about those locations and the opportunities there because we don't want to find ourselves just sort of doing this because we couldn't do an office building and therefore we should do a residential. It's got to be the right time for a particular project.
Unknown Analyst -
Given the view on the macro and the ability to deploy capital, which seems like that's also being stretched out a little bit saying it could take a little bit longer, what is sort of the view on the dividend currently, and vis-a-vis cash preservation and then leverage?
Douglas T. Linde
I'll start and one of the Mikes can chime in. So 2 years ago, when we were in what I would refer to as a rather tumultuous and volatile liquidity event with regards to the freeze-up in the capital markets, we looked at ourselves in the mirror and said, "We shouldn't be paying out more than we have to on a dividend." And we raised equity at an evaluation and I think, in hindsight, we all would've preferred not to have raised equity yet. And the cheapest form of capital for us at that time was to reduce the dividend. And we said, "Look, we're going to put the dividend at a rate that makes sense for the next couple of years." Unfortunately, from the perspective of cash preservation, our income is growing. And so we're going to be in a position where, towards the end of this year, beginning of next year, our taxable income is going to be at a point where we're going to have to raise a dividend. I mean, it's a natural ordinary course of events. Do I think we'll raise the dividend in excess of what we have to if we thought we were never going to put capital to work? I think the answer might be yes. I am really hopeful that what Mort said is going to come true, which is we are going to find opportunities to deploy capital even if it takes us longer than we otherwise would've wanted to. And having the availability of cash on our balance sheet or at our lines, instead of having go out and do a structured transaction on the financing markets, or to have to tap the markets might not be in a particularly opportune time is a big quiver in our arsenal right now, an arrow in that quiver. So I don't think we're going to be aggressive about raising the dividend in excess of what is appropriate from a taxable REIT perspective.
Michael R. Walsh
I think you covered everything pretty well, Doug. I think if there's maybe one additional question, we'd love to take one. I think Jeff may have had one, and then it would great to try to keep on schedule a little bit after that. Jeff?
Jeffrey Spector - BofA Merrill Lynch, Research Division
Going back to the organic growth slide, we're hearing more and more about tenants shrinking their space. And just thinking about how the internet's changing the retail landscape, can you talk to us about your views on the office landscape over the next 5, 10 years, how do you think things will change, CBD or suburban?
Douglas T. Linde
I'm going to beg off on that question for one reason, which is you're going to hear our regions in the next hour and a half, and you're going to hear the answer to that question in 3 or 4 different ways based upon how those regions are dealing with their particular markets, and I think you're going to be surprised at what you hear. So we'll take one quick more question if there's one more because I didn't answer that one. Is there any other?
Unknown Analyst -
A question, I guess, for Mike. I guess a little discussion on the European banking crisis. You've talked about potential impact to the U.S, I guess, real estate secured financing and bank buying markets. If European banks reduce capacity, they seem to have been big players in the core CBD markets in New York and Washington.
Michael R. Walsh
It's mostly the German banks that have pretty consistently played a big effort in providing some nonrecourse secured financing, not really playing the unsecured marketplace. We have not seen them that active over the last 6 to 12 months. I would say that Asian banks, in many cases, have taken their place and expanded their effort. I will say that we have not seen, as we go out and finance things like 601 Lexington Avenue, which is a real effort and a real feat, we had a lot of demand from insurance companies from German banks, from Asian banks, even from CMBS, although they couldn't be competitive for that type of financing. So I feel like the landscape, in terms of the number of players that are out there, are sufficient to provide a competitive environment for that. There is certainly lenders coming in and out of the marketplace and, for example, the Irish lenders were very big several years ago and the Irish lenders...
Unknown Analyst -
They're very small now.
Michael R. Walsh
Yes, very small. Some of the German lenders have clearly moved out of the marketplace. I mean, some of them are still maintaining their offices in New York City, they're still actively trying to put out capital so I don't see them going away. The other European lenders from places like Italy and France, never really a big part of the marketplace, honestly. Even the English bank, never a big part of the marketplace. And obviously Barclays, people like that, are investment banks that are never a big part of the secured lending environment. So I really think that there's sufficient competitive lenders out there for us and what our needs are. And obviously, one of our strategies is to make sure that we can access all of the marketplaces. So to the extent that there is disruption in the secured marketplace, we can go to the unsecured marketplace. And that was a decision that we actively made 7 or 8 years ago, 9 years ago even, as we grew the company that you really -- it's really important and you really have to have all of those arrows in your quiver.
Douglas T. Linde
I'd just make one last comment, sir, that the number of domestic banks that are aggressively trying to get into the real estate lending business today and the pricing levels that they're offering and the terms that they're offering demonstrate that there is a dearth of opportunities to make to loans right now. And whatever capacity might have been sort of lost in the European banks has been way more than made up with the domestic banks. I mean, there are money center banks in New York City who wouldn't touch real estate, particularly construction 5 years ago who are beating down James McGully [ph], who is our debt capital markets person's door saying, "Here's an offer for a $50 million construction loan or $100 million construction loan," that we're shocked at.
Michael R. Walsh
Shock means welcome.
Douglas T. Linde
So what's our transition, Mike?
Michael R. Walsh
I think that we're going to bring the Washington team up, and Mitch is going to talk quickly -- talk a little bit, and you guys can hang out right over there.
E. Mitchell Norville
I really wish I had a cow story, but I've been thinking about it for 15 minutes and I can't come up with a good one, so I'm just going to jump into what Mike and Doug asked me to talk a little bit about, our operating platform and about our efforts in sustainability here. So I'll take a few minutes to discuss each. You've already heard Doug mention how we can create value through our operating platform. You heard Mike Walsh give a couple of examples.
And really, we're able to do it because we're kind of really focused in 3 key areas on our operating platform. The first item is customer service, and we want to provide best-in-class customer service. We want to continue to build and protect our brand as an office manager and we take that seriously. And I'll get into some details on how we do that in a minute. We also have a real focus in controlling operating costs. And this isn't just about minimizing costs, this is also about reducing costs and taking opportunities to do that when available. And I'll give you a couple of examples about that.
Thirdly, and I think you heard this also earlier today, we're really focused on capital investment, really focused on keeping our A assets, A assets, and I think Mike talked about Bay Colony earlier, which is a great example of an A asset that faded away from an A asset to something else. So we're going to bring it back to life with significant capital investment. I think the Boston team's going to go into that in great detail later.
So with those 3 focus areas, if we do these things well, as Doug alluded to earlier, we can really create value. We can drive occupancy. We can drive larger operating margins, which really create value on our portfolio.
So let's take the first item, customer service. Customer service really starts, and I think this is mentioned earlier as well, starts with our people. We have a real focus on our staff and about being adequately staffed, about having the right expertise to meet the tenant and property demands of each of our properties, about finding creative ways to use our staff to provide better customer service and to structure ourselves in ways that might not be typical to the industry, and I'll give you a couple of examples about that. And we really are focused on hiring at the junior levels in our company. We found out over time that we really do a better job of staffing our properties when we hire young people and train them to do it kind of our way, and that's where we take a real focus on.
Let me give you a quick couple examples of how staff is important, how we can be creative in saving money. Two different properties we have in our portfolio. One, the Prudential Center and Reston Town Center, which I think Laura's going to talk about later in great detail, so I won't touch on that one in detail.
But at the property in Reston, we have a portfolio approach to property management. We have basically a single group of people that operate multiple properties. That's not typical to the industry. By doing that, we've been able to use less staff. We've been able to leverage our most experienced staff and create a larger base of junior people, and really provide better customer service because we have more hands and more eyes, but at the same time, keep our operating costs down which keeps our margin high. And I think Laura's going to go to great detail later on about Reston. I think it'd be a great example on how we do that across our company.
Secondly, customer service means focusing on processes and systems. We're continuously looking to do things better. We're continuously looking to upgrade our systems to be better responsive to our tenants. One example of that would be a simple work order system. It's something everybody has in every office building. We formed a partnership with a company called Angus, and over the last 3, 4 years, we've gone from basically a system where people would call somebody in our property management office with a problem, we'd write it down on paper, we'd radio an engineer, they'd go solve the problem, they'd come back in and report on it. And this might take several hours to a couple of days to resolve.
Now we're in a situation whereof, through the internet, our tenants, about 90% of our work order requests come in over the internet. We can then take those requests and then directly send them through the internet to the field and have somebody address the problem and respond through the internet when it's actually been completed. So we've taken tasks that used to take us multiple hours to get responses back to our tenants and cut it down to an hour or 2 from where it used to be.
A good example of our property management staff is always looking for ways to be more responsive to our tenants and to be a forefront in our ability to keep them happy.
The second area of our property platform is controlling costs. And what we've done is we've really focused on sharing best practices across our regions and working as a group to find ways to lower cost. And a couple of good examples of this was about 2 years ago, I think Laura had a task team in our company to bid elevator maintenance. Now that doesn't sound too sexy, and typically do elevator maintenance on a region-by-region basis. And we said, "Well, why can't we do this nationally? Why can't we take our 40 million square feet or thereabout a big portion of that, and use that leverage to get better pricing?" What they did and what they did in about a 6-month period is lower our operating costs across the portfolio about $15 million over 5 years, okay? And in just one bid. We're able to do that, take that same approach and we've done it with other industries, we've done it with cleaning, we've done it with security. And in general, we've lowered our operating costs in the 2-year period between '09 and '10 with an energized effort on bidding. We lowered our operating cost about $30 million across the portfolio, which is really significant when most of that, I'd say, about half of that fell to the bottom line because of reimbursables and what-not.
We've also continued to develop projects in our buildings to provide better response time to tenants and better processes to save money. Again, that was part of the $30 million in savings.
The third, and kind of the most noticeable part, I think, of our operating platform that you probably see is our investment in capital improvements. Over the last 3 or 4 years, we've continued to invest at a steady rate. In '08 and '09 when things got tough, we didn't drop our capital investment. We kept it in the $20 million to $30 million range. And just a couple of examples of what we did in that timeframe is we spent about $12 million to redo the Pru Center lobby. We spent about $22 million to redo the entrance and lobby at 601 Lexington Avenue. We've done multiple lobby repositions into both our suburban and downtown portfolio. And we're currently in a $25 million repositioning program at Bay Colony, which I think Boston's going to go through in great detail, another example of how we use our total team platform to make our properties better.
Lastly, I'm going to touch a little bit here, I think, on -- so it's kind of a bit on what we do on our operating platform. We're going to talk a bit about sustainability. Sustainability is a very large, broad topic and covers a lot of ground. And what we decided to do was kind of simplify it for our staff, because we want to make sustainability kind of part of what we do day to day. It's not a separate effort from what we do on a regular basis. It's part of what we do and what we should be doing to be responsible as a company. So we've kind of created 3 areas in sustainability: energy conservation, water conservation, waste and recycling.
So what have we done to promote these items in sustainability? Now let me run through some examples and then later on, we can talk in detail if you want to. We are currently building all our new construction LEED-certified. We've completed 5 projects to-date of over 1 million square feet, and we have currently have 5 projects totaling 3.2 million square feet under construction. That's pretty substantial compared to our peers.
We're working our way through our portfolio and establishing our LEED EB program in a major way. LEED EB is still an evolving program. It's not as far along as the LEED Certification on new construction is. So there, we've got 3 or 4 buildings completed and EB-certified, and we have 2 or 3 other buildings in process. And we would anticipate over time, as that program evolves, that it becomes a bigger part of what we're doing, and a substantial part of our portfolio will fall into the LEED EB certification program.
I think most importantly, what we've done with sustainability is we've created sustainability goals for each of our employees, and that goes from Doug and I down. So when the board gets my goals at the end of the year, when the board gets Doug's goals at the end of the year, we have sustainability goals and those goals are then ratcheted down through organization, through everybody in property management, development, construction, regional managers and so on.
These goals revolve around making sure that our properties are all ENERGY STAR certified, revolve around making sure that we're increasing water conservation on a yearly basis, that we're making progress. And also that we're also making progress in recycling on a yearly basis in all our portfolios.
We have established a sustainability task force where we share best practices across our company. So in property management, we have a group of people representing all the various regions that share new ideas, creative ways of being more sustainable, and we are implementing those things across our portfolio. We've established educational goals for our employees. Well over 60% of our development and construction staff have passed the LEED AP exam, and a substantial portion of our property management staff is in process. It's either pass or is in process of being, I think it's Green Associates, LEED GA.
Lastly, I want to talk a little bit about our reporting on sustainability. We started a couple of years ago with some simple reporting in our proxy statement and we've evolved over this past year to developing a web page where we report on our sustainability and there's been a lot of questions about what we're doing and we're trying to get the information out. We're a fairly conservative company I think you've picked up on that by now if you've talked to our guys. And we're being really careful that as we develop data on energy, water conservation and recycling and whatnot that we have a way to replicate that process every year. And that when we give you data we're confident that we can repeat the process and give you good data the next year so you can start to measure our improvement in a very meaningful way. So while we've started the process of being more public about our sustainability, we understand that we still have a ways to go and we are going to evolve over time and do a better job of giving you more detail and more information on what we're doing in our program. I think the last thing they asked me to do is--On your desk is your gift. We did talk about giving everybody iPads but we decided that wouldn't be appropriate so what you'll see on your desk is a bag of seeds. And what we've done instead of buying gifts for you guys is we've made 2 charitable donations. We made one donation to the STD Center here in Washington D.C., which is a fantastic charity that does child development work and adult education for underprivileged families. Actually, I get a lot of support and help from Ray Ritchey and others at our Washington office. And we've also made a donation to the American Forest Foundation, which we think is apropos with our emphasis on sustainability. So hopefully you can appreciate that and maybe in 3 or 4 years, if the economy really does get better, we can give you an iPad or something, okay?
With that, I'll stop my remarks and we'll move on. I think DC is next.
Peter D. Johnston
Good morning. I'm Peter Johnston, I'm the regional manager here in Washington. To my left is John Kaylor, the Senior Vice President who runs our leasing group. We're going to give you an overview quickly of Washington. I'm going to take you through some metrics about the size of the region, et cetera, where our revenue comes from and so forth. And then John is going to go into the submarkets, and then I'll finish up with talking about future development.
So this is the kind of the in-service portfolio composition. You see we've got 48 properties, about 10 million square feet. We're just under 96% occupied right now, and you see the rents there of just over $51 in our CBD properties and just under $40 in our suburban. Down below, the development portfolio, we've got 1.7 million of active development going on right now. The Square 54 project alternative referred to is 2200 Penn and The Avenue will be moving into kind of in-service buildings in the next year or so, so that number will come down but then we'll be adding some new developments. And as the footnote indicates, that also includes the redevelopment of our Patriots Park project, which we'll be talking about later.
We've got about 5.2 million square feet of developable land, and I'm going to address that in a bit because at the end of the presentation, we actually think we can get some of that increased and upzone it. And we currently have about 816,000 square feet of fee developments that we've got ongoing.
The breakdown of the revenue for the region is illustrated here, about $411 million annualized. The NOI is $288 million, and the breakdown here is about 1/2 from Virginia, 40%, you see there from D.C. and the balance from suburban Maryland.
We were asked by Doug and Mitch to kind of address for you some of our regional near-term goals, and illustrated up here on the screen is what we put together in the Washington region. The first is we talked about the NPR site. The address of that building is 601 Mass. We are in the process of designing a new 470,000-foot freestanding building. It takes up an entire block. It's triangularly shaped. For those familiar with our 901 New York Avenue project. It sits immediately on the other side of the Carnegie Library there. And it's at just a tremendous location. It's the anchor, really, of the northern retail piece of the Seventh Street retail quarter and it's at the nexus of Mass. Avenue and Kay Street, and we're very, very excited about it. We'll be talking about that in more detail. But our challenge really is to find a substantial pre-lease and we're, as I said, I'll mention in a moment where we are with that.
The next is, it's kind of continuing the standard we've had in the Washington region of maintaining and aggressively managing our future rollover. John, Ray, John's leasing team has done a tremendous job at that, and he'll address it a little bit more in his remarks. The other is to maximize the future development potential in Reston at our gateway site. As many of you are aware who were on the tour yesterday, you saw the construction of the Silver Line, which is an appendage to the Orange Line that runs out to Vienna, Virginia. It's going now through Tysons Corner and will terminate in 2013 at Willie Avenue about a mile just east of Reston Town Center. And the next phase, which we'll complete in 2016, it'll actually go right by our Reston Town Center project and our gateway site, and we'll talk about that more at lunch.
Repositioning our greenfield office sites, these are really 2 that we have in Maryland, 1 in Virginia. And the object there is that the number of these sites we've had for quite a while, and to look at them maybe in a different way. As I'm going to talk about momentarily on the last bullet about finding new acquisitions and development opportunities, if you look at the successful kind of developments we've executed recently, Wisconsin Place in Chevy Chase, mixed use transit orient sitting on the Friendship Heights Metro, Reston Town Center with the Metro coming, the mix of retail housing and offices there. And where we're going to go this afternoon and we're at last night, 2200 Penn with a mix of retail across again from the Foggy Bottom Metro with a very high-end office. To take these suburban greenfield sites and try and figure out if there's a way we can, from an entitlement perspective, go back to the various municipalities and get them to look at maybe thinking about them in a different way, particularly given their budget constraints and trying to increase the tax base.
So that's kind of the last 2 items up there I talked about. And in terms of the acquisition opportunities, it is finding those things that just as they're important to us. More importantly, they are important to our tenants to have those mix of uses in those 24/7 environments that have a lot of amenitization. So I will now turn it over to John. He's going to talk about our various submarkets here.
Thank you, Peter. The D.C. office has been very active over the last 2 years. Historically, we're involved in about 1 million square feet of new leases, renewals, expansions and so forth. In 2010, we are involved, and this is the entire office, not just leasing, 2.6 million square feet of transactions. So far this year, we're about 1.2 million. We're on track for about 1.5 million. Very active, again, over the last 2 years, very challenging times, I think, validates that good buildings in the best submarkets will outperform the competition. These are the submarkets that we're in, in each of the jurisdictions. This says just as much about the submarkets we're not in as the markets, the submarkets that we're in. Each submarket, like our other regions, have their own dynamics. But in Washington, for instance, they're not effectively 9 submarkets. We're in just these 4, and really Southwest, Southeast are 2 different submarkets but they're locked together for many of the brokerage firms' comparisons.
In Virginia, there are 23 submarkets. We're in, effectively, these 2. And in Maryland, including Anne Arundel County, which is where Fort Meade, the NSA development is, effectively over 20. So again, the best submarkets, we think, are these that we're in.
Let me explain this slide. Some of these arrows were supposed to be red, but I guess they turned out a little brown, but that's okay, or black. let me explain how this slide works because we'll use this for each of the jurisdictions. The chart on the right looks at Q1 '11 to Q2 '11. The change in these 5 categories, net absorption, delivery and so forth.
That chart relates to the left column of arrows. The right column of arrows is Q2 '10 to Q2 '11. So basically, a year-to-year comparison. Green is good. In this case, black is bad. Some cases, the down arrow is good, some cases the down arrow is bad. Green is good, black is bad and yellow is sort of in between. But just to give an example of how this works, specifically, if you look at net absorption in the chart on the right, Q1, Q2 net absorption went down. That relates to the top left arrow, which is black down, net absorption going down is not good. Q2 '10 to Q2 '11, again down, black. Absorption in Q2 2010 on the district was almost 1 million square feet. So I think you can get a general sense of how each of the submarkets, the regions, the general market by this, the number of green arrows versus the number of black arrows.
A couple of things about this chart, in particular. If you look at the deliveries in Q2 '11, no deliveries. Again, a reflection of the activity in the market on that site. If you look at the groundbreakings down at the very bottom of the chart, there is spec development going on. That's primarily the Heinz project at the convention center, about 500,000 square feet of that. The rest of it is 500 North Capitol, our project which we'll drop by this afternoon.
If you look at each of our particular submarkets, the submarket overall in terms of the number of square feet and the vacancy. You look at the vacancy in particular, 5 submarkets 9.5, 13.5, 7.1, 8.6, you drop down and look at the BXP portfolio, both the size and the vacancy percentage, you can see how we've outperform the market pretty significantly. We've included 500 North Capitol in the far right, the Capitol Hill submarket. And Capitol Hill and Normandy [ph] really are 2 different submarkets, although again we use Cassidy Turley's information here. They combine those 2 submarkets, but they're really 2 separate. We include that really to get some information in here about Capitol Hill, but you can see again by our vacancy how we continue to outperform the overall market.
If you look at the Southwest expirations in 2011, 2012, our portfolio, that's primarily 2 major expirations. Mathematica at Cap Galleries, about 90,000 square feet expiring in May of next year. We have commitments on about 1/3 of that already. And the other expiration is a GSA deal, Social Security at 500 East Street, they have a fixed renewal, fixed rent, so the anticipation is they will exercise that.
The major demand drivers from a tenant standpoint for downtown really law firms and the federal government. We were asked a lot yesterday about our view of the impact of the debt issue on Capitol Hill, and I think there are 2 factors that we have to look at. One is the impact of the federal government leasing space itself to either through the GSA, General Service Administration or private contractors, through cutbacks and procurement or programs.
On the first item, which is the amount of space that the federal government will continue to lease. They lease about 55 million square feet right now in the national capital region. That's out of about 350 million square feet total. So they play a major role in this market. So anytime they pause, it obviously has an impact on the market, and they're in a pause situation right now. But annually, 10% of those leases expire. So 5 million to 6 million square feet, they have to do something.
So what's going to happen? Nobody really knows other than we don't think any agency is going to lease additional space in the near future. What will probably happen is with these leases that are expiring, they'll renew, stay in place and that's not bad. Minimize TI dollars, minimize downtime. We have about 3 larger GSA leases that are expiring between now and 2014. We're in discussions with each of those right now. So again, the impact will be a pause. I don't think it'll be all negative.
On the second aspect, which is procurement dollars, cutbacks in programs, it really depends on the nature of the program. I think there'll be a cutback in material spending, particularly on the Defense Department side, but intelligence spending and cyber security I think will do okay. Obviously, there'll be some impact but I think overall, those programs will be okay.
Moving on to Northern Virginia. Again, a couple of things to point out about this chart. If you look at the right, you can see the change in net absorption overall. Year-to-date, this is as of the second quarter. Again, the third quarter figures are just coming out. But as of the end of the second quarter, roughly a negative 39,000 square feet of net absorption but there was a pretty significant turnaround between the first quarter and the second quarter. Q2 '10 versus Q2 '11. Q2 '10, we had 650,000 square feet positive absorption in northern Virginia. I think overall, things are like the district in a pause. Zero deliveries that you see there, 0 groundbreakings. But we will have, in the third quarter, several groundbreakings showing up. We talked about this on the bus tour yesterday, particularly the Lerner project, and Tysons' about 500,000 square feet. Close to the Metro, they're going spec. Matheridge [ph] is talking about going spec on another 500,000 square feet right at that First Metro stop. So I think we'll see activity picking up on the groundbreaking side. The demand drivers particularly in Tysons Corner, we don't see there for the foreseeable future.
Again, if you look at this chart, they are more green. There's more green than black. So snapshot-wise, generally speaking, Northern Virginia is doing okay. Not as good as in past years, but generally okay.
If we look into our specific submarkets, Reston overall, about an 18 million square foot market, roughly a 17% vacancy. I think the third quarter figures will show a slight decrease in that vacancy. If you take out the Boston Properties portfolio from this, our sense is that the vacancy will be between 20% and 25%, just based on if you look at the BXP portfolio here at 4%.
The 165,000 square feet of vacancy in the BP portfolio, that's primarily One Reston Overlook. I'm pleased to say that, that is 100% committed. Not fully leased, but we're negotiating a lease that would take us to 0% of vacancy on that portfolio. The expirations in 2011 and 2012, the 580,000 square feet, primarily 2. Eccentra, 200,000 square feet at One Freedom Square, we'll talk a little bit more at lunch time about the activity on that space, basically everything but 2 floors has been committed at One Freedom Square.
And then the second big chunk is what we call Parcel E, Patriots Park 3, 180,000 square feet, that's next to Patriots Park 1 and 2, which we'll talk about again at lunch time. That's a fully Level 4 ATFP, Antiterrorism Force Protection building that will meet -- it's a very unique building, meet a very defined set of requirements that's specific users want, and they'll pay for that.
Jumping into Maryland. Maryland generally has been a flat market. I think that's one reason that we, several years ago, sold Democracy Center. And if you look at, again, generally the arrows, you see just as many black arrows as green arrows. So I think that's an indication of how flat the market is, and the other arrows are yellow. No deliveries, no groundbreakings.
If you look at our portfolio, again, generally it compares very well to the rest of the markets. In North Bethesda in Rockville, the 27% vacancy we have there primarily is because of some recent expirations in 2 of our buildings at Tower Oaks. We do have activity on those buildings, but that's primarily the explanation for the higher percentage there relative to the general market. Bethesda in Chevy Chase, we're in Chevy Chase portion of that submarket, Wisconsin Place. Vacancy, 10,000 square feet. We actually have a lease that's being negotiated for about 3/4 of that space. So even though we have a 3.5% vacancy, our true vacancy shortly will be much less than that.
Fort Meade and NSA is one submarket that will benefit, I think, from the emphasis on intelligence and cyber security spending. The 4,900 square feet that you see there actually has now been leased, so our vacancy is 0 there. The 85,000 of expirations, most of those leases at what we call the Megacenter, which is a fully skiffed [ph] building, are year-to-year leases. The big tenant there is the NSA, and they have a substantial capital investment in the building. Their lease is similar to most of the cop [ph] leases that are effectively year-to-year operational leases as opposed to a long-term fixed commitment, that's a 5-year lease with one-year out, basically. But again, NSA has invested a substantial amount of money in the building. So our sense is they will stay there for the balance of their term.
Peter D. Johnston
I'm going to talk a little bit about our current future developments. Again, last night, maybe you experienced our 2200 Penn project alternatively referred to, as I said, the Square 54, which encompasses that whole city block which is about 2.7 acres, the courtyard in the center. Cumulatively, about 800,000 feet. The office is just about 95% leased. We have good activity on the balance of that space. As Doug mentioned, the residential is over 60% leased and the velocity of that leasing is ahead of our pro forma, as are the rents we've been getting on the apartments that we've been leasing.
500 North Cap is a building right on North Capitol Street, overlooking Union Station of the Capitol. It's approximately 40-plus years old. It's a joint venture with a local development firm here. Ray, John and their team were able to secure a law firm to come to that location, which there's really only one other law firm in that area, Jones Day, which is about a block away. We've taken that building down to its structural skeleton. We're adding a floor to increase the views overlooking the Capitol and Capitol Hill. And as you can see, it's 74% leased and is due to deliver at the end of 2012.
Out in Virginia, John mentioned Patriots Park. This was the former Lockheed Martin NGA campus of 700,000 feet. Patriots Park 1, 2 and 3. 1 and 2 had been leased by the federal government, and we're in the middle of that renovation right now. It's a phased project. Apart from how great it is to lease over 0.5 million feet in one fell swoop, the other thing we have on this project is minimal downtime. We didn't get the first phase of this building back until July, just a couple of months ago. The tenant actually is looking to be in, in February, March of next year. For those who went on the bus tour, you got to see that in the state of the construction. We'll get the next phase back in July of next year. And then in 2013, they'll move into the second phase. The third building there is the one that John mentioned as far as the rollover, and we already have good activity on that and have been doing tours and issuing proposals.
In Maryland, at our Annapolis Junction Park, this is a joint venture with Konterra Realty. It sits diagonally across the parkway from Fort Meade, which is where the U.S. Cyber Command is going to be located. There have been numbers upwards of 5,000 new jobs in that area. We developed the Megacenter John referenced. It's 100% leased at average rents of about $140 to $150 a foot because of the extraordinary nature of the skip there.
AJ 6 is a spec building we're doing with Konterra. It's just completing as we speak, and we've begun to issue proposals on that and it'll be the second building in that park.
In terms of future development, we mentioned 601 Mass, the old NPR site. Doug talked about the sale leaseback nature of that. We're looking to do it again, targeting major law firms. It's an extraordinary site because it's freestanding, which is very unusual in the district. You get glass on all 4 sides. The tenant target for this is a major law firm. The most important thing for them, typically, is perimeter offices. In terms of recruiting the best and brightest, they want to be able to offer that. And again, at this location, with a very high ratio of perimeter glass to interior space, we think we're going to be able to create another landmark building similar to 2200 Penn here.
As you can see, it's not scheduled to deliver to 2015, '16. We're actually drawing the building now, as I mentioned, NPR, whose building we are managing on a fee assignment I'll talk about in a moment, is due to vacate this site in Q1, Q2 of 2013. And our plan would be, if we secure the lease that we've got a proposal out on right now, that we would demolish the building upon their vacating it and immediately move to constructing it.
In Virginia, Block 16 residential, we'll talk a little bit more about it at lunch, but it's the infill site Doug mentioned. It's adjacent to our Soma [ph] project. It's the last residential site, really, in the urban core of Reston, and we hope to break ground on that at the end of this calendar year. The construction documents are just completing. It'll also have about 2,600 feet of retailers at the base, so we plan on continuing the success we've had with our retail program out there.
Springfield Metro Center, John touched on that. This sits basically adjusted to the Springfield Metro, hence the name. It's currently zoned for about 800,000 feet. We've got the first 2 buildings drawn. We're entitling the second phase. We think through that entitlement process, we'll actually be able to enhance that square footage some. Right now, there's some development taking place in that submarket by some other folks consistent with the BRAC. Again, as John mentioned, because of the funding issues, we're a little less optimistic about going spec down there, and I think they're looking to secure pre-lease. There is leasing activity down there in some of those other projects.
And then lastly, in terms of future development in Maryland, just the next building we would be doing with Konterra, Annapolis Junction, AJ 7, likely a 4-story, 125,000 square foot building. That building and the AJ 6 building are not like the Megacenter building where the whole building is a skiff [ph]. We think they would probably have some of the force protection criteria, but not necessarily all the technical infrastructure that, that building has.
So lastly, I'll talk about current fee assignments and then kind of just the future development. As we've done in the past, and when we get in environments as we're in now and have been really for the last few years, while we've been very fortunate to have an active development pipeline for our own account here, the other thing we like to do is balance that off with some fee developments. Typically, those are for institutional users. We already talked about NPR because that was actually a collection of deals, if you will, the purchase and leaseback of the building and then the development rights that we -- or excuse me, the fee development that we're doing for NPR on North Capitol, along with the future development of this site. We'd been working on it for about 3 years now. It's got another couple of years to go. As I said, we'll deliver in 2013.
And another one that we lever our relationship after the success at 2200 Penn Avenue, George Washington University has about 45 acres. When we go back over to that building, that deal, as you are well aware, I think, is a ground lease. But immediately to the South, to the West and East is the GW campus. You can imagine with that kind of acreage in an urban environment, they constantly have facility needs. And for us to again lever the relationship we previously had developed, we knew and were aware that they were coming out. And this site is actually sitting across the I Street to the south. So if you saw where the Whole Foods were, this is right across the street, you see that construction activity. We're going to be developing almost 0.5 million square foot science and engineering hall for them. It's approximately $300 million. It's paying us a very nice fee, and we'll be working on that project through early 2015.
Lastly, I want to just talk a little bit about our total development capacity. I mentioned this is at the outset. You can see the figure up here about 5.5 million feet by rights on land we currently own. And that's spread out again through D.C., Maryland and Virginia. Going through this, we talked about the 601 Mass site. You see that here. Under Virginia, let me just focus on Reston Gateway. You see 900,000 square feet. The 2.3 million in the parenthetical, a potential development right to the function of the Metro station coming. For those of you on the tour, you saw the Metro activity going on in Tysons corner. What has happened there is a function of that rail coming in. Fairfax County has made amendments to their comprehensive plan, which is the principal planning document under which you'd go ahead and get your zoning. So what has happened in that area, around the 4 stations being constructed there is the county has set on their comp plan, we're going to increase the amount of density allowable within certain proximities of these stations. If you apply those numbers to the Reston Town Center station, which is actually going to be located on our property, they're going to probably condemn a dry pond, it's a storm water retention pond, along with 100 or so of our surface basins that they have to compensate us for. We'll be able, we think, with the up-zoning through that comprehensive plan process to increase the density potential on that site from what is now a matter right of about, call it 700,000 feet up to somewhere 3 billion to 3.2 million square feet. We have to go and get it rezoned after the comp plan gets amended. But because that rail is not going to be delivered until 2016, we're very comfortable based on what's happened in Tysons that we're going to be able to achieve that.
Reston Eastgate is a site about the East of the Wiehle Metro station, which will be the terminal station in Phase 1. We can do 350,000 feet of development there. Broad Run is a greenfield site out in Loudon County. It's actually going to be located only about a mile from the very last station in Louden County of the Metro when it arrives. And then Springfield Metro Center, I mentioned, and through that entitlement process on Phase 2, we hope to achieve another 200,000 feet of development. Block 16 is included in this, which brings your total by right of 3.1 and then the total potential, 5.6. And then finally just in Maryland, we talked about at outset one of our goals, repositioning some of our sites. We've owned Washingtonian North and Tower Oaks sites for probably about 10 to 12 years now. We're actually in the process on Washingtonian and have a letter of intent with the user for one of the parcels there and are very close to another user that would create a mix of uses on the site that I won't go into. But we expect to have those deals done probably in the next 6 months to a year because of the entitlement change, one of the uses has to go through. And when that occurs, we'll end up with a one office site left, which we think will be, immeasurably enhanced by the amenities we're going to put on there.
We've looked at the same thing in Tower Oaks because of the jurisdiction in Rockville. There's a moratorium on building any residential. So the use change from office to residential really doesn't present an opportunity. There are 11 prospectuses that the government has right now. They're sitting on, as John mentioned there, a pause there. And when those come forward, we expect that one or more of those will be associated with NIH, which is in the same quarter that we may be able to pursue. And then in Annapolis Junction, we actually have a venture with the Konterra folks for the density you see here, but that park can accommodate up to 2 million feet. And the people at Konterra, which is the Gould family, we had about a 15-year relationship of doing business with, and expect we will continue doing business with and we expect to continue that relationship going forward. So that's it.
Great. Thanks, Peter. I think we're going to take a short break, 5 minutes or so. Trying to keep up with a little bit of time, that's all right. We're having fun. So we'll back in here in a little bit.
Great. Thanks, everybody. We're going to have a team from San Francisco provide a presentation now. We've got Bob Pester here, our Regional Manager; and Rod Diehl, who's in charge of leasing. Bob?
Robert E. Pester
Good morning, everyone. I'm going to give a quick overview of our operations and activities in the Bay Area, and then Rod's going to go into leasing. Our portfolio of the area expands from the San Francisco CBD down through the Silicon Valley and the Peninsula. Right now, we have approximately 3.3 million square feet in San Francisco or 8.25% of the North Financial District market, 6% of the total Financial District Market, and that makes us the largest landlord in the downtown. As we go down through the Peninsula, we have another 760,000 square feet in South San Francisco. 87% of that, which is occupied by Genentech in 3 different buildings, and we are 97% occupied there. As we go further down the Peninsula in Mountain View, we've got another 0.75 million square feet and multiple buildings that's in our value-added fund that's actually not included in our square footage number or written numbers that you see here. And then as we weave our way down through San Jose, we have another 830,000 square feet of space located in the downtown and the Golden Triangle submarkets. We have the potential for 2.4 million square feet of development in the South Bay, 1.2 million square feet, which is fully entitled at present so if you take the 5 million that we've shown on the slide here with the 760,000 feet for 5.75 land square feet in the Bay Area. To give you an idea of the revenue make up, 78% of our NOI comes from downtown San Francisco, where our higher value rents are obviously, followed by South San Francisco and then the Silicon Valley.
If I touch on the goals that we have for the year, first off, we have a major lease rollover in EC4 this year. We're doing a renovation on that building right now on the lobby area. Rob will touch more on the leasing that we have going on in that space. But let me just say that the overall impression is the activity is as robust in San Francisco as we've seen it since 2000, and we hope to fill the 200,000 square feet that we have rolling in Embarcadero Center by first quarter of next year. On the Peninsula and our South San Francisco property, we have 100,000 square feet being vacated by Genentech at the end of December. There is a potential Genentech might take that space again. We've had discussions with them, and we are also in negotiations with several other tenants at this present time. And then in Mountain View, we are in the process of renovating 3 R&D buildings to a Class A standard, so the objective there is to get these buildings completed and released. Activity has just been fantastic in Mountain View in the last 6 months, and Rod will touch on that further in a minute.
And then in San Jose, we have a 540,000 square-foot property, which is half occupied by Lockheed. The other half, which was vacated this past year and we're doing a major renovation on those buildings as well and trying to get those released. And again, we'll focus on looking for more acquisition and development opportunities over the course of the year.
And with that I'll hand it over to Rod.
Okay. Thank you, Bob. So I'm going to go through each of our submarkets, which again are San Francisco, CBD, the Peninsula and also Silicon Valley, both office and R&D.
And so starting in San Francisco, basically, the market, as Bob mentioned, is very, very robust right now. We've experienced some excellent demand for our space throughout the year, and we see that continuing at least for the near term. The overall vacancy now, as you see, stands at about 11.2%. I saw some third quarter numbers recently come in, which have showed that dropping, which is expected. There are very few opportunities for good quality view space, which for those of you that have been to the Embarcadero Center or are familiar with San Francisco know that views are what sells in San Francisco. And Embarcadero Center happens to be one of the best projects for that. So the opportunities for good quality view spaces has gone down.
There really is no new construction to speak of. There is some renovations that are going on. But in terms new supply entering into the market in the near term, it's most likely not going to happen, certainly, not north of market. There are some sites potentially south of market that could break ground, but we don't see that happening. Nothing has actually started yet in those areas. So as far as demand goes, it is really very solid right now. The net absorption through the second quarter was 800,000 feet. The numbers that I've seen, the preliminary numbers for third quarter going forward, look like we'll probably end the year, we should end the year with over 1 million square feet of that absorption in the CBD. Now this is not including some of the other submarkets that you hear about, the south of market or the Mission Bay and things like that. This is strictly the CBD, which is about a 48 million square foot base. So we do expect that, that is going to kick in and be over 1 million square feet for the year. That will reverse a 3-year trend of negative absorption for San Francisco. So that's a pretty meaningful marker there.
We actually have an internal metric that we follow, that we -- sort of to track demand just at Embarcadero Center, and this one that we monitor very closely. And that is the number of tours that we have in the project. We have -- it's such a large project that we do get a number of tours each year. And so far this year, through the third quarter, we're about 158 unique tours, meaning individual tours, not retours. These are new requirements. And that basically puts us on pace. It's already exceeded our 2010 and 2009 and 2008 numbers, and we're on pace pretty close to being in line with what we did in 2007, so again, just underscoring that the demand is there. Market rents have been moving up. And as see across all categories in that CBD, we're looking at the high 30s. And that ranges all the way up into the 70s and 80s and even higher in terms of asking rates in certain buildings for good quality view space in the Class A buildings.
So again, the portfolio that Boston properties has in San Francisco really consists entirely of Embarcadero Center, which is 3.3 million square feet. It’s 3 office towers with about 300,000 feet of retail and about 2,400 parking stalls underneath the buildings. The project is very unique in a couple of senses and that each of the building is a full block building. So you have really good views from all sides, but really exceptional views looking to the north. And as you can see from this bottom slide, this bottom photo here, that the 4 buildings virtually form a wall on the north side of the Financial District, and it is all facing North for this. So really, from even some of the mid-rise floors even lower floors in 4 Embarcadero, you're looking at beautiful water views and people pay for those.
Overall, occupancy right now in Embarcadero Center is about 93%. And as Bob mentioned that our biggest challenge really is with the 4 Embarcadero Center roll over. We've had a little over 200,000 feet of leases rolling. And with the deals that are in tow right now and the LOIs that are signed, we should end the year with pretty much all but 2 of those floors spoken for. And probably end the year, if all those get done, somewhere around 97% committed. That won't be occupied yet, but those will be deals done in terms of leased space that we'll be building out and tenants will occupy during 2012 and into the beginning of '13,. so that's Embarcadero Center.
We'll move quickly into a couple of other slides here. And that Bob also mentioned this lobby renovation that we're doing at 4 Embarcadero Center, and this is just, again, to kind of reinvest and keep the property up. And it is an entry-level lobby that comes off of the Clay Street side, and this is where most people come in with their cab drop-offs or town cars, and it's just going to upgrade that lobby nicely. And again, we're doing this from -- it needed it, but it also it's in time with the fact that we've got this rollover in the building this year, and it's been very well received so far. This project as you can see is under construction, and it will be done before the year end. Okay, so moving out of San Francisco, we're going to go into the Peninsula market right now.
And this is a pretty big market. It spans all the way from South San Francisco to the north, all the way into Palo Alto and Menlo Park in the south. And our properties are in South San Francisco and in that sort of sub-submarket, the vacancy is about 14.3% right now. There has been -- it's trending in the positive direction here. There's been sublease space that had been on the market that has now been absorbed or taken back direct and again very little new construction. Demand, similar to the city and that it's been very strong, 1.1 million square feet. And the -- a lot of this demand is in the central and south part of the country, but it's certainly going to benefit the entire county, including our properties in South City.
And again, rents are trending upwards. And in particular, in the southern part where some of those numbers you see, a pretty big discrepancy there because of Palo Alto numbers are really skewed that where they are getting rents into the mid-80s at this point.
Robert E. Pester
Probably the most notable transaction that's happened in the San Mateo County in the last month is Sony just signed a lease for 450,000 square feet in San Mateo.
Okay. So this is just an overview of the portfolio, and these are the 3 buildings that are, I referred to as, Gateway Center. And these 3 buildings are 97% occupied currently. Genentech is our largest tenant. They occupy about 640,000 square feet, and we are going to get back 4 floors in the 611 Gateway building at the end of this year. Activity has been really been very good for that, we already got 3 proposals pending on that, which would take more than that space about 180,000 feet, so we hope to land at least 1 or 2 of those deals and quickly back fill that space.
Okay. We're going to move quickly down to Silicon Valley. And I'm going to come back here in a second and talk about the overall tech demand, but the Silicon Valley is obviously well-known for the driver of tech in the Bay area and it's a very large market. And this slide, I'm just putting up here to show you, again, it really spans all the way from Palo Alto on the West side, all the way down through Mountain View in the San Jose, back up in to Melotus and Fremont. It's about 215 million square feet of R&D and office space, and it is -- so it's a very, very large market that has been very active this year.
This next slide shows you how the transaction volume so far, just through this year and the number of large deals that have been done, it's just remarkable. I mean, I really can't believe in the last 10 years or more than I can remember, there's never been this many large deals that have gotten done. And as you can see from this list, this is just a partial list. I mean, the total so far has been over about 9 million square feet of deals done, and that trend is going to likely to continue through the year.
So and as you can see, these are big company names, big names. And that's really kind of what started the recovery in the Bay Area was from the larger users down and it's just kind of filtering into some of the smaller tenants.
Robert E. Pester
Just to give you an idea of what impact of that amount of activity is in the Mountain View properties that we've had. We've seen rents since earlier this year increased by almost 40%.
Yes. I know it's been remarkable. We actually did a lease in Mountain View last year right around this at about $1.5 triple net. And we're now up to -- we just signed a lease of $1.95, so I mean that's less than a year.
Okay. So moving quickly here, you could just see here all the metrics are moving in the right direction, supply is dropping, demand staying high, as I already mentioned, and rents are definitely increasing. And we do expect that, that's going to continue here. Most of the new product that was developed in the last cycle has, for the most part, been absorbed by these deals that I showed you on that last slide. So there's very few really quality Class A spaces in any large blocks that are left.
R&D, very similar metrics, a little higher numbers in some cases. But as you can see, the demand has been strong, very strong for that and rents are growing in equivalent basis, roughly 13% year-over-year. So again our portfolio in the South Bay really consists of a couple of different components to it. Our properties in San Jose, basically, we have a property in downtown San Jose, at 303 Almaden, which is an office building, and there's an adjacent development site next to that. And then we also have the North First Street Business Park, which is also a development site, but has some operating properties on it. And finally, at 3200 Zanker is a little over 500,000 square foot, 4-building complex that is our, frankly, our largest leasing challenge in that market. We have Lockheed Martin was a tenant in the whole project. They vacated earlier this year, and so we're going through a full repositioning of that project now with major renovations. And I'll show you some of those pictures here in a second.
I also want to just touch on with what we referred to here as our value-added fund portfolio. This is the portfolio of buildings in Mountain View. And these would consist basically of Mountain View Research Park and Mountain View Tech. And this market has just been on fire, really just amazing. We just signed a lease just the other day with Alcatel. Nokia Siemens just signed another 30,000-foot lease, so the demand has just been strong, and that's going to continue that way going out as far as we can see into the future.
Okay. Just going back quickly to Zanker. You can see that site location there. That's the project. This is in a great neighborhood with a lot of good corporate tenants. You've got Cisco, as their corporate headquarters is just off to the side of that slide there. It's a great project. This has the ability to potentially add more site -- more development opportunities here. We're not going to do that yet, but we are going to do the renovation of it, which is underway now. So we're going through and basically taking out a lot of the exterior landscape features and some of the building features and repositioning the building for a new tenant.
And then just finally here, this is the development -- the final development. At one point, it could happen at Zanker, adding another roughly 0.5 million square feet. And again, this isn't something we've been contemplating, going spec on at this point, but it is a great way to talk to big tenants, to corporate tenants, who would potentially come in at least 1 or 2 of the existing buildings with the potential for future growth. So that's it for the Zanker property.
I just want to make one last comment on San Francisco because a lot of times, we get questions about, why is the -- is the Embarcadero Center, is the center of all of the activity in the market shifted south? And that's often derivative of the widely publicized tech growth and all that activity in the South of Market and things like that. And there's no question that the growth in the South of Market has been tremendous. Depending on who's numbers you look at right now, there's anywhere from 2.5 million to 4 million square feet of tech deals or creative non-traditional-type tenants that are in the market right now but that market isn't that large. I mean the South of Market, depending on how you define it, somewhere around maybe 12 million square feet. So what's happening is we're seeing some spillover effects. And I do think that the traditional, North of Market or Central Business District, which does have tech tenants, by the way. It's not that we never have had them, but it is typically been South of Market, we're starting to see them. We just signed a lease last week with a company called Joyent for a full floor of 20,000 feet. They do cloud computing software. So anyway, it's an important point to note because I do think that some people think that it doesn't -- the benefits of the tech growth haven't hit the Financial District, and I do think that you are seeing some of those starting to happen now. So that is it. Thank you.
Great. Thanks, guys. We're just going to shift over to our Boston team here.
Bryan J. Koop
Good morning. My name is Bryan Koop, Regional Manager for the Boston region. To my left is Dave Provost, our Senior Vice President of Leasing; and to my right is Mike Cantalupa, Senior Vice President of Development. As I sit between these 2 guys, I'm really reminded of something that Doug has been bringing up on the many of the calls with you, and that is his belief that we are there in the age of the operator versus the age of the financial engineer. And as I sit with these 2 gentlemen, I really reflect on the fact that we've been together 10 years now. And when you compound that with being the prior 30 years in Boston, we stand in the shoulders of Mort and Ed, who've really started the company there. The themes that you're going to see about Boston have a lot to do with this age of the operator that we think we're in right now because finally, we really believe that customer is really starting to appreciate these more than ever.
As you look at our first slide here, the big change from the last time we visited with you is 30% growth in our portfolio, amazing statistic. And then really, when it's not just over the 3-year period since we last saw you, it's really been the last year. And that was the expansion, which on John Hancock Tower, Bay Colony and the addition of our large project that came online, the Atlantic Wharf.
You really -- you can't have that kind of growth without having strong operators. And for the shareholders in the room, you'd be so proud of our operating team led by Peter C. in charge of property management. The type of undertaking it takes to take on assets like this is just enormous. And then to do it in the right way is incredibly important. This growth has been an amazing situation in terms of what we have found. We knew that we're going to be able to operate better "we are more confident." I think we underestimated in terms of what we found because several of these assets, the 2 big acquisitions had 4, some 3 to 4 different owners over a 10-year period. And what we found has been a really great opportunity for us as a company to improve our operations of that, so a big congratulations to our team, Peter C., Madeline, Tim and John Randall, Mary Figgin and Mark Denny, the leaders in that region who made this happen. Many of these people gave up vacations and things like that last summer to make this happen.
As we look at our NOI for the region, it really gets us fired up. This has really grown. Now what I'd like you to do is instead the word suburban that we have in there, it's a bit of a misnomer, really think of it as Waltham as a concentration.
And for those who know the Boston market, the corridor between Route 2 to the North in 128 and to the South, the Mass Pike, that's our concentration. As you look at these 3 areas, we think there's still potential growth in a great way in terms of our NOI in these 3 areas. And it's for several reasons that the guys are going to touch on when they get into it. But one of them, and I'll be the first to admit, my regions has been patient with me in terms of some of the research we've been doing in terms of where the job growth is going to be in the future. Our research really believes that the job growth is going to be in heuristic jobs. Some people call this, knowledge age jobs but not in algorithmic jobs called processed jobs. 70% of the growth in America, we believe, is going to be in this heuristic jobs, and our Boston market reflects that in a tremendous way. And we think those jobs are going to be in these 3 markets, and that's really what's got us so excited about that. The guys will touch a little bit more on that.
For our region, these are the things that we're going to be focused on over the next year or so. And when we say increase suburban occupancy, it's really about Bay Colony, which has just been brought on the portfolio, 350,000 square feet, roughly of vacancy there. That's 50% of our vacancy in the suburbs. Dave's going to be talking a lot about that and Mike's going to be talking about the repositioning of that asset. But a tremendous opportunity again smack in the heart of that Waltham market. Boston rollover opportunity, 1.4 million square footage between the years '14 and '15. We think it's a huge opportunity because it's all concentrated in the Back Bay market which right now is at a vacancy of 3%. We believe this area has the best opportunity for job growth and caught where our best customers are doing the best things in terms of growing their companies. The development rights area has to do a theme that you heard from previous regions. We're really blessed for being in these markets for a long period of time. We're in a unique situation right now where these communities are very focused, let's say Cambridge, Waltham and Boston, on growth. I wouldn't say they are pro development but they are certainly more open to opportunities and Mike is going to touch on this in terms of the ability to mine opportunities in places like Cambridge that we've been in for 40 years. We are the beneficiaries of many trust deposits in these communities. So when we walk in as an operator, as somebody who's been there for a long time, active in the community, we have a different advantage than competitors who really, for the most part, our competition still tends to be -- they're not passionate about real estate. They're passionate about deals. They could just as soon be in the movie business. When things are bad, they'll leave. And it's an amazing situation we're in right now where we have very few pure operators working against us.
Development and construction. This has to do with what Mike's going to touch on with having to do with the Broad Institute, a great example of opportunities we have with relationships with users within the community that we can be with them, provide service and sometimes, many times, lead to an equity position. Client-driven marketing, we think, while this is the softest of the things we're going to talk about, we think there's an opportunity, and Dave is going to touch on this. For us, we've never been in an industry where we have seen our customers using space and place as aggressively as they are today. Let me give you an example. We made a pitch 2 years ago or probably 3 years ago now at Wellington, who is the lead tenant on Atlantic Wharf. In that pitch, we talked about the importance of natural light. Back then, many people in the room laughed. Today, our best customers are focused on all these things. And our best customers are focused on what we're calling the big four. They're focused on using our real estate, space in place to create their culture. They're using it to recruit talent. They're using it to collaborate, which is essential for innovation in the future for companies, and then they're using it to really drive sustainability and how they operate. You're going to see this theme throughout the discussion today. Thank you.
Thank you. Well, before I start, Arista mentioned to me before we got on that we're running a little bit behind schedule so she said, "If you could cut some out some sections out of my presentation, that'll be great." Rather than do that, I'm going to talk really, really fast, okay?
So thanks, Bryan. Bryan gave you an overview of our market and then sub-market in terms of NOI and impact to our bottom line. What I thought I would do is do more of a deep dive into our 3 sub-markets, and I'm going to break each sub-market into 2 slides. The first is going to be an overview of the overall market conditions, vacancy, rate trends, et cetera, and then the second will be just a quick snapshot of our portfolio size, occupancy rates and getting into what Bryan talked about, what are our big goals and objectives for the upcoming year. So with that, let's start with Suburban Boston.
Central 128 is by far Boston's strongest suburban marketplace. For those of you who are familiar with Boston, it stretches. It's a 25 million square foot market, stretches from the CEL from Needham up to Burlington to the North. As you can see, supply vacancies have 11.3%. That's down from 18.2% last year. That's a huge year, and it's interesting, read the papers, nobody ever talks about that.
The other, I'm going to also quote as I go through this, total availability rate, because I think it's really important. Total availability is your direct vacant plus sublease plus future available, space that's currently leased but available in the future. The current total availability rate for Central 128 is 19%. I'll talk a little bit about why that's higher than the direct vacant. Limited options for large users, if you're 40,000 square-foot users, 60,000 square foot, 80,000, 100,000, 120,000 square-foot user, you have 3 options in Central 128. Two of them are at Bay Colony. So I like our odds. Right, Mike? They're not bad, 2 out of 3.
Very high. Very high.
But that is -- that's important because I was giving you our strategy on Bay Colony, creating larger blocks. I put sub-lease on the screen here. We've been blessed in this market with very historically low sublease availability rates, and that speaks to the inherent strength of this market. However, that has crept up that's why that availability rate is up around 19%. A big impact is the Biogen.
Doug talked about Biogen. We did a 350,000 square-foot building suite within the Western. Mike is going to talk about their decision to move back into Cambridge. They're starting to market that space for sub-lease. It's not going to be available until 2013, so it hasn't had an impact. But it's -- we're keeping an eye on sublease space, so far, no impact.
Demand, very strong demand in this market. It's really driven by 2 factors, strong organic growth of the existing tenant base. And I see Jamie over here Jamie was challenging me last night kind of, who's growing, right? So I kind of made a list here, Doug touched on it. But Constant Contact, this is a client that we put in Reservoir Place in 7,000 square feet in 2003. They're currently 130,000 square feet. They've taken off 10,000, 15,000 square feet a year. One of the tenants we have to relocate to accommodate their growth is Texas Mobile. They're in 11,000 square feet. We just signed a 40,000 square-foot lease with them at Bay Colony, which I'll talk about. NetApps, put them in 20 a couple of years ago, grown to 60. They took 40,000 square feet of additional space this year. This is all at Reservoir Place, by the way.
Another tenant that has not signed, I guess, we're not supposed to talk about that, Mike? Is that an okay? No? Vedro, 10 -- I don't want to be arrested. 10 -- Vedro, 10 to 25; Trinity, 20 to 30. Doug talked about a confidential tenant that didn't want to be named today, but they're 100,000 square feet. We just signed the lease for 50,000 square feet. That is strong organic growth. That's just in our Waltham portfolio, our space but also in district print [ph], which is a 200,000-square foot tenant. They're out in the market for another additional 100,000, 150,000 square feet. So strong organic growth.
The other driver, as you can see is continued migration to Waltham. A good example of that is A123. They make the lithium-ion batteries for electric cars. We relocated them from a really kind of an old mill space, wouldn't you say, Bryan, that they had in Watertown?
Bryan J. Koop
They came out to Waltham 90,000 square feet. Last year, it wasn't our deal but the [indiscernible] took 340,000 square feet. They had number of acquisitions. They consolidated to Waltham 340,000 square feet. So you continue to see migration into Waltham. We're seeing a lot of activity on that. I put consolidations and acquisitions with a question mark is like a double-edged sword. I just talked about the CEL, where it works to our advantage. But acquisitions, I think, about Phase 4, we did a building suite for them a few years ago, 160,000 square feet. Mike and I were in discussions with them to build them another building. They were acquired by Oracle and Oracle moved them up to the campus in Burlington. They put that space in the subway, so it's something that we're keeping an eye on.
Rents solidly in the mid-20s to mid-30s gross, that's up 10% from last year. The bigger the tenants, typically, the bigger the rents. For instance, this Cel lease which was signed last year was in the low 40s. New construction, Mike, you're going need mid-40s, so we've got some room to grow before we have to compete with new construction, okay? So that's the market.
Our portfolio, 38 buildings, totaling about 5.5 million square feet. Bryan talked about this. You can see our occupancy rate. We've got a vacancy rate of about 16%, 17% which is as Bryan reminds me every Monday morning, completely unacceptable. So how do we fix that? Well, where's the vacancy? Almost half of that vacancy is at Bay Colony we recently acquired to. We knew that going in, get several 100,000 square feet. So our leasing team is working very closely with Mike Cantalupa on coming up with a really exciting redevelopment plan for this project. I know we're tight on time, so I'm not going to spend a whole lot of time. I'm going to let Mike do that.
But the headline here is on Bay Colony creating larger blocks of space. Remember, we've talked about that. There's now a large block. If you've been to the asset, and I know I'm look at you, Steve, we had a big bus tour out there. If you remember, the buildings are absolutely beautiful. The first 3 buildings developed in the 80s sited perfectly along this sloping ridge, great views of the skyline of Boston Cambridge Reservoir. However, in order to do that, they are long and narrow, which creates interesting challenges but also great opportunities. The big one is filling in those final atriums to create a more normalized floor plate for these 48,000 square feet tenants. I talked about Texas earlier. We would have lost Texas as a client had we not had Bay Colony. And so we have deep has its advantages, the more options to grow clients in a market, the better. But the Texas is really important because they are a hyper-growth company. They are 40,000 square feet. They want to go to 60 and 80, so Mike and his team had to show them how we're going to do that. And Mike, you'll probably want to talk a little bit about that a little bit later on?
Boy, I got a lot to cover, Dave. So hurry up.
Okay. So that's enough on -- yes, I'm running out of time here, right? All right. So let's go to Cambridge -- East Cambridge office market or essentially the Kendall Square Office market, approximately 6 million square feet. You're looking at an area, looking south over the market with highlighting Cambridge Center for your reference. Also for your reference, everything to what the house rights, if you will, is the MIT Campus. So it gives -- and you see the Charles River in the North there.
Supply direct vacancy is 6%, that's down from 11% last year. Total available is 14%. Limited options for users of any sizes, a very supply-constrained market. You'll hear Mort talk more about that. Demand, very, very, very strong organic and acquisition-driven market from the tech-titans, primarily 2: Google and Microsoft, both our client, which is great. I've been in the business for 20 years. I have never seen proximity to MIT be more important than it is today. It's almost like retail, your rent goes up the closer you are to MIT so it's nice being right across the street.
Kendall Square is widely considered the most innovative square mile in the world based on density and cluster of tech in the innovation companies and biotech. So a lot of companies, they want to be there, they want to be a part of that innovation ecosystem. And Mike is going to talk about that as well. So rent solidly in the mid-40s to mid-50s, depending on how close you at MIT. Our rents are solidly in the 50s. Those pretty big increase last year, I don't see those going up into the 60s, but I see them solidly in mid-50s.
Let's go to our portfolio. We've got 10 buildings just under 2 million square feet. You can see our current occupancy rate consistent with the market. We've got about 6% vacancy. The majority of that space is 85,000 square feet to the base 4 Cambridge Center. And we've got strong activity on this, but we're very, very concerned. Bryan brings this up all the time. I want to make -- he wants to make sure that we have expansion for our big tech-type tenants. And again, Mike is going to talk about this. We really need to come up with opportunities to create more density in Cambridge Center. We love this market. We've been here for a long time. We have the best clients.
One of the things I didn't mention, but I should mention, when you look at our client roster, it's virtually a who's who of the marketplace. Let me see if I got here -- Microsoft, Google, EMC, VMware, Akamai, Broad, Biogen, you name it. So we just need to make sure that we have a place for them to grow in the future. All right. Okay, on to Boston. The Boston marketplace, total market, it's about 50 million square feet, the 2 big sub-markets. Financial District, which is 30 million square feet; Back Bay, which is about 12 million square feet. The competitive supply, it's really a tale of 2 markets. Look at this. Back Bay vacancy, 3.5%, which is -- by the way, I've got the arrows here flat, but they're not flat. If you look at Back Bay, vacancy is way down from I think it was about 6% last year. It's 3.5% total available, 8%. Financial District is up 15%. Total available is 20%, so it's really a tale of 2 markets there.
On a positive note, there's not a lot of sublease space. There's not a lot of phantom space many people used to talk about that. Demand. Boston demand has historically been driven by financial institutions and law firms. I think that's still the case. But Mike talked about this, it's the lease expiration-driven market, so you have to be prepared to lease your space a couple of years in advance.
We always see out of town landlords come in and say, "I want to wait. I'm going to hold. I want -- I don't want to quote rents 3 years in advance." You have to do that. We'll talk about that in our strategy for John Hancock Tower. Growth. Mid-sized tenants, now having just said that, there is some organic growth happening with the 10,000 square foot tenants to 20,000 square foot tenants, that 70% of the markets, so that's been positive for us at the Pru.
Also, Mike touched on this, future migration. We released Atlantic Wharf, the waterfront building, 200,000 square feet. We had a cup of coffee with Commune Space, which is a social networking company. We're trying to draw them out in the -- they're in into suburbs company, trying to draw them out from the suburbs. We've been talking about the Atlantic Wharf. They came to the tour. Within a month, we had a lease in for 80,000 square feet. That's probably the first time in my career we've seen an 80,000 square-foot tenant move their corporate headquarters to Boston. That's a nice trend. We took that trend, went to Brightcove. There were 30,000 square feet at Cambridge Center. We needed to make a room for expansion for Microsoft, got them excited about the Atlantic Wharf. They signed a lease for 80,000 square feet. We hope to take some of those lessons and apply them to the base of John Hancock Tower as well. So let's talk about our portfolio. Boston portfolio, just under 5 million square feet, heavy concentration in the Back Bay, obviously with John Hancock Tower and Prudential Center, you can see our occupancy rates above 96%. As Bryan mentioned, and so our big -- one of our big goals in 2014, 2015, we have a 1.4 million square feet of roll in Back Bay alone. That is a huge opportunity because virtually, all of those leases are well below market rents. So there's a huge opportunity to pop the rent. I don't want to spend a lot of time on this because Mike did a great job explaining the 900,000 square feet of that roll is at John Hancock Tower, primarily 2 big leases, Manulife which is mid-rise, high rise. They sublet all their space to VC firms, hedge funds, asset management firms, et cetera. Bryan and I have been going into meetings with those clients. They love the building. They love Boston properties. They want to stay and most of them want to grow. Big capital, strong appetite for future growth.
Our biggest concern in mid-rise and high-rise is there aren't enough room at the end, okay? So we are prepared to go ahead and commit forward commitments for 2015 for those clients who want to go ahead and step up. And we're seeing strong activity. You're going to see that over the next couple of months.
The base of the building, 360,000 square feet with State Street, as Mike mentioned, we'd love to keep State Street. We also have strong activity from other large financial institutions in the Back Bay, but we're also reaching out to prospective clients in Cambridge and our existing clients in Cambridge and the inner suburbs to see if we can draw them in and we're getting really, really positive feedback on that. 50,000 square-foot floor plays overlooking floor-to-ceiling glass, overlooking Kendall Square, not bad. So with that, I'm going to turn it over to Mike.
Thanks, Dave. I'm going to take some time to talk about our new ground up development activity there and then do, I think, what well like I would term in Boston, a deep dive into the Bay Colony project because we're spending a lot of time there as has been referred to since the acquisition, and also talk about the some of these mining opportunities that were referred to earlier by Bryan.
I think you're all reasonably familiar with Atlantic Wharf and some of our existing positions in Boston. Atlantic Wharf is over 90% leased on the office side. We have 3 floors left in the tower there. We've got 5 of the 6 retail venues that are either opened or under construction, so it's really nice for us to see this project come into life now as we speak. And then as referenced by Doug to the residential, where we 60% leased there, at rents, that are slightly above pro forma, so we're feeling really good about where we are there. New construction starts. The Biogen is on schedule to start probably in February, March of this year. We'll be out in the marketplace in December, trying to buy that project.
And then I'll talk a little bit about the Broad Institute, which is a fee job for us, that's a large fee job. That's 75 Ames Street. That's 250,000 square-foot project is on schedule. It's going on in the same time as The Broad Institute. We're out in the Street right now, buying steel and curtain wall and foundations that will be delivered in 2014. For some of our other more solid core market sites, 888 Boylston Street in Waltham, we're really just looking -- working with Dave right now. He's got a sense of the activity in Boston now. We're just trying to lease those on a substantially pre-leased basis and do what we can to get the developments started there.
In the case of Andover and Marlboro, we're working on activity there actually to exit those markets. Those markets have moved away from us a bit since we bought the site. And so basically, the cost really don't support today's rents nor do we foresee that in the near-term future. Doug made the reference that he doesn't see us doing wood frame housing out in the suburbs. And, in fact, we're selling -- we'll have that sign on the contract at a multiple of what we paid for it to do wood frame housing, so that's just not our shtick so to speak. And we're looking at similar alternatives out in Marlboro.
Finally, on the new development site, you may have read about some of our pre-development activities at North station. It's been in the press a little bit. This is the size of the former Boston Garden and this is one of the largest sites available in the city, west of the seaport channel. So it's like a reasonably attractive site. And we're in a very early stage discussions about that with the ownership to do a larger of mixed use development on that site. We've looked at this site a number of times over the years, but as we look at it this time, is really more focus on simplicity. All prior schemes that we've looked and others that have looked at are heavily integrated schemes that really require a variety of uses to be working on all cylinders at the same time to get the project started. So we're focused on a single use to get the project started simply -- at likely retail. And -- but we're not foregoing any opportunities to either go above that in the future or off to the side.
Embedded value. One of the more significant ongoing efforts in Boston has been mining of the existing portfolio for either new development or redevelopment opportunities. And that's basically to take advantage of the excellent locations that we have. I refer to this is as an embedded value. And the opportunities here are really to add to our existing sites, and that they are created by a number of circumstances. But generally speaking, we get this opportunity when the community's attitudes towards development change drastically, and that happens actually a fair amount. We've seen changes over time and movements toward a transit-oriented development, workforce housing. And there's always an increased need for tax revenues. So that really is what creates the circumstance here. So it's been referred to before, our kind of long-term hold and operating strategy puts us in a great position to really monitor the activities in these marketplaces. And then more often than not, we're invited to participate in the replanning effort and have a very significant opportunity to shape the outcome.
So on the properties that are listed here, just quickly, there are, I think, a bunch of opportunities to add density to the portfolio. In the case of Hancock and Bay Colony, there are sites there that we believe that done can be without changing zoning. The zoning exist there through going through special permit process and these were not actually underwritten we didn't ascribe any value to them as we're actually going through the acquisition.
Another example is in Lexington. We're in the Hartwell Avenue corridor. The zoning has changed by a factor of about 2.5 that will possibly impact a relatively small building we have at 17 Hartwell Avenue and that building will be available for recycling pretty soon. We have a number of other properties on the corridor that could take advantage of it. And then in the case of Cambridge Center, let me give you an example of, I think, how we can over time we can I think positively impact value here.
So at Cambridge Center, our originally approved master plan that some number of decades ago, was for about 2.8 million square feet. Today, all that space is committed. And we have -- we own the land. Over time, we'd be able to add about 500,000 square feet of new development rights or about 18% of what was originally planned. The first, again, there came a desire in the city for housing. In Kendall Square, we participated in that planning process. We created about 200,000 square feet of housing rights that were -- came at limited cost to us to actually input them in the development. We did not execute on that. And as time evolved in the context of the requirement from The Broad Institute, we actually pursued another 300,000 square feet for the very same housing site. As you're probably aware, we just sold about 250,000 square feet of those rights to The Broad Institute for 50 million square feet -- $50 million, excuse me. So what we're left with is about 50,000 square feet of commercial rights at relatively limited cost and another 200,000 square feet of residential rights. And there's active planning going right where the -- to reap that value. I'll also say that as we speak today, there's yet another planning effort going on in Cambridge that will directly impact Kendall Square, so I think the opportunity to add even more square footage on that site is not unreasonable.
Just a couple of general comments here. As we've talked about in the -- some of the prior slides, whether it's ground up or redevelopment or any of the existing asset repositionings, we're definitely looking at all of these sites holistically. So considering retail, residential options and any other use that seems to make sense for us. And while clearly, office is our primary focus, what we're trying to do here is really position these alternative uses to enhance the value of the office over the long term. So as we focus on these changing demands, really, of the office user over time when we're looking at these uses, terms like amenity rich, walkable, urban amenities, are all kind of shaping our current vocabulary in terms of how we're looking at our projects and the kinds of uses we're looking at inserting in our projects. Nowhere is that a need to be more creative really than on the repositioning work.
In Cambridge Center right now, we have about an $8 million repositioning going on. We're adding significant retail to that project. We recently renovated our restaurant at the hotel at Cambridge Center. We put a couple of million dollars into the public plaza around on that project, and all I think Dave, with great acclaim, hopefully, from our tenants.
So let me just shift gears now and spend a little bit more time on Bay Colony because it's been referred to quite a bit over the years -- I mean, over the time that we've been here. So we're in the middle of the -- actually, which a $28 million repositioning. I noticed in one fell swoop, it cut my budget by almost $3 million. But we're -- it's a $28 million repositioning. And just to give you some context, Bryan alluded to this earlier. We recently completed an internal study over the last year to really try to focus on what our office users, our clients are doing with our space for exactly what purpose.
So the brief summary is and we've coined the phrase internally high-performance workspace is really a space that makes our client more productive and -- for their primary business. So for these clients, our spaces drive their revenue. It's not -- they're not looking at our space as an expense. And those are -- that's exactly the space we want to be playing in because those are typically higher-priced clients and then some clients that are willing to pay a little bit more rent.
So as we've analyzed this, there are really 4 components to high-performance workspace. First, as Bryan mentioned, there's culture and brand. And so what does that mean? It means that our clients are using our buildings and our spaces and how they're configured. They say something about the client use, and we really need to understand what the client -- with how the client perceives that. Second, as technology evolves in mobility, it becomes more important. We're finding that our office users are actually using our space more for collaboration and much more for assembling people, for working together, rather than strict heads down, work-at-your-desk type of space. Third, sustainability is vitally important. And then fourth, we're finding that our tenants are actually using our space to actually attract and recruit employees to train them and to retain them over time. So as we've looked at the Bay Colony repositioning package, we've kind of looked at Bay Colony with each of those -- through each of those 4 lenses, and let me just spend a little bit of time on each one of them.
So culture and brand. In addition to the strong architectural and design statements we're trying to make with the repositioning package, we're providing significant opportunities for customers to brand themselves. So what does that mean? Largely, it means highly visible signage for the customer, allowing tenants to use their own logos, branding, creating strong sight lines to tenant spaces, to tenant signage. This is an image of one of the entrances that we're creating at Bay Colony, and what we're really doing is bringing the client's name out to the street. We're putting signage out to the street for the client, and we're following what we would call a strictly client first hierarchy, so identify the client first. Forget about the name of the project. Well, don't forget about the name of the project, but don't put it first and foremost even if it jumps away finding, getting around the site in some circumstances. Similarly, when you get inside the building, we're trying to create strong sight lines to tenant spaces, so what were entrances to tenant spaces that were tucked away from atriums, we're pulling them out, putting them front and center on the common spaces and, again, providing a strong identity for the tenant and -- so that when an employee or a visitor actually walks into the space, they actually identify most directly with the tenant.
Collaboration. This is one of the more significant issues that Dave referred to and, as has been noted, the building is marked by a series of light wells that are -- that split the floors along the long axis. So this hurts the building in a couple of ways. First, it makes the floor place very hard to lease to large tenants and, historically, the Bay Colony has been a very small tenant kind of project. And then secondly, as the company's lease the individual spaces, and we're seeing that companies need more flexibility over time, this kind of a split of a space really negatively impacts their flexibility. So if you have a CEO that wants to pull a group together to do a large project or assemble a team to talk about strategy, it's hard to do in a conference room that was singularly configured for one purpose, so we're trying to address that. I'm going to go to a little bit more detail about that on next slide, but let me just hit the last 2 items really.
Sustainability. Mitch talked about it. It's vitally important to the new generation of office workers, particularly the younger office workers. So I think we're ahead of the curve on that. I'm not going to go in detail because Mitch already touched on it. But Bay Colony is already ENERGY STAR rated. It is LEED existing building silver rated, and so any improvements that we are putting together going forward. We're going to try and achieve all of those same benchmarks.
And then finally, attract and retain and train talent. So the focus here is really on creating an attractive environment for the tenant spaces that's outside the premises, and the term we like to use is "amenity-rich." So the theme that we're following in the design is much more hospitality and retail-oriented kind of experience, so our customers are demanding more urban amenities even in a suburban setting. So our program here what was a cafeteria is being configured into more of a café style setting. We're reconfiguring the fitness center into a much more focused on personalized training and fitness classes than a single kind of unmanned kind of facility, much more focus on the customer, a newly configured learning center and lots of common spaces that really can break down and create a lot of flexibility for companies together in a variety of different ways, and that really advantages the smaller and the midsized company that wouldn't otherwise put those kind of spaces in their premises, so we're creating it outside the premises. And finally, what we're doing is we're taking all these uses and we're consolidating them into a single location in one of the buildings. And we're hoping that as a result of that, all these uses kind of leverage off each other, create activity in the site and create what we like to refer to as a buzz. So our team recently actually visited both the Google and the Microsoft campuses out in Mountain View and Redmond. And if any of you guys are familiar with those kinds of uses, they're focused on -- those 2 companies are focused on the very same thing that we are, only internal through their company. So those are the kinds of amenity-rich spaces we're trying to create here. And I think the mantra we're using inside the region is we're trying to create a Google plex, for large -- excuse me, for small and midsized companies.
Mike, we're going to -- got the sign from [Indiscernible] to wrap up, so we can't hit the last screen, but as you can see, the Boston region is really fired up about the opportunity we have in the marketplace right now.
We're going to turn to Princeton team now. We've got Micky Landis here, who's the Regional Manager for our Princeton group; and John Brandbergh, who's in charge of leasing. Whenever you guys are ready.
Mitchell S. Landis
Thanks, Mike. We will be brief. We're going to leave a few extra minutes for New York, which we know a lot of you want to hear from. Greetings from the Garden State. Like our now-famous Governor Chris Christie, I'd like to say that I represent the portly side of Boston Properties management team. As you will see from the slides, the portfolio we have in New Jersey represents 17 properties, with Carnegie Center representing about 2.5 million square feet. Our current occupancy is about 80%, and our average asking rent is about $33. You'll hear more about how this compares to the market from John Brandbergh, our outstanding Head of Leasing, in just a few minutes. He'll go into more detail and begin to explain some of the benefits of and some of the incentives that we offer to prospective tenants to locate within our region. We also have the rights, the exclusive rights, to 1.8 million square feet of development land with, most importantly, no carry costs. We have had limited development opportunities in our market over the years, but we've been able to attract most of those few opportunities that come along, and we are in discussion with some now, which we'll, again, talk about in a few minutes.
I think a consistent theme that we're hearing and you're all hearing about from all 5 regions in our company is that real estate is a local business. It's all about local knowledge. It has to do with our relationship and knowledge of the brokerage community, the competitive properties, what it takes to make a deal within any region. We are convinced that we get to view every single deal that is within our market, and that is because of local knowledge, and that's going to be a consistent theme in any of our regions. In addition, consistently, I think you'll hear from all the Boston Properties regions, or if you don't hear, you should know, that we each aspire to be the best of the best in every way. Tenants have many choices, where to locate and has a lot of good competitive product. We want to be not only designing and building the best buildings in the strongest markets, but we want to be providing the best services to tenants and the best opportunities for growth to tenants, and we're going to kill them with kindness through our property management. And I think you'll see this as a consistent theme. We need to do this. We need to do this particularly in a portfolio such as Carnegie Center, where many of the buildings are 20 years old. The design was great. In many ways, it's ageless, but we need to always provide the best of the best, and we strive to do that every day. And we're proud that when we can do that.
The specific advantages at Carnegie Center will -- John will get into a bit more, but I don't think it's overstatement to say that we're certainly recognized as the premier office park in Central Jersey and I think, as Ray would say, arguably the best office park in all of New Jersey. New Jersey has a large office market. We dominate the Princeton group on the submarket, a smaller market which is primarily attracting professional service firms and, in particular, law firms and, more so, pharma and biotech-related industry. In particular, the CROs, as we call them, clinical research organizations, are a very large component of our tenant base at Carnegie Center. We have amenities, great amenities that include fitness centers, conference rooms, outdoor concert series, but the truth is, that people come to Princeton and Carnegie Center in particular because the name Princeton has international recognition and cachet, and it has -- we've clearly benefited from most pharma, in particular foreign pharmaceuticals wishing to locate with a Princeton address.
The part of what also attracts is a strong educated workforce within the region and a great quality of life. The Regional goals, we obviously are working to reduce our -- to improve on the vacancy rate. We have a number of good deals, a number of good, prospective tenants at this time, but we have minimal rollover in the next year, approximately 2% compared to approximately 19% in the past 1.5 years. So the opportunity is here to significantly increase our occupancy rate. And in addition, our other primary goal is to explore build-to-suit opportunities. Sorry. Let me just go back for one second regarding build-to-suit opportunities. Just I want to point out the slide on the left is a building which we recently completed. The only build-to-suit in our market in the past 8 or 9 years. We built for Princeton University. This is 701 Carnegie Center. It's about 120,000 square feet. It is the first location which Princeton University has leased office space outside of their campus -- outside of their own ownership. They own several hundred acres of land and could have easily developed this on their campus, but they have strategically determined that it's better to move some of the nonacademic functions off campus. So this houses the treasury and the IT group, and they are very satisfied with his building. I'd say excited is even a fair word, and we expect that we will have future development opportunities with Princeton. No timetable at all at this point, but we are constantly in discussion and expect to see something in the future.
The last thing I'd like to touch on is the -- I'm sorry, next slide -- market conditions. I'm going to kind of briefly go through this so that we can move on, but in particular, New Jersey has had, not just a high unemployment rate like much of the country, but it has had a reputation of being business unfriendly. And the current administration is trying to do whatever it can to change that. There have been a number of grants which offer payroll tax incentives, other business tax incentives, to get companies to stay in New Jersey, to grow in New Jersey, and these have been challenged. And most recently, there has been litigation which was resolved favorably to our perspective, which is to allow the incentives to not just appeal to these urban centers, the poorer cities in New Jersey, but to allow some of these incentives to be used in growth and maintenance in the state, anywhere in the State of New Jersey. Boston Properties, the Princeton region and other landlords have been fighting for this. We will benefit from this.
I think it's best for me to turn over to John at this point, and he will give you more color and detail on the region. John Brandbergh.
Thanks, Micky. Located in Central New Jersey, at the midway point between New York City and Philadelphia, is the greater Princeton market. It's comprised of 5 submarkets that total about 19 million square feet. The Route 1 corridor, where Carnegie Center sits, makes up a little bit more than half of the total market. We actually achieved higher rents in Carnegie Center than they do in the central business district in Philadelphia, which is less than an hour's drive away. Our major competitors are Mack-Cali, Brandywine, Berwind and Rex Corp. Other than 2 hospitals that are currently being built, there hasn't been any recent new construction. And while we have seen a slight drop in our rents and our doing more turnkey deals, we continue to significantly outperform the market. We currently have vacancy rates that is almost 12% lower than the market average. We achieve over 20% higher rents. We give over $17 per square foot less in tenant improvement dollars. And all those deals are basically with virtually no free rent. There has been a couple of deals where we've given a month or 2 for fit-out, but the tenants always moving in after the construction. Among the advantages that Micky spoke about briefly, one that we really like to emphasize to potential tenants when we're meeting with them, is the ability to grow. The ability to grow with one landlord, which means you're dealing with one landlord, one lease. As Micky said, we have 17 buildings, over 2 million square feet with the ability to develop an additional 2 million square feet and maybe, most importantly, you're not stuck with the burden of trying to sublease the space that you just grew out of.
Leasing activity is up this year, as year-to-date volume just about equals that of the last 2 years combined. And we fully expect to surpass those numbers by year's end. Professional services continue to be the main tenants in the market, with the biopharma companies, specifically the foreign pharmas, being the growth tenants in the market. Novo Nordisk, which is a Danish pharma, has experienced growth primarily due to their drugs that treat diabetes. Otsuka, which happens to be a tenant of ours in Embarcadero Center, is a Japanese pharma that continues to grow due to the success of their drug ABILIFY, which is currently under agreement with Bristol-Myers Squibb for them to do their marketing. Otsuka fully intends to take over that marketing in-house when that contract soon expires, which will cause the need for even more growth.
Let's talk a little bit about our last deal at Carnegie Center. It was blind and extend [ph] that we just did with a 47,000 square-foot tenant. We gave them relief on their built-in $2 bump that was going to take place for the last 2 years of their existing lease, and we extended them out till 12/31/19, gave them $5 tenant improvement allowance, and there was no broker involved in that deal, so we didn't have to pay a broker. There aren't any brokers in here, are there? So with this healthy deal, our first half leasing velocity and our continuing good activity toward some proposals, we fully believe that we've weathered the storm and that the worst is behind us. Thank you very much.
The Princeton market really has improved, and when you look at the amount of square footage of leases, it's doubled last year, which is very, very impressive and, as John was talking about, much, much more toward activity. And with the limited amount of rollover we have next year, we really hope that we can take advantage of that and start to lease up some of the space we have. We kind of hit the perfect storm with a lot of rollover at a time when vacancy went kind of stratospheric in that marketplace or and it's going to take us a little while to work through that, but department still does a great job marketing to the tenant demand out there.
Robert E. Selsam
I'm Robert Selsam, the Regional Manager in New York. On my right is Bob Silpe, who's our Head of Development; and to my left is Andy Levin, who is our Head of Leasing. And I'm just going to briefly set the table and let them fill you in on some of the things that their doing. We have 8 properties in service in the New York region. They average just over 1.1 million square feet each. We've been able to maintain consistently higher occupancies than the market, currently 96.5%, and you can see our average rents are quite healthy at over $86 a foot. The 1.3 million square feet under development includes 510 Madison, because that property is only partially in service. The remainder is 250 West 55th Street, which Rob and Andy will both talk about.
We have about $0.75 billion of gross income in New York, which nets us about $0.5 billion a year. We, like all the other regions, have significantly reduced our operating cost basis, which does benefit us when leases roll, but during the time that the buildings are fully occupied, the benefit goes to our tenants, and they do notice and appreciate that. You'll see on this pie chart that almost 80% of our revenue in New York comes from just the Plaza and the Park Avenue districts, 78%. And I might note that unlike all of our regions, with the exception of Princeton, all of our properties in Manhattan are within 1 mile of each other. I can go for a single run and go by every single building which is very nice.
We don't need company cars.
Robert E. Selsam
Just briefly summarize the whole New York portfolio. At the center, is the trophy, the 1.8 million square foot General Motors building, generally considered the best building in New York. It's surrounded on the lower left and lower right by 3 properties that came with that acquisition: 540 Madison Avenue, 125 West 55th and 2 Grand Central Tower. In the upper right-hand corner is 599 Lexington Avenue, where our office is and has been since the building opened in 1987. That was our first entry into New York and remains today, I like to think, in like new condition and still representing the very high end of first-class office space in New York. Next to that, to its left, is Times Square Tower, which we built and opened in 2004. Behind it, you can get a glimpse of 5 Times Square, which we also built, leased in its entirety to Ernst & Young and then sold. And then to the upper left is the former Citibank, Citigroup building, 1.6 million-square-foot building we acquired from Daiichi in 2001. And then next to that, a year later, we bought 399 Park Avenue, Citibank's global headquarters, directly from Citibank, and that building is 1.7 million square feet. Lower left-hand corner is 510 Madison Avenue, and you've already heard about it. You may hear some more about it, so we'll go right on. The main focus for us is to complete the development of 250 West 55th Street. We are all very excited to have that building finally fully under way again, and I think it's going to be just a striking addition to our portfolio and every sense of the word from architectural to performance. We need to complete the lease up of 510 Madison, obviously, and then we have some inherent expirations coming up, particularly 399 Park. Andy can talk about that. And rest assured that we are always turning over every rock looking for opportunities for trophy acquisitions and development sites, and I dare say there are few trophy buildings in midtown that we're not familiar with from having studied them either currently or in the past. So we will continue to pursue those. Let me ask Rob Silpe to give you an overview of our development activity.
Good morning, everyone. I'm Rob Silpe, and I'm Head of Development in the New York region. As many of you know, we recently recommenced construction on 250 West 55th Street, the nearly 1 million-square-foot 39 story Skidmore, Owings and Merrill designed building sits in a 45,000-square-foot site that we acquired about 5 years ago. The building is located on 8th Avenue between 54th and 55th Streets, is LEED gold precertified and is scheduled for completion in the second quarter of 2014. Remobilization and restart of the project has actually gone quite well and smoothly, and the project is currently tracking ahead of schedule. The building is designed in the tradition of great modernist architecture. Like the well-known Lieber House on Park Avenue, also designed by Skidmore, Owings and Merrill, it will be recognized for its strong tower form rising from a 2-story podium.
The typical tower floor is approximately 24,000 feet, with 14-foot slab-to-slab heights, a new standard for Class A office product in Manhattan and offers tenants column-free planning and 10-foot high finished ceilings throughout. The building also includes a single 50,000-square-foot podium floor, with 25-foot slab-to-slab height and a third floor at the tower setback with 18-foot slab-to-slab height and access to a private landscaped rooftop. We also have approximately 80,000 square feet of concourse level space which, while below grade, offers tenants the same standard typical office specification in ceiling heights, elevator and common area finishes as found on the tower floors, at rents substantially below tower floor rents. With its 50,000-square-foot side core configuration, 28- to 36-foot column base and 25-foot slab-to-slab heights, the second floor offers financial, technology and services firms a unique large floor plate in Midtown Manhattan that lays out well for conference, trading and other open plan uses. The trading scheme shown here can accommodate about 450 traders. With its private rooftop garden and terrace and its 18-foot slab-to-slab height, the third floor offers tenants a unique show space that lends itself well to programming as reception or dining area. Tenant interest in the third floor, in combination with the second floor space, has been very strong.
While the architecture presence and identity of a Class A office building is important, and it's what most people notice and remember, it is the configuration of the floor plate that determines whether or not a building will work for a tenant. It is with this in mind that we designed 250 West 55th Street inside out, while simultaneously designing the massing and the architecture of the building. Every dimension on the floor plate that you see here has been optimized to promote uniform planning, efficiency and flexibility. We utilized a 4-foot 9-inch planning module creating 2 additional perimeter offices on each floor, versus the more typical 5-foot planning module. There are no perimeter convectors but instead, heating and cooling is from above, creating more usable floor area and allowing tenants to plan all the way out to the perimeter of the space. The structural design was developed to provide column-free interior spaces and perimeter column placement to accommodate combinations of uniform, 2-window and 3-window perimeter offices without column obstructions. We also created an efficient balance of interior to perimeter office and used an offset core to accommodate interior conference rooms, case rooms and other spaces on the west side of the floor, which is the left side of the floor that you're looking at. We also made sure to limit core penetrations wherever possible, which results in efficient space planning as you can see here on this outside of the floor, which is the down street side of the floor you're looking at. The exacting details of the floor plate configuration at 250 West 55th Street result in a clear quantifiable competitive advantage in the marketplace and which certainly, this has been confirmed by each tenant that looks at our building.
Planning for the eventual remobilization and restart of the project actually began the moment the decision was made to suspend construction in February of 2009. As you can see in the image on the left, construction was in full swing, excavation work had been completed and foundation work was under way, including some difficult underpinning and bracing of adjacent buildings that you can see in the background. The image on the right shows the site in November of 2009 when construction operations actually ceased. As you can see, before shutting down, the completed foundations and built for the structure metal deck and concrete slab to street level. The gray area you see in the image is the ground floor slab of the building and the steel columns you see are concourse level building columns that were set and left ready to receive the ground floor columns at such time that steel erection recommenced.
Finishing this work back in '09 was fundamental to our being able to expedite remobilization and recommencement of construction this year. This, together with our decision to complete steel fabrication for the entire building and enroll the building in New York City's stalled sites program to keep zoning approvals and building permits alive, position the project for expedited remobilization and an accelerated completion schedule upon restart. Our current schedule has this delivering space for tenant buildout in 2013, only 18 to 24 months after restarting construction. With the many moving pieces of the $1 billion development project in full swing, it was important that we document a detailed roadmap of where we left off and specific instructions for remobilization and restart. This was particularly important in light of the uncertain time frame within which the project would be restarted. The restart manual, as it became known, proved invaluable earlier this year when we began to explore the possibility of remobilizing the project and started to plan the restart of construction.
While the groundwork was being laid to remobilize and restart the project earlier this year, lease negotiations were under way with the law firm of Morrison & Foerster. With the signing of this 185,000-square-foot lease in May of this year, we received approval from our board to restart the project, and we immediately put into motion the action plan that we have started developing back in 2009 and will be finalized in detail during the early mobilization at the beginning of this year. We restarted steel erection in late August, have bought out 90% plus of the construction trades and, as of this week, both of our tower cranes are fully permitted and operational. The total estimated cost of the 1 million-square-foot project is $1,050,000,000.
During the second half of 2010, and into the beginning of this year, leasing activity was remarkably strong in the Midtown market, and market data continued to confirm a recovery. Midtown vacancy rates were declining and rents had stabilized and were showing signs of improvement. The macro backdrop was also encouraging. New York City job creation was strong. The new supply story was compelling in that there was and continues to be little, if any, new office supply in the Midtown market between now and 2016. And lastly, tenants were more confident, better able to plan and more willing to make long-term lease commitments. So we revised our underwriting based on the current market and our expectations for the next few years, with a projected 11% plus return on incremental cost and mid-5% plus return on total cost, 250 West 55th Street is compelling investment today, particularly in light of today's low interest rate and low cap rate environment. This is where the site stands today, or actually about 2 weeks ago. You can see a great deal of activity on the site. In the upper left-hand corner, you can see the first tower crane that had been erected at that point. In the lower right hand of the image is where the second tower crane now stands. And while we were erecting the tower cranes, we made good use of the crawler crane to begin podium steel erection as well, which you see in the upper right-hand part of the image.
Before I hand this off to Andy, I just want to speak just for a moment about 740 8th Avenue. As many of you recall, in '07, '08, we assembled a 40,000 square foot development site on 8th Avenue between 45th and 46th Street with our partner related companies. With the financial crisis and ensuing recession, we decided not to close on all the parcels we had on the contract. We did acquire and own today with related 5 parcels in fee indicated in yellow on this survey, which together have a footprint of approximately 8,000 square feet and 2 air rights parcels indicated in pink on this survey. Including the air rights we own approximately 100,000 square feet of FAR. While likely not a development site on its own, the assemblage we control today gives us a foothold to either assemble more of the site over time or look at options to sell the site to another investor or developer. And with that I'm going to hand this over to Andy.
Thanks, Rob. I'm just going to talk this morning about the state of the Midtown market, our portfolio within that market and some of the leasing opportunities over the next 15 months. Just a refresher, the midtown market in total is about 228 million square feet. The current availability rate at 11.3% was down significantly from its peak in 2009 of 14.8%. Consistent with that, there was significant positive absorption in 2010 and, again, so far this year, after 2 years of low full year leasing activity and significant negative absorption. Naturally, we started to see some rent growth and are now 9% higher than at the start of the year. Leasing activity as of September 1 of this year is 11.8 million square feet, the highest market this time over a 4-year period, and 75% greater than the low of 2009 at this time. Broken down by submarket, you'll see that this trend is consistent for 2010 over 2011 across all markets, with the exception of Park Avenue, as there was a lot of leasing done there last year. And the availability of space has been a constraining factor in 2011. That brings us to availability rate.
Park Avenue, with all the leasing from last year, is now well below the 11.3% availability of the Midtown market, now at 8% for Park Avenue. Fifth Madison has made some improvement of late, moving down from its high of 18% to 12.8% today. Historical asking rate spreads have widened back out after a few years of compression. To reinforce the better buildings, do better even in bad markets, look to the last few years when the space was priced in a tight band. There was low to no premiums for better space, which drove leasing to that space ensuing a flight to quality and more leasing in the better buildings. It's not surprising that on Park Avenue and the Plaza District, the asking prices of the better products were the first to rise after the leasing restarted and you see the normal spreads reestablished. Looking at our portfolio of 8 buildings, 9 million square feet excluding 510 Madison, we have a 4% vacancy today with another 6% of expirations coming over the next 15 months. Once you take out some of the leasing activity we have currently underway, the total availability is 9% through the end of 2012. I'll now talk about some leasing opportunities over the next 15 months including 510 Madison, our new building opened just this summer; 399 Park Avenue, which has a few tower floors at the top; and 250 West 55th Street, which you've just heard from Rob about, and we're focused on securing our second tenant for that building. So 510 Madison is 350,000-square-foot new building that opened for business in May of this year. It's the only new luxury product available in the New York market. You've got the Seagram Building and you got 667 Madison and the Lieber House, all those are quite older products. This is a brand-new product. There's always people in the marketplace who want to have the newest best thing. And Brian talks about space in place and the ratio of window vision glass to interior space, you're not going to get any better than this space in the market. And you haven't seen that at the high end in this market. We've seen that in some of the more corporate, larger institutional buildings. You haven't seen that in a luxury space. It's real incredible opportunity for us here. And thanks to Tim and Rob, we were able to acquire this building from Harry Macklowe. Some of the tenants include SAC at the base, J. Goldman, Valinor, Senator, Chieftain and the World Gold Council along with a few smaller tenants and Turnox in the retail. Some of the features include no interior columns, 13-foot-6 slab-to-slab, allowing a minimum of 10-foot finish ceiling and floor to ceiling glass. Benefits are obvious. We hope greater productivity, greater efficiency and greater creativity. Some of the amenities include 510 Fitness, really a new concept in New York. It's a private staffed, 5,000 square-foot gym and pool exclusive to the senior executives of the tenants in the building. We also have a landscaped roof on the sixth floor setback for a nice respite for the tenants in the building. We're looking to attract a white tablecloth restaurant to a space specifically designed and outfitted for that purpose. finally, the building contains a brand-new Turnox store as I spoke about, with a one-of-a-kind Rolex boutique at the corner retail at 53rd and Madison. The leasing program moving forward will be to generate even more buzz and leasing excitement at the building by being accommodating to smaller tenants. All the remaining floors are 11,500 square feet but all the tenants in the marketplace are not. Since this is a new building, all of the space is going to have to be constructed. We will be prebuilding for the smaller tenants at different spots in the building to allow for the quick occupancy of varied spaces and varied price points. At the same time, we can offer some larger tenants the ability to custom design their space and have the capability to build it for them, allowing them to maintain focus on their core business, their returns. 399 Park Avenue, we've got this building is a full block building, has a 100,000 square foot floor plate at the base, stepping back to 60,000 and then 24,000 in the tower, so it creates its own setback much like Embarcadero Center, you've got incredible light in there even at the base of this building. In August of '12, we're going to have 6 floors in the tower, some of the best space and the building. We expect to lease this up in full floor, half floor and smaller increments, giving the expected premium pricing that we achieved in the tower. The tower floors are efficient and work for trading or professional service firms with no interior columns on the north and south sides and attractive lease band. Along with its large windows, the full block building, and its setback neighbors. It's fantastic view corners and wonderful light and air for these floors.
250 West 55th Street. Again, this is going to be the only new building built in Midtown prior to 2016. The tenants in the market years ahead of time, need [indiscernible] of space availability and the ability to plan for growth well ahead of the time they take space. A new building can plan for that, as well as 5 and 10-year growth for us. We have 2 large blocks of 350,000 square feet above and below Morrison & Forester. We believe the next few leases we'll do will be the 250,000 to 100,000 square foot range. So easy to accommodate those players. We like the market moving forward from a competitive standpoint. As we sit here today, there are only 3 blocks of real class a space, 200,000 square feet or larger currently available. Additionally, if you're in the market for 2013 to 2015, and you are larger than 200,000 square feet, there are only 3 other choices for competitive space. Looking at the Midtown market as a whole, over 7 million square feet of leases are expiring over 200,000 square feet in the same timeframe, providing a healthy pool of prospects to market and lease the building. That concludes our presentation from New York and I'll turn it back over to Mike LaBelle.
Michael E. LaBelle
Great. Thanks, Andy. I think that we're going to head for lunch now actually, because we're running a little bit late. There will be folks from BP at everybody's able to respond to questions. We're going to have a case study on Reston and then there's another tour this afternoon of the Washington DC's assets in 2200 Penn after lunch. So thanks a lot for your joining us and lunch is right next door. We'll see you over there in a few minutes. Thanks.
Raymond A. Ritchey
Those of you on the business with I noticed start shouting again as opposed to using the microphone the first of all I want to thank you all for your participation in the conference one more time. I thought that this morning's presentations were insightful and thorough and hopefully gave you that constant reinforcement of the 3 things we try to emphasize in all of our meetings with you, which is the best markets, the best buildings in those markets and certainly, as you saw it today, the best people to execute the development and recent strategies for our investors in the markets. My name is Ray Ritchie and I'm pleased to be with you this afternoon. Yesterday afternoon, many of you went for the bricks and sticks tour of Reston Town Center where we actually touched and felt and walked the floors and saw the sights. For those of you who didn't go yesterday, it was a great tour but you'll get a complete update here today on a much more theoretical approach to town center and what has evolved for the first 15 years of our involvement in Reston Town Center and what we hope will happen in the last 10. I want to start off by saying it please go ahead, talk quietly among yourselves if you need to, go ahead, and eat your lunch. We're trying to get through this so that at the end, we will have another 5 or 10 minutes to answer questions, you may have either by the Reston presentation, or about any talk you talked about this morning and we're trying to get on schedule so that as many of you possible can get on the tour, we'll leave here promptly about 1:30 to 1:35, 10 minute walk over to 22nd and 10 2 blocks away. We'll then do a quick tour of 2210, those of you who went on the cocktail party last night. You know it's quite an exciting project. We're going to drill down a little deeper in that project this afternoon, so you'll get to see the apartment building, some of the office views and clearly completely understand the project but they're going to get aboard buses probably 2:45 I think and do a quick one-hour tour. Those of you who are coming on the bus tour, and have either the trains or flights that may preclude you from participate in the full tour we'll be glad to stop and put you in a cab, stop in front of Union Station to get you on a train, whatever we can do to facilitate the your tour this afternoon of these wonderful assets we have in Washington DC. We want to make it possible so without further ado, let's start with an overview of the Reston Town Center if we could. At first I'd like to introduce the [indiscernible] up here with me today and the first 3 are obviously myself, Peter, as you saw in [indiscernible] this morning. This is what we call the old [indiscernible] slide. We average 55 years to that pretty amazingly. The next slide is what we call young studs, and it's almost like the past and present of the Boston properties the Reston Town Center and the next slide is what we truly believe to be the future of not only Reston but of the Washington region. And those 4 individuals are starting in the far right are Katie Sacripanti, many of you met Katie yesterday and [Indiscernible]leading the leasing effort in the Reston Town Center. One of our youngest region representatives, assigned to one of the most responsible leasing positions. Pete Otteni, immediately to my right is the Vice President in charge of the overall development and leading the effort for the development plans for Reston Gateway which we'll talk about. Rich Ellis [ph] who's our project manager who, did the tower that you saw with College Board luxury tower who will be responsible for executing Block 16 as he did with [indiscernible] residential. Last and certainly not least, on the left-hand side is Laura McNulty who is our Senior Vice President for property management and responsible for the leadership of one of the most responsible property management teams in the Washington region and who would give the insight in that she was both with Boston Properties and the previous owner of Phase I equity office.
So again, please let's go ahead and serve lunch if we could and keep on going that. So without further ado, this just gives you a geographic perspective so you can understand where Reston is located for those of you who were not there. You see Washington on the right-hand side, Reston is about 18 miles out. You can right out 66 as we did on the buses yesterday. You actually passed through where the 18 mile label is on this slide is your approximate location of Tyson's Corner and then you proceed out the Dulles access road or toll road to where you see Reston, which is actually situated just 5 miles to the east of the us international Airport. And the thing that 5 months ago is really important because it gives us that international access to those who do business not only within the region, within the East Coast, West Coast, but more internationally as well. So a little historical perspective. Robert E. Simon and his family owned Carnegie Hall in Pittsburgh, sold it about 40 years ago and bought Reston roughly 7,000 acres in Reston Virginia. So Reston itself, including the residential, is a little under 7,000 acres and then you drill down to Reston Town Center itself which is about 460 acres, which comprises most of what you see in this aerial and then, Boston Properties development is mostly within are adjacent to the urban core, which is about 80 acres and that's outlined in red on this slide. So let's go back to 1996 and those of you, not too many of you in this room probably remember the market in '96. It was -- the old expression was stay alive to '95, coming out of the 2000 -- I mean the 1989 recession, which lasted into '93, '94, stay alive to '95, '96 comes along. And we survived it by doing a lot of corporate build-to-suits. That's back when we built the NASA headquarters, the old Controller of the Currency building. And we kept our development infrastructure in place. We survived that downturn. The board had- was electing to go forward with the public offering. We're looking for opportunities to enhance our development position. Coming out, we saw the market returning.
And so, lo and behold -- Jon, next slide please. Lo and behold, we get a call from Mobil Oil, who owned all of Phase 1. Phase 1 was built about 1990, '91 to much acclaim. It was basically 1 million square foot project. Again, highlighting the ability to -- when you build multi-uses: retail, office, hotel, residential in one phase. You can deliver 1 million square feet in one fell swoop. Well, they did. They just didn't build any residential at that point in time. And despite some initial leasing successes, they really hit the wall through the recession of the early '90s. And so, they called us up and said, we got all this log around out here. You guys are coming off this tremendous success of doing all these build-to-suits for corporate users. Why don't you come out and join forces with us to continue on with the development of Reston Town Center. And we said, you know what, we're not suburban guys. We are downtown guys. We like high barrier to entry. We like quality of life. We like New York. We like Boston. We like D.C. We're just not really interested.
So my brother who's the leasing agent at the time says, Ray, trust me on this one. Listen to your brother for the first time in your life. Come out, look at Reston Town Center. This may work out for you. So I said, okay. And so basically, Mobil gave us a free hunting license -- on what, Peter, about 2 million square feet of density something like that?
Peter D. Johnston
Raymond A. Ritchey
And said, okay, go out there, and let's go out and try to find some corporate users. And one of the first ones we went after was the Methodist Church headquarters coming out of New York, for like 60,000 square feet. And we're going to stick them on this one site that now is Democracy...
Peter D. Johnston
Raymond A. Ritchey
Discovery Square. 350,000 square feet of leases at $40 a square foot. And fortunately for us, one of the best things in life is when you don't make deals that would have otherwise been catastrophic. So we didn't make the deal, and we had to veer off some other direction.
Okay. So if you take a close look at this slide, one of the things that immediately jumps out of you is the amount of disturbed area that's on this slide.
Raymond A. Ritchey
Sort like, looks like Baghdad, I think.
Yes. This was taken probably in about 1998. If you look at the balloon, the one that says Reston Corporate Center, about year after we went public, we acquired a regional developer here in D.C. that had property in Maryland and Northern Virginia, in this area, Mulligan/Griffin, in exchange for units and acquired the Reston Corporate Center and properties you see there. Accenture and Reston Overlook, those developments were taking place. We had successfully convinced Accenture that they should come all the way from downtown Washington out here being a cutting-edge firm and kind of -- their business of selling to their clients, those things that they employ themselves. So we got the deal for that, which was a 420,000-foot 18-story building. And that had been preceded by the Reston Overlook deal where we got a defense contractor, BDM, out of Tysons to come out. The BDM deal was the first deal -- first new building being built, really in the Washington metropolitan region virtually in about 6 years. We built that complex for about $155 a foot, including land, parking decks and everything. But if you look at the volume of disturbed area on this slide, you see the amount of development taking place. All the way to the left, that very big partial there was the introduction of residential that Mobil had spun off to a development firm to begin really creating the mixed-use environment that became the town center by adding that last piece of residential.
Raymond A. Ritchey
So from 1997 to 1999, we basically rented 2 big build-to-suits and acquired a portfolio from Mulligan/Griffin that was just almost a throw in. So that Reston Corporate Center building you see there, remember that site. We bought it at very low price, not knowing that, that would be ground zero for Metro 15 years later.
This slide here shows you the completed West Market development. And you see that residential, and again, this is the 2000 to 2003 timeframe. Obviously, well, we all know what happened during that time. The tech bubble had burst. We have begun the development of Discovery Square in the Overlook complex that you see completed here now, abutting the Dulles Toll Road. We had done a deal there with Seibel Systems.
In the midst of, say, 2000, 2001, once they had occupied, they came to us and said, we really need much more space. We tore up their lease, we moved them in to the first phase of the Discovery Square. They took a little over 100,000 feet there. We decided given the strength of the market at that time to go ahead and commence Two Discovery Square. We'd also secured a user for Two Freedom Square, which was one of the leading tech law firms, Wilson Sonsini, and secured their requirements for, I think about 100,000 feet, Ray?
Raymond A. Ritchey
At the top of the building. The rent at that time, now you remember, this is like, that deal was probably inked in 2000, I would say, maybe late 1999. And the rent that they agreed to pay was $44.
Raymond A. Ritchey
$48 a square foot.
Okay. So $48 a square foot.
Raymond A. Ritchey
10 years ago.
Remember that number. So that was at the beginning of when we were developing the building. By the time we were completing the building and trying to conclude the leasing, we were doing deals at...
Peter D. Johnston
Peter D. Johnston
We basically had the entire building committed. A big law firm presence. The technology center of Northern Virginia was becoming Reston Town Center. The law firms wanted to have a presence out here. We had commitments on the entire building. They didn't sign their leases. They backed out. L-3 came along, had a consolidation requirement, took advantage of that. We did a deal for 100-plus thousand square feet with them at about $25 a square foot. It was a 200-some-thousand square foot consolidation. They sublet Wilson's space in the very high teens at that time.
Raymond A. Ritchey
So Wilson was in the $48, they sublet it $19 or $18. Now I think it's interesting to note they're a Silicon Valley law firm. So maybe it seemed like a natural thing to do for them. I don't know. But because the dynamics in the market.
At the same time, you see Oracle's name on this slide. There was about a 23 acre site there that we had actually talked to Mobil Terrabrook about acquiring at one point. And they came into the market. We pitched them with Mobil to be their developer or if they wanted us to actually build a complex for them, and own it and lease it to them. They wanted to build it themselves. They acquired it directly from Mobil and went ahead and created that campus that you see there, which is still there today.
Raymond A. Ritchey
Peter D. Johnston
Two West Coast law firms came in to town at this point, Cooley Godward and Wilson Sonsini. They really didn't look in any other submarket. They knew that this was where the center of technology was going to be. We ended up leasing space to both of them, Cooley in One Freedom, Wilson in Two Freedom.
Kind of continuing from a timing perspective, the next development that you see on here is the Sallie Mae development. Peter and John were mentioning the falloff in rental rates that we saw from the beginning of Two Freedom Square to the end of Two Freedom Square. Our partners in much of this development out here, the Westbrook and Terrabrook partnership were looking to unload some of the land that they had out here. Sallie Mae was in the marketplace. Our partners sold the Sallie Mae development to Sallie Mae, and then Sallie Mae hired us as their development manager. So at a time when we were not doing a lot of new development for our own account, we were able to do a fee development deal for Sallie Mae. That building delivered in 2004, has subsequently sold to Rockwood and now recently is selling to VeriSign, who's an owner occupant. But we were able to keep our development staff busy and do something that otherwise we would not have been doing for our own account.
Raymond A. Ritchey
And this slide also highlights the West Market over there on your left-hand side. That is the introduction of the first major residential element in the town center, which again now has evolved into a major multi-family, both rental and condo market. And the kind of focus of our future in Reston Town Center.
So 2004 comes along. Westbrook Partners, who acquired the Mobil interest, who has been our partner in the development of all these buildings comes to us to say, you know what, I think we want to get out of the real estate business. So they took it to market. They didn't get that great a response. We had kind of a rope hold on it, and so we sat down and negotiated the buyout of all the interest of our outside partners in all the square footage of space. And so, we bought out Reston Overlook and I think that was about $180 a square foot, guys I think.
Peter D. Johnston
Raymond A. Ritchey
$180 a foot. We bought them out of One and Two Freedom. The great thing about the buyout of One and Two Freedom is basically 2 things: We had a promoted position that allowed us to promote from 75-25 to 50-50, and then with the purchase that promote kicked in. We were capping -- the cap rates were I think, Doug, in the low 8s as I remember on that. And the great thing, really good thing about doing that "lost leader" deal with L-3 was we're now capping $24 rents, in a building where we had been doing $48 rents. So I think we bought Two Freedom for less than $200 a square foot.
And last but not least, we had this land on South of Market. This is a surface parking lot there. And because the rental rates at that point in time were like $25, $26 a square foot. And you really couldn't really justify new construction on that type of base rental rate. And I'll give kudos to our President who executed the negotiation in this. We almost got the 900,000 square feet of the South of Market project you toured yesterday -- what was it? $13 a food, Doug? $13 a square foot. That land today must probably be worth $80 a square foot. But more importantly, we probably have created $150 a square foot of value. So we went out, and we acquired that. And as they say, moved in "all in" on Reston Town Center. One other important thing, you see the Reston Corporate Center site. We extended that lease with the CIA that extended -- that expires in 2004 to 2014. Again, keep that date in mind because in 2014 is when we hope to start repositioning that site for redevelopment. So we have this Gateway site with income in that point in time. And we also freed up like what you see the Reston Gateway site, the parking lot for development if the Gateway site is renewed by CIA.
Ray mentioned this a little bit earlier, but what we're highlighting here is the South of Market development. Those of you that got the chance to go to Reston with us yesterday, saw this project. We acquired South of Market. It's about a 5-acre parcel, 2 blocks, if you will. We acquired it at the end of 2004. Took about a year worth of time to go through the design and permitting process. Started construction in early 2006, delivered in early 2008. This is about 650,000 square feet, not including Democracy Tower, which we'll talk about little later. 650,000 square feet, we believe to be the biggest speculative project, perhaps ever started in this region. We started the entire the 650,000 square feet without any leasing done. When the project delivered, it was upwards of 90% leased. And it's 100% leased today. Obviously, a good success story and if you saw out there today, really kind of changed the landscape of Reston Town Center and helped to create the urban walkable environment that you hopefully enjoyed yesterday.
Raymond A. Ritchey
The other aspect about that deal is, started that building in 2006, Pete, when we started. It was one of these examples of us moving on a countercyclical basis because the market was okay, but for us to go spec on 650,000 square feet and then to deliver in '07 and '08, when the market was really getting strong again. And then to ride out the 2009, 2010, 2011 with buildings that aren't even 100% leased.
I mentioned Democracy Tower, which is the fourth building in the South of Market complex. When we built -- originally when we owned, it was called Block 14 and 15, the 2 blocks that comprise the South of Market development. And we went through a bit of a dance with a residential partner to potentially design 2 residential towers that would have sat on top of the podium that, that large garage created. The residential market wasn't doing great. Our partner that we were talking to had some significant residential holdings in Reston. So they were very close to the market, knew that the sales were declining and weren't wild about biting off another what could have been 600 or 700 units worth of additional residential development on top of this garage. So at the time we were building the 3 office buildings across the street, we scrapped the plans for the garage. We had about 230,000 square feet of additional commercial development that we were going to have to sort of zoning, do some zoning engineering to figure out how to keep that density. We decided to redesign the garage, design it in such a way that instead of 2 residential buildings, it could house one 230,000 square foot office building with the cores and all of those things. Interestingly, I think we built the garage so that we could have waited a significant period of time before we started this fourth office building. We were going to build doghouses to close in the future elevator towers. We were going to waterproof in ways that the building could have sat there for some period of time, years even, without building this fourth office building. The prior slide mentioned the Beacon purchase of Phase 1. It's interesting as it pertains to this particular development because the College Board, who is the tenant of 100% of the Democracy Tower went through a period of time where they had Equity Office as somewhat of a lame duck landlord. They knew they were selling the buildings. They weren't willing to sign a renewal with the College Board. They thought that the buildings perhaps would sell for more without the deal done. In the interim, Blackstone owned it and again was flipping it out to Beacon around the same period of time. And so, the College Board was going through a period where they couldn't really get any traction on a renewal in their existing space. And they were also in space that was inefficiently laid out for them. They had taken over some legacy space from other tenants. They hadn't been able to redo it to their standards. They weren't using it as efficiently as they could have. So we, in the summer of 2007, we swooped in and really in a period of about 3 months time, went from very early negotiations to the College Board to a signed lease with them. We waited only about a month from the completion of the Democracy Tower garage to the start of construction of the Democracy Tower building. They started out about 130,000 square feet. The College Board did expand to take the entire building. They saw -- if you saw it yesterday, there are 2 existing floors that they have for sublease in the building. But they lease 100% of the building at a rate that is probably one of the highest that's ever been done in Northern Virginia.
Raymond A. Ritchey
That leaves us now over $50 a square foot on a full service basis.
The Block 16 site, which was mentioned a couple of times this morning is a site that we purchased in July 2010. The site was actually previously designed as a very high-end condo building. That market took a turn for the worst. So we actually were able to purchase the note on that site and negotiated a forbearance agreement and take fee simple ownership at the time we closed on the note. This site was attractive to us for many reasons, obviously, adjacency to our existing assets, the linkage opportunity to the future Gateway site, which we'll get to. The fact that it's the last residential site in the town center urban core and in general, we think it's a great residential site. Kettler built the only high-rise residential building in the town center, that's rental apartments, now owned by ING. That building is 98% leased. They raised rents by over 10% last year. And we spent quite a bit of time studying that building and other buildings as we planned the Block 16 site. And we'll talk in a little more detail about our plans at Block 16.
So just to summarize kind of the past taking us from '97 to the present. Again, on the left back then, you look at the 4 areas that are blocked out in red and the development that existed. And actually, when I say existed, the Overlook site was underway, but not completed. So you had Phase 1, which you see there, the larger square and 2 other developments, Reston Corporate Center and then the one on the lower left, which is actually now owned by Vornado, but outside of the town center district. And you look at the amount of disturbed area that was underway at that point, and then you come forward and you look next door on the other slide and you see the volume of buildings that were put in place, which is just extraordinary for the amount of time it was developed.
Raymond A. Ritchey
Okay. So this is the time you put down your fork for one second. Not because I'm talking, but this is important, all right. So during this period of time, we have developed or acquired 3.5 million square feet of space. So to put that in perspective, that's like us, and I want to point out that 3.5 million square feet of space is 99% leased. So on a relative basis, this is like for 15 years, us building a 220,000 square foot building in this market every year for 15 years that's 99% leased. And the amazing thing is the diversity of the product, the diversity of the tenant, the lease-term diversity and the value created. So we are -- and what this does in terms of putting this in perspective. But what's also interesting at this point in time, if we ascribe a value of $500 a square foot, which is about what Beacon paid for Phase 1 before CapEx, and we applied it towards and let's add in -- what we haven't talked about is that the project that we built less than 1 mile away, called the New Dominion Tech Park for our friends at the agency. We have over 4.1 million square feet within a mile of Reston Town Center. We would have a total value of $2 billion, which is I think largely been either capped or REIT on a total market cap basis. So the value created there is really pretty extraordinary and then in terms of the period of time it was created and the intensity, and the specific location that took place all within 1 mile.
Just as a quick summary, what has changed in the town center over the past 14 years. Are we seeing an increase in rental rates by about 100% or so? And when we came into the market in 1997, we were looking at low $20s full service numbers. Fast forward to where we are today, and we are currently in the process of backfilling space that Accenture will be vacating in 2012. And we are signing deals there in the mid-$40s full service. Despite some significant rollover over the past few years, we have signed leases or commitments on -- this says 98%, let's go with 99% of the portfolio out there.
Katie, thank you very much.
During that time, we also entered into the multi-family market. As we discussed, we purchased Block 16 in 2010, also with Reston Gateway, which will have a residential component. I think that bullet segues quite nicely into the next 2 bullets. In order to really create a viable and sustainable environment in a suburban location like Reston, you can't really look at these components individually. It's not just about the office space. It's not just about the retail. It's not just about the residential. It's how these 3 components come together and create this vibrant, energetic 24/7 mixed-use environment that helps to attract these major corporate users. And I think that we've executed that quite successfully. And we were able to attract these users. We have Google and Rolls Royce at South of Market, and we also have Microsoft and Oracle out at Discovery Square.
Raymond A. Ritchey
So this is the living case study for our good friends in the Boston region talked today about the 4 points they're talking about, and I know I'm going to miss one, but it was: attract and retain, sustainability, collaborative and...
Peter D. Johnston
Raymond A. Ritchey
Culture -- branding. Great. So we got all 4 of them. And if we look at the tenants that have sought us out. And every one of these tenants, this is their regional office. This is -- they searched the entire D.C. office market. They could have gone to Maryland. They could have gone downtown. They could have gone to Tysons. But every single one of these high-value, high-beta tenants elected to come to Reston Town Center.
Okay. We're going to talk a little bit about the present now, which in our mind is kind of the '11, '12 timeframe. Then we'll jump up into the future.
Okay. Well, you can pick up your fork again that you've put down. I was worried -- I don't know. Hoping you can hear me. As we grew, we leveraged our size, and we bid and bundled services. You probably heard that from other operators, but we did it while maintaining a high level of standards, which I think is a little unique. We also found that with a critical mass, we were able to find efficiencies with our staff. And I would say it's an average of maybe 40% less in cost per square foot than a typical suburban Class A building. But I think the takeaway that I want to share with this group is to put it in perspective is if you go back to 2008, before we had that critical mass, and you look at what our operating costs were, and we were very competitive, great operating cost. If you compare it to where -- what we're spending today. We've actually decreased our operating cost by 25%. And I think that's pretty amazing, because I think we've exceeded all of our customer expectations. And I think the renewals that you'll see that John will speak to, speak for that.
And this really is critically important when we talk about the lease rollover because when you implement operational efficiencies on an existing lease, that savings flows to the bottom line of the tenant, which is fine, okay. But when you're establishing base years, as we're doing with literally millions of square feet in Reston Town Center today, we make that savings every single year. And so, when we quote a rent of $45 a square foot or $38 a square foot, we're not pulling off $12 or $13 or $14 a square foot as you would have in a single runoff building at Tysons. But here, we're bringing down a $9 expense stop or $10 expense stop depending on the taxes and driving to the bottom line an extra $2 or $3 a square foot.
Peter D. Johnston
So from a leasing strategy standpoint, the critical mass. I'm going to start at the bottom of these bullet points. The critical mass enables us to support an on-site regional leasing office. We have an office in One Freedom Square. We really wanted to put an office on the top floor of Democracy Tower, the space that we toured yesterday, but we couldn't talk Doug and Mitch in to 25,000 square feet at $50 a square foot. So we ended up with about 1,400 square feet. But we use that office pretty extensively. Obviously, by dominating the market, we can, to some extent, drive the rents. And it's not just driving the rents higher, but as Laura mentioned, driving operating expenses lower. So our net is higher. And last but maybe most importantly, we can provide what we talked about earlier an amenity-rich environment by controlling the ground floor, the street level, what the pedestrian sees and feels on a daily basis.
Raymond A. Ritchey
So those of you who are on my bus yesterday, and I spoke in glowing terms about competitor's portfolios out there. But this talks about how our synergy and our market dominance and our ability to eat, sleep, drink this market every single day, gives us a competitive -- aside from having the great properties, gives us the competitive edge out there, trying to get the highest rents for our shareholders.
So the downside of all this past success is that we have to deal with the rollover. So the next slide shows 2011, 2012. If we leave Patriots Park out for just a minute, we'll talk about that in just a minute. But basically, 1 million square feet, all expiring in this roughly 12-month timeframe. Northrop Grumman in One Reston Overlook, Oracle in Discovery Square, Finnigan in Two Freedom Square and Accenture in One Freedom Square.
Great. How can we tackle that? One thing that this slide shows, that is a contrast to Tysons Corner is the street grid. The urban core was designed on the classic urban street grid, where it's perpendicular to the streets. You always have 4 ways in and out. Once you get out of the urban core, you can see the major north, south arterials, Reston Parkway, Fairfax County Parkway, and the East, West arterial, Sunset Hills Road and obviously, the toll road. That is one major distinction from Tysons Corner. Basically, it's bounded by 7, 123 and the Beltway. To get out of the urban core of Tysons, you pretty much have to pick your poison, and go from there. So one major difference, that was an advantage that we have today and had when we were re-leasing the space, given the Metro construction in Tysons and the HOT Lane construction in Tysons. Transportation in and out, ease of access in and out, was a major selling point that we had in dealing with these renewals and expirations.
Well, of the approximately 1 million square feet that was set to expire during this timeframe, a pretty large portion, about 25% of it is the Accenture space that was going to expire at the end of February of 2012. We actually started our re-leasing efforts pretty early. It was back in early 2010 that we actually negotiated an agreement between Accenture, Boston Properties and Comcast. Whereas, Boston Properties would take back 2 floors from Accenture and then term lease them on a prime basis to Comcast. The way that we structured the deal, there was no downtime between Accenture's termination date and Comcast's lease update. We came to an agreement with Accenture where they participated in the transaction cost, which was obviously a huge concern for us. And then I think another big factor was because we executed this deal with Comcast in 2010, it was a new 5-year deal, so there was a revised lease expiration on those 2 floors at 2015. So we're able to generate income on those 2 floors for 3.5 years beyond Accenture's expiration date.
Moving to where we are today in 2011. We were then left with about 195,000 square feet to lease at the building. At this point we have a signed lease with a 72,000-square-foot user. We are in final lease negotiations with a 56,000-square-foot user. And we are also in lease negotiations with a third-party fitness user to take about 25,000 square feet on the lower and plaza levels of the building. So that leaves us with about 40,000 square feet on the entirety of the fourth and 18th floors.
And one final note about One Freedom Square is, throughout all of this, we saw an uptick in the rent by about 12%. Accenture's expiring rent was up 12% lower than what we're getting with these new leases. On top of that, we have transitioned the building from -- with car[ph] building measurement to a bowman[ph] measurement. And we've seen an increase in the square footages by about 8%, so overall, a 20% increase at the building.
Still on the Accenture space, the 2 larger deals that we're working with our existing tenants' technology firms, they may or may not have any business with the Federal Government but mostly non-Federal Government related work. And I think that's just, again, validation of the technology-driven expansion that we're seeing in this market. With the Oracle space at One Discovery Square, we've leased all of that space to a defense contractor called SiCore [ph]. They do some nondefense work but it's primarily defense contracting. Interestingly, they recently exercised an expansion right just within the last 2 months, which is a little bit counter to what we're seeing with the pause[ph]. But certainly from their segment of the business, they're confident that the business will be there, enough to exercise their expansion. It was 8,000 square feet.
It was 8,000 square feet, and I think what's also very interesting is that the space that they initially took, about 114,000 square feet, they were taking at 2 different times. They only occupy about 2 floors of it right now. We don't deliver the remaining 6 floors until December of this year, so they won't occupy them until June of 2012. So they're already taking 8,000 square feet of expansion before they've occupied 80% of the space they took under their initial lease.
Microsoft is an existing tenant at Two Discovery Square. This was actually Microsoft's first office in Virginia, not just Northern Virginia, but all of Virginia. They recently extended for 7 years and leased an additional 17,000 square feet, again, technology.
With Finnigan, they were about 97,000 square feet with an expiration date of July of 2012. We actually engaged in renewal discussions with them, about 3 years in advance of their lease expiration. And in 2010, we executed a blend and extend. That was a 10-year deal effective August of 2010. As part of that deal, we agreed to take back the 7th floor, which is about 27,000 square feet. So their reduced square foot is about 72,000 square feet. But one important thing to note it as part of that extension, they agreed to keep about 15,000 square feet of lower-level space. We're realizing, with the evolution of law firms that lower-level space, which was once pretty important to them as part of blending down their rate and having some back-of-house space for them, it's kind of a thing of the past now. So for us to be able to get Finnigan to agree to keep that space for 10 years, I think was a big success for us. One other thing to note about the Finnigan deal, it was a low $40s full service number, as is, no downtime with the major concession being that we took back about 27,000 square feet, but we need to keep in mind that of that 27,000 square feet, there were subtenants in about half of it that we then just assume those leases.
The Northrop Grumman lease at One Reston Overlook expired earlier this year. We at one point were in discussions with them about a long-term extension for all the space. They subsequently bought a building in this area and moved their headquarters from California, consolidated some of the offices to that headquarters. We ended up renewing them for 3 floors. We leased 100,000 square feet to a defense contractor, again, counter to what we're hearing out there in the marketplace. But that defense contractor wanted to move up in terms of quality of building. We took advantage of that. We have a letter of intent, and are negotiating a lease for the balance of the space. It's a private sector entity, does some work with the federal government. But I would not call them a federal contractor. We're also rolling up the square footage by about 3% on One Reston Overlook.
So the net takeaways, again, in this timeframe, 1 million square feet expiring in a very challenging market. 270,000 square feet of renewals, new leases, nearly 400,000 square feet. 255,000 square feet committed, leaving us with roughly 80,000 square feet, which is essentially 2 of the Accenture floors in One Freedom.
Raymond A. Ritchey
That doesn't expire until well into 2012.
We'll talk about now Patriots Park. Just a little background on Patriots Park before I turn it over to Pete. We bought these buildings from Mulligan/Griffin back in...
Peter D. Johnston
1998. They were under long-term leases to Lockheed Martin, which had a facilities management agreement with the National Geospatial Agency, formerly National Imagery and Mapping Agency, now NGA. In 2006 -- 2004, delivered in 2006, NGA came to us, wanted to expand into an adjacent site, which we call the Patriots Park 3. So the entire site comprised 700,00 square feet in those 3 buildings. NGA was part of the BRAC relocation to the Engineering and Proving Ground, which is part of Fort Belvoir. So we were faced with in May of 2012, 700,000 square feet of expirations. The original 2 buildings, to some extent were functionally obsolete with 50,000 square foot footprints. We really didn't know what we were going to do with them. Along came a solicitation for offer, through the General Service Administration for a relocation and consolidation of the Defense Intelligence Agency. Pete?
We have -- on our bus yesterday, Ray and I hit this point hard, and I think it is bears repeating. Not just for Boston Properties, but for the market as a whole, this was a really big deal to get to relocate to Reston. We backfilled 525,000 square feet roughly of our space in the teeth of a market, along Sunrise Valley Drive, specifically south of the toll road, where with NGA moving out and the coattails of NGA taking defense contractors with them. Sprint is a major tenant in this neighborhood and was kind of retrenching, if you will, moving back some operations to Kansas. There was a significant, significant vacancy already in this market and with the impending departures of Sprint and NGA. This could have been a very bad story south of the toll road. And we said somewhat jokingly that we should have gotten thank you gifts from all of our adjacent neighbor developers and building owners because it really is a huge anchor, not only for this 500,000 square feet, but we're reasonably confident that we'll lease our third building at Patriots Park to a related or sister agency or entity, as well as the coattail effect. Hopefully with NGA -- with DIA rather being a major driver to this area. The 2 buildings again if you got the chance to see yesterday, these buildings were functionally obsolete, I would say for today's market, especially for private leasing market. We got back the first building, which is the triangular-shaped building on the screen here, July the 5th, so exactly 3 months ago. We have already taken the entire skin off of the building, pushed every bit of interior finishes out of the building, installed a huge amount of steel in the building to make it, meet the AT/FP requirement that Jon Kaylor referred to earlier and the skin is back on the building. We're working on the roofing for the building. We're almost driving back in, and interior work has started on the building. So from July of 2011, we'll deliver in the first quarter of 2012 about 250,000 square feet, the first phase of Patriots Park. The second phase starts soon thereafter and delivers in early 2013.
Okay. the Block 16 site as we mentioned earlier. Once we acquired this site in July 2010, we immediately started the entitlement and design process. We had to revise the site plan, and we have designed a 359-unit luxury apartment building with about 27,000 square feet of ground-level retail. And we'll be adding about 760 parking spaces to meet those 2 needs. Parking spaces that we think will be of great value down the road once the Metro does come. As I mentioned earlier, this is the last residential site in the town center urban core. So we spent quite a bit of time studying the other products in the market. And we feel very good about the unit. We designed the building with an average unit size about 900 square feet, which is about 100 square feet less than our competitor building, a lot of their larger units have took quite a while to lease up. So we feel good about the mix that we'll be coming to the market with. You will have a state of the art fitness center, pool, private dining area for resident's business center, all of the amenities that are needed now. We've also centered this building on the public park in Reston, which is a huge community gathering place. There's farmers markets, et cetera. So we think the entry experience will be pretty special. We've also stepped the building back as you -- you can't really see in this rendering. But at the third floor, to create some private and public terraces, stepping and looking onto that park. We are currently in for a building permit. We're actually hoping to bid the documents here in about 10 days. And if all goes well, pull a permit in December and break ground for delivery of our first units in December 2013.
So that gives you some insight into the kind of the present on what we've got going on and we'll have going on for the next year or 2. So let's talk about the future. And by the future here, we're really referring to '13 out to '22. And the story there really centers around Metro coming to Reston Town Center. We as a company along with some other companies are very involved in putting together a tax district. There's a statute in the Commonwealth whereby private entities can come together and under 1 or 2 ways, either assessed value or land area, if they can cobble together a majority, a simple majority. They can actually choose to impose a tax on themselves for a public improvement, such as this rail project. Phase 1, for those who took the tour, you saw the terminal stations, I mentioned earlier this morning, it's going to stop at Wiehle Avenue, which is just about 1 mile to the east of the "M" Metro station you see here at Reston Town Center. The east being to the right off the screen at the next interchange down on the toll road. In actual fact, there's already a bus transit station here, and that was introduced some time ago in the Town Center, to get people thinking in terms of transit. The folks that are our customers and tenants in this 3-plus million feet will actually have the ability to access that Metro via shuttle bus to go 1 mile to the east. So they'll have Metro access albeit by shuttle beginning in 2013. We just mentioned kind of Patriots Park in Block 16 as well. But again, if you look at what Metro is going to mean to the district here and by that, I mean the Reston Town Center District, specifically as it relates to Boston Properties and you look immediately north of the M or above the M on the rendering here. You see the large surface parking lot and the 2 projects, our 2 buildings at Reston Corporate Center that Ray mentioned to remember as we kind of go through the rest of the presentation.
So I'll touch quickly rather on the process. This is our Reston Gateway site. It's outlined in red on the left. It actually includes both what we originally called the Reston Gateway site, which is the vacant parcel, as well as the Reston Corporate Center, the existing CIA leased building.
From a timing perspective, not to get into gory details, the zoning process is underway. We've been working for about a year on changing Fairfax County's comprehensive plan for this site that will allow the mixed-use transit-oriented types of development that we believe this site can and should support. We believe that it could result in something upwards of 3 FAR, perhaps as high as 5 FAR. This is 22-acre site. So essentially a 1 FAR translates to 1 million square feet and upwards from there. If you imagine that, and about 1 year from now, if that comprehensive plan process is complete, there's about 2 years worth of a re-zoning process, design and entitlement process further from there and construction, and it's not too hard to imagine how you get to the 2016, 2017 timeline when everyone's hope of course is that when Metro opens its doors at the Reston Town Center station, something like the Reston Gateway development and not the vacant lot is what greets the passengers.
Pictured on the right-hand side, you see a rendering of what it could look like. That's about a 3.2 FAR site. We believe the site will probably be in the neighborhood of 50% residential, so a significant amount of residential would likely contain both for rent and for sale residential. Retail space, likely at least one hotel and then a significant portion of the site being commercial office space. Likely, we we'll be required to add a significant community amenity to the site, and that's pictured here as well.
Part of the goal of the county in terms of how they zone this property on the comp plan is to introduce a much higher degree of residential. The same thing happened at the stations in Tysons Corner, and the goal in their mind, to correctly lever that public infrastructure investment and take cars off the road is to put more housing around these transit modes and get a better balance between the commercial and the residential.
Ray is going to talk a lot -- a little more about the kind of value creation piece of this from a phasing perspective, and he has mentioned this before. Our hope is that by 3.2 million square feet sounds like an awful lot. We do believe though by phasing this and because of the mixed-use nature of it, that the first phase of this development could be a pretty significant amount of square footage and that by delivering the office piece, residential piece, a retail piece and potentially a hotel piece, we can pick off a significant amount of square footage without saturating the market for any one type of space, while also creating the 'there', if you will, for this development. Each of these feeds off of each other, the activity of the office during the day, the activity of residential in the evenings and the retail and obviously not to mention the Metro passenger traffic through the site to the existing urban core. So...
Raymond A. Ritchey
So here's the big takeaway from this on -- in terms of the value creation relates. This is just the land value. This is not the value that we create when we build the buildings, but this is just the intrinsic land value that can be created if we just use the values that are out there today, what people are paying for this type of density, in and around Reston Town Center, if it was available. If you apply that to what we humbly believe will be the lower end of the scale, which is 3.2 million square feet. About $225 million of land value is created. If you net out the value of the existing $2 billion that get knocked down, and some contribution towards the proper and do not add in the value we'll get from the condemnation of our land to put the Metro stop in. We are looking at a net -- just land value of about $160 million, that gives us depth that can either the value created on that when we put the financing in place or that type of competitive advantage, and where area of office, $80 a square foot over our competitors on the incremental increase -- incremental capital investment made on that land value.
Okay, just again real quickly. This is one of my favorite parts, we still got 8,000 parking spaces out there that we have no value on. This is just free parking. So when Metro comes, guess what? We have to put in parking controls, so the commuters don't come and take the parking spaces and use Metro. So if we just charge $4 a day per space, either in terms of the what that consumer pays directly to us or what we factor in on the renewal of these leases, because we now are going to pay parking. And on the 8,000 spaces, that's $8 million a year. And at a fixed cap rate, that's $130 million of additional value just with paid parking. So you put the value we created in terms of the land and the value created just with the parking, that's $300 million of value before we put a shovel in the ground and create value the way we normally do it, which is going vertical with office buildings. $300 million of value for the Metro stop coming to Reston Town Center.
So here are the net takeaways. Obviously, Metro we think has major advantages and they were enumerated to Reston Town Center. As I mentioned earlier, the bus transfer station was put in place to kind of get people in the mode of using transit. Reston Gateway clearly enhancing the existing RTC amenities and leveraging that investment of Metro that we talked about. What we're going to be looking at and in that metric you saw and imposed there, that's actually the group were using with, actually the same architect and land planner that was used in Phase 1 of town center, some 28 years ago. He's still practicing, he's with Sasaki, very talented guy. And part of the charge that we've given him is when you cross Sunset Hills Road in that tube that we hope to construct from the Metro platform into Reston Gateway, is how do we really get the bodies up and into the urban core of the town center. So it provides us the platform of growth that we're looking for going forward. If you think about again, past, present and future, we've really been out there operating for about 14 years. We've put in place some 3.2 million, 3.3 million square feet. If we achieve the density we believe we're going to be able to, from an entitlement perspective that gives us that same amount of density on a going forward basis to put in place out there of the future.
Also, expanding our multi-family platform, I talked about what the county's goals are and how that can work with ours and why we've been interested in getting into that business here locally. Ray mentioned the significant land value creation, and we believe there's a significant potential value-add as it relates to the parking income. All of our leases, really since we got into Reston. The BDM lease, the original one at Reston Overlook were written such that if paid parking becomes market, we have the ability to charge for that in any renewals. We think also that site represents the hole in the doughnut. So it's an extension of the Reston Town Center brand and our portfolio there, and I think as Laura mentioned that by creating even more density in a very small geographic area, it helps us leverage our operational efficiencies as well.
Raymond A. Ritchey
So here we are from 1997 to where we are today and to where we hope to be in the future. I guess I could say my brother was right. And it was a good call when we came out there. We created tremendous value for our shareholders. We sit there today with I think one of the most unique suburban assets in the country. And as we look to the future, the ability to build another 3.2 million to 3.5 million square feet. And please remember the 3.2 million square feet of density that we have built over the last 14, 15 years was 100% office. The 3.2 million square feet we're talking about now will be a mix of uses. Let's say if 1 million square feet of office, which will be a 4- to 5-year absorption, as we have demonstrated. The hotel can be built in the first phase, the multi-family can be built in the first phase. We could be as much as a 1.5 million square feet of income producing investment on the Gateway site within 2 or 3 years of getting the Metro installed in this location.
So while we say 2022. It could be well in advance of that in terms of the first income being generated on that. So obviously, We're exceedingly excited about our past successes, our current position and our future opportunities at Reston Town Center. Now I'm quite pleased and honored to be turning over the reins at some point in time to the young talent that sat -- the podium with us today, because they are in fact the future of Boston Properties and will execute this order consistent with what we've done in the past.
So with that, we're glad to answer any questions, not only by Reston Town Center, about our Washington portfolio or anything you heard this morning. But before we do, we got to be out of here in about 5 or 10 minutes. Anybody -- can I see a show of hands who plans to go into tour, both either the walking or the bus tour? So about, good concise. We need you over at 2200 Penn, 2 blocks away at 1:45. Those of you who will be leaving directly from the buses or from 2200, bring your luggage. The tours will start promptly at 1:45, and we'll be on our way, the buses at about 2:45.
So ask your questions while you're walking.
Raymond A. Ritchey
Any questions at all?. Again, on behalf of Boston Properties, we'll be together as a group. But I want to thank you for your participation in this conference, your very gracious attention that you showed to us this morning, but more importantly -- most importantly, your continuous support of our great company. We greatly value your sponsorship, your enthusiastic endorsement of our team and our properties. And we look forward to getting together with you again in about a month and a half. So thanks so much for your time and attention today.
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