BXP Inc (BXP) Q2 2025 Earnings Call Transcript

BXP Inc (NYSE: BXP) Q2 2025 Earnings Call dated Jul. 30, 2025

Corporate Participants:

Helen Han — Vice President, Investor Relations

Owen D. Thomas — Chairman and Chief Executive Officer

Douglas T. Linde — President and Director

Michael E. LaBelle — Executive Vice President, Chief Financial Officer and Treasurer

Hilary Spann — Executive Vice President, New York Region

Rodney C. Diehl — Executive Vice President, West Coast Regions

Analysts:

Steve Sakwa — Analyst

Jamie Feldman — Analyst

John Kim — Analyst

Nicholas Yulico — Analyst

Jana Galan — Analyst

Michael Goldsmith — Analyst

Caitlin Burrows — Analyst

Vikram Malhotra — Analyst

Omotayo Okusanya — Analyst

Anthony Paolone — Analyst

Dylan Burzinski — Analyst

Alexander Goldfarb — Analyst

Upal Rana — Analyst

Ronald Kamdem — Analyst

Peter Abramowitz — Analyst

Brendan Lynch — Analyst

Presentation:

Operator

Good day, and thank you for standing by. Welcome to Q2 2025 BXP Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.

I would now like to hand the conference over to your first speaker, Helen Han, Vice President of Investor Relations. Please go ahead.

Helen Han — Vice President, Investor Relations

Good morning, and welcome to BXP’s second quarter 2025 earnings conference call. The press release and supplemental package were distributed last night and furnished on Form 8-K. In the supplemental package, BXP has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G. If you did not receive a copy, these documents are available in the Investors section of our website at investors.bxp.com. A webcast of this call will be available for 12 months.

At this time, we would like to inform you that certain statements made during this conference call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Although BXP believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements were detailed in yesterday’s press release and from time to time in BXP’s filings with the SEC. BXP does not undertake a duty to update any forward-looking statements.

I’d like to welcome Owen Thomas, Chairman and Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer. During the Q&A portion of our call, Ray Ritchey, Senior Executive Vice President, and our regional management teams will be available to address any questions. We ask that those of you participating in the Q&A portion of the call to please limit yourself to one and only one question. If you have an additional query or follow-up, please feel free to rejoin the queue.

I would now like to turn the call over to Owen Thomas for his formal remarks.

Owen D. Thomas — Chairman and Chief Executive Officer

Thank you, Helen, and good morning to all of you. Our results in the second quarter demonstrate BXP’s continued strong execution and provide further evidence of the property and capital market recovery underway in our sector. Our FFO per share was $0.05 above our forecast and $0.04 above market consensus for the second quarter, primarily driven by improved operations. As a result, we’re also raising the midpoint of our earnings guidance for the full-year 2025 by $0.02. We completed over 1.1 million square feet of leasing in the quarter, bringing our total leasing in 2025 to 2.2 million square feet. Over the last four quarters, our leasing volume of 5.7 million square feet was 18% higher than the prior four quarters. We continue to increase the pre-leasing of our development pipeline with 200,000 square feet of development leasing this quarter.

Now, regarding the operating environment, BXP’s leasing activity remains vibrant across many, though not all, submarkets. As discussed before, the primary drivers of BXP leasing activity are corporate confidence and the in-person work behavior of our clients. Corporations generally see a favorable environment for their businesses unfolding this year with a pro-growth tax bill recently passed in Congress, less regulation, geopolitical risk relief in certain regions, resolution of US tariff agreements with many important nations, and the possibility of lower short-term interest rates.

As a proxy for corporate health, 2025 S&P 500 earnings growth projections, though revised lower since the beginning of the year, remain healthy at 7% to 9%. Investors are confirming this view with US equity market indices achieving new highs and credit spreads on US investment-grade bonds trading at or near 10-year lows. Further, in-person work behaviors continue to improve. JLL recently completed a study of Fortune 100 firms’ office attendance policies.

Over the last two years ended the second quarter of 2025, Fortune 100 companies that are fully in the office climbed tenfold from 5% to 54%. Hybrid mandates dropped by nearly half from 78% to 41% and fully remote policies dropped from 6% to only 1%. These are material shifts that have undoubtedly augmented leasing activity. Return to office behavior is more advanced in our East Coast markets, particularly New York City, and well behind on the West Coast.

Moving on to office market conditions, I’ll continue to emphasize that the premier workplace segment, defined as roughly the top 10% of buildings in a market and where BXP primarily competes, continues to materially outperform the broader office market. In our five core CBD markets, direct vacancy for premier workplaces is 7.5 percentage points or 38% less than the broader market. And asking rents for premier workplaces continue to be more than 50% greater than the broader market.

Regarding the real estate private equity, capital markets office sales volume increased materially in the second quarter to $14.2 billion, up 80% from the prior quarter and 125% from the second quarter of last year. Financing at scale is increasingly available at tightening spreads for higher-quality office assets with WAULT [Phonetic], particularly in the CMBS market.

Equity investors are also starting to reenter the office sector, given improving operating performance in certain markets and attractive asset pricing versus other sectors. There were several notable office transactions completed or committed in the quarter. In Midtown, New York City, 590 Madison is under contract for sale for $1.1 billion or $1,060 a square foot and a 5.2% cap rate. This building was constructed in 1981. It’s 85% leased and sold by a pension fund to a local real estate operator with a financial partner.

Also in Midtown, a half interest in 1345 Avenue of the Americas was sold at a gross valuation of $1.4 billion or around $740 a square foot. The cap rate is not particularly meaningful, given stabilization is several years away, and the transaction was facilitated by $850 million CMBS financing. The building was originally built in 1969. It’s 92% leased and transacted between investment management firms, with the building manager staying in and owning the other half of the asset.

And lastly, in Culver City, California, Entrada was sold for a gross price of $212 million or $675 a square foot and a 7.4% cap rate. This building was recently — constructed recently in 2021, 75% leased, and transaction — transacted between investment management firms, again, with the building manager staying in and owning a small stake in the property.

Now, let’s transition to BXP’s capital allocation activities. As discussed on many prior calls, BXP controls what we think is the best-positioned currently actionable office development site in New York City, located at 343 Madison Avenue. The building will be a highly amenitized, sustainably designed 46-story 930,000 square foot premier workplace with direct escalator access into the Madison Concourse of Grand Central Terminal from the building’s lobby. Today, we are making several important announcements regarding this project. First, we’re proceeding with the project for the terms of our ground lease with the MTA and plan to immediately commence full vertical construction of the building, which will allow delivery in late 2029. Site preparation, foundation work, and development of the Grand Central Escalator access is well underway, having commenced in October 2024.

Second, we have executed a letter of intent with an anchor client for approximately 30% of the building, with economics consistent with our investment underwriting. The client is a prestigious investment-grade financial institution that will be leasing the lower-middle section of the building. We have experienced strong client demand for the project and have active anchor tenant proposals out to six clients, representing in total approximately 1.3 million square feet. Negotiations continue with anchor clients for the base of the building, and we intend to be patient leasing the upper floors of the project, which we expect will be attractive to smaller users that make leasing commitments closer to the date when they can occupy their new space.

Third, BXP is opting to buy out our 45% equity joint-venture partner, which we will do no later than the end of this quarter, for approximately $44 million at their cost basis. While our partner has been funding its share of pre-development expenses since 2017, they have decided to prioritize investment in existing as opposed to development assets, which better align with their current risk-adjusted return objectives.

Given the trophy status of the asset and very promising pre-leasing activity, we believe introducing a new capital partner for an interest in 343 Madison, if we elect to do so, is readily achievable. As a reminder, 343 Madison has a total development cost of just under $2 billion, including approximately $400 million of imputed capital cost carry and a projected stabilized cash yield on cost of approximately 7.5% to 8% depending on how we ultimately elect to capitalize the project.

The leasing market in Midtown remains very strong, with trophy buildings having a vacancy rate of 6.3% and no large blocks of space available in the Plaza District of Park Avenue. As a result, office rents are growing at rates well-above inflation, and the very few high-quality building trades that have been completed were done at cap rates well below our projected development returns. Culminating 13 years of effort by our New York region in securing and entitling the site, we believe 343 Madison will be a core long-term holding for BXP and represents a very strong and significant value creation opportunity for BXP’s shareholders.

Turning to asset sales, we’re in various stages of execution for the sale of 10 non-income-producing assets, both land sites and largely empty buildings that we believe will generate, if successful, net proceeds of nearly $300 million over the next two years. We’re also exploring the sale of a handful of income-producing properties that could generate another $300 million in net proceeds, more likely in ’26 than ’25. There is strong demand for housing in the communities where many of our sites and out-of-service buildings are located, allowing us to create value through reentitlement, though the process can, in select cases, take up to two years to complete. Other sites are being sold for industrial or other non-office uses. In the aggregate, we do not expect these sales will be dilutive to BXP’s FFO because of the significant portion of non-income-producing assets.

A great example of our creativity in monetizing a non-producing asset is 17 Hartwell Avenue in Lexington, Massachusetts, which is a 30,000 square foot commercial building built in 1966, vacated in 2024, and recently demolished. We successfully rezoned the property in the town of Lexington to build a 312-unit multifamily building on the 5-acre site and secured an institutional partner to provide both construction financing and 80% of the equity required to build the project. The stick frame construction development will cost $180 million and is projected to deliver a 7.1% yield on cost, including land at current market value and capital cost carry upon stabilization in 2028.

In terms of economics to BXP, we received $22 million at closing for our land contribution. We own 20% of the project, which will require $10 million of funding from BXP over time, and we’ll earn a development fee of more than $4 million. The inferred land value is $70,000 per residential unit or $22 million, which is $733 a square foot for the existing empty commercial building, significantly more than its as-is value.

So in conclusion, premier workplace leasing and capital markets continue to recover from their lows in ’24 — 2024. Our clients are generally optimistic about their business prospects and are demanding more in-person work from their professionals, both creating leasing demand. Further, new construction for office has virtually halted, and users are gravitating to higher-quality assets with strong sponsorship, the combination creating occupancy and rent growth for many of our assets as we gain market share.

Private-equity investors are increasingly taking note of these trends and starting to invest in the office sector. With our current leasing momentum and limited rollover in 2026 and 2027, we expect to gain occupancy, revenue, and FFO in the years ahead, and development deliveries and potentially acquisitions will provide additional growth.

Now, let me turn over our report to Doug.

Douglas T. Linde — President and Director

Thanks, Owen. Good morning, everybody. I hope everyone is staying cool in this rather warm and humid air on the East Coast. As we think about the demand for premier office space across our markets, the pattern and the sources of demand that we’ve been describing for the last few quarters have really basically continued to sort of go on as we’ve already talked about. Specifically, on the East Coast, submarkets with a concentration of financial and professional services businesses, which is the New York and the Boston CBDs, we’ve had real demand growth there.

Defense services and cybersecurity businesses located in Northern Virginia have continued to weather the potential federal spending cuts, and there’s been growth there. Biotech demand growth with extensive lab uses continues to be light, while demand from life science clients with needs for high-quality office space continue in the Urban Edge of Boston. On the West Coast, there’s been an improvement in overall demand in San Francisco, led by organizations focused on AI, albeit with a large established tech companies still largely absent from growth.

Venture funding from a deal count continues to be dominated by California, where there are 2.3 times the next state, which is, by the way, New York. And to reinforce the dominance of AI-related venture investing, California companies have raised more than $100 billion in the first half of ’25, which is 10x what was raised by New York City start-ups, the next largest ecosystem.

Financial service and professional service clients are active, though not showing the same growth that’s present on the East Coast. Owen mentioned our 2.2 million square feet of leasing in the first half. During the first half of ’25, we leased 810,000 square feet of vacant space and 750,000 square feet of space associated with 2025 expirations for a total of 1.56 million square feet. Our 2025 plan call for 4 million square feet of total leasing with about 3 million square feet of activity on vacant space and known ’25 expirations. Leasing vacant space and near-term expirations will drive improvements to our occupancy over the next 12 to 18 months. When we experienced very modest expiration, we are on track.

Post 7/1/25, the end of the second quarter, we have 1.8 million square feet of leases in negotiation compared to 1.1 million square feet at the beginning of the second quarter. If you include our letter of intent at 343 Madison, the number jumps to almost 2.1 million square feet. Our pipeline covers 575,000 square feet of currently vacant space, 65,000 square feet of known ’25 expirations, and 600,000 square feet of ’26 and ’27 expirations. Additionally, we are engaged in more than 550,000 square feet of client-initiated early lease renewals on leases that expire between ’28 and ’31.

We have active dialogue on space that is not yet in lease negotiations, totaling about 1 million square feet. BXP’s total portfolio occupancy for the second quarter ended at 86.4%, a decline of 50 basis points or 240,000 square feet. As previously communicated during our first quarter earnings call, as well as our remarks in January, Biogen’s 355,000 square foot lease in the Urban Edge portfolio of Boston expired in May 2025 this quarter. We have re-let 45,000 square feet and have 310,000 square feet of space available.

There were two other notable declines in our in-service property listing this quarter. At South of Market in Reston, Meta terminated 51,000 square feet in May. We have already executed a lease for the entire space done this month, but the space was neither occupied nor leased at 6/30. And at 599 Lexington Avenue, we early terminated 100,000 square feet of late ’25 expiring space in conjunction with executed leases for the entire square footage. We demolished these floors, so they were taken out of occupancy and are shown as leased at 6/30/25, but not occupied. Improvements at our other properties offset much of these declines.

BXP’s total portfolio percentages leased for the second quarter was 89.1%, a decline of only 30 basis points. As we highlighted last quarter and at our Nareit meetings in June, the difference between leased and occupied square footage has grown again this quarter and now sits at 270 basis points versus 190 basis points on 12/31/24. 500,000 square feet — this approximately 1.3 million square feet of space is expected to become occupied in ’25, with the bulk of the remaining 800,000 square feet commencing in the back half of 2026.

Looking forward, we project the current in-service portfolio to end the year at around 87% occupied, an improvement from where we are today. However, there will be three developments that are being added to the in-service portfolio in the third quarter. 360 Park Avenue South, which is 450,000 square feet, 23% occupied and 28% leased. 1050 Winter Street, which is 162,000 square feet and will be 100% occupied and leased when it’s added. And Reston NXT Block D, which is 90,000 square feet, 4% occupied, and 95% leased when it is [Indecipherable] added. If we were to add these properties this quarter, occupancy would drop by about 70 basis points.

When we quote our statistics next quarter, you will need to adjust for these additions to gauge the progress of the in-service portfolio. We will be sure to highlight the impact on our occupancy in the third quarter earnings press release. Our development portfolio lease percentage this quarter increased by another 500 basis points to 67%. Office market conditions are pretty consistent with my earlier comments on demand. Those markets with the strongest demand growth also have the most landlord favorable conditions, Midtown New York City, the Back Bay of Boston, and Western Virginia. What this means is that availability is sparse, rents are increasing, and concessions are either improving or remaining constant.

We completed 91 individual transactions this quarter, 236,000 in Boston, 344,000 in New York, 185,000 on the West Coast, and 356,000 in DC. We had 20 clients expand in the portfolio by a total of 190,000 square feet and only two contractions were just over 3,000 square feet. 482,000 square feet of the leasing this quarter represented new clients in the portfolio, and the rest were either renewals and/or extensions. The overall mark-to-market of leases signed this quarter on a cash basis was flat, with modest increases in Boston and New York and slight decreases on the West Coast in D.C.

We only executed three leases in the in-service portfolio that were greater than 50,000 square feet this quarter. The second-generation rent change in the leasing statistics this quarter represents only about 400,000 square feet. And if you’re curious, the LA numbers are skewed by a subsidized rent at the Santa Monica Business Park for a secondary school that was destroyed by Palisades fire, where we did a lease. Our activity in Boston this quarter was very granular and spread around the portfolio. We completed five renewals and expansions in the CBD, both in the Back Bay and the financial district.

Last quarter, I described life science client activity without the need for lab infrastructure. The first of these transactions was executed in the first quarter at 180 CityPoint, and we are in lease negotiations with two additional clients for another 76,000 square feet, also at 180 CityPoint. In addition, we have discussions going on with another group of companies that fit the same profile at our other Urban Edge assets. The economics of doing an office transaction on raw space, even though the building has been purpose-built for lab and has the infrastructure, are far superior to lab transaction today, given the elevated tenant improvements necessary to compete in the lab market. We are in negotiations, however, with one true lab user for a second-generation lab building again in the Urban Edge portfolio.

In New York, our leasing activity was focused on the Midtown East portfolio this quarter. The highlight was leasing six floors at 510 Madison Avenue, where we have opened an enhanced amenity offering, including a new outdoor space. We also completed a renewal of 399 Park Avenue and two law firm expansions, one at the General Motors Building and another at 205th Avenue. The 550,000 square feet of client-initiated extensions mentioned earlier are concentrated in our Midtown portfolio. At 360 Park Avenue South, we are currently in negotiations with two floors for approximately 47,000 square feet, one of those were actually got executed last night, late breaking. So we’re now at 33% leased there.

In Princeton, we completed over 164,000 square feet of leasing with 13 clients, including 76,000 square feet of new clients and expansions. Interestingly, all the growth in Princeton is from office requirements for life science users. In San Francisco, at Embarcadero Center, we completed about 100,000 square feet of law firm transactions, including 165,000 square foot renewal with no reduction in space — square footage. Many of the traditional office users have continued to rationalize their space, which has led to little, if any, growth in the San Francisco CBD traditional demand. So incremental leasing is going to be all about tenant relocations. Our largest block of available space in San Francisco is at 680 Folsom, where we are finishing up an amenities improvement, including a new outdoor roof space there as well.

During the first six months of the year, we have 11 tours of the property. In the month of July, we had seven additional. Virtually every potential client is a technology company working in the AI space. The granular absorption of space is very much underway, and the south of Mission buildings are great options for these clients. Our listing agent at 680 Folsom provided us a list of 37 AI-related tenants in the market with aggregate demand growth of almost 1.2 million square feet active in the market today.

Before I conclude my remarks, I do want to discuss tariffs as they relate to construction activities, particularly because we are in the process of establishing our GMP contract for 343 Madison Avenue. Subcontractors are actively bidding the job after taking into consideration the sectoral tariffs associated with non-domestic suppliers and the recent preliminary country agreements. To date, we’ve either awarded or are negotiating bids for three separate components of the job, and in each case, we are obtaining meaningful savings relative to our last general contractors’ estimate. Given the overall slowdown in construction activity in Manhattan, there is enough subcontractor interest to provide savings in spite of the tariffs. Remember, the construction is a composition of labor, materials, and profit.

And let me hand over the call to Mike to talk about our earnings, please.

Michael E. LaBelle — Executive Vice President, Chief Financial Officer and Treasurer

Great. Thanks, Doug. Good morning. So today, I’m going to talk about our second quarter earnings results as well as the update to full-year 2025 earnings guidance. And as Owen and Doug both described, we delivered a really strong second quarter. Earnings surpassed expectations, and we’re raising our full-year guidance.

For the second quarter, we reported funds from operation of $1.71 per share, that is $0.05 ahead of the midpoint of our guidance range and $0.04 above consensus estimates for the quarter. Our portfolio generated approximately $0.04 of the outperformance. A $0.01 came from earlier than anticipated revenue recognition on leases, which was very granular and spread across the portfolio. We generated an additional $0.01 per share from higher-than-anticipated service income from our clients, primarily in Boston and New York, which tracks the higher space utilization on the East Coast.

And then the last $0.02 of outperformance in the portfolio came from lower than projected operating expenses. Lower expenses partially came from lower real estate taxes, resulting from successfully negotiating reductions in our assessed values. We do anticipate about $0.01 per share of the expense reduction that related to repair and maintenance costs will be deferred into the third quarter and will not benefit our full-year results.

Our G&A expenses also came in lower than we expected, resulting in $0.01 per share better earnings performance. The savings came from lower compensation expense due to capitalized wages and savings in professional fees versus our budget.

Now turning to the increase in our full-year 2025 guidance. We’re increasing the projected contribution from our same property portfolio from the second quarter strong performance, combined with our ongoing leasing activity that Doug described, which continues to be aligned with our expectations. We now expect that the NOI from our same property portfolio will increase in 2025 by about 0.25% at the midpoint from 2024. And on a cash basis, we expect the same property portfolio NOI to grow 1.25% at the midpoint year-over-year. This represents an improvement of approximately 25 basis points from our guidance last quarter, or about $0.03 per share at the midpoint of our range.

We continue to expect our in-service occupancies to start to improve in the second half of the year, excluding changes to the portfolio. As Doug detailed, we will be adding several development properties into service in the third quarter that will reduce our headline occupancy rate temporarily. We are increasing our assumption for interest expense on our floating rate debt this quarter, to the expectation for fewer interest rate cuts by the Federal Reserve. Our prior guidance included the potential for three rate cuts starting in the third quarter, and we’ve now reduced this to a maximum of two cuts, both in the fourth quarter. The result is approximately $3 million of projected incremental interest expense for the year, or $0.02 per share of higher expense.

In our G&A, we recognized a $0.01 of lower expense in the second quarter, and we anticipate that savings flowing through to the full-year in our FFO guidance. So in summary, we have increased our guidance range to $6.84 to $6.92 per share. This represents an increase of $0.04 per share at the low end and $0.02 per share at the midpoint of our range. The increase at the midpoint is from $0.03 of better same property NOI, $0.01 of lower G&A expense, partially offset by $0.02 of higher interest expense. Overall, we had a great quarter, highlighted by strong leasing activity at 343 Madison catalyzing its development start, more than 1.1 million square feet of leases executed in the quarter, and an FFO beat and guidance raise driven by stronger core portfolio operations.

The last thing I would like to remind everyone of is our upcoming Investor Day. It will be held in New York City on September 8th from 10 AM to 5 PM at 599 Lexington Avenue, with a cocktail event at 6 PM at our Coco’s dining Club on the 37th floor of the GM Building. And for those of you who are really ambitious, you can join Owen and James for the 6 AM fun run through Central Park before the conference. We already have over 100 RSVPs, and it will be a highly informative event with leadership from across our regions attending. So if you haven’t responded and you would like to attend, please RSVP to the invite, or you can send Helen a note. That completes our formal remarks. Operator, can you open the line for questions?

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] And I show our first question comes from the line of Steve Sakwa from Evercore ISI. Please go ahead.

Steve Sakwa

Yes, thanks. Good morning. Thanks for all the detail and some of the additional information on 343 Madison. I was just wondering if you could provide kind of an outlook for the unlevered return that you expect on that project? I realize when Norges was your partner, maybe fees were being factored in, but just sort of how are you thinking about that return on an unlevered basis? And of all the tenants that you’re talking to, are many of them new to the BXP portfolio, or are a number of the clients you’re talking to kind of existing BXP tenants?

Owen D. Thomas

Yeah, Steve. So we think about this on a yield basis. And I quoted those numbers at 7.5 to 8. That’s an unlevered cash yield upon delivery. I think if you overlay that and look at IRR, obviously, the exit cap would be very important, but it would certainly be a high-single-digit number. And if you put a construction loan on the property, the IRR levered would depend on, one, what’s the exit cap, and two, when you sold it, but you’re probably in the mid-to-high teens on a levered basis.

Operator

Thank you. And I show our next question comes from the line of Jamie Feldman from Wells Fargo. Please go ahead.

Jamie Feldman

Great. Thanks for taking my question, filling in for Blaine here. I just want to get your — so, you gave a lot of color on what tenants are thinking where they want space, AI, clearly a big driver of demand in San Francisco. You have a view across many of the largest markets across the country and talk to a lot of tenants. So we’d love to get your thoughts on the impact of AI, where you think it’s a net demand driver, where you think it’s actually going to shrink demand, what are companies saying about their space needs going forward, and just what their labor force looks like going forward as it’s implemented more and more.

Owen D. Thomas

Yeah. So I’ll take a first crack at that. We’ve been starting to say and talk about the impact of AI, and frankly, have been saying that we think it’s actually something that’s a lot more important than the work-from-home phenomenon. And I — my guess is we’re going to have more conversations about this in the quarters ahead. Our basic premise, and we have spent time studying this with our Board, with outside experts, and so forth, but our basic premise is we think that there will be job creation at the top of the intellectual pyramid in the workforce, meaning those companies that are industry leaders will be creating AI products, will be using AI products, and will experience — and we will experience growth in demand from those companies and some of which will be startups.

I mean, Doug talked about the extensive AI demand that we’re starting to see in San Francisco, and all of that are newly-created jobs. There is a lot of discussion that we’re aware of out in the market right now from CEOs in lots of different sectors about all the efficiencies that we’re getting — that they’re getting from AI. We haven’t seen an impact yet from those companies. No one has come to us. We’re reducing our space because of AI. That all being said, could that happen in the future? Yes, it’s possible. I think where the job — where jobs are going to be reduced are going to be more in the processing type of work. So those are the kinds of jobs that can be automated, and I think that that’s where AI applications are going to allow companies to save money.

So our premise is, as a result that we think that the top of the intellectual pyramid, and where we see the most job creation, are going to be in those cities with the deepest talent pools. And frankly, those are the gateway markets where we operate, the Bay Area, New York City, Boston, and so forth. I think the job destruction is going to occur more in markets that are more value markets. Space is cheaper, the workforce is more doing back-office work as opposed to front-office work, and that is less. And I think that also — that concept also manifests itself in the quality of the buildings because our strategy is to be at the top of the pyramid from a quality standpoint. We want to have industry-leading clients that are leasing our properties. We don’t have as much back-office uses in our buildings because most of our buildings aren’t necessarily — people aren’t leasing them because they’re cheap. They’re leasing them because they’re very high quality. So that’s in a very high-level way, the way we see things going forward.

Douglas T. Linde

Yeah. And Jamie, I would just add the following. So from an empirical perspective, so our average lease length this quarter was 9.4 years, and the lease that we’re negotiating now at 343 Madison is a 20-year lease. And so the clients that are signing up for space now are not doing on a short-term basis with an expectation that they’re going to no longer need the space, aka [Phonetic] they’re going to be reducing their headcount. So that’s just sort of a fact pattern. I do think it is fair to acknowledge that there are — what I would refer to as a number of established technology companies whose CEOs have come out and said that we think our job growth is going to either slow-down or go in the wrong — in a negative direction. And we’ve seen layoffs from companies like Meta and Microsoft, and Google over the past year or so.

And the question will be whether there will be an incremental addition of those companies that are in this AI field that are going to take up the gap associated with the reductions in the headcount from those types of organizations. If, in fact, there are no longer the same need for coders for software engineers at those types of traditional companies, what will the world look like for people looking for the kinds of skills needed for the AI companies that are now being formed?

And as I said, there are 37 of these companies in the market right now. I can’t tell you if one or two or 10 are going to become unicorns and have a real need for significant numbers of employees, but there’s a meaningful amount of growth going on in that sector. It’s just much more granular than it was in terms of what we’ve experienced in the sort of 2012 to 2019 period of time, when all of the growth that we were seeing across the entire country from a demand perspective was coming from those quote-unquote tech titans.

Operator

Thank you. And I show our next question comes from the line of John Kim from BMO Capital Markets. Please go ahead.

John Kim

Thank you. On 343 Madison, you disclosed $390 million of capitalized interest at the project. And I’m wondering if you can clarify if that’s capitalized interest going forward? And then in terms of financing the project, you discussed $600 million of asset sales. But I was wondering if you could discuss your other options and your preference in terms of finding another JV partner, construction loan, or if an equity raise is on the table for you.

Michael E. LaBelle

So that’s two questions. We’ll answer them both.

John Kim

Thank you.

Michael E. LaBelle

So capitalized interest for this project, we always impute capitalized interest in all of our development budgets that are on our development pipeline based upon a blended cost of equity and debt that we anticipate. And so for this property, we’re assuming a blended rate of around 7.5% for the four-year development and kind of lease-up period beyond that. So that’s how we come up with that number. What the actual capitalized interest will be at the end of the day based on how we capitalize it, actually may be less than that, again, depending on how we end up capitalizing it.

With regard to funding 343 and funding any growth that we have, right, we have a lot of different sources. The 343 project is a four-year time horizon. And if you look at the ramp-up of the costs, most of the costs really don’t start to ramp up until late in ’26, kind of ’27, ’28. So we have time to address the funding needs for that project in specific. But as with any funding decision, and we’ve described this previously, we have multiple sources of capital to fund our growth. And we talked about pursuing asset sales, Owen mentioned that. We can certainly raise private equity, or we can raise public equity. We can reset the dividend, and we can use either property-specific mortgage/construction debt or corporate debt in addition to the excess operating cash flow that we generate. So we have a lot of different opportunities. And as I said, we have time to kind of select which combination of these we will use.

Operator

Thank you. And I show our next question comes from the line of Nicholas Yulico from Scotiabank. Please go ahead.

Nicholas Yulico

Thanks. I was hoping to just hear a little bit more about the mark-to-market you reported this quarter. I know this is on — the number in the sub — is on commencements, but it did — mark-to-market looked a little bit worse than last quarter, even in like New York. Maybe you just talk about like what drove that? And then from a real-time leasing standpoint, how the numbers could be different on the re-leasing spreads? Thanks.

Douglas T. Linde

Yes. So Nick, like I said, so I gave you the number for the leases that we signed this quarter, and this quarter, the numbers were slightly up, meaning, call it, small single digits in Boston and New York, and they were slightly down in Washington, D.C. and on the West Coast. So that’s like the today number in terms of the space that we pushed forward and actually got executed this quarter.

And in the numbers that were in the statistics that are reported in the supplemental, first of all, it’s only 400,000 square feet of space. So it’s not the entirety of the leasing that commenced this quarter. And in Boston, there was a 44,000 square foot deal at the space that was expiring from Biogen. It was an as-is deal. So there were no TIs associated with it. Obviously, when you have no transaction costs, your rent will be reflected in that. In New York City, we had a couple of 15-year leases in the lower portions of the building expiring, which we re-let to another client. And so there was a natural increase over that period of time. So there was a slight downturn there.

In San Francisco, the majority of the leasing was either at gateway, which has obviously got some distress associated with it relative to life science demand and leases that we did in Mountain View in our R&D spaces. And there I can tell you that there, in fact, there’s been a reduction in rental rates. I mean, we were as much as call it, $4.5 or $5 per square foot per month, and today, we’re doing deals in the mid-3s. So there has been a reduction in rents there. Again, very little in the way of transaction costs.

And then again in D.C., there were a number of very low TI deals that also impacted the numbers. So it’s — unfortunately, it’s very much a question of what exactly is coming online in the quarter. So I would not read much into sort of where those numbers were, and I explained sort of the dramatic negative in the — stuff that was done in Los Angeles.

Operator

Thank you. And I show next question comes from the line of Jana Galan from Bank of America Securities. Please go ahead.

Jana Galan

Thank you. Good morning. One more on 343 Madison, can you remind us of the terms of the MTA ground lease?

Douglas T. Linde

Hilary, do you want to take that one?

Hilary Spann

Sure. The terms of the MTA ground lease are basically a 99-year ground lease, and the company has the opportunity to move forward with this. There was a termination right that needed to be exercised by July 31st. We have said that we are not exercising that because we’re moving forward. And so as we move forward with the lease, the lease itself has very knowable and documented increases in payments. And over time, we think that makes it a really attractive lease for us to underwrite both from the perspective of tenant interest and from the perspective of financing.

Michael E. LaBelle

One of the things I think that’s important in this ground lease that’s maybe different from some other ground leases in New York City is that there’s no reset associated with market valuation estimates in the future. And so as Hilary said, there is increases that are basically known or related to the performance of the property, not the performance of the overall market values.

Operator

Thank you. And I show our next question comes from the line of Michael Goldsmith from UBS. Please go ahead.

Michael Goldsmith

Good morning. Thanks a lot for taking my question. A question on the guidance, you beat on the second quarter earnings, but only took the bottom-end of the annual range up. And then, can you just talk a little bit about the timing of the shift? It seems like it’s a little bit more of fourth quarter weighted than third quarter. Just trying to understand kind of the cadence of earnings through the back-half of the year. Thank you.

Michael E. LaBelle

Sure. Thanks, Michael. So yeah, you’re correct. We increased the bottom-end. The way we build our guidance, right, is we have a base model and then we have kind of a list of things that are kind of underway or could happen. So some of those could happen, things happen in the quarter. So we were able to increase our bottom-end. As I mentioned, most of it was in the portfolio. And the reason that the full-year guidance isn’t increased as much as the quarterly beat is because we’re giving back a little bit of the expense savings in the second quarter into the third quarter, and we have a little bit higher interest expense that we expect later in the year.

In the third quarter, our seasonal operating expenses are always highest. It’s the hottest, as Doug mentioned, it’s hot out. It is the hottest timeframe in the location for many of our assets. So our utilities expenses are higher. So the third quarter will seasonally be a lower FFO than the fourth quarter because the fourth quarter operating expenses will be less, and that makes up about $0.05 quarter-to-quarter if you look at what our guidance is.

And then the other impact is the occupancy ramp that we expect later this year, and most of it will have more of an impact in the fourth quarter than it does in the third quarter. So our property NOI should be higher in the fourth quarter.

Operator

Thank you. And I show our next question comes from the line of Caitlin Burrows from Goldman Sachs. Please go ahead.

Caitlin Burrows

Hi, good morning, everyone. You mentioned the number of funding sources for 343 Madison. So I realize you kind of already talked about it, but as a potential follow-up to that, you mentioned the dividend reset was one of them, realized it could happen, it might not. But based on, I guess, your taxable income today, how much would you be able to reduce the dividend if you wanted? And to the extent you do have that flexibility, what would make you wait rather than do that sooner?

Michael E. LaBelle

So we’ve maintained a steady dividend for several years now, even though the current dividend has been higher than our taxable income during that timeframe, but that is why we’re putting it in as a list of potential funding sources, as you mentioned, Caitlin.

The other thing I would say about our dividend is it’s consistently been covered by our FAD, which is the reason we kept it stable, even though we’ve had external growth that has been going on and funding needs going on. We haven’t made any decisions. You can see our reported return of capital for ’24, which I think was about $0.41 a share. So that was our return of capital or overfunding in 2024. And we also were able to carry over our full fourth quarter dividend into ’25, which is $0.98. So that will give you some sense as to the size. Obviously, we would — we need some amount of carry-forward, right? That’s not going to go to zero.

And with respect to timing, as I said, we have plenty of time to make these decisions, and we haven’t made any decisions at this point on the dividend.

Operator

Thank you. And I show our next question comes from the line of Vikram Malhotra from Mizuho. Please go ahead.

Vikram Malhotra

Good morning. Thanks for taking the questions. I just wanted to clarify two things, two comments you made. I guess just first on 343, you outlined 7.5% initial yield. Do you mind just giving us a sense of like what rents broadly are you targeting, say, compared to one Vanderbilt just $200 plus. Just maybe give us a broad sense of what you hope to achieve and how you get to that 7% yield, meaning, if there are other fee streams or anything else baked in?

And then, just second clarification, you mentioned occupancy trajectory. I just wanted to clarify, does that — your comments does it suggest you end up towards kind of the lower-end of the range or 86-ish percent by year end? Thanks.

Owen D. Thomas

So I’ll answer 343 and turn it over to Doug on the occupancy. So on the rents for 343, our assumption is that in the lower part of the building, we’re in the mid to upper 100s. And at the top of the building, we’re in the mid to upper 200s per square foot gross, and the average rent roughly throughout the property is in the low 200s. And the pre-lease that we have, the 30% client, where we have a letter of intent for a lease, is in line with the economics that we assumed for this project. So if you put all that — you put those rents into the model and you use the costs as we have outlined, including the carry, the yield on cost is roughly 7.5% unleveraged, and that’s to the project. And I quoted a 7.5% to 8% range because if we bring in a capital partner into the project, our yields go up somewhat because we’re able to put in less capital and earn some fees for all the property and investment services that we provide the partner. So that’s the basics of how the 343 economics work.

Douglas T. Linde

And on our occupancy, so the portfolio in-service as it sits today, we believe will end the year around 87% on occupied and obviously significantly higher leased. We are going to add these three assets in the third quarter, and those assets will have an impact of about 70 basis points of reduction in the overall portfolio, as we reported at the end of the year, based upon where those buildings are currently leased. And again, of those assets, 360 Park Avenue South is the one that has sort of the most amount of available space in it and unlikely, it will be occupied by the end of the year. We may get a floor or two additionally, but not incrementally more.

And then the Reston Next asset is going to be leased in late 2026, early 2027, occupied. It’s already been leased. And similarly, I said where 1050 was. So it’s kind of like that’s going to be the net, quote-unquote, new portfolio as we exit the third quarter. And so I don’t want people to be quote-unquote surprised by the reduction in our in-service portfolio because our in-service portfolio is changing by the addition of these developments. The in-service portfolio, as it sits today, is going to have an increase in occupancy as we move to the end of the year.

Operator

Thank you. And I show our next question comes from the line of Omotayo Okusanya from Deutsche Bank. Please go ahead.

Omotayo Okusanya

Yes, good morning, everyone. Just curious about your thoughts on the emerging Mayor race in New York City. If we do end up with Mamdani as mayor, how do you think that kind of changes regulation as it impacts kind of CRE development in New York City, and how do you guys kind of think about preparing for that?

Owen D. Thomas

Yeah. Hey, why don’t I take a first crack at this, and Hilary, I’m going to — please jump in on anything that you’d like to add. So look, I think we acknowledge that some of the policies articulated by candidate Mamdani are not particularly constructive for commercial real estate. But a few things I would mention. One, the election — he won the primary, the election has not occurred yet, and I think his election is a real possibility, but it hasn’t happened yet.

The second thing I think that’s important is the system in New York, due to the 70s financial crisis, is that New York State, headquartered in Albany, obviously has significant controls over the operations and governance of New York City. Specifically, the state controls the MTA, the Port Authority, and various other agencies in the city. And the state also has approval rights over many matters that are important to business, such as local taxes. And my guess is that some of the policies of candidate Mamdani won’t be supported at the state level, particularly things like tax increases.

And then the only last thing I would say is New York is a force in and of itself. It is a vibrant city. It has continued to excel through many different mayors with different political stances on lots of different topics, and my strong bet is that New York will continue to thrive regardless of the election outcome.

Hilary, what did I miss?

Hilary Spann

Well, I would just confirm what you’re saying, Owen, and just point to the fact that we have an investment-grade credit tenant committing to a 20-year term at 343 Madison Avenue as evidence that the businesses that are successful in New York City plan beyond the length of a mayoral term or two for their future success. And so I think they’re looking out much farther than the next four or eight years.

Owen D. Thomas

Good point.

Operator

Thank you. And I show our next question in the queue comes from the line of Anthony Paolone from J.P. Morgan. Please go ahead.

Anthony Paolone

Thank you. Mike, you talked about just the various options you have for raising capital. But maybe can you step back and just give us a sense the over 8 times leverage, where do you want that to be? And I know you have time before you have to spend some of this money, but I guess why wait and perhaps pull some of these levers if, in fact, you want that leverage to be lower than the 8 plus times over time.

Michael E. LaBelle

So we’ve talked many times about our leverage and how we think about current leverage and pro-forma leverage, right? And we believe that our — the company — our target, I guess, for the company is somewhere in the mid-6s to the mid-7s. And that’s been very consistent over a long period of time. I do expect our leverage is going to continue to move up for the next couple of quarters, but we are delivering 290 Binney Street in the middle of next year to 100% leased, and it delivers substantial EBITDA to the company, and it will act to counteract that and reduce leverage a little bit.

We also have the other developments that Doug talked about that we’ll be leasing up over time and providing EBITDA. And then the last thing is occupancy improvement. And occupancy improvement over the next 18 to 24 months can be very powerful because it’s going to generate a lot of EBITDA if we can achieve our business plan and bring our leverage down into our desired range.

And then we talk about asset sales. Owen described $600 million of asset sales we’re working on right now, and that will further reduce our leverage. So we are already working on things, right, that will moderate our leverage, and we’re thinking about what the future leverage looks like and getting back to that range that we think is the best range for the company to operate at.

Operator

Thank you. And I show our next question in the queue comes from Dylan Burzinski from Green Street. Please go ahead.

Dylan Burzinski

Hi, guys. Thanks for taking the question. I guess just touching on that last point on occupancy. It sounds like occupancy has bottomed and is expected to improve throughout the rest of this year. You obviously mentioned that the pipeline remains strong. Leasing activity year-to-date is striking above the initial expectations that you guys set forth at the beginning of the year. And it just sounds like the overall narrative and demand backdrop continues to remain strong. So in our view, it seems like there’s a clear path here to be [Indecipherable] in-service portfolio level occupancy as it sits today to get to, call it, 90% plus occupancy in short order. Does that seem fair? I mean, I guess, is there anything we might be missing as we sort of think about that trajectory here over the next 18 months?

Douglas T. Linde

I mean, it’s entirely fair, and it’s what our expectation is in terms — again, we have to be careful about what the exact timing is, but you said over the next period of time, and I think that is absolutely true. And we have again — we’ve got leases that are signed that have yet to commence. The majority of our activity going forward, currently in the pipeline, is around — are available in our near-term expirations, aka [Phonetic] ’26 and ’27.

And then if you look at the expiration schedules that we have that are outlined, they’re very, very low. And so if we’re able to maintain a modest reduction in the amount of leasing that we’re doing in 2025 into 2026 and to 2027, we’re going to be having a meaningful increase in our occupancy.

Operator

Thank you. And I show next question comes from the line of Alexander Goldfarb from Piper Sandler. Please go ahead.

Alexander Goldfarb

Hey, good morning. Good morning, gentlemen. Just want to go back to the asset sales, and maybe I missed it at the front. I was — had multiple calls going, but I think you outlined $600 million of sales, including $300 million of net proceeds from income-producing. So, as we think about income-producing assets sold later this year, what would be the earnings hit on an annualized basis? Just trying to understand as we think into next year. And then also, Mike, to your point on deleveraging, if you’re losing income, obviously, that also affects leverage. So just want to understand the income FFO impact of planned asset sales.

Michael E. LaBelle

The $600 million that we’re talking about, Alex, I can’t — I’m not going to give you an exact number for this because these things are still in process, being thought about, and certainly not finalized. But the income-producing that we’re talking about, combined with the land that we’re talking about, if you utilize that money to reduce the borrowing that the company needs to do, it is not dilutive to the company.

Operator

Thank you. And I show our next question comes from the line of Upal Rana from KeyBanc Capital Markets. Please go ahead.

Upal Rana

Thanks for taking my question. Could you give us an update on 360 Park Avenue leasing? Doug, you mentioned you got a lease done last night, so the project is now 33% leased. Maybe you can give a sense of the current pipeline as it stands today?

Douglas T. Linde

Sure. I’ll give you a numerical view, and I’ll let Hilary talk about what’s going on from a market perspective. So we have two additional leases in progress. As I said, one of them got executed last night. So that brings us to 33% lease. And there’s another that’s actually on a piece of space that I believe is close to being completed or will be completed in 2025. So that will bring us up by another, call it, 8 — or 5 basis points to 6 basis points. So we’ll be closer to 40% at the end of calendar year 2025, assuming no other leasing gets done. Hilary, you can talk about your pipeline.

Hilary Spann

Thanks, Doug. I would say that the pipeline for Midtown South has been thinner than Midtown proper North of 42nd Street, but we are seeing consistent activity for the property. We’ve seen tenants as large as 200,000 square feet looking at the property in recent weeks. And again, as Doug pointed out, we’ve also got a couple of single-floor tenants that are looking at the property. There has been a notable, I would call it micro trend of businesses that are in the AI space, looking at the building. And so both the lease that was executed last night and the one that Doug is talking about for future execution are businesses that are in that space. So it’s interesting to see that New York is starting to see a pickup in those businesses leasing space here on the heels of the demand that we’ve seen out on the West Coast.

Operator

Thank you. And I show our next question in the queue comes from the line of Ronald Kamdem from Morgan Stanley. Please go ahead.

Ronald Kamdem

Hey, just back on 343, just the building has — I think, the floors are a little bit maybe smaller than some of the typical sort of trophy buildings that we’re used to. Just curious if that lends to a sort of a different type of tenant base as you’re leasing up the portfolio. And my quick follow-up is just the pipeline — development pipeline showed 651 Gateway stabilization pushed out. Just any comments on that assets and just life science leasing in general? Thanks.

Douglas T. Linde

Yeah. So I’ll answer the last two of your three questions, and I’ll let Hilary answer the first. So, 651 Gateway, again, we’re going by Alexandria’s accounting for when a clinical comes into service. We would have already put it into service based upon our accounting, but that’s the way they do things. And the — I would say the leasing activity for pure lab out in that part of the world is relatively quiet still. There are, I would say, more maker tenants looking at space that was quote-unquote designed for a lab in the sort of Northern Peninsula market than there are pure lab tenants looking for blocks of space right now, interestingly.

And then there are a few quote-unquote office companies that are looking for space down there as well. But I’d say that the lab market in itself a — we want to be in a pure wet lab is a pretty thin market still in sort of the Bay Area. The other question was…

Owen D. Thomas

343 plate.

Douglas T. Linde

Right, 343, so I’ll let Hilary answer that one.

Hilary Spann

Sure. So the floor plates at 343 Madison range from about 27,000 square feet at the base to 22,000 square feet at the top. I think there’s a case to be made that that lends itself to tenants that are in the 200,000, 250,000 square foot range. But honestly, we have 1.5 million square feet of LOIs that we’ve issued, and some of those prospective clients are as large as 700,000 square feet. I don’t think 700,000 square feet is a likely size, particularly not given what we’ve just done. But we have seen real demand in the, call it, 300,000 to 400,000 square foot range.

So I think that what that really points to is that there is such a lack of premier workplace availability in the Park Avenue and Madison Avenue submarkets that really high-quality investment-grade firms that are looking for really high-quality space don’t have that many options. And so 343 is extremely well-positioned to capture a range of client sizes. And I think, as Owen noted in his initial comments, we continue to think that it makes sense to work on leasing the base of the building. And then I think we’ll be patient with regards to the upper floors because I do think those will tend to lend themselves to clients that are single, double, maybe three, four lease profiles.

Operator

Thank you.

Douglas T. Linde

And I just — before you go on, I just want to add one thing to sort of what Hilary was just describing. A bunch of people have called Mike or Helen or myself, and said, who is attendant for 343? And as we said, we’re not going to announce who the tenant is, we’re going to let the tenant announce their decision to their employees, and then it will become public. People are also asking the question, oh, is it someone in your portfolio? And I would just point everyone to the rents that are in our existing portfolio in Midtown, and the average rents in the buildings are, I believe, if you look at 601 or 599 or 399, about $100 a square foot.

And I think, Hilary, you would love to get some space back in those buildings if you could to lease in this market, which is obviously something that is not going to happen in the short-term. So anybody who’s sort of concerned about where the tenant might be coming from, and if it’s one of our portfolio tenants, if that were the case, it would be a great opportunity for us to re-lease space that is dramatically under-leased. And as Owen said, the average rents at 343 are in the mid-200s, right? So we’re talking about huge upside potential there.

Hilary Spann

And I just — to Doug’s point, we have existing clients in our Midtown portfolio that do not have room to expand and who would like to expand. So I would view getting space back at any of our Midtown assets as a net positive for the company, not only from the perspective of being able to increase rents, but also from the perspective of being able to accommodate important clients who want to expand with us.

Operator

Thank you. And I show our next question comes from Peter Abramowitz from Jefferies. Please go ahead.

Peter Abramowitz

Yes. Thank you for taking the question. I know, Doug, you touched a little bit on it with your comments around some of the AI tenants in San Francisco. But just wondering if you could talk about kind of the portfolio by Embarcadero and demand that you’re seeing in that part of the city versus some of the assets south of Mission. Does south of Mission seem top be kind of picking up and participating in that recovery? Just curious how that’s kind of unfolding.

Douglas T. Linde

Yeah. So let me answer in the general, and I’ll let Rod Diehl take the time to answer in the specifics. So the south of Mission market is clearly getting better, and there is clearly a AI-related resurgence from a demand perspective because of the growth. So that is unequivocal. Rod, you can talk about the demand that we’re seeing in and around the Embarcadero Center as well as the other parts of the market.

Rodney C. Diehl

Yeah, so definitely demand around the Embarcadero Center has been what it has traditionally been, which is mostly the financial services and traditional companies. I mean, that’s who we are leased to and that’s who we see most of the demand from. And we are — we’re getting good activity outside of Embarcadero from the AI companies. Doug mentioned previously the interest that we’ve seen down at the 680 Folsom block of space, which is our largest block with over 200,000 feet. But the downtown — central downtown around in Embarcadero Center, has been thriving with the traditional companies, and we’ve been happy to do deals with some of these that have been in the market, and we’re going to continue to do that.

We have an active program of doing spec suites, pre-built spaces, and that’s been successful, and we’re continuing to do that both at Embarcadero and at 535 Mission. So — and then I would just add too, in terms of just sort of the overall vibrancy of the downtown around Embarcadero Center, we just recently completed eight retail transactions. I mean, that’s a lot of deals to get done in a short amount of time. And these are very much homegrown companies, little small businesses, but we’re bringing them into Embarcadero Center and it’s creating a much more enjoyable place for our tenants, and it’s getting great attention. So we’re very pleased about that.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Brendan Lynch from Barclays. Please go ahead.

Brendan Lynch

Great. Thanks for taking my question. You mentioned clients starting renewal discussions for 2028 to 2031 already. When you look back at past cycles, how common is it for tenants to start negotiations so early?

Douglas T. Linde

I would say that it is common for larger tenants, particularly in certain of our CBD markets to get out there two to three years in advance if they want to consider new development. And to the extent that the market is soft, they tend to wait longer and longer. And I think it’s an indication of the tightness of the market that a company that has X [Phonetic] 100,000 square feet of space would be considering doing early renewal or extensions prior to getting into that sort of shorter window.

And look, it’s all part of the same phenomenon, which is we are in a very supply-constrained market in certain of our submarkets. So in the Back Bay of Boston, where you saw us do a year ago, a deal and last year a deal with two large financial institutions. And now you’ll — my guess, guess is you’ll see is some of the same thing happening in our portfolio in Midtown Manhattan because it’s really hard to find a 300,000 or 400,000 or 500,000 square feet piece of space or even 200,000 square feet piece of space and not be able to go into a new building given the challenges associated with lease encumbrances, et-cetera. So tenants are, I’d say, thinking hard about what they need to do to protect their footprints over a — in a quote-unquote improving market.

Operator

Thank you. And I show our next question comes from the line of Nicholas Yulico from Scotiabank. Please go ahead.

Nicholas Yulico

Hi, thanks for the follow-up. Just going back to 343 Madison, I just wanted to ask in terms of the funding, I know you’ve talked about it that you have a lot of different levers to pull. But it’s also now a bigger funding amount than might have previously been expected because of the JV partner, existing JV partner not being there anymore. And so I guess what I’m wondering is like, do you guys have a timing standpoint from when you plan to give an update about which direction you’re looking to go to cap — in terms of how you’re going to cap — exactly, you’re going to capitalize the project? Is this something that you’re going to lay out at the Investor Day, or any sort of sense of timing on an update there would be helpful? Thanks.

Michael E. LaBelle

Look, Nick, what I mentioned was that we don’t have a lot of costs going out this year and early next year. I think we’re going to be focusing on this with a high level of focus over the next couple of quarters, and cementing what we want to do. I think with respect to raising private equity, I think we’d like to get this lease signed, and we have other proposals that we’re working on for the rest of the base of the building. And if we can get some of those going, I think that creates a very, very more — even more enticing package for that. So I think that part of it could align with finishing up that work.

Operator

Thank you. And I show our next question comes from the line of Caitlin Burrows from Goldman Sachs. Please go ahead.

Caitlin Burrows

Hi, sorry. Two more follow-ups. You were just talking about how you would like to get space back in Midtown because of the positive mark-to-market, which just makes sense. So I was wondering if you could kind of square that with the reported leasing spreads from the quarter being down. Were those just specific spaces or something else I’m not appreciating? And then just as you think about guidance for the full-year, it seems like you are expecting a pickup in the fourth quarter. So I was wondering if that’s solely related to occupancy pickup or if there’s something kind of more nuanced, like gains on land sales or something included? Thanks.

Douglas T. Linde

Okay. I’ll try and do the first part of your follow-up question, and I’ll let Mike do the second part. So, regarding mark-to-markets, in our Manhattan portfolio in the quarter that is in the supplemental, there were a bunch of smaller transactions at 767 at the lower portions of the building, where we aggregated space and did leasing, and those rents were coming off relatively higher rents for that space. And so that’s where most of the negative mark-to-market came from.

If I were to look today at the deals that are being done in Midtown Manhattan, as I said earlier, we have a positive mark-to-market, including at that same building. And so I would expect that over the next few quarters, when I’m reporting what’s going on, that number will continue to get higher and higher. And so from my perspective, the improvement in rents in Midtown Manhattan is real, and we are seeing double-digit annual increases in rents in our portfolio in Midtown.

Michael E. LaBelle

On the kind of ramp-up of our FFO into the fourth quarter, as I mentioned, part of this is due to expenses being higher in the third and the fourth, but part of it is also due to our expectation that we’re going to be growing occupancy. So yes, I would say a meaningful portion of that is that we expect that the NOI from the portfolio is going to be higher in the fourth quarter.

With regard to asset sales, we don’t expect to have any of these standing property, existing property asset sales to occur in 2025. I wouldn’t expect that. We will have some of the land sales should occur later in 2025. And so that will kind of reduce — we’ll either earn more interest income or reduce interest expense a little bit on that, but it’s going to be later in the year. So I don’t think it has a super meaningful impact.

Douglas T. Linde

And again, Mike’s numbers also include the occupancy ramp as we move into the year. But the square footage I said is likely is going to start and become online as we move into the third and fourth quarter.

Operator

Thank you. One moment for our next question. And I show our next and last question in the queue comes from the line of Alexander Goldfarb from Piper Sandler. Please go ahead.

Alexander Goldfarb

Hey, thank you for taking the question. Just quickly going back on the Norges on the 343 Madison that you guys are buying out their interest. Are there others in the Norges JV? Like, should we think about others of the Norges JV assets being sold, or you guys buying out interest in others of the — of your partnership with them in other assets?

Owen D. Thomas

Alex, we have never described our partner at 343 as being Norges. So let me just put that on the table. And then second, our partnership with Norges is stable. We’re not buying out — they’re not buying us out of any assets. And from time to time, we look at new investments together.

Alexander Goldfarb

Okay. Thank you.

Operator

Thank you. This concludes our Q&A session. At this time, I would like to turn the call back to Owen Thomas, Chairman and CEO, for closing remarks.

Owen D. Thomas

Thank you all for your attention and interest in BXP. I’ll just close by reminding everyone of our investor conference on September 8, and we look forward to continued engagement. Thank you very much.

Operator

[Operator Closing Remarks]