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Brandywine Realty Trust (BDN) Q2 2020 Earnings Call Transcript

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Brandywine Realty Trust (NYSE: BDN)
Q2 2020 Earnings Call
Jul 23, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Brandywine Realty Trust Second Quarter 2020 Earnings Conference Call. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Mr. Jerry Sweeney, President and CEO. Sir, you may begin.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Crystal, thank you very much. Good morning, everyone, and thank you for participating in our second quarter 2020 earnings call. On today's call with me are George Johnstone, our Executive Vice President of Operations; Dan Palazzo, our Vice President and Chief Accounting Officer; and Tom Wirth, our Executive Vice President and Chief Financial Officer.

Prior to beginning, certain information discussed during this call may constitute forward-looking statements within the meaning of the Federal Securities law. Although we believe estimates reflected in these statements are based on reasonable assumptions, we cannot give assurances that the anticipated results will be achieved. For further information on factors that could impact our anticipated results, please reference our press release as well as our most recent annual and quarterly reports that we filed with the SEC.

So as we begin our prepared comments, first and foremost, all of us at Brandywine sincerely hope that you and yours continue to be safe, healthy, and as engaged as possible during this challenging time. This pandemic continues to disrupt all of our lives and as a result [Indecipherable] in a new landscape for everyone, including every business. The duration of this crisis is increasingly unclear. On our April 23rd earnings call, we did expect a return to the workplace environment by mid-summer. Given the events of recent weeks, however, that timeline has been extended. We are continually assessing COVID-19's impact on every element of our business and based on this detailed review, we remain confident in our ability to execute all components of our 2020 business plan. Additional details on our approach to this crisis are outlined in our COVID-19 Insert, that is found on pages 1 to 5 of our supplemental package.

So during our prepared comments, as we always do, we'll review second quarter results and an update to our 2020 business plan. We'll also review the announced joint venture of our -- on our One and two Commerce Square properties in the central business district of Philadelphia. Tom will then summarize our financial outlook and update you on our strong liquidity position. After that, Dan, Tom, George and I are certainly available to answer any of your questions.

So I'm looking at the second quarter, we continue to execute on every component of our 2020 business plan. For spec revenue, we are 99% complete, with only 69,000 square feet and $300,000 remaining to achieve our spec revenue target for the year. We had good second quarter leasing activity that 400,000 square feet of both new and renewal activity, with strong rental rate mark-to-market of 19.4% on a GAAP basis and 10.3% on a cash basis.

Same-store numbers had been tracking in line with our business plan, but the delayed opening of Philadelphia resulted in about a $2 million NOI decline from our parking operations for the balance of the year. Our parking operations are included in our same-store pool and as such, this NOI decline has reduced our cash and GAAP ranges by about 100 basis points each. Office operations are progressing in accordance with our business plan.

Our cash collection rates continue to be extremely good, and we have collected over 99% of our second quarter billings and our July collection rate tracks very well, also with about 98% collected as of yesterday. Capital costs were at the low end of our targeted range. And we have lowered our estimated full-year 2020 capital ratio by 100 basis points, down to a 11% to 12%, really reflecting the experience we're having with generating short-term extensions that require minimal capital at with outlays and I'll touch on that in a moment.

Retention was only 37%, which was mainly driven by known -- the known move out of SHI in our Austin portfolio as they began occupying their newly owned building that we built for them at our Garza Ranch project. As noted previously, we have backfilled 80% of their space, which will commence later this year at a 19% cash mark-to-market. And look, well, SHI was the primary driver in our occupancy decline, we had several other tenants expirations. All of those move-outs were known and part of our plan. And of the known move-outs, a 183,000 or 51% has already been relet and will recommence in 2020. I should also note that about 70 basis points of our occupancy decline were due to removing Commerce Square from our same-store pool. Most importantly though, we do expect occupancy returning to our targeted range of 92% to 93% by the end of this year.

We did post FFO of $0.34, which is in line with consensus and Tom will amplify that in during his comments. And then looking at our 2020 business plan, as we talked about on our last call, this crisis really embodies both danger and opportunities for our company. Our clear priority has been to assess all elements of risk and institute plans to effectively mitigate and anticipate any adverse impact. We do remain focused forward on opportunities to enhance our business plan execution, whether that'd be by lease, early lease renewals, margin improving, rebidding programs or working with institutional partners to seek investments where we can create growth opportunities.

And just a quick recap of our COVID-19 key components. We have maintained in accordance with all local, state and CDC guidelines, a door is open and lights on approach to our building operations. While it's a little bit difficult to quantify in some of our buildings. We estimate the current occupancy range of our buildings is around 5% to 10% in CBD Philadelphia, up to about 20% our DC assets, Austin is around 10% with some pullback in that given the situation down there, and the Pennsylvania suburban operations seem to be around 15%.

Secondly, the stability of our operating platform remains a top priority with particular attention on rent collections and rent deferrals, all of which were amplified on page one of our supplemental package. One of our real top priorities has been a strategic outreach to all of our tenants. So we are in extremely close touch with all of our tenants, understanding their concerns, listening to their transition plans and providing help wherever we can, so we fully understand their objectives. As such as part of that program, while we've reached out to our entire tenant base, our particular focus has been on those tenants whose [Phonetic] spaces role in the next two years. The results of those efforts are framed out on page three of our supplemental and have resulted in 73 active tenant discussions totaling about 950,000 square feet that to date have resulted in 28 tenants, totaling about 216,000 square feet, executing leases since March 15th. These leases have an average term of 24 months with a 4.2% cash mark-to-market and a 5% capital ratio.

On the construction front, all of our markets are allowing construction activities. And we've not programmed any additional pull back in construction activity delays this year. On a positive front, we are beginning to see downward pressure in select [Technical Issues] upon construction cost, hard construction costs, as well as some soft costs as the overall forward construction pipeline continues to shrink.

Our leasing pipeline stands at 1.5 million square feet and we've actually had better than expected progression in that pipeline during the quarter. Once again, our team has been in an extensive touch with every prospect and the breakdown of the 1.5 million [Phonetic] is as follows: deals progressing but execution uncertain -- timing of that uncertain and we're targeting in the next 90 days that 24% or 354,000 square feet. Deals progressing, but too early to tell when they would actually could execute it about 900,000 square feet or over 60% of the pipeline. And that's really the noticeable change. Since April's call, many more deals have advanced from the on-hold due to COVID, which right now comprises about 14% of that current pipeline into the deal progressing but too early to call. So tenants are slowly beginning to refocus their attention on their office space requirements.

On the capital front, we're really delighted to announce a joint venture on our One and Two Commerce Square buildings in Philadelphia. The joint venture is with an extremely high-quality global institutional investor, who is making their first office investment in Philadelphia, which from our perspective, further demonstrates the attractiveness of our Philadelphia market to institutional investors and really validates investors perception on Brandywine's ability to create value.

Our investor has requested that we do not disclose their name and certain terms of the agreement at this point in time. But the general framework of the venture meets many, many of our key objectives. It's a $115 million preferred equity investment, which represents 30% of the venture's capitalization at a total value of $600 million or $316 per square foot, which we believe is exceptionally strong pricing. The going-in cap rate is 5.1%, that cap rate improves based upon the rollover, but we really view that it's simply a data point due to the pending level of vacancy and the value creation opportunity. So right now over 97%, that does drop to 70% over the next 18 months.

After providing for payments for transitional leases and closing costs, Brandywine received over $100 million of net proceeds, which as Tom will amplify added to our excellent liquidity position. The transaction is a 70-30 joint venture with shared control on decisions. And while we can't close some of the specific terms, we can share that our partners targeted rate of return on an all-in basis is in the very low-double digits. So we view it as very effectively priced capital. It provides for the same level of returns on preferred equity with a liquidation preference upon a capital event to our partner and in return for that preference, Brandywine receives a significant promote structure upon a capital in that [Phonetic].

Both Brandywine and our partner had each committed $20 million of incremental capital to reposition the properties and retenant known vacancies. We will continue to manage and lease the property. Frankly, due to the leasing status and the price, the transaction will have minimal dilution, less than $0.01 a share on '20 [Phonetic] earnings primer and will improve our net debt-to-EBITDA ratio by approximately between 3 and 4 turns between now and the end of the year. The transaction does reduce our Ford [Phonetic] rollover exposure by 1.8 million square feet in our wholly owned portfolio. And Brandywine will also recognize a gain of about $270 million on this transaction.

Very important point to note in the structure, given the state of the debt markets and the near-term rollover profile of this property, we closed the venture with the existing $221 million mortgage in place at selling at 37% loan to value. As leasing progresses and the debt markets continue their recovery, we plan to refinance at a higher LTV, thereby affording both Brandywine and/or partner and other opportunities to generate liquidity. And speaking of liquidity, the company is in excellent shape, as outlined on page four of our supplemental package. We are projecting to have a $500 million line of credit availability at year-end 2020. And if we refinance rather than pay off an $80 million mortgage later this year, that liquidity increases to $580 million. We have only one $10 million mortgage that matures in 2021. We have no unsecured bond maturities until 2023. We anticipate generating $55 million of free cash flow after debts and payments for the second half of '20. And our dividend remains extraordinarily well covered with a 56% FFO and 75% CAD payout ratio.

So with those items addressed, let me just spend a few moments on our development set. First of all, all of our production assets that's Garza and Four Points in Austin, 650 Park Avenue in King of Prussia and 155 in Radnor are all fully approved, fully documented, fully ready to go, subject to identifying pre-leasing. And as we've noted previously, these are near-term completions that we can complete within four to six quarters and there are individual cost range between $40 million and $70 million. As you might expect, we didn't really make any significant advancement in our deal pipeline of almost 600,000 square feet during the quarter and frankly don't really anticipate any significant advancement of some of these major discussions until the crisis begins to abate and there is more focus on return to the workplace.

And looking at our existing development projects on 405 Colorado, look, this exciting addition to Austin skyline remains on track for completion in the first quarter of '21, at a very attractive 8.5% cash-on-cash yield. We have a pipeline of 125,000 square feet. But frankly, as I noted on the production assets, we don't expect any significant decision-making to occur until after the crisis begins to abate.

On the board and building, delighted to report that's now been placed in service at 94% occupancy and 98% leased. The property will stabilize on schedule in the fourth quarter of 2020. 3000 Market Street is a 64,000 square feet life science renovation that we undertook and within Schuylkill Yards. As noted last quarter, we did sign a lease with one of our existing life science tenant Spark Therapeutics who has taken the entire building on a 12-year lease. We expect that lease will commence in the third quarter of next year and deliver a development yield slightly north of 9%.

Quickly looking at Broadmoor and Schuylkill Yards. At Broadmoor, we continue fully advancing our development plans on Block A, which is 360,000 square feet of office and 340 apartment units. And we've gotten through a final design in pricing and we'll be in a position to have all of that ready to go by the end of Q3 this year, subject to financing and pre-leasing. Schuylkill Yards, within Schuylkill Yards, we really continue a very, very strong life science push. The overall master plan for Schuylkill Yards provides with at least 2.8 million square feet can be life science space. So we really do view that we have a tremendous opportunity to establish a full ecosystem. 3000 Market in the Bulletin Building conversions, I just mentioned, to life science really evidence is the first part of that pivot to create a life science hub. We are also well into the design, development and marketing process for a 400,000 square foot life science building with the goal of being able to start that by Q2 '21, assuming market conditions permit.

Finally, we are converting several floors within our Cira Center project to accommodate life science use that the aggregate square footage for that converted space is 56,000 square feet, and we have a current pipeline of 137,000 square feet for that space. Schuylkill Yards West, our residential office tower is fully approved to go and ready, subject to finalizing our debt and equity structure. We have also modified the design of the office component to accommodate some level of life science use.

As I mentioned in the last quarter and I'll mention again this quarter, the COVID-19 crisis has clearly had a big impact upon the timing of moving forward this project and getting the financing in place. We continue to work with our preferred equity partner, but the crisis clearly slowed the pace of procuring and finalize both at equity piece as well as the debt piece. We do remain optimistic that we'll get this across the finish line as soon as the situation returns to some level of normalcy.

In general, we do continue to maintain a very active dialog with a broad cross-section of institutional investors and private equity firms. In addition to our Commerce Square announcement, we continue to explore other asset level of joint ventures that will both improve our return on invested capital and continue to enhance our liquidity and provide growth capital for our development pipeline. These discussions are active and ongoing and they certainly encompassed both our Broadmoor and Schuylkill Yards projects.

One final note is that, that we noted in our press release, as we normally provide '21 -- we would normally have provided 2021 earnings forecast during our third quarter earnings cycle. Based on the current uncertain business climate, we will not provide that 2020 guidance as part of our third quarter call, but we do plan on issuing guidance no later than our fourth quarter earnings cycle.

Now, I'll turn the mic over to Tom, who will provide an overview of our financial results.

Thomas E. Wirth -- Executive Vice President and Chief Financial Officer

Thank you, Jerry. Our second quarter net income totaled $3.9 million or $0.02 per diluted share and FFO totaled $57.7 million or $0.34 per diluted share. Some general observations regarding the second quarter results. Operating results were generally in line with our first quarter guidance with a couple of items to highlight. On our portfolio, operating income, we estimated 8 million -- $80 million in portfolio NOI [Phonetic] and we were $1.1 million higher than that. While we did have parking being about $1 million below our anticipated reduced parking level, primarily due to the transit and monthly parking. We did have lower physical occupancy and therefore, sequential operating expenses were lower and we experienced higher operating margins in 2Q '20, offsetting the lower parking income.

Interest expense improved by $0.8 million primarily due to lower interest rates than forecast. Our second quarter fixed charge and interest coverage ratios were 3.4 times and 3.7 times, respectively. Both metrics were similar to the second quarter of 2019. As expected, our second quarter annualized net debt-to-EBITDA increased, the increase to 7.0 times was primarily due to the lower anticipated sequential EBITDA outlined in the prior quarter. Adjusting for the Commerce Square transaction on a pro forma basis for the second quarter, that 7.0 were decreased to 6.7.

Two reporting items to highlight for the second quarter, cash collections, as reported, overall collection rate for the second quarter was a very strong 99.6% based on actual quarterly billings. However, if we did include the second quarter deferred billings, our core portfolio collections rate would still have been a very strong 97%. In addition, cash same-store as outlined on page one of our supplemental, we have included $2.3 million of rent deferrals in our second quarter results. While not billed during the quarter, we feel this presentation is more accurately representing our current scene [Phonetic] or metrics with normalized ongoing forward results not inflated by the subsequent deferred cash receipts.

Looking then to third quarter guidance. Looking forward, we have portfolio operating income will total approximately $74 million and will be sequentially lower by $7.1 million. This decrease is primarily due to Commerce Square JV. The joint venture will result in deconsolidation of the property and that will lower the NOI by $7.5 million. One good pick up on the other side, if there is $1.2 million of incremental income for the Bulletin Building, which has been placed into service in June and the building is now 94% occupied.

FFO contribution from our unconsolidated joint ventures with total $6.5 million for the third quarter, which is up $4.1 million from the second quarter and that's primarily due to Commerce Square joint venture, which has been deconsolidated effective [Indecipherable] with our earnings yesterday. For the full-year 2020, the FFO contribution is estimated to be $19 million. G&A for the third quarter will total 7.3 [Phonetic] and will be sequentially $1 million lower than this -- than the second quarter. This is primarily due to lower compensation award amortization and it's pretty consistent with prior years. Full-year G&A expense will approximate $31 million.

Interest expense will be $1.5 million sequentially compared to the second quarter and will total $18 million for the third quarter with 94.5% of our balance sheet debt being fixed rate at the end of the second quarter. The reduction in interest expense is primarily due to the $100 million of net proceeds received from the Commerce Square joint venture paying off our line of credit at Commerce Square mortgage debt. And then also the Commerce Square mortgage debt will now be deconsolidated.

Capitalized interest will approximate $1 million for the third quarter and full-year interest expense were approximately $76 million. We extend -- we plan to extend our Two Logan mortgage beyond the August 1st maturity date, and we are looking to either pay that off or have an extended and we'll be working on that during this quarter.

Termination and other fee income. We anticipate terminations and other income totaling $2.2 million for the second -- for the third quarter and $10.5 million for the year. Net management, leasing and development fees will be $4 million and will approximate $10 million for the year. We have no planned land sales and tax provisions of any significance. No anticipated ATM or additional share buyback activity. And our guidance for investments, we have only the two -- the one property in Radnor, Pennsylvania that we will acquire for $20 million and that is scheduled for redevelopment. So we know generating of earnings of any kind in 2020.

Looking at our capital plan, as we outlined, we have two development projects in our 2020 capital plan with no additional developments plan for the balance of the year. Based on that, our CAD range will remain at 71% to 78%. And uses for this year will total $285 million, $67 million of development, $65 million of common dividends, retained -- revenue creating will be $25 million, revenue maintain will be $27 million, mortgage amortization of $1 million. We are including the $80 million pay-off of the mortgage at Two Logan and the acquisition of 250 King of Prussia Road, sources for all those uses. Our cash flow from after interest payments $115 million [Phonetic]. $100 million of net proceeds from Commerce Square joint venture, when you use the line of credit for $39 million, cash on hand of $21 million and land sales of $10 million.

Based on the capital plan outlined, we are in excellent position on our line of credit and liquidity. We also project that our net debt will range between 6.3 and 6.5. It will likely be at the low end of that range as a result of the Commerce Square joint venture, which has reduced our leverage in the second quarter. In addition, our net debt -- our debt to GAV will approximate 38%, which is down from 43%, primarily again due the joint venture improvement in that metric. In addition, we anticipate our fixed charge ratio will continue to approximate 3.7 on an interest coverage basis and 4.1 -- 3.7 on a debt service coverage and interest coverage would be 4.1.

I now turn the call back over to Jerry.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Great, Tom. Thank you very much. Thanks. With that, wrapping up. We're delight to open up the floor for questions. As we always do, we ask that in the interest of time you limit yourself to one question and a follow-up. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And our first question comes from Steve Sakwa from Evercore ISI. Your line is open. Please check that your line is not on mute.

Steve Sakwa -- Evercore ISI -- Analyst

I'm sorry. The Commerce Square JV, I know you provided a bunch of detail there. But obviously the preferred structure is that there is a little bit different than what we've seen on kind of straight up joint ventures. So I'm just kind of wondering how the discussions went when you went in those asset to market and sort of the pros and cons of doing it this way with maybe a bigger upside promote versus maybe protecting kind of the investor on their return, it seems like they wanted a little bit more downside protection?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Yeah. Hey, Steve. It's great question. I think, certainly the macro environment played into the overall structuring of the deal. I think from our perspective, Commerce Square is a wonderful trusty quality asset. We have a lot of churn as everyone is on this call knows over the next several years. We knew that that would have a call on capital as well as an earnings impact over the next couple of years. And we knew that was creating a bit of an overhang in terms of a catalyst for moving our stock price. So we were certainly motivated to try and find a co-investment partner who would help us number one recognized attractive point of entry pricing to create an opportunity for us to both through the creation of the venture as well as from the leverage aspect of it, create a capital capacity increase for us overall as a company. And I think as the discussions progressed, our investor who again when they announce, so you will be a well recognizable and incredibly well regarded name. Their focus given the rollover in the portfolio coming up was to have some level of liquidation preference that would provide them some downside protection. And from our perspective, given the point of entry pricing we were able to achieve the low cap rate going in, the amount of liquidity this would generate for our company, the capacity to delever, and then also provide some liquidity for other uses for the organization. We thought that was a fair trade particularly given our ability to create a significant promote structure that we think will deliver significant returns to our shareholder base, once we are able to execute on releasing that space as we know that we work, we would. And I think the -- we looked at the overall cost of this equity being the very low-double digit, because that was very effectively priced compared to a number of other options that we see out in the marketplace.

Steve Sakwa -- Evercore ISI -- Analyst

Okay. Thanks for that color. And I guess, maybe just circling back, obviously, there is a number of leasing issues that you need to deal with, you've been pretty transparent on laying those out. Can you maybe just walk through some of the kind of major timelines and you've sort of talked about new leasing kind of being on-hold until there is a lot more clarity on the pandemic. So how much longer do you think or how further out these leasing assignment to take and just trying to sort of think about '21 and sort of the risk to earnings at that point. If these things aren't going to get lease this year sort of mixed maybe the '21 numbers a bit challenged.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Yeah, look, I think it's premature to preclude that because we're number one in such a dynamic climate that no one is really sure exactly what the acceleration will be. I mean, I will share with you, I mean, a lot of our senior executive my conversations with both tenants and with brokers who are wrapping those tenants, really do expect there'll be an acceleration in demand in a compressed period of time because we are essentially looking at almost two quarters of definitive activities being delayed. That doesn't change the reality of the platform these companies face in terms of their office requirements. So that's honestly, Steve, one of the reasons why we're being so active in talking to not only our tenants, but also really maintaining a very effective dialog with our prospects, because those decision points will come. They may come, they didn't come by July, but maybe they come by September. And I think we want to make sure that we've advanced all of those discussions to the point where we can execute fairly quickly.

Look at that stat we gave on with a percentage of deals that have moved from on hold from COVID to basically in process but timing uncertain. We view that as a very good harbinger for the office market in general. But a lot of tenants are really focused on, OK, that at least coming up in '21 or I've got this happening, what am I going to do? And we think that's a very positive sign. But I think when you bring that back to kind of the Brandywine landscape, and George, maybe you can chime in here as well. I -- when we take a look at our larger leasing exposures, particularly now excluding Commerce Square, which will not be a wholly owned asset. SHI, as I mentioned, we've got about 80% done, most of that will be occupying. We had a major rollover in Conshohocken, that's for next year. That's been pretty much all put away. But George, maybe fill in some of those other blanks.

George D. Johnstone -- Executive Vice President of Operations

Yeah, I think at the Macquarie space albeit now in a joint venture, 35% of their 150,000 square foot rollover, we've relet at favorable terms. We feel, again, high-quality space. Northrop Grumman, obviously, is a large one in Dallas Corner expiring 12/31 of '20. And again, I think, we're leaving all of our options in play there whether that's renovating the building potentially do you want a joint venture or an outright sale of that building. And we've started to see some level of touring down in that Northern Virginia market in particular at that building as some large requirements are now starting to at least surface albeit their timing is still to be somewhat undecided.

The balance of the SHI space, which is about 35,000 square feet. We've got good levels of pipeline there to kind of put the rest of that away. The 80% we've already leased there commences in the fourth quarter. So we get the occupancy pickup again when that rolls around. And then we've had, as Jerry alluded, a lot of conversations with our larger 2021 expirations and even some that are now on the '22 horizon who are now starting to think about what do I need to do maybe it's just kick the can down the road 12 to 24 months, and then some actually talking about the ones up in the longer term.

Steve Sakwa -- Evercore ISI -- Analyst

Great. Thanks a lot.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Thank you, Steve.

Operator

Thank you. Our next question comes from Jamie Feldman from Bank of America. Your line is open.

James Feldman -- Bank of America Merrill Lynch -- Analyst

Thank you and good morning.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Hi, Jamie.

James Feldman -- Bank of America Merrill Lynch -- Analyst

So I guess, your $100 million of net proceeds from the JV, a big conversation has been raising capital for development, it's Schuylkill Yards and Broadmoor bringing in JV partners. I mean, how do you think about that $100 million and where does it get you in terms of your ability to finance more than maybe previously expected on your own balance sheet for these developments? And then -- can you expand the JV to raise more capital and do you think you'll see more like this in the future to help?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Yeah. I guess, Jamie, a couple of observations. One is, we felt as though raising liquidity through one of our existing assets, that was really turning into a value creation opportunity was a good thing for us to do right now. It helped us again create capacity in cash and did so on a property where we had a very large -- fortunately very large embedded gain. And it's a great price point for I think this marketplace in terms of the cap rate. We would certainly hope we have the ability to do some other things with this partner. And as I kind of touched on it from a broader standpoint at the end of the comment, we have a whole range of discussions under way with potential partners for Broadmoor, Schuylkill Yards. Certainly the life science element of Schuylkill Yards has been a major drawing card for broadening our potential investor base and it's still an opportunity zone fund and what I think some of those deals, honestly, Jamie, had been a little slow in the gestation process, they're really beginning to reramp up, as people are focusing on a potentially a different tax climate over the next couple of years.

So I think we're very encouraged with the level of private equity institutional partnership potential we have out there. And we thought that getting the Commerce Square transaction across the finish line, you know, really to our shareholders, which show that number one, we've really further enhance what we thought was a very strong liquidity position. And as you know in times like this that, that having the stronger liquidity to more opportunity set you have, while that's for us increasing our ownership stake in some development projects, whether that'd be brand -- whether it'd be Schuylkill Yards or Broadmoor, that has a lot of value when we're talking to some of these investors who are really focused on how committed this sponsor is economically to the project. So we thought by having some additional liquidity optionality for us in these venture discussions that would help us improve the overall economic returns we could craft, because we had more liquidity to commit to those projects. It also does provide the additional liquidity for us to look at other growth opportunities where that's on deploying these production assets, which we have always focused on being wholly owned or other options that may come our way in this type of market climate.

James Feldman -- Bank of America Merrill Lynch -- Analyst

Okay. Thank you. And we appreciate the color on the lease discussions over the next year or so. Two questions on that. Number one, as tenants have come back to you and confirm their space needs. I mean, are you seeing a change in how they're using their space in terms of redesign more -- based on either more work from home or just a different build out that they plan longer term? And is that led to either more or less -- taking down more or less space? And then secondly, you have this 13% likely to vacate about a 100,000 square feet, how does that compare to a normal year at this time?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Okay. Great question. Hi, George, why don't we take on -- start off and --

George D. Johnstone -- Executive Vice President of Operations

Sure.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Well, I think, one of our -- one of the interesting things we did, Jamie, a couple of months ago is, as part of our reach -- formal reach out and surveyed tenants was asking them about their space. Based upon the -- when I say space, their space configuration. Based on a lot of feedback we've got, we've actually launched an initiative to provide a free space planning services to any of our tenants request. Now certainly, look, some of our large tenants have their own infrastructure in place. But in a company like ours, where the average tenant size is 8,000 square feet or so. A lot of those tenants are looking for guidance. I think general themes we're hearing are that tenants are looking for ways to create more distancing within their space whether that is changing the profile of their workstations or increasing their 6/6 workstations to 8/10 and a higher profile, I mean, higher walls is a key consideration.

We're certainly spending a lot of time working with tenants on creating demountable partitions that we can put up within their space. So there is a clear buy as I think on the part of a lot of our tenants, too, look at how they can reconfigure their space. It's too early, frankly, for us to tell whether that will generate net new space requirements. But I think it will create situations where probably some of the common area space allocations in some of our tenants will be compressed and be redeployed to create workstations or private offices. We would hope to have more visibility on that in the next 60 to 90 days as we're now really in the early stages of getting some definitive feedback from our tenants.

George D. Johnstone -- Executive Vice President of Operations

Yeah. And I think, Jamie, this is George to amplify on some of that. But likely to vacate, look, I think it was only eight tenants that clearly as of today said we're going to leave. Three of them consolidated into other leased space that had a longer lease life and what they had with Brandywine. Two of them were already subletting their space. So there was no hope of them renewing it. Our discussions now turn to the sub tenant to try and negotiate something directly there. Two did identify that they are shifting to a work from home model and one had already vacated, although still financially performing under the lease. So I think in terms of where we would be in terms of some of that forward visibility absent COVID, we'd probably have more of a sample size than eight at this point I think that's why 65 prospects and almost 600,000 square feet are, it's just too early to make a commitment. They need to kind of understand when am I bringing my people back? How am I bringing my people back? And what accommodations will they have to make for their people once they do come back from that work from home environment and so.

James Feldman -- Bank of America Merrill Lynch -- Analyst

Okay. I appreciate the color. Thank you.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Thanks, Jamie.

Operator

Thank you. Our next question comes from Craig Mailman from KeyBanc Capital Markets. Your line is open.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Good morning. Jerry, I know you can't disclose all the details of the JV, but when is the first kind of remeasurement period for the promote?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

The remeasurement period --

Craig Mailman -- KeyBanc Capital Markets -- Analyst

So when would you guys be in the promote? When is the first opportunity to get a promoted interest? I know you kind of said, once you get some leasing done or is it solely on the sale of the asset?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

It is primarily upon a sale or recapitalization of the assets, Craig.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Okay. So as you guys for the new financing on there at that point, you could be in the promote.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

It's conceivable. Yeah, I mean it's certainly the one of the interesting bridges we've built here is that give -- even though the debt markets have really come back to me for office assets with long tenured leases. It's still not quite there yet in terms of proceeds on value add transactions. So with our partner, we made the decision to kind of close the venture with the existing debt in place, which I think as I touched on is below 40% loan to value. We've got new money capital committed by both Brandywine and our partner of $20 million to each to reposition the asset. So we would think that certainly given the pipeline, even George touched on, we should be in a good position to look at refinancing this in the next 12 to 24 months.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Okay. And then, I know we've talked a lot about Broadmoor and Schuylkill and maybe putting JV financing on those assets, but in the past you've also talked a lot about zero and some other kind of stabilized assets. I mean, depending on when the debt market kind of settles out, where it settles out. There talks about doing more of these type of JVs to finance the developments and maybe not give up as much as you might otherwise give up in pre-construction kind of joint ventures?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Yes. Look, I think is we've talked before, I think we're in an environment where every options on the table. I mean, we have an excellent portfolio, great management operating team and leasing team. So just as we did something on an asset-light Commerce Square, we start looking at creating some other capital raising opportunities at other pieces of our portfolio, similar to what we did with Rockpoint last year and Commerce this year. And we're very mindful of not creating any real complications in terms of our balance sheet. We also recognize that in today's environment, some of that capital is really looking for great partnerships, good sponsorship and the ability to grow. So we are having some discussions with groups on creating growth vehicles for certain submarkets and certain product types. And to the extent we were able to raise some additional liquidity for that. And I think certainly is, as I mentioned to the other question, having that additional liquidity broadens our perspective on what we can and cannot do with some of these development transactions. That certainly a big driving focus we have within the organization.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

And then just lastly, on the Cira conversion life science, I mean, how -- do you guys have the systems in place to convert easily or is it just going to be kind of a minor overhaul to edge [Phonetic] back and another kind of systems? And are there any other buildings you guys are looking to kind of benefit from the life science demand in Philly to kind of broaden your offerings?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Yeah. Look, in Cira Centre, I mean, the infrastructure that building can accommodate the lives. So the work to make that conversion is primarily upgrading the HVAC and some of the mechanical systems and maybe some additional power loads. Fundamentally, fairly easy conversion. Not too dissimilar quite frankly, Craig, on 3000 Market. I mean, that was a building where if the infrastructure or superstructure of the building and its component parts are accommodative in terms of volume and capacity capability. It's something we can certainly do. And we are looking at other builders within our portfolio, particularly some assets in the suburban counties, where there is -- in the Philadelphia suburban area, there is a growing presence by pharma and life science companies. There may be other opportunities for some of our existing assets to accommodate that use.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Okay. I think you said in the past, as you guys have looked at, at Schuylkill some tenants, don't want to mingle with life science, is that an issue at all as you have some legacy kind of office tenants in these buildings, or as you look to put a life science tenants predominantly kind of just traditional office setting? Are there any issues with tenants mixing?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

I think it's really a tenant specific concern. I think when we were talking about this before, we're really engaged with one tenant who really was very focused on not having -- not being an environment with life science or lab space. I think that was more -- that's proven to be much more of an exception condition as opposed to a governing principle. So in all of our dispersion of discussions with folks with its life science tenants at Cira Centre or within Schuylkill Yards or some other locations. We've yet to really encounter any resistance to having their tenancy in kind of a mixed-use building its traditional office, incubator office or wet or dry lab office.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Okay. Great. Thank you.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Thank you.

Operator

Thank you. Our next question comes from Manny Korchman from Citi. Your line is open.

Emmanuel Korchman -- Citigroup -- Analyst

Hey, good morning, everyone.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Good morning.

Emmanuel Korchman -- Citigroup -- Analyst

Jerry, when we look at the Commerce JV, can you just give us some color on the timing of those conversations and maybe how they changed over time?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Sure. They really commenced, Manny, sometime in the March timeframe. And as the macro climate change, I think we both pivoted to reaching a structure that work for both of us.

Emmanuel Korchman -- Citigroup -- Analyst

And was there any part in those conversations that have the same partner look at Schuylkill, I see similar flavors, right, it's an asset in SHI [Phonetic], there is lease-up risk if you will. There is development dollars we put out, obviously, at a different scale. But was Schuylkill part of the conversations with this partner?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Schuylkill was not really -- other than being part of conversation that was not part of any.

Emmanuel Korchman -- Citigroup -- Analyst

And then Tom, question for you, I guess, Commerce now comes out of your same-store pool. And given the amount of vacancy that was going to come in that building. How much of an impact does that have on the same-store or same-store guidance that you guys have presented?

Thomas E. Wirth -- Executive Vice President and Chief Financial Officer

Well, I think, what I say with occupancy, so we did talk about the occupancy nominated [Phonetic] negatively impact us for the second quarter. It will not be an impact going forward even though we're taking the hit initially because of the known move out of Macquarie, which does happen at the end of July, so that move out would have been a negative impact to the same-store. So from our standpoint, that was the case. When we looked at the -- for the occupancy, on the same-store, we do expect that there will be a pick up more next year than this year on the same-store impact as opposed to this year. So we didn't. We moved our range on the same-store by 100 basis points, that's primarily due to the parking, some of that parking is actually in Commerce Square. But it really didn't have a dramatic impact this year in the whole -- on the full year if we put it in a route, that reduction in the same-store was mainly due to the parking.

Next year, though, we would anticipate as we roll out guidance that we're going to see an improvement on same-store because there no move-outs will be out there and that would include Reliance, which leads to the end of -- at 12/31 of '20, so that space is going to go down, it's about 140,000 square feet, starting one -- one of next year. So there definitely be some tailwind to our same-store for next year with that coming out.

Emmanuel Korchman -- Citigroup -- Analyst

But I guess, maybe I'm confused as why Commerce given the size of the building and the contribution to your overall NOI. And the changing NOI situation there, why that wouldn't have provided some lift to just the guidance that just because the pool change, not because anything happened with actual tenancy, which just the change in the pool. Wouldn't that have changed the guidance that more?

Thomas E. Wirth -- Executive Vice President and Chief Financial Officer

Well, the guidance -- I'll let George touch on it. I think on the guidance, though, it's really -- we're giving guidance on sort of not what the -- is what the percentage change is from year-over-year. And with this year when we look at the weighted average occupancy of where Commerce was for '20, if it was in all of '20, and then where it will be next year, it was going to certainly be a damper. If you took a look at how much contribution it would have been to the same-store pool between '20 and '21, it was certainly going to go down with those known move out with Macquarie and Reliance. So I don't know if that answers your question on that side. Maybe George can chime in, but that's how I think of it for '21 how it's going to benefit.

George D. Johnstone -- Executive Vice President of Operations

Yeah, I mean, Commerce's same-store performance in 2020 was positive during the first half of the year, because some of the leasing that we have done on vacant space in 2019, and then that same-store characteristic kind of shifted to negative in the second half of the year with the known move out of Macquarie. So the two building kind of combination was somewhat of a flat same-store asset '20 versus '19. And then as Tom alluded, it would have been a much more worse same-store '21 versus '20 with the additional move out of Reliance and McCormick & Taylor, even though some of the backfill will commence in '21.

Emmanuel Korchman -- Citigroup -- Analyst

Thanks guys.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Thank you.

Operator

Thank you. Our next question comes from Michael Lewis from SunTrust. Your line is open.

Michael R. Lewis -- SunTrust Robinson Humphrey, Inc. -- Analyst

Great. Thank you.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Hi, Michael, how are you doing?

Michael R. Lewis -- SunTrust Robinson Humphrey, Inc. -- Analyst

Hi. On Commerce Square you explained the structure of those exploration schedule and how that impacts the cap rate and the pricing. $315 per square foot, does this sale tell us anything about the value of the rest of your Philly CBD portfolio? Or do you think this is kind of unique and doesn't give us a much information?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Yeah, look, I think the pricing is a $600 million and $315 per square foot. I think given the near-term rollover in the property, I think it says very good things about this stabilized returns that we're realizing off of our other Philadelphia-based assets. I think we're frankly very happy with the pricing. It's not too far off, what we thought was very good pricing on the Mellon Bank Center yield at 17.35 [Phonetic], now it's a completely stabilized asset with no rollover off, and that was $20 or $25 a square foot higher than ours. So we thought it was very good pricing, quite frankly. And certainly the cap rate, I thought spoke very well of the of -- of how quality institutions and certainly our partner is a top quality one, kind of view the growth potential within the City of Philadelphia. So I think from our perspective, the point of entry pricing where we're in that level with that kind of rollover exposure certainly from an investment base standpoint, as I touched on, we're generating about $270 million gain or about $140 a foot. And even on a gross basis based on acquisition of capital put in, it's $100 a square foot gain. We felt that was very good, Michael. So we thought it was a part -- we think it's a great read through [Indecipherable] on the strength of the market, because the point of entry pricing is solid. But more importantly, if you take a look at the climate we're in today to have the focus going forward of generating a great value opportunity -- value creating opportunity, we felt it was very strong.

Michael R. Lewis -- SunTrust Robinson Humphrey, Inc. -- Analyst

Yeah, I think everybody's wondering about value. So it's good to have a data point. And then my second question is about the same kind of a short-term and long-term look. In the short term, I think last time we spoke Dechert and Blank Rome have been closed to signing renewals. I'm wondering if that's still the case. And then kind of broader, George mentioned two tenants that are moving to work from home. Are you seeing signals in the portfolio that you know this is really a sea change moment in your business where there may be a wave of this -- of this coming any signals of that?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

A couple of parts of that question we'll take, George and I will take that separately. I think on Blank Rome and Dechert were continue to have great dialog. So no real change on that other than the passage of time in summer vacation scheduled for folks. So I think we continue to be very positive on how those discussions will wind up. You know, Michael, on your broader question, I honestly think it's too early to tell. I mean, we're hearing, very conflicting data points. And I think we have in the supplemental package kind of a pie chart that talks about how tenants view the impact of the virus on their business. And most folks were fairly positive or neutral.

We are hearing general thing [Phonetic] from all of our tenants that they can't wait to get back to the workplace, that who all working from home seems to be an adequate way of triaging business maintenance. The level of productivity that comes from working in a dynamic collaborative environment, it far exceeds where I think people are realizing right now. So incredibly incremental progress that companies are making right now. I think, certainly as I talked to a lot of our major tenants, they can't wait to get back in.

I think that the phenomenon of work from home had already been there, but it was at a lower pace. So I think it's open the eyes of a lot of companies that they can probably provide more slowly [Phonetic] their workforce and not have the product to be decline that they might have feared before that they cannot maintain a level of activity by having work from home being part of their kind of standard personnel protocols. I think as we're talking to tenants today, obviously, the macro situations of concern, but then I think issues of mass transportation and schools seem to be the most often discussed topic, the topics that are governing when tenants view themselves of returning to the workplace on mass.

So in a Philadelphia metropolitan area, we've got about 10% of the regional workforce uses mass transportation. We're certainly not as impacted as a New York City or San Francisco or some other major metro hubs. But that reintroduction of mass transit is going to be I think a governor of when people return to the workplace. But generally, and George you're talking to a lot of tenants as well. The ones I talked to are very actually get back to work. So they've been very positive on all the steps at Brandywine has taken to ensure safe return to the workplace. Even as I mentioned earlier, with one of the questions on being very proactive from a space planning standpoint, we mean, this time we can reconfigure space quickly, I think that's brings people back even faster. But, George?

George D. Johnstone -- Executive Vice President of Operations

Yeah, I think to that point, I mean, I think a lot of tenants are really just thinking about how they can reposition their existing space, turning radius's within workstation configurations. And the context of the two tenants out of the 673 that we conducted outreach to, two said that they were kind of ready to make that permanent shift. So I do think it's extremely early in the cycle. And I'm not sure that, that those two are necessarily a barometer for the rest.

Michael R. Lewis -- SunTrust Robinson Humphrey, Inc. -- Analyst

Got it. Thank you.

Operator

Thank you. Our next question comes from Tayo Okusanya from Mizuho. Your line is open.

Omotayo Okusanya -- Mizuho Securities USA, Inc. -- Analyst

Hi guys, good morning. Just following up on that line of questioning, the leases signed against the average duration of 24-month figure, which is pretty short. Could you just talk a little bit about that decision process of signing the short leases? What exactly your tenants are kind of saying to you in regard to different duration of the leases on the near term basis?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Yeah, I -- great question. And I think the general tone of those conversations in the fact that they averaged 24 months. I mean, some simply were 12 months. Some were able to do kind of 36, 48. But for most of them, it was -- they've got something to think about relatively quickly because they've got a first quarter '21 expiration and not knowing necessarily when they will be fully returning and understand everything about their own business. This was just the means to kind of move that decision down the line and as a result, we ended up with a lot of them just averaging that 24-month duration, and it softens the expiration curve for us gives them a little bit more time to understand how they ultimately need to renew on a long-term basis.

Well, as I think dramatically, it's not that much different than a lot of companies like ours experienced during the great financial crisis where you had a number of tenants who we're keeping an eye on kind of the macro uncertainty who just kind of did shorter term extensions. For us it's a win-win, it preserves our revenue stream with a little more certainty. As George touched on it, it smooths out our rollover exposure. And frankly, it gives our leasing teams and our property management teams another 12 to 24, 36 months to keep working with that tenant to make sure they understand that Brandywine is their workplace solution.

So I don't think, Tayo, looking at the size of those tenants and kind of the composition, I don't think there's any read through on that from the standpoint that tenants are only willing to do short term access. I think these were tenancies that had within 12 or 18 month expiration and given the pace of their business, they just don't want to deal with thinking about what they want to do on their office space. So we actually thought it was a positive sign of that many tenants renewed even for a short period of time, but kept all their square footage in place. So I think, looking at from the other -- through the other window, the fact that none of these tenants were coming back and saying "hey, I'll renew but I mean, [Indecipherable] 18,000 [Phonetic] square feet. We thought that was a good harbinger of the thought process that we know a lot of our tenants will go through is a sort of think about their long-term space planning requirements.

Omotayo Okusanya -- Mizuho Securities USA, Inc. -- Analyst

Great. And just one quick follow-up. The cap rate on Commerce Square, the 5.1 [Phonetic] cap that is last 12-month NOI before they move out, that I hear that correctly?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Yeah, that's based on where it is now, right.

Thomas E. Wirth -- Executive Vice President and Chief Financial Officer

That's correct.

Omotayo Okusanya -- Mizuho Securities USA, Inc. -- Analyst

Okay. Great. Thank you.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Thank you.

Operator

Thank you. Our next question comes from Bill Crow from Raymond James. Your line is open.

Bill Crow -- Raymond James & Associates -- Analyst

Thanks. Good morning. Jerry, I appreciate the statistic on the 10% mass transit that used in Philadelphia. What is -- what does that rate for your CBD tenants?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Yeah. The rate for our CBD tenants is or I could -- I might be off you're buying a little bit but it's somewhere around 50%.

Bill Crow -- Raymond James & Associates -- Analyst

50, 5-0?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Yeah. 50, yeah.

Bill Crow -- Raymond James & Associates -- Analyst

Okay, great. Have you all seen a pick up in toward a suburban assets from current CBD tenants that might be looking for either -- either to move out to the birds or may be a satellite office closer to home?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

No, we read a lot about that trend, Bill, and honestly, whether it's in Philly or DC or Austin, we haven't seen that. I mean, there is only one example that I could give you, our tenant is the CBD tenant, did a short-term sublease for several thousand square feet in the suburbs, just to get people back into an office environment, because their workflow really requires people to work together. And they just -- they were meeting some resistance from their tenant base about using mass transit coming downtown. An interesting anecdote data point is, when we did survey our tenants after health and safety issues, which were obviously paramount, the next most asked question we got from tenants was could we provide short term parking for them as they -- I would put up their offices downtown. And that was one of the reasons why we were thinking that even with the anticipated opening of the city kind of in the early part of the summer. Those parking numbers we had in the last quarter were good because the feedback we're getting from tenants was, hey, if they come back, they're going to want to start drive in versus take the train. With the delay of opening up the city, I think that kind of recreate the result we have.

But, look, I do think there'll be a transition here up. Our Regional Rail Authority is doing a great job of trying to get out a message of it's safe to return, activity is picking up within the mass transit system. But until people get a lot more comfort with health issues, I think it's going to be a slow adoption -- a slower adoption rate that you might expect for people to take mass transit. We're fortunate where we have a lot of marketing capacity. So to the extent that our tenants need to use parking, we can do that. We run, as you know, several shuttle services within the city. So we can actually bring people into kind of University City to park and shuttle them down, plan if that we need to. So we're looking at a number of different options to create mobility for our tenants, other than just traditional mass transit to help them think through how they get their workforce back to our CBD locations.

Bill Crow -- Raymond James & Associates -- Analyst

Great. And if I could just ask one more, Jerry. We've seen a lot of headlines, especially in some of the Pacific Northwest market, San Francisco, New York, Chicago, the governments maybe out in necessity having to become less business friendly, heavier taxation thing. You just kind of, I know your buddies with the folks down in City Hall, but just give us an assessment of where Philadelphia is on that spectrum?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Bill, I think every city is facing some significant near-term financial issues and I think almost every city is hoping that some level of a federal and potentially state support could augment that. I think Philadelphia in particular given our tax structure where only about 20% of revenues come in from real estate taxes, the balance in from business and wage taxes is particularly susceptible to revenue variability. So if you think about the folks who are traditionally working downtown who live out in the suburbs, they pay wage tax for the time they work in the city. To the extent, they are not in the city and they're working from home, they're not paying wage tax. So I think cities like Philadelphia that have kind of a, I'll call it an inverted tax structure compared to most cities will probably face some more short-term budget issues. Philadelphia did have a rainy day fund going into the crisis. They did pass the stop gap budget that did include raising marginally at least short-term a couple of elements of taxation. But I think that's a best and bigger question every city will face in terms of how quickly the revenue base comes back, and how they want to deal with that from a structural standpoint, particularly given some of the social equity and economic equity issues that are arising on a nationwide basis.

So we're saying as close touch as we can with the city leadership, certainly very much focused on articulating a point of view that the best pathway to economic growth is a job and ensuring that Philadelphia has a reasonable platform for job creation. But that's a much broader discussion of which I'm not even sure what all the issues are Bill. So what we're saying is close touch with it and Philadelphia had been on a very good economic growth plan with job creation, employment growth, and we're certainly hoping that once we get pass these hurdles presented by the virus that we can get back on that.

Bill Crow -- Raymond James & Associates -- Analyst

Thanks for the time. I really appreciate it.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Thank you.

Operator

Thank you. Our next question comes from Jamie Feldman from Bank of America. Your line is open.

James Feldman -- Bank of America Merrill Lynch -- Analyst

Great. Just a quick follow-up. Just can you give us your views, just the expenses of any kind of changes to buildings that tenants may require coming out of this pandemic. I know, and the answer to my prior question, you talked about certainly a moving space -- moving desks farther away partitions, I assume that's not very expensive, but there is anything maybe that you found since the last time you -- since the last quarter when we talked about this that is a meaningful change. And then also as you think about your new building designs, anything coming out that it seems like it would be a standard inclusion in the new building that wasn't necessarily there before.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Yeah, great question, Jamie. Hey, on the operating front, look, fortunately, we've always had a real big focus in our company on MEP and all the mechanical systems. So we were able to really upgrade our filtration systems with really very little cost [Indecipherable] pennies per square foot. We are able to do things with our stairwells and other kind of common areas to facilitate better pedestrian flow. So we actually really have an experienced, call it significant structural cost increases to make our building safe and healthy. We are looking at are there situations where we can use UV technology, even improve the filtration systems, is there -- are there robotic cleaning techniques we can use that got a some cost upfront but less cost going forward. So we have a great operating team that works up through George. It's looking at a whole range of different options. Then maybe you can amplify the second.

And then on the design standpoint, we have gone back and take a look at all of our development projects and identified where we think we can -- we should be thinking. Some of those relate to -- I'll give you a good example, Jamie, in a couple of our buildings, we're really taking a hard look at the size and speed of elevators. People are concerned about getting in elevators. And so there's easy fixes we can have thereby dramatically increasing air flow in those elevators, but there's also opportunities to either double-stack or increase the size of cabs or increase the speed and using destination technology create environments where you really do have a touches environment. So for example at FMC Tower, our elevator systems were always destination, we've reprogrammed then that you just wave your security card to get into the building, you don't touch anything, you just get up here and you wave security card in front of the screen, it tells what elevator to get in and to get off and you're up. We think that's the way of the future, we've kind of moving away from revolving doors in some of our new buildings to sliding doors. So again there is more of a touches environment.

Looking at reconfiguration of some of the lobbies. Certainly, moving to more of a well building standard versus just lead and looking at opportunistic where we can kind of create indoor-outdoor space is that provide much more fresh air. But I think that's a big topic, Jamie, within just the architectural community as well. So I know the Council for tall buildings is looking at a number of different iterations to kind of think about the workplace and the apartment project of of post-COVID world.

George D. Johnstone -- Executive Vice President of Operations

Yeah, Jamie, I think just in terms of the cost, I mean, given the size of the building, the sophistication of the systems, I mean, we were looking at anywhere from half a penny a square foot to kind of $0.03 a square foot depending again on how much additional filtration changes we need to make in the like. But, again, relatively inexpensive spend offset by some other savings that we are able to generate while density and occupancy within the buildings was lighter during the second quarter.

James Feldman -- Bank of America Merrill Lynch -- Analyst

Okay, thanks. And as you think about this, the new design, I mean, what does that do to construction costs? Is it meaningful change?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

That's not a meaningful change. And I think one of the things you are seeing, I alluded to in my comments, Jamie, was that a lot of forward pipeline, construction pipeline seems to be dissipating. I mean, look, if you take a look at a Philadelphia, I mean 41% of our employment bases in eds and meds. There have been large building campaign programs by a lot of the anchor institutions, some of with what's going on in the academic and healthcare world, we see some of that slowing down. That creates a bit of a window of opportunity for us to get marginally better pricing. So where we priced up some of these changes, they've not been so significant in scope that they've created any material upward pressure on our hard or soft costs.

James Feldman -- Bank of America Merrill Lynch -- Analyst

Okay. All right. Thank you.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Thank you, Jim.

Operator

Thank you. Our next question comes from Daniel Ismail from Green Street Advisors. Your line is open.

Daniel Ismail -- Green Street Advisors -- Analyst

Great. Thank you. Based on your mark-to-market results and guidance for the rest of the year, it doesn't appear there has been a material change in the rental rate environments or your expectations for change in the rental rate environments, is that accurate? And also can you touch on the concession environment as well?

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

That is accurate. And I know there is a tremendous amount of commentary out there that the office rental rate market will decline and there was an increase in overall national vacancy in the second quarter as you would expect. But Danny, we have not seen that at ground level at all. It doesn't mean it won't happen. I mean, I think, certainly there is a prospect for more sublease space over the next couple of years, but again that's a prospect. We haven't seen that. I think -- if you think even on this early renewal program, I think we were pretty happy that we were able -- we weren't really getting companies coming back and saying, "hello, renew for another two years but reduce my rent by 10%." The leases we have in process and frankly the leasing activity we've gotten done has had really no COVID price concessions at this point. But, George, maybe fill in the blanks.

George D. Johnstone -- Executive Vice President of Operations

Yeah, I mean, I think, in Austin in particular continue to see great levels of rent growth again not -- nothing yet that seems to be COVID impacted. Most of our CBD Philadelphia rents still growing at a good pace. And a lot of the activities this quarter was along the lines of renewal. So we haven't really even seen the impact if there's going to be a significant one on kind of tenant improvement as it relates to news. But again, I think that will really come down ultimately to existing conditions and how much of that ultimately needs to be potentially demoed and then kind of built from new depending on whether it's going to be an heavy office environment or more of an open-air workstation environment.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Yes, I mean, look, I think there is certainly the possibility of some of those things happening. So I don't want to say that we're not focused on those. We just haven't seen any direct evidence. We haven't had discussions with brokers who have indicated that they're going to be looking at along those lines. And I do think that and this would apply, not just a Brandywine but I think that a number of our public company peers that have really good asset basis. I do think there is going to be a continued focus on the part of tenants to really upgrade their office stock. And even the point that George was talking about in terms of our ability to upgrade our MEP systems, that has value. And I think there is certainly a lot of office buildings in this country that don't have the same capacity that some of the higher quality owners have within their existing portfolio. So we do expect to see and are beginning to see some of the signs of tenants who are kind of in B-quality buildings, looking to move up the quality curve, because they need to deal with their employee base is looking for a comfort from them that they are operating in a safe and secure and healthy work environment. So we'll add all of those things a list of TBDs over the next couple of quarters.

Daniel Ismail -- Green Street Advisors -- Analyst

Makes sense. Thanks everyone.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Great. Thank you very much, Danny.

Operator

Thank you. And that does conclude our question-and-answer session for today's conference. I'd now like to turn the conference back over to Jerry Sweeney for any closing remarks.

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Great. Thank you very much. Thank you all for joining our call. I'm sorry, we ran a little bit longer, but I know there were a lot of really good questions. We look forward to give you an update on our business plan on our third quarter call, and in the meantime, please stay self, healthy and as engaged as you possibly can. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 81 minutes

Call participants:

Gerard H. Sweeney -- President, Chief Executive Officer and Trustee

Thomas E. Wirth -- Executive Vice President and Chief Financial Officer

George D. Johnstone -- Executive Vice President of Operations

Steve Sakwa -- Evercore ISI -- Analyst

James Feldman -- Bank of America Merrill Lynch -- Analyst

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Emmanuel Korchman -- Citigroup -- Analyst

Michael R. Lewis -- SunTrust Robinson Humphrey, Inc. -- Analyst

Omotayo Okusanya -- Mizuho Securities USA, Inc. -- Analyst

Bill Crow -- Raymond James & Associates -- Analyst

Daniel Ismail -- Green Street Advisors -- Analyst

More BDN analysis

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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

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