One of the biggest changes from the beginning of 2007 to the beginning of 2008, REIT president Douglas Linde noted was the dramatic turnaround in the credit markets. "Last year when we had this call, we were talking about the strong demand, rising rents and--most importantly--robust capital flows," the Boston Properties' chief said. This year, by contrast, Linde said "overall demand is still healthy, rents still seem to be rising, albeit at a slower pace, but the capital markets are anything but robust." He cited an example of how unpredictable those markets have become in the past year.

In November, Boston Properties locked in $525 million of underlying 10-year Treasuries at an average interest rate of about 4.63%. "Clearly, we did not anticipate the turmoil and the resulting rally in bonds or the 100-plus basis points reduction in short-term rates by the Fed that has occurred over the past 60 days," Linde said. "Consequently, it is with some caution that we discuss the impact of the current financial environment on our operating portfolio."

Although the financial markets turmoil has reduced the availability of funds and raised the cost of capital, Linde said it "has not produced any discernible impact on our operations." He summarized conditions in New York City, Boston and Cambridge, San Francisco and Washington, DC, where occupancy in general is high and demand remains strong.