Good day. Welcome to the Cousins Properties Incorporated Fourth Quarter Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Pam Roper, General Counsel. Please go ahead.
Thank you. Good morning, and welcome to Cousins Properties' Fourth Quarter Earnings Conference Call. With me today are Colin Connolly, our President and Chief Executive Officer, Richard Hickson, our Executive Vice President of Operations, and Gregg Adzema, our Chief Financial Officer. The press release and supplemental package were distributed yesterday afternoon as well as furnished on Form 8-K. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. If you did not receive a copy, these documents are available through the quarterly disclosures and supplemental SEC information link on the investor relations page of our website. Please be aware that certain matters discussed today may constitute forward-looking statements within the meaning of federal securities laws.
Actual results may differ materially from these statements due to a variety of risks and uncertainties and other factors, including the risk factors set forth in our annual report on Form 10-K and our other SEC filings. The company does not undertake any duty to update any forward-looking statements, whether as a result of new information, future events, or otherwise. The full declaration regarding forward-looking statements is available in the supplemental package posted yesterday, and a detailed discussion of some potential risks is contained in our filings with the SEC. With that, I'll turn the call over to Colin Connolly.
Thank you, Pam, and good morning, everyone. 2019 was an extraordinarily productive and busy year for Cousins. We transformed the company with the TIER REIT merger, and we now own an unmatched portfolio of trophy office properties in the premier submarkets of Atlanta, Austin, Charlotte, Dallas, Tampa, and Phoenix as a result. Throughout the year, we also announced a series of compelling transactions, including the Norfolk Southern headquarters project, the value-add acquisitions of 1200 Peachtree and Terminus, and the Truist headquarters lease at Hearst Tower. The team's hard work is driving strong financial results, as highlighted in our fourth quarter earnings release. We delivered $0.73 per share in FFO before transaction costs. Operationally, we leased 562,000 sq ft in reported cash, same property NOI growth of 6%, and cash second-generation leasing spreads of 12.6%. These metrics are among the best in the office sector.
Overall, we exceeded our expectations, aside from an increase in G&A expenses directly attributable to our strong share price performance during the quarter. As we begin 2020, the economy remains strong and businesses continue to add jobs. Office fundamentals remain healthy, with steady demand for new space and measured increases in new supply. Cousins is exceptionally well-positioned to gain momentum from these trends and to create value for our shareholders. I will highlight why. First, our Sun Belt markets are among the strongest in the United States . Recent census data highlights a meaningful migration from the Northeast, Midwest, and California to the Sun Belt. This significant population shift is translating into strong office using employment growth in our markets. For Baird, office employment growth in our core markets has exceeded the national average by 100 basis points.
Boosted by these tailwinds, Austin, Charlotte, Tampa, Atlanta, and Phoenix are all among the top markets across the country with strongest rent growth, according to CoStar. Second, we own the leading Sun Belt portfolio in the office sector. To illustrate the quality of our properties, 100% are Class A, 78% are near mass transit, and the average year built is 2002. As you would expect, this trophy portfolio commands premium rents. For example, asking rents in our Austin and Atlanta assets are 37% and 26% higher than their respective Class A market averages. The weighted average in-place gross rent in our portfolio now stands at $37.44 per sq ft, which is substantially above our Sun Belt peers. Third, we possess a rock-solid balance sheet that provides meaningful financial flexibility. We finished the quarter with a net debt to EBITDA of 4.55x .
Additionally, approximately 80% of our portfolio is unencumbered, and we currently have approximately $765 million of liquidity. Given the strength of our markets, our portfolio, and our balance sheet, Cousins is poised to drive both organic and external growth. To highlight, our 2020 earnings guidance assumes 5% same property NOI growth. Further, just last night, we announced that we had commenced construction on 100 Mill in the Tempe submarket of Phoenix. The project is 44% pre-leased to a Fortune 100 company and a professional services firm. We look forward to sharing company specifics in conjunction with our customers' lease announcements in the coming weeks. Currently, our development pipeline now totals $565 million and includes 1.5 million square feet of office space that is 80% pre-leased. Beyond our existing pipeline, we own a land bank that can support 3.4 million square feet of new office development across our footprint.
Notably, large corporate interest in The Domain in Austin remains strong. Domain 9, which would total approximately 330,000 sq ft, is likely our next near-term opportunity. Switching gears to transaction updates, Truist, as we previously disclosed, has executed its option to purchase Hearst Tower for a gross price of $455.5 million. Closing is scheduled for March 31st. Woodcrest, the small New Jersey asset we acquired through the TIER merger, is under contract and scheduled to close this month. Given we are under a confidentiality agreement, we are unable to provide more details until the transaction is completed. Lastly, as we disclosed in our earnings announcement, our partner in Gateway Village in Charlotte has triggered its purchase option to acquire our 50% interest for a gross price of $52.2 million.
As highlighted previously in our quarterly supplemental and our annual 10-Ks, the purchase price and the option is based on a 17% IRR on Cousins' invested capital. Closing is scheduled for March 31st. Over the life of the venture, which commenced in 1998, Gateway Village is projected to generate approximately $80 million in profits to Cousins on our initial $10.6 million investment. This has been a home-run development by any measure. With these dispositions scheduled to close during the first quarter, our current development pipeline and our recent Terminus acquisition are fully funded. No additional asset sales are required to maintain our leverage targets. Lastly, I want to highlight the value proposition at Cousins one more time. In today's market, we appreciate that investors are searching for growth, both in terms of NAV and FFO. In some instances, these can be competing goals.
At Cousins, however, we are well-positioned to do both. We own an unmatched portfolio of trophy office towers across the Sun Belt. We have the right properties and the right locations to meet growing customer demand. In addition, our well-leased development pipeline is both a source of tremendous value creation and long-term stabilized earnings. In total, our current pipeline is projected to deliver annualized NOI of approximately $73 million upon projected stabilization in 2022. In conclusion, the team at Cousins is excited to capitalize on the compelling opportunity in front of us, building the preeminent Sun Belt office REIT. While this strategy may sound simple, we believe that it is unique and compelling. With the merger behind us and solid fundamentals in our markets, the ingredients are in place for a strong and productive 2020.
Before turning the call over to Richard, I want to thank the Cousins team, which continues to work tirelessly in all of our markets. I recognize and appreciate your talents and passion for the company. Richard?
Thanks, Colin. The 2019 operating year at Cousins ended on a strong note. Our team completed 562,000 sq ft of leasing in the fourth quarter, bringing our total annual leasing activity to over 3 million square feet. This is the highest annual leasing activity in our company's history as a dedicated office owner. While our 2019 activity included two notably large and unique leases, both with Truist in Charlotte and Norfolk Southern in Atlanta, the balance of our activity during the year was economically solid and broad-based across all of our core markets. Rent growth was especially strong in the fourth quarter, with second-generation net rents increasing 25.5% on a GAAP basis and 12.6% on a cash basis. Our total office portfolio ended the quarter at a solid 93.6% leased, with weighted average occupancy of 90.1%, both essentially in line with the prior quarter.
The same property portfolio percent leased and weighted average occupancy were both 1% higher at 94.6% and 91.1%, respectively. The current fundamentals in all our core markets remain positive. Fourth quarter and full-year Class A net absorption were positive across the board, with Charlotte and Phoenix posting record or near-record absorption for the full year. Occupancy and rent growth in our markets continue to outperform national averages and are largely consistent with what we experienced during the first three quarters of 2019. The same holds true for job growth. According to recent Citi Research , year-over-year employment growth in each of Cousins' core markets was well ahead of the U.S. average of 1.4%.
Tampa and Atlanta posted favorable annual employment growth of 2.2% and 2.3% respectively, while our other Cousins core markets experienced even higher employment growth, between 2.9% and 3.4%. According to CBRE, global centers of technology like those in business-friendly Texas and high-growth Southeast metros are once again expected to be the top markets for office using jobs growth in 2020. CBRE also forecasted Austin to have the highest percentage job growth in 2020 of any U.S. market. On the supply side, while all our markets are still experiencing growth in new supply, we are tracking activity levels the closest in downtown Austin and Midtown Atlanta. However, we still view the amount of supply under construction in these more active submarkets as manageable relative to stock, and at an overall healthy lease status relative to the stage of completion. Midtown Atlanta is a particularly interesting case.
By our estimate, 3.7 million square feet is currently under development in the core of Midtown. It collectively stands at about 59% pre-leased. Local market chatter, however, indicates that a substantial amount of the remaining available Midtown space could be leased or encumbered by a handful of large users in very short order. The coming months will be telling. If this is any indication, demand appears to be keeping up with supply. We estimate that downtown Austin has about 3.4 million square feet underway that stands at about 51% pre-leased. Per JLL, the entire Austin market has absorbed almost 11.6 million square feet since 2013. This is compared to 10.1 million square feet of new supply in that same timeframe. This is clearly a very strong track record of absorption. All indications point to continued healthy demand in the Austin market.
Now I'll turn to some specifics on Cousins' performance. Fourth quarter leasing activity in our 7 million square foot Atlanta portfolio was once again robust, with over 210,000 sq ft of signed leases with solid rent growth. Our Atlanta portfolio ended the quarter at a healthy 91.2% leased, in line with the prior quarter. Similar to the third quarter, 90% of our activity was in Buckhead. Atlanta leasing included a 78,000 sq f t renewal and expansion of Jones Lang LaSalle at 3344 Peachtree and a 48,000 sq ft new lease with QGenda at Terminus. We also completed 24,000 sq ft of leasing at Buckhead Plaza this quarter. As we have noted in the past, in-place rents at this particular project are well below market, which has created some near-term pressure on occupancy as some of our expiring customers have simply been priced out of the project.
However, d emand from new customers has been encouraging, and we feel good about our ability to stabilize the project with much higher in-place rents. Additionally, w e've also kicked off an exciting new reinvestment in the project focused on upgrading all exterior and ground floor common spaces. Feedback on our plans from our customers and the market has been fantastic so far, and we are excited about the momentum this should provide to our already encouraging leasing activity. Our Phoenix team also delivered a strong 204,000 sq ft of leasing activity in the fourth quarter. It included an important strategic 126,000 sq ft early renewal and 63,000 sq ft expansion of Silicon Valley Bank at Hayden Ferry.
We view this commitment by SVB as a strong endorsement of Hayden Ferry and the downtown Tempe submarket and think it bodes well for the ultimate success of our new 100 Mill development, which again is already 44% pre-leased. Per CBRE, Class A vacancy in the Tempe submarket is still running under 5%. Our Phoenix operating portfolio ended the quarter at 97.6% leased, up from 94.2%. Austin was also active again this quarter, which should persist if in-migration and job growth in Austin continue to spike. Our 4 million square foot portfolio, which is well diversified across the CBD, Domain, and Southwest submarkets, ended the quarter at 95.8% leased. Our Austin team signed leases totaling 70,000 sq ft, including an important renewal of Broadcom at The Terrace. Once again, Austin delivered remarkable second generation cash net rent growth, coming in at 34.7% for the quarter.
Our other core markets of Charlotte, Tampa, and Dallas are also performing well. Our teams in these markets executed 73,000 sq ft of leasing this quarter, and each one of these portfolios ended the quarter at over 95% leased. Lastly, I want to note that our team is very focused on proactively backfilling our larger pending vacancies at Bank of America Plaza in Charlotte and 1200 Peachtree and 3350 Peachtree in Atlanta. While we get back four floors at Bank of America Plaza during this calendar year, we do not get possession of the lion's share of the pending vacancy at this building until the end of December 2020. Possession of the other two Atlanta pending vacancies will occur in the latter half of 2021. We view all of these as great value creation opportunities.
As you will recall, we acquired the first two of these properties during 2019. They were underwritten with full knowledge of these future move-outs. All three of these properties enjoy prominent locations in their respective amenity-rich urban submarkets and are within easy walking distance of, if not directly adjacent to, public transit. In short, all three of these fit perfectly within our long-stated strategy. Our teams in Atlanta and Charlotte are extremely optimistic and excited to execute on these leasing opportunities in the coming year and beyond. With that, I'll turn the call over to Gregg
Thanks, Richard. Good morning, everyone. I'll begin my remarks by providing an overview of our financial results, including same property performance, followed by a discussion of our balance sheet, before closing my remarks with revised 2020 earnings guidance. As you can tell from Colin and Richard's comments, our fourth quarter results were outstanding on many fronts. FFO was $0.73 per share, excluding TIER transaction costs, which represent a 9% increase over last year. Beyond FFO, the important operating metrics that both you and we focus on were also very strong. Leasing velocity was solid. Second-generation leasing spreads were positive. Same property, year-over-year cash NOI increased for the 32nd consecutive quarter. Included in this quarter's results are three items I'd like to highlight before providing some color on our same property portfolio.
First, our general and administrative expenses during the fourth quarter were $11 million, and they were $37 million for the full year, significantly higher than our guidance for the full year of $33 million. Our recent strong share price performance, clearly a positive development, is behind this variance. The other components of G&A were in line with our forecast. This isn't the first time we've reported a large variance in our G&A expenses. This volatility is driven by the fact that our long-term incentive compensation program is heavily weighted toward performance-based RSUs, which ensures management's interests are aligned with our shareholders. These RSUs have historically settled in cash and must be marked to market each quarter. Beginning with the units granted this year, these performance-based RSUs will now settle in stock, which will significantly reduce their quarter-to-quarter impact on G&A.
This change will put us in line with our office peers who also use RSUs. We're leaving all previously issued RSUs unchanged, and since our performance-based RSUs cliff vest after three years, it'll take a couple of years for the full impact to run through our financial statements. However, the volatility will begin to decline immediately. Second, I'd like to discuss some non-core land sales. In general, the likelihood and timing of land sales can often be difficult to predict with any accuracy, and we saw this uncertainty play out during the fourth quarter. When we provided guidance back in October, we assumed a sale of a remaining land at the Wildwood development during the fourth quarter. Instead, we ended up selling our remaining land at the Northpark development during the fourth quarter.
Subsequent to quarter end, we've also now sold the Wildwood land, and we've adjusted our 2020 forecast accordingly. Third, the sale of our Woodcrest asset also slipped from the fourth quarter of 2019 to the first quarter of 2020. As Colin said earlier, this property is under contract and scheduled to close later this month, and our 2020 forecast has been adjusted. Moving on to our same property portfolio. Year-over-year NOI was up 6% during the fourth quarter, driven by 5.1% revenue growth. For the year, cash NOI was up 4.8% over 2018. Taking a step back to look at the longer-term trend, year-over-year cash NOI increased 4.7% in 2018, 4.8% in 2019, and is forecast to increase 5% in 2020. Not only are these great numbers, they're accelerating, clearly validating the continued strength of our Class A assets and our Sun Belt markets.
Turning to the balance sheet, our fourth quarter net debt to EBITDA ratio was 4.55x . This was up from last quarter, driven by the purchase of our partner's interest at Terminus. As Colin laid out earlier, we'll sell several assets during the first quarter, and when we report again in April, our net debt to EBITDA ratio will be considerably lower. As a reminder, over time, we have managed our net debt to EBITDA between 4 and 4.5x , and we've generally run the company within this range since 2014. With that, I'll close by updating our 2020 earnings guidance. We currently anticipate FFO between $2.72 and $2.86 per share. This is up from our previous guidance of $2.71-$2.85. All the assumptions behind this guidance are unchanged from the guides we provided in October, except for the following.
First, we anticipate G&A expenses of $32 million-$34 million, net of capitalized salaries. This is down from our previous guidance of $33 million-$35 million. Moving on, we anticipate interest and other expenses, net of capitalized interest, of $68 million-$70 million, down from the previous range of $69 million-$71 million due to an increase in capitalized interest. Next, we anticipate a $1.4 million gain from the remaining land sale at Wildwood that I discussed earlier. Finally, we've added the sale of Woodcrest and Gateway Village to our guidance, as well as the commencement of development at 100 Mill. With that, I'll turn the call back over to the operator.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch- tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. The first question comes from Jamie Feldman from Bank of America Merrill Lynch. Please go ahead.
Great. Thank you. I want to go back to your comments on some of the move-outs, BofA Plaza , Peachtree buildings. Can you just talk about leasing prospects for those buildings? Then, Colin, when you started talking, you said a couple of times that Cousins is poised for growth here and NAV accretion, but how should we think about the drag on earnings growth for some of those spaces as we think about next year?
Well, Jamie, good morning. Again, as we look at those move-outs, we continue to be extremely optimistic about our prospects to backfill that space. Like other properties in our portfolio, they are the Bank of America project in Uptown Charlotte, the 1200 Peachtree building in Midtown, and the 3350 building, where Anthem will be moving out next year, are all in absolutely terrific sub-markets. They're extraordinarily well located, all in close proximity to mass transit. We've discussed the overall trends in our markets and really being boosted by this migration that we've seen from the Northeast to the Southeast. We feel very good about the prospects to backfill that space like we've done on others at Terminus and like we did at Hearst Tower with Truist.
As we get closer to actually having that space back, I think we've got a tremendous opportunity to backfill that and stabilize those properties. Kind of bigger picture, as you think about earnings drag, as I mentioned in my remarks, we're obviously focused on both driving and creating FFO growth and NAV growth. We think that we're doing that. If you really look at the Cousins strategy, it's kind of multifaceted, where we've got our existing portfolio, which continues to perform extraordinarily well and deliver growth. At the same time, we have got this fabulous development pipeline that will deliver ultimately over $70 million of stabilized NOI as we get into 2022, which will more than offset any dilution from downtime associated with these particular customers.
As we look at those 1200 Peachtree as an example, we bought that because it's in a great location, and we bought it at a 50% discount to replacement costs. I think if we looked at our alternatives, knowing that they were moving out, we could have bought a stabilized asset at a much higher value and a much lower yield. We think this is a terrific opportunity for our team to do what it does best, which is to reposition and stabilize a fantastic asset. We'll create a lot of value. In doing so, we'll also create long-term earnings growth at 1200. Again, I think this development pipeline that we've got is so powerful and really affords us some of that additional NOI to offset any move-outs that we might have.
Okay, that's helpful. I guess for BofA , you're saying you're not marketing it yet, even though you know they're moving out? Is that the right way to read what you said?
Yeah. Jamie, this is Richard. No, we're absolutely already marketing it. The market in Charlotte has been aware of this move-out for quite some time. It's very well- known. I would say, obviously, this one is the earliest of the three that we've kind of talked about here today already, with the bulk of that coming back at the end of 2020. We're already getting some good looks and inquiries from both large users that would take multiple floors, but also just more kind of bread-and-butter prospects that would take partial floors. We're all over it. The team is actively working on leasing that space up today.
How would you compare the total pipeline of demand versus the space you have to lease in terms of magnet, in terms of size?
Jamie, there's a lot of different, as Richard said, users, both big and small. Some of those larger users are looking at multiple markets. Sometimes that can be hard to quantify. Again, if you just step back and look at the activity in Charlotte, and particularly Uptown, over the last kind of 12, 24 months, obviously, we've talked about the Truist leases. We did over 500,000 sq ft. Honeywell has announced that they're moving their corporate headquarters from New Jersey to Uptown Charlotte. Lowe's has just announced that they're going to do a sizable transaction as they move from the suburbs to more of an urban orientation. I think if we had the space at Bank of America today, that we would have absolutely been in the mix for some of those opportunities.
I think that, again, gives us great confidence as we look forward to over the next year or two, as we get that space back, to have similar opportunities.
Okay, last for me, if you look at page 18 of the supplemental, your NOI is 33% Atlanta, 23% Austin, 17% Charlotte. How do you think about the mix of those two markets when you just think of geographic diversity going forward?
Yeah, Jamie, we've been very intentional to build some geographic diversification across the best markets of the Sun Belt. If you went back several years ago, we were probably a bit over-represented in Atlanta, at some points over 50%. So we have, I think, created really-attractive diversification today. As you look across the Sun Belt, in terms of markets to have a meaningful investment, Atlanta, Austin, and Charlotte would be all up near the top of the list. In fact, I think if you look at ULI's recent rankings of most attractive markets in the office sector in 2020, all three of those fare very well. We absolutely like our position and the size and scale that we've got in those markets.
At the same time, we'll continue to look for opportunities to grow in our other markets. As we discussed earlier, we announced the start of 100 Mill in the Tempe sub-market of Phoenix, and we've got a terrific site to build the fifth building in Tampa at Corporate Center. We've got a couple really terrific sites in Dallas. We'll continue to grow in our other markets. To have anchor positions of the quality that we do in Austin, Atlanta, and Charlotte, I think it's a great position to be in.
Okay. You don't feel the need to shed any assets in those markets to bring those numbers down?
We do not.
Okay. All right. Great. Thank you.
Thank you, Jamie.
The next question comes from Anthony Paolone from JPMorgan. Please go ahead.
Yeah, thanks. The relocation trend's been underway for a while in your markets, but it just seems like every day there's another announcement. Can you just talk about anything that's surprising you or that's different as you talk to users as it relates to either sub-market preferences, type of space, price sensitivity, or otherwise?
Sure. Good morning, Tony. We agree with you. I think that trend is continuing, and if anything, it's accelerating. As we talk to potential customers, CEOs at these companies as to what's driving their decision, it's obvious that the kind of lower cost of doing business, lower taxes, less regulation in the Sun Belt are obvious reasons. At the same time, I think one thing that's been a little bit of a surprise in the feedback that we've received is these companies recognize and appreciate that the best sub-markets in the Sun Belt have rapidly urbanized. There's a very vibrant community, a mix of uses, and as these sub-markets like Midtown Atlanta and Downtown Austin have continued to grow, I think CEOs recognize that these are highly attractive destinations for their employees that can offer a similar lifestyle that you might find in Manhattan or San Francisco.
We think that will continue to accelerate. As companies make the move, I think it gives other companies the confidence to do that as well as they see the success that companies like Amazon and NCR and others are having in their recruiting. We think that trend will continue and play very favorably to our portfolio. I think they have tended to focus on higher-quality space, where we oftentimes discuss the flight to quality that's taking place. As you look at the statistics, it certainly proves that out, that the Class A properties are faring better from a demand. I think, again, it comes back to companies are focusing on recruiting and retaining talent and have recognized that that overall cost is outweighing the specific real estate cost expense.
Okay. Thanks for that. Another question. On Domain 9, you mentioned potentially that being up on deck next. What's the gating factor for starting that? Would you do it on spec, or do you need a pre-lease? What's the decision there?
Yeah, Tony, as it relates to development, we're project by project, in terms of our decision to move forward with speculative space or a pre-lease. As it relates to Domain 9, our team has appropriately taken some time since closing the merger to get our arms around The Domain, understand the design and construction of that project. I think they've done a really nice job of taking the original design and adding a few elements as it relates to amenities that we think will be attractive to users. We're excited about the project. I think if you look at the overall demand in The Domain and how tight the market is, I think we've got a lot of confidence and are bullish to move forward with that project. Hopefully, we'll have some good news to share in the not-too-distant future.
Okay. Thank you.
The next question comes from Blaine Heck from Wells Fargo. Please go ahead.
Great. Thanks. Good morning. Just to follow up on the shadow development pipeline, I think on previous calls, or in previous conversations, Colin, you've talked about being happy with your land holdings in most markets, but you've noticed that you're a little light or actually, I think, out of land in Charlotte. Just given how hot that market is right now, I wanted to see if there was any update on your search for land. Any commentary you can give on whether you're just looking for that land in infill sub-markets, or would you look in some sub-markets that might be more kind of up and coming?
Yeah. We continue to believe at Cousins that it's important for us to have a very attractive land bank to position ourselves when those next customers show up looking for a new trophy space. As we look forward, Charlotte, as I mentioned in the past, is clearly a market that now that we've delivered the Dimensional Place project, we do need to acquire a site to position ourselves, and our team is actively working that on multiple fronts, multiple pieces of land, and I think we're very encouraged that in the relatively near future, we'll be able to position ourselves the right way in Charlotte. I do think that as we look for land, it will, I think, continue to be in the type of sub-markets that we're invested today. Those are the urban and well-amenitized sub-markets in Charlotte. That's absolutely Uptown and the South End.
There are also some other, as you mentioned, up-and-coming sub-markets that have got really attractive amenities, and so I think we'll look for opportunities in those type of sub-markets as well.
All right. That's helpful. Then, just a second one for me, maybe for Richard or you, Colin. It looked as though the concession ratio or your leasing costs per square foot as a percentage of the rent per square foot on the leases you guys did this quarter increased quite a bit. Obviously, that's going to bounce around from quarter to quarter based on the mix, but I wanted to see whether there were any specific leases that drove that increase. Just in general, can you comment on any recent movement you're seeing in your markets with respect to TIs or the free rent needed to attract a tenant?
Yeah, that's a great question, and you're right. It did pop up as a percent of our rents in the fourth quarter. Your point about trying to compare sequentially quarter to quarter is difficult because of the mix, because of the geography of where the leasing is taking place. I'd say high level, across the board, we do still see pressure in construction costs. That is a factor and something we've talked about before, and it is continuing. We're continuing to work through that. Generally, over time, we've found that we've been able to address that through whether it's trading it off with free rent or getting higher rates so that it's kind of held our net effective rents fairly stable, if not continuing to increase. I think over time, our hope is that that will still be the case.
As far as specifically in the fourth quarter, a couple of things I'd note, we had a little bit of first-gen leasing in our lease mix, which tends to obviously have higher TIs as it's shell space. There were just a couple of kind of specific situations that, not to get into specific deal economics but that were unique that drove TIs a little higher. For instance, a couple of spaces that were dated enough that we needed to go ahead and demo as part of a new build-out, which just always tends to drive costs up a little bit. At this point, I would say it's not something that we'd call a trend, though, again, we're seeing that pressure in construction costs in multiple areas of our business, and we continue to feel that we're going to be able to counterbalance that over time.
Great. That's helpful. Just remind me, is the pre-leasing on 100 Mill included in those numbers?
In which numbers?
In the leasing costs and-
No, those were not in the fourth quarter.
Yes, those were put out.
That was all done this year in the first quarter.
Got it. Thanks, guys.
The next call comes from John Guinee from Stifel. Please go ahead.
All right. Great. Thank you very much. Big picture question. Gateway Village, BofA's purchasing, Truist is purchasing Hearst Tower. Do you have any thoughts on when these big banks want to own the asset and when they want to lease the asset?
John, good morning. They certainly could give you better feedback and visibility specifically than we could. What we noticed is that, and I think it's highlighted in the Truist transaction, that the very largest banks, call it the top five, top 10 banks, absolutely want to own their corporate headquarters. Outside of their corporate headquarters, I think there's been a little bit less sensitivity around that, and I think it's very specific to what the particular business unit group is and how much flexibility that they want. I think the Gateway Village purchase by our partner in that project, I think was really driven to what the underlying use has evolved to at Gateway Village. It is very much a mission-critical facility for them.
At this point, a significant portion of it is data center. I think from a security standpoint, it's important for them to control that space. I think ultimately, that drove their decision. Obviously, there's a 17%, effectively, cost of capital that I think they realized it was time for them to move forward and control that.
It looks to me like it's about a 14 cap, the Gateway Village. Your 50% interest is being bought at about a 14 cap. Does that make sense?
Hey, John, it's Gregg. It was a highly structured deal, and the purchase price of $52.2 million, it really has nothing to do with cap rates or appraisals or market values at all. It has 100% to do with just returning a 17% IRR on our invested capital. Although we are giving up about $7 million, $7.5 million in GAAP NOI on an annual basis, that's not how it was priced, and I'm not sure that's a really relevant way to look at it.
I understand. It's just priced that way. It's important to understand for people who do NAVs. Last question. Tempe, about $530 a foot. Can you describe what you're building for $530 a foot? Structured parking, below-grade parking, extra parking, big land bases? How do you get up to over $500 in Tempe?
Yeah, sure, John. Just actually, going back to your last question, I think one thing that's important to note as it relates to Gateway, and as Gregg mentioned, we'll lose some NOI from that. At the same time, even with that disposition, we were still able to raise our 2020 guidance, which I think is really powerful. Moving over to Tempe. You're right, the cost per square foot of that project is over $500 a foot, which is certainly a bigger number as you compare it to similar-sized projects at The Domain. I think in particular, what's driving that cost at the 100 Mill project is really twofold. One, it's a smaller, tighter labor market, and that drove the cost of some of those trades.
Then, that particular project, we are building some underground parking, and that is really required by a height restriction in Tempe, given its proximity to the commercial airport. I think importantly, even with the higher cost per square foot, our customers were ultimately comfortable with the rent that justifies that cost. We'll deliver that project at very similar returns to the other parts of our development pipeline.
My recollection is you're still showing Domain at the TIER basis in the dirt and their development. This one, are you showing it fair market value for the dirt, or what you paid to acquire the dirt with the TIER merger?
Are you referencing 100 Mill?
Yes.
100 Mill is a legacy Cousins' project.
Oh, I forgot. Sorry. I stand corrected.
Yeah.
Great. All right. Thanks a lot.
Thank you, John.
All right. Enjoy.
Again, if you have a question, please press star then one. The next question comes from Dave Rodgers from Baird. Please go ahead.
Yeah, good morning. Colin, I heard your comments earlier about FFO and how the development will offset the move-out. I guess maybe turning to some of the asset sales that you might consider to be non-core, BriarLake , Burnett Plaza, and markets or assets you don't want to own. How do you think about balancing the dilution of having to kind of sell those, versus the move-outs of the developments and the timing and not keeping your fate kind of tied to some of those non-core assets?
Well, Dave, we have worked really hard to get the balance sheet in a terrific position. Where we sit today, we really feel no pressure to make any additional dispositions to fund the current development pipeline, or again, the recent purchase of our partner's interest at Terminus. I think over time, as we identify compelling new investment opportunities to expand the development pipeline or other strategic property acquisitions, we can always look to non-core assets as a source of capital to fund those. We'll evaluate those decisions as those new investment opportunities come along. In the meantime, the assets that you referenced, there continues to be some opportunity to drive value at BriarLake , and some leasing to do. We feel no pressure. There's no immediate need to just sell. Again, I'm confident over time, our team will do a terrific job identifying new opportunities.
That, over time, could likely lead to sales to match fund new investments.
Thanks for that. With regard to 100 Mill, can you talk about the joint venture? I don't remember how that joint venture came about, if they had some ownership in the land, and kind of why you moved forward in a joint venture there.
Sure, Dave. It's a 90/10 structure, and we do have a page in our supplement that outlines kind of the basic structure of those deals. It's very similar to 100 Mill as to our structure with Hines at Avalon. Really, the rationale behind it, Hines is a terrific team. We've had a great experience working with them at Avalon. As we looked at executing the project in Tempe, we've got a terrific team on the ground in Tempe. We do not have any development or construction personnel on the ground, and Hines does. So we felt like bringing the two organizations together with our leasing team there and our operations team and Will Creyer as our Managing Director, I think it's a really good relationship to leverage Hines local development and construction expertise.
Okay. Two more quick ones from me. What made the Northpark land non-core for you guys? You obviously like that asset quite a bit. The last question would just be, maybe for Richard on NASCAR, now that they're kind of under a year in terms of expiration, have you given any updates on their potential fate?
The land at Northpark that you referenced is a legacy holding for quite some time, and it really is a suburban piece of property that I think over time, I wouldn't be surprised if the new owner of that ultimately delivers something outside of office. It's probably the highest and best use, so for our core business today, it just didn't make sense for us to continue to own that.
Yeah, in terms of answering your question on NASCAR, it is a little over a year out, maybe pushing a year and a half. We're already talking to them, as you might imagine, and engaged in discussions. It's still a little early for them, though. I'd say that just looking at that situation in general, it's a great building. This does represent NASCAR's headquarters. The building is named NASCAR Plaza, and the Hall of Fame is connected to it. We feel good that that situation continued to evolve in a positive way.
Great. Thank you both.
This concludes our question- and- answer session. I would like to turn the conference back over to Colin Connolly for any closing remarks.
Thank you all for your time today in participating in Cousins' fourth quarter earnings call. The team is excited and energized for a productive 2020. We're always available over the phone if you have questions, and we'll look forward to seeing many of you all over the course of the year. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.