Good morning, and welcome to the Cousins Properties third qu arter 2021 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 telephone keypad. 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 Pamela Roper, General Counsel. Please go ahead.
Thank you. Good morning, and welcome to Cousins Properties third 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 links on the investor relations page of our website, cousins.com. 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. In particular, there are significant risks and uncertainties related to the severity and duration of the COVID-19 pandemic and the timing and strength of the recovery therefrom. The company does not undertake any duty to update any forward-looking statement, 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. We began this third quarter with the expectation that our customers would begin bringing their teams back to the office post-Labor Day. Since then, the Delta variant hit the Sun Belt hard and created delays. However, as cases have now significantly declined, we're increasingly hearing from our customers that they plan to return toward the end of this year or early next year. We are encouraged. Our team delivered strong financial results during the third quarter. Here are a few highlights. On the earnings front, the team delivered $0.69 per share in FFO. Same property NOI on a cash basis increased 3.6%.
Importantly, we leased over 597,000 sq ft, including over 500,000 sq ft of new and expansion leases with 7.7 years of weighted average lease term and a net effective rent of $24.06 per sq ft, which is higher than our 2019 average. Second-generation cash rents increased 23.1%, our strongest rollout since 2015. We ended the quarter with net debt to EBITDA of 4.54 x. While the macro narrative around office remains ambiguous, our leasing performance highlights three office sector trends that are becoming quite clear. First, innovative and growing companies recognize that they are stronger in person, at least most of the time. In this persistent remote environment, employee attrition is at an all-time high.
Contrary to many of the media headlines, forward-thinking business leaders are connecting the dots between the Great Resignation and eroding corporate cultures. Thus, companies are firming up plans for their return strategy and making long-term real estate decisions that they were not prepared to make just a few quarters ago. Second, the migration of the Sun Belt has accelerated. Cisco, Visa, ARK Invest, and Tesla are just the latest examples. There are more in the pipeline. The rapid urbanization of places like downtown Austin, Midtown Atlanta, and the South End of Charlotte have changed the equation for companies previously located in more dense, larger cities in the Northeast and West Coast. Sun Belt cities now offer a dynamic urban experience in addition to an attractive climate and a lower cost of living and doing business. It's the best of both worlds. Lastly, the flight to quality is intensifying.
Earlier this week, I toured our recently completed Norfolk Southern headquarters project with a local business leader. His feedback? Much better than working at home, he said. It was simple and spot on. The development includes innovative collaboration space, neighborhoods for private working, state-of-the-art technology, and countless amenities, all in the heart of Midtown Atlanta. Our customers recognize that interesting and inspiring space will be a competitive advantage in retaining and recruiting talent as well as rebuilding culture and connectivity. At Cousins, we have a unique and compelling strategy that positions us at the intersection of these trends. As the market moves faster, we are responding.
Most recently, we acquired Heights Union, a 294,000 sq ft office property in Tampa for a gross price of $144.8 million. The Heights neighborhood has emerged as one of Tampa's signature gathering spots, providing a unique live-work-play experience. The two six-story buildings, which were completed in 2020, are highly amenitized, authentic, and efficient. Including Heights Union, we have invested approximately $1.1 billion in new acquisitions and development since the start of the COVID-19 pandemic. We are excited about The RailYard in Charlotte, 725 Ponce in Atlanta, Domain 9 in Austin, and Neuhoff in Nashville. They are representative of the office of the future and are all differentiated product in their respective markets.
During the same period, we have sold approximately $1 billion of non-core properties, including Hearst Tower and One South in Charlotte and Burnett Plaza in Fort Worth. The net result of these strategic transactions are value-add returns on a blended basis and a trophy portfolio positioned to capture outsized customer demand in a reduced CapEx profile. As I mentioned earlier, we have completed the Norfolk Southern headquarters project. The development was a highly profitable development for Cousins and a great outcome for our customer. A true win-win. Nonetheless, we are excited to transition to the other side of this unconventional transaction. The declining development fee stream has created challenging year-over-year earnings comps, and the 370,000 sq ft lease expiration on December 31st at 1200 Peachtree created uncertainty.
Looking forward to 2022 and beyond, our story simplifies, and we are already making great early progress on our re-leasing efforts at 1200 Peachtree, as we are approximately 40% committed, including LOIs. Richard will touch on this more in a moment. In closing, Cousins is well-positioned for the future. We have assembled a trophy portfolio in fast-growing Sun Belt markets. We have organic growth opportunities within the portfolio as we drive occupancy gains and rental rate increases. We have external growth opportunities in our $663 million development pipel ine. In addition, we have a well-located land bank that can support another $2.6 billion in development, including over 3 million sq ft of trophy office and over 1,500 multi-family units. Importantly, we have a rock-solid balance sheet that provides financial flexibility and a highly capable team to execute on the strategy.
Before turning the call over to Richard, I wanna thank our entire dedicated Cousins team, who work hard every day to bring outstanding service to our customers and their talents to our company. They are the cornerstone of the company's success. Thank you. Turn it over to Richard.
Thanks, Colin, and good morning. This quarter, we continue to see economic recovery in our core markets, and along with it, an increase in leasing and transaction activity. In short, our third quarter operational performance was strong. While the pandemic still remains and the Delta variant delayed a return to the office for some, we are encouraged by the demand for high-quality office space across our markets. Due to the Delta variant, portfolio-level utilization, as we measure it, did not significantly increase this quarter. With that said, there is noticeably more activity and energy at most of our properties compared to last quarter. This is evidenced by a 27% increase in transient parking revenue quarter-over-quarter. Turning to third quarter results, our total office portfolio lease percentage and weighted average occupancy came in at 91.3% and 89.8% respectively.
Our lease percentage increased 30 basis points this quarter, driven by new and expansion leasing activity at Terminus and 3350 Peachtree in Buckhead and at Domain Point in Austin. Conversely, weighted average occupancy declined 120 basis points with the impact of the previously disclosed move-out of Anthem at 3350 Peachtree in Buckhead. As for general leasing activity this quarter, our team and portfolio produced fantastic results. We executed 43 leases totaling 597,000 sq ft in the quarter, and new and expansion leases were accounted for 84% of total activity. Net effective rents were $24.06 this quarter, an improvement over the second quarter and $0.24 higher than our reported net effective rents for the full year of 2019.
Rent growth was outstanding this quarter as well, with second-generation net rents increasing 23.1% on a cash basis. Similar to this time last quarter, we are still seeing encouraging activity in our leasing pipeline, both for our existing portfolio and new development. Tour volume in our portfolio was on a clear upswing in the second quarter, and it has held at a consistent level since then. We are also optimistic about our Sun Belt markets' continued recovery as compared to the U.S. economy in the aggregate. According to the Urban Land Institute, every market lost jobs during the pandemic, but the recovery has been much quicker in Sun Belt markets. ULI projects that by the end of the year, those markets will collectively regain nearly all of their lost jobs. In comparison to the greater United States, which is expected to still be down almost 2%.
Now I'll speak to some specifics about current conditions and activity in our markets. I'll begin with Atlanta. According to JLL, Atlanta saw positive net absorption this past quarter for the first time since the pandemic began at 756,000 sq ft. This is an encouraging milestone. In our nearly 8 million sq ft Atlanta portfolio, we signed an impressive 299,000 sq ft of leases in the third quarter. That includes the previously disclosed 123,000 sq ft lease with Visa at 1200 Peachtree in Midtown, serving as Visa's new Atlanta office hub. We also have a final LOI in hand with another potential customer at that property for 31,000 sq ft. We view this activity at 1200 Peachtree as a strong validation of a truly irreplaceable location and quality of the to-be repositioned asset.
Another example of demand for high quality and well amenitized properties is our redeveloped Buckhead Plaza project, producing 121,000 sq ft of leasing activity year to date at record rental rates. Our overall Buckhead portfolio also produced great activity this quarter, accounting for 43% of our Atlanta leasing activity. This includes 29,000 and 50,000 sq ft of new and expansion leasing at 3350 Peachtree and Terminus respectively. At one of our newest Atlanta assets located in Alpharetta, 10,000 Avalon, we signed a 51,000 sq ft new lease after quarter end with Bakkt, a newly public financial technology company, taking the building to 99% leased. In Austin, population growth continued to be strong as ever this quarter.
Further, CoStar showed a 496,000 sq ft decline this quarter in Class A total sublease space available for lease. The unemployment rate in Austin this quarter was at its lowest since March 2020, with average asking rents in the market climbing. Our Austin portfolio is currently 95% leased, with our 1.9 million sq ft operating portfolio in the core of the Domain at 100% leased. With regard to leasing activity in Austin, we signed 236,000 sq ft of leases in the quarter, including a 73,000 sq ft new lease with a growing technology company at Colorado Tower, which will entirely backfill the expiration of Atlassian at the end of January 2022.
In Charlotte, our now 1.4 million sq ft Uptown and South End operating portfolio is well positioned at a solid 96.1% leased with very little existing space available. Like in Austin, CoStar showed that Charlotte had a meaningful 139,000 sq ft decline this quarter in class A total sublease space available for lease. According to JLL, third quarter activity was robust in Tampa, where we recently acquired Heights Union in the downtown submarket. According to CBRE's 2021 Tech Talent report, Tampa ranks 10th among the 50 largest tech talent markets, with its millennial population increasing by 14.5% since 2014.
While average direct asking rents are down 2.5% year-over-year overall, many Class A buildings in the Wests hore submarket, where the bulk of our portfolio is located, have increased asking rates to at or above pre-pandemic levels. We signed 41,000 sq ft of leases in Tampa this past quarter. The Greater Phoenix area is one of the few places in the country that now has more jobs than before the pandemic, recovering 102.6% of jobs since April of 2020. When comparing year-to-date data versus 2019, Phoenix is also the second fastest growing metro in the country behind Austin, according to the Greater Phoenix Chamber's annual economic outlook.
While our completed activity in Phoenix was light this quarter, the recovery is reflected in our pipeline, as we are currently in lease negotiations for 95,000 sq ft of new and expansion leases at our 100 Mill new development. Before handing off to Greg, I want to thank the committed and hardworking Cousins team. They continue to produce great results and deliver excellent customer service. I am grateful for all that you do. Greg?
Thanks, Richard. Good morning, everyone. I'll begin my remarks by providing a brief overview of our quarterly financial results, including some detail on our same property performance, our development pipeline, and our transaction activity, followed by a quick discussion of o ur leverage position before closing my remarks with updated information on our outlook for the balance of 2021. As you can tell from Colin's remarks, we've been extremely busy. However, we don't want all that positive transaction activity to take attention away from our very solid operating performance during the quarter. Leasing velocity in particular was outstanding while second-generation cash leasing spreads were up the most since the fourth quarter of 2015. Over the past two quarters, we've signed almost 1.1 million sq ft of leases, with almost two-thirds of that total representing new leases.
The ability to attract so many new customers to our properties is a powerful vindication of our class A Sun Belt strategy. However, it's a big decision for a company to open a new office, especially if they're coming from out of market. It's not easy. From space planning to construction management to the endless logistical details surrounding moving existing employees, hiring new employees, and establishing a new address, it all takes a lot of time. Which means the typical period between lease signing and revenue recognition is extended compared to a simple renewal. A significant portion of the new leases we have signed over the last six months do not begin revenue recognition until late 2022 or early 2023. Attracting new customers to the Sun Belt is our competitive advantage. It often just takes time for this to turn into revenue.
Turning back to the third quarter results, our same property performance continued to generate a significant and constructive change in trend. NOI on a cash basis increased a very healthy 3.6% over the last year. Excluding the single large move-out that Richard talked about, Anthem's departure from our 3350 Peachtree property in Buckhead to a new consolidated campus in Midtown Atlanta, NOI on a cash basis would have increased 5.3%. The largest variable within our same property performance remains parking revenues. After bottoming during the fourth quarter of 2020, same property parking revenues are up over 20% in the last three quarters, but still remain 20% below pre-COVID levels.
Focusing on our development efforts, one asset, Domain 10, an office property primarily leased to Amazon in the Domain submarket of Austin, was moved off our development pipeline schedule and into our portfolio statistics. While another asset, Neuhoff, a mixed-use property in the Germantown submarket of Nashville, was added to our schedule. Total development costs for Neuhoff are estimated to be $563 million, with our joint venture interest representing 50% of that amount. The current development pipeline represents a total Cousins investment of $663 million across 1.9 million sq ft in four assets. On the transaction front, as Colin laid out at the top of the call, we've been very active.
As this series of transactions has unfolded, we've maintained our net debt to EBITDA around 4.5 x, as we've done with very few exceptions since 2014. We believe this leverage profile provides both defensive support during challenging times as well as offensive firepower to execute compelling transactions when the opportunity presents itself. If and when we commence additional developments and/or acquire additional properties, you should expect us to continue to fund these investments on a leverage neutral basis over time. On the capital markets front, we closed a $312 million construction loan for our Neuhoff development joint venture during the third quarter. This new loan matures in September 2025 and includes a potential one-year extension option. I'll close by updating our 2021 earnings guidance.
We currently anticipate full year 2021 FFO between $2.73 and $2.77 per share. This is up $0.01 at the midpoint from our previous guidance. This guidance includes all the transactions that have been discussed on this call. There are no other dispositions, acquisitions, or development starts included in our guidance. The most significant variable behind our guidance remains parking revenue. Our customers continued returning to the office during the third quarter, and we anticipate maintaining this trend into year-end. Our current parking revenue assumptions reflect this outlook. With that, let me turn the call back over to the operator for your questions.
We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you're 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 Dave Rodgers of Baird. Please go ahead.
Yeah, good morning, everybody. Thanks for all the information. I wanted to start with Colin and Richard, maybe big picture question. Y ou know, I guess you guys are making a number of trades within the portfolio, upgrading, also changing some locations, changing building quality. You know, as you guys have done this research during COVID and have decided to kind of make some of these changes, what are the factors that drove that? I guess I wanna understand, a lot of the acquisitions that you've made or the potential developments seem like, I would call them boutiquey type office. But what drove you to those decisions is that, you know, historically wasn't the direction that most companies went in and kind of, you know, do you continue to expect to go that direction?
Well, good morning, Dave. It's Colin, and I appreciate your question. For us at Cousins, our investment strategy, I'd say, is firmly driven by feedback from our customers and the decisions that they make around their real estate and what's important to them as they think about kind of the right product and the right environment to go recruit and retain talent. You know, as you mentioned, we have been very active throughout the pandemic. Candidly, we were very active prior to the pandemic, executing the same strategy, which has been to again meet our customers kind of where they are and the type of product that they want. You know, today we continue to see a shift from our customers into, I'd say, generally newer, but the more interesting, inspiring, experiential, and I'd say amenitized type product in kind of unique mixed-use settings.
Whether that be in an urban area like downtown or out at a place like The Domain. With our investment strategy, it really has been, I'd say, a balance between strategic acquisitions of existing properties and some pretty compelling new development that, you know, from our perspective, blends to really attractive value add returns. I'd say we have largely funded that with the sale of older vintage assets. That has positioned us at the end of the day, you know, delivering those value add returns, but with a trophy portfolio that, as I mentioned in my remarks, is positioned to generate, you know, outsized demand and certainly with a lower CapEx profile.
I don't think just kind of generally speaking, the type of properties that we've been buying and developing on average have been kind of 300,000+ sq ft. I don't know that I'd characterize them as boutique. I would characterize them as exceptionally well located with a lot of really attractive amenities and you know, in really interesting, and as I said, inspiring environments.
The next question comes from Anthony Powell of Barclays. Please go ahead.
Hi, good morning. So the second generation pricing was very strong, and we look at other markets, coastal markets, where we see vacancies and sublease space impacting pricing like in New York. Could you go over, I guess, the subleasing and vacancies in most of your major markets and describe how that's maybe impacting some of the pricing you're seeing in those markets?
Well, it's Colin. As Richard mentioned in his remarks, we have seen sublease activity decline in a lot of our major markets. You know, take for example, Austin, where the sublease activity or the sublease inventory, I should say, declined by almost 500,000 sq ft in the last quarter alone. I'd characterize, you know, that reduction, you know, the vast majority of it has been customers that have just decided to take space off the market as they kind of rethink and revisit their return to the office. Some component of it was just leased by other new customers.
I think what's been a differentiator for the Sun Belt, and particularly our dynamic urban submarkets within our footprint, has been the in-migration of new companies into our markets that are, again, looking for an alternative to the West Coast or Northeast. In many cases, our markets are not as reliant on mass transit or kind of long commute times driven by lack of affordable housing. That makes it easier for our customers as they migrate into Austin or into Atlanta to adopt a more robust and in-office strategy.
Got it. Thanks. How do you look at development versus acquisitions at this point, given supply chain issues? You know, you have some development activity obviously in Austin and Nashville. Are you more likely to do acquisitions in the near future, given it's harder to get stuff started and completed, or is development still an attractive way to grow the company right now?
Yeah. We continue to look at both. Again, looking at our recent activity, it has been a blend of both acquisitions and development. You are right that there are supply chain issues kind of throughout the country and candidly throughout the world that are impacting a lot of businesses. It's certainly something that we keep a very close eye on. But you know, candidly, I wanna congratulate our team who's done a fantastic job throughout the pandemic and these supply chain issues, continuing to, you know, deliver product on time and on budget. We're doing that by being more intentional in our work, coordinating more closely with our general contractors and subs.
In some cases, stockpiling materials well in advance to allow us to stay on those schedules. I think we're here at Cousins benefit from our 60+ year track record and a lot of deep relationships with our construction partners, and are certainly kinda leveraging those relationships to do our best to be able to continue to stay on time. I think as we look forward into 2022, we're hopeful given the migration that we're seeing into our markets to take advantage of some additional development opportunities.
All right. Thank you.
The next question comes from Jamie Feldman of Bank of America. Please go ahead.
Thank you. Very impressive leasing spreads this quarter. Is that sustainable heading into next year, or is that more one-time based on the mix this quarter? Maybe just talk about your mark-to-market.
Hey, Jamie, this is Richard. You know, if you look at our pipeline, we feel comfortable that we'll continue to be able to continue to post good roll-ups. You know, this was a pretty exceptional quarter. I think the best that we've posted in something like six years, I think Gregg said. You know, I wouldn't expect this every quarter, but we feel good about our ability to continue to roll up. Yeah.
I think the pipeline of activity across our markets, you know, continues to be strong. There's obviously, you know, timing of leases and how those work themselves out and ultimately get executed from quarter to quarter. You can see some obviously some variability in volume from quarter to quarter, certainly depending on our expiration schedule. But I think this is, again, second quarter in a row where we've driven, you know, what I would broadly characterize as pre-pandemic levels of leasing. As we look at the pipeline of activity in front of us, it, you know, remains strong.
Okay. I mean, are you able to estimate a mark-to-market in the portfolio right now?
You know, we have said for quite a long time that the mark-to-market in the portfolio is somewhere between kind of 8%-10%. We said that, you know, before the pandemic, and we've delivered on that, on average, that range, going all the way back to, really just after the Parkway transaction. We're obviously doing a lot of leasing and bringing some of our inventory to market. We're seeing market rental rates continue to move in certain of our markets. We're confident as we look forward over the next year or two that we'll continue to have, again, variability quarter to quarter, but positive mark-to-markets.
Okay, that's helpful. As you think about, you know, the types of products you wanna own and the type of product you own now, I mean, what percentage of the portfolio would you say is currently non-core? You know, I assume we should expect to see more dispositions and kind of portfolio repositioning acquisitions going forward. How should we be thinking about that?
Well, again, we have had a, you know, we think a pretty unique and compelling strategy to invest capital into, you know, again, newer vintage primarily, but interesting type properties and have funded that largely to date through non-core sales. You know, we certainly, you know, have not. I wouldn't say there's a specific percentage that is non-core. I think as we see new opportunities to upgrade and can do it in a financially compelling way, we'll try to take advantage of those opportunities.
I do think stepping back, just looking at the work that we've done from the Parkway transaction, the TIER transaction, some of the specific property acquisitions and developments, you know, we feel very fortunate here at Cousins that we have assembled, you know, one of the newest, youngest portfolios across the office sector, with an average age of 2004. The overall portfolio quality is terrific. Again, as we see opportunities to upgrade and again can do it in a way that's financially compelling, we'll look to take advantage of those opportunities.
Okay. By financially compelling, you mean earnings neutral? Or what's your definition of financially compelling?
Yeah, Jamie, it's you know, there's various metrics that we look at in addition to you know, upgrading the quality and certainly thinking about you know, earnings both on a short-term basis and a long-term basis. When we see properties that perhaps you know, over time could have risk to its earnings stream based on the you know, the demand profile for that building you know, we certainly take into account short-term earnings, long-term earnings, and are also focused on net asset value. It really is a balance here at Cousins that we work really hard. I think as you look back over the last couple years, we’ve been able to, you know, to do some of this recycling in a positive way for shareholders.
Okay. Finally, just thinking about Midtown Atlanta, which has been, you know, incredibly busy on the job front. You know, how are you thinking about conditions there over the next couple years with the supply picture? I know you're making good progress at 1200, but, you know, are there supply concerns, or do you feel pretty good about where things are heading?
We continue to feel very good about Midtown Atlanta. It is, as you mentioned, incredibly dynamic in the market. Companies are recognizing that they can attract and retain some of the best tech talent in the market, but also attract diverse talent. That's been a really positive, I'd say, win-win for the market and talent base here in Atlanta. I would expect to see that continue. The power and the draw of Georgia Tech is very strong, and it's real. The demand profile we think continues to look attractive.
As we look at the supply picture today, it's actually relatively muted. With the delivery of our Norfolk Southern building, there's really just two projects under development today in Midtown, and one of those is over 50% pre-leased to Invesco. So the supply-demand fundamentals are actually pretty strong if you look at it on a historical basis.
Okay, great. Thank you.
Thanks, Jamie.
As a reminder, if you have a question, please press star one. The next question comes from Daniel Ismail of Green Street Advisors. Please go ahead.
Great, thank you. Colin, you mentioned earlier about having pre-pandemic levels of leasing as well as business leaders looking more towards you know, returning to office and making decisions. I'm just curious how that plays out over the next year or so. Is it your sense that leasing volume across your markets return to pre-COVID levels, or will there still be a big quality bias with As winning and B lagging?
Well, yeah, I think there's a clear, you know, flight to quality, and it is intensifying. I do think it's likely to see continued bifurcation between the highest quality A product and B product. As it relates to the, you know, the return to the office, we are hearing from more of our customers that they are making plans to return. I think that is translating into more leasing activity. How that ultimately plays out will take some time. I think you'll see some various fits and starts, and the COVID virus will highly impact, you know, how that plays out, whether there's a resurgence or not. I think many business leaders want their teams back together.
As I said, most of the time, you could see, you know, some companies adopt a quote-unquote, you know, hybrid model. It remains to be seen how much impact that actually has on demand as companies look for, even in a hybrid model, to generally have their teams together at the same time. It will play out over some period of extended time. As I said, we're encouraged to just see the, you know, the leasing activity return as those business leaders start to plan for the future.
Okay. Is it your sense, though, that 2022 leasing volume in aggregate across the Sun Belt will be lower than pre-COVID averages?
Well, I don't wanna prognosticate, you know, too far forward. What I can share is we look at our pipeline today in our markets and both from kind of early stage and later stage, it continues to be positive. As I said, I think how that ultimately, you know, plays out will, I think, be highly influenced by the virus. At the moment, we continue to feel very good that activity is strong, and we're optimistic that, without kind of future flare-ups, that it'll continue to be very positive.
Great. Then last one from me on development, underwriting. You touched on this a little bit earlier. You know, construction costs heading up, land prices likely up as well. Is all that being offset by rental rate increases or pro forma rental rate increases?
Yeah, that certainly would be our hope, right? We are, you know, certainly try to remain disciplined as it relates to, you know, our development yields. You know, as construction costs increase, and they are increasing, you know, I think our hope is certainly that rental rates increase with that. You know, at the same time, we have seen in the capital markets cap rates for trophy properties continue to compress. I do think that will have some impact on development yields as folks think about kind of the spread and the margin between development yields and cap rates. I think between kind of those two levers, the increases in rental rates and some cap rate compression, I think we're optimistic, as I said earlier, to try to get some additional development started next year.
Got it. Makes sense. Thanks, Colin.
Thanks, Daniel.
We have a follow-up question from Dave Rodgers with Baird. Please go ahead.
Hey, guys. Thanks for the answer earlier. I'll go back and read it. Unfortunately, I got cut off, but I'm back. Had a question, and if you already addressed it when I was out, just let me know. With regard to 1200 Peachtree in Midtown, obviously that transaction you executed pre-COVID, did you pursue a single tenant strategy there, one? And then two, I guess, was there a change in how you had anticipated the tech tenants to look at that? I guess meaning, you know, with this movement towards ultra-high quality from kind of the high-tech companies, did that make that less attractive all of a sudden to kind of that group of tenants than maybe you would've thought two or three years ago? Maybe a couple of questions rolled up in there about your tenancy that you expect at 1200 Peachtree.
Well, I'd you know, we're really excited about what we got going on at 1200 Peachtree, and I do think it will continue to attract tech interest. I think kind of in the you know, the overall mixing bowl of what you know, customers find compelling. You know, oftentimes it is newer vintage properties, but at the same time some you know, exceptionally well-located assets you know, the key intersection like that is at Midtown, with some of the redevelopment and repositioning that we're doing, we're very confident we can transition that asset into you know, the sweet spot of customer demand.
As you look at our most recent lease with Visa, obviously a financial services company, but they obviously, at the same time, view themselves as a tech company and a fintech company. I think that's a large driver of their move here into Midtown Atlanta. We're hopeful to see interest from a lot of different industry sectors, but I think we'll see some additional technology in that. We were absolutely open and interested to a single tenant, you know. When the opportunity came up with Visa and the quality and the strength of that company, it was too good of an opportunity to pass up.
All right. Thank you.
This concludes our question-and-answer session. I would like to turn the conference back over to Colin Connolly for closing remarks.
Well, thank you all for your time this morning and your interest in Cousins Properties. We'll look forward to having the opportunity to visit with many of you here in a few weeks at Nareit. In the interim, please feel free to reach out to myself, Gregg Adzema, or Roni Imbeaux if you have any follow-up questions. Have a great weekend.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.