Good day, ladies and gentlemen, and thank you for standing by. Welcome to the First Industrial First Quarter 2021 Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there may be a question and answer session. As a reminder, this conference call is being recorded.
At this time, I would like to turn the conference over to Mr. Art Harmon. Thank you. Sir, please begin.
Thank you, Howard. Hello, everybody, and welcome to our call. Before we discuss our Q1 2021 results as well as updated guidance, let me remind everyone that our call may include forward looking statements as defined by federal securities laws. These statements are based on management's expectations, plans and estimates of our prospects. Today's statements may be time sensitive and accurate only as of today's date, Thursday, April 22, 2021.
We assume no obligation to update our statements or the other information we provide. Actual results may differ materially from our forward looking statements and factors which could cause this are described in our 10 ks and other SEC filings. You can find a reconciliation of non GAAP financial measures discussed in today's call in our supplemental report and our earnings release. The supplemental report, earnings release and our SEC filings are available at firstindustrial.com under the Investors tab. Our call will begin with remarks by Peter Baccile, our President and Chief Executive Officer and Scott Musil, our Chief Financial Officer, after which we will open it up for your questions.
Also on the call today are Jojo Yap, Chief Investment Officer Peter Schultz, Executive Vice President Chris Schneider, Senior Vice President of Operations and Bob Walter, Senior Vice President of Capital Markets and Asset Management. Now let me turn the call over to Peter.
Thanks Art and thank you all for joining us. We were very pleased with our Q1 performance and we are encouraged by the continuing strong economic growth supported by improving consumer confidence and significant government economic stimulus. Similar to our Q4 call, we continue to see exceptionally strong fundamentals in the industrial market. For the recent CBRE flash report, U. S.
Industrial net absorption totaled 100,000,000 square feet in the Q1. This marks the first time ever that demand has exceeded 100,000,000 square feet in consecutive quarters. Net absorption also significantly exceeded 1st quarter completions of 57,000,000 square feet. As you would expect, in response to this demand, high occupancy levels and strong rent growth, we are continuing to invest in new development projects, which I will discuss shortly. Before I recap Q1 results and activity, let me start by updating you on a couple of items since our last call.
As we announced earlier this month, David Harker will be retiring as Executive Vice President of our Central Region effective June 30. David has been a valued member of the FR team since 1998 when he joined the company as our Regional Director in Nashville. He has served our company and our shareholders as head of our central region since 2009, helping to shape and grow our portfolio. We will miss Dave's enthusiasm, tenacity and energy and wish him well in his retirement. With Dave's departure, we will consolidate our regional structure into 2 regions with Jojo Yap and Peter Schultz each assuming responsibility for portions of David's region.
Also during the Q1, we were pleased to welcome Marcus Smith as the newest member of our Board, where he will serve on our investment and nominating corporate governance committees. Marcus is the Director of MCSI Inc. And was most recently of Equity and the Portfolio Manager at MFS Investment Management. We also want to acknowledge Peter Sharp, who will be retiring from our Board. Thank you, Peter, for your more than 10 years of value service to our company and our shareholders.
Now moving on to our portfolio results for the quarter. Occupancy at quarter end was 95.7% and cash same store NOI growth was 2.2%. For the quarter, we grew cash rental rates 10.4% And as of today, we have renewed approximately 72% of our 2021 expirations with a cash rental rate increase of 12.7%. Moving on to sales. During the quarter, we sold 3 properties and 2 condo units for $67,000,000 at an in place cap rate of approximately 8.4%.
The vast majority of the sales total related to 2 larger properties leased at significantly above market rents to tenants we expect to move out. Thus far in the Q2, we sold a land parcel for $11,000,000 bringing our year to date total to 78,000,000 dollars well on our way to our sales guidance of $100,000,000 to $150,000,000 Turning now to new investments. As we continue to seek out profitable opportunities, development remains our primary means of new investments to drive future cash flow growth. As most of you are aware, as part of our underwriting process and to manage risk, we operate with a self imposed speculative leasing cap. Based on the strong fundamentals, combined with the growth of our company, our balance sheet strength, portfolio performance and our significant future growth opportunities, we believe it is prudent to increase our speculative leasing cap by $150,000,000 to $625,000,000 When we first initiated this leasing cap 9 years ago, it represented approximately 9% of our total market cap.
The new cap level represents a similar percentage. Further, we are pleased to announce 2 new development projects scheduled to break ground in the 2nd quarter. These are in addition to the 3 1st quarter starts in the Inland Empire, Nashville and Phoenix we told you about on our February earnings call. The first project is at our First Park 121 in Dallas, comprised of 2 buildings totaling 375,000 square feet with an estimated investment of $30,000,000 and a targeted cash yield of 7%. This is the 3rd and final phase of our park in Lewisville, adding to the 3 previously completed buildings that totaled 779,000 square feet.
We pre leased the 125,000 square foot building, so we're 33% leased on the new phase prior to groundbreaking. The other start is the 2nd building at our First Aurora Commerce Center project in the airport submarket of Denver. It's a 588,000 square footer adjacent to the 556,000 square foot building we completed in the Q3 of 2019, which was 100% leased within a couple of months of completion. Estimated investment is $53,000,000 with a targeted cash yield of 6%. This new building positions us well to serve the significant demand for larger spaces we are seeing in that market and we look forward to future growth at that park on our remaining land on which we can develop 3 additional buildings totaling approximately 700,000 square feet.
Including these 2 new development starts, our developments in process today total 3,300,000 square feet with a total estimated investment of $318,000,000 At a cash yield of 6.2%, our expected overall development margin on these projects is a healthy 45% to 55%. Moving on to acquisitions. During the quarter, we bought 1 building and 3 land sites for a total purchase price of 24,000,000 dollars The existing asset is a 62,000 square foot distribution facility in the Oakland submarket. The total purchase price was $12,000,000 and the expected stabilized cash yield is 4.8%. The 3 new land sites total 16.6 acres and are located in the Lehigh Valley in Pennsylvania, the Inland Empire East and the Oakland market of Northern California.
Total purchase price was $12,000,000 and these sites can accommodate up to 275,000 square feet of future development. In total, our balance sheet land today can support more than 10,000,000 square feet of new investments, and our 2 joint ventures can support 11,000,000 square feet with our share around 5,000,000 So we're well positioned for future growth. As always, we continue to utilize the strength of our platform to secure profitable new investments. Our team is working around the clock to execute our capital deployment plan with a focus on growth. With that, let me turn it over to Scott.
Thanks, Peter. Let me recap our results for the quarter. NAREIT funds from operations were $0.46 per fully diluted share compared to $0.45 per share in 1Q 2020 and our cash same store NOI growth for the quarter excluding termination fees and a gain from an insurance settlement was 2.2% primarily due to an increase in rental rates on new and renewal leasing and rental rate bumps embedded in our leases partially offset by lower average occupancy. Summarizing our outstanding leasing activity during the quarter, we commenced approximately 3,300,000 square feet of leases. Of these, 600,000 were new, dollars 2,300,000 were renewals and $500,000 were for developments and acquisitions with lease up.
Tenant retention by square footage was 76.5%. Cash rental rates for the quarter were up 10.4% overall with renewals up 8.3% and new leasing 17.8% and on a straight line basis, overall rental rates were up 21.4% with renewals increasing 17.6% and new leasing up 35.5%. Now on to a few balance sheet metrics. At March 31st, our net debt plus preferred stock to adjusted EBITDA is 4.8 times and the weighted average maturity of our unsecured notes, term loans and secured financings was 6.1 years with a weighted average interest rate of 3.6%. Moving on to our updated 2021 guidance for our earnings release last evening.
Our guidance range for NAREIT FFO remains $1.85 to $1.95 per share with a midpoint of $1.90 Key assumptions for guidance are as follows. Quarter end average in service occupancy of 95.75 percent to 96.75 percent, an increase of 25 basis points at the midpoint helped by property sales in the Q1. Same store NOI growth on a cash basis before termination fees of 3.5% to 4.5%, an increase of 50 basis points at the midpoint due to 1st quarter performance and property sales in the Q1. Please note that our same store guidance excludes the impact of approximately $1,000,000 from the gain from the insurance settlement. Our G and A expense guidance remains unchanged at $33,000,000 to $34,000,000 Guidance includes the anticipated 2021 costs related to our completed and under construction developments at March 31st plus the expected 2nd quarter groundbreakings First Park 121 Buildings C and D and First Aurora Commerce Center Building E.
In total, for the full year 2021, we expect to capitalize about $0.05 per share of interest. And lastly, guidance also reflects the expected payoff of $58,000,000 of secured debt in the 3rd quarter with an interest rate of 4.85%. Other than previously discussed, our guidance does not reflect the impact of any future sales, acquisitions or new development starts after this call, the impact of any other future debt issuances, debt repurchases or repayments after this call and guidance also excludes the potential issuance of equity. Let me turn it back over to Peter.
Thanks, Scott. We're off to an excellent start in 2021. Our team is focused on capitalizing on the positive momentum generated by the recovering economy and the continuing evolution and growth in the supply chain. And with that, operator, would you please open it up for questions?
Our first question or comment comes from the line of Michael Carroll from RBC Capital Markets. Your line is open.
Yes, thanks. Can you guys
talk a little bit about your near term, I guess, development starts? You've been pretty aggressive at the beginning of this year, And you just mentioned that you're increasing your speculative development cap. I mean, can we assume that FR will continue to break ground on, I mean, the $80,000,000 to $100,000,000 of development starts as we move into the back half of this year to kind of continue the space you start at the beginning of the year?
So, the cap is now 6.25 and we've got about $225,000,000 of capacity under the cap. So that's 400,000,000 dollars underway, about $318,000,000 is currently under construction and the rest has been completed. So we've got some room there. We're evaluating new opportunities and you can expect us to announce some additional starts in the second and third quarter.
Okay. And are there specific markets you're willing to pursue spec projects? I mean, are you really focused on the Tier 1 markets to do spec projects? Or are you willing to go on some of the smaller markets too?
Well, as you know, we're pretty focused on the higher barrier markets now with not only our new development projects, but also any acquisitions. And so that's where we'll continue to focus our new investment dollars. That's not really size related, it's really more growth opportunity related.
Okay, great. And then last one for me. Can you talk a little bit about the activity you're seeing at the former Pier 1 space? Is there interest in that site right now? And I guess what's the timing of being able to release that block?
Sure, Mike. It's Peter Schultz. Activity in that market continues to be very good. A number of large lease signings in the Q1. We've had some interest in our building, nothing to report on today.
Our assumption is that it releases on October 1st and given the high level of demand and the few choices that tenants have, we're optimistic about outperforming on our rental rate there.
Mike? Okay, great. Thanks.
Thank you. Our next question comes from the line of Craig Mailman from KeyBanc Capital Markets. Your line is
open. Hey, Peter, just a clarification to the previous question. You said there was 225,000,000 of capacity left under the cap or used under the new cap?
We have $225,000,000 of the $625,000,000 is available. Of the 400 that is used, 318 is underway and the difference are 3 projects that we have completed but not yet leased.
And that already includes the project that we just announced that's going start Q2.
So that $225,000,000 is pure capacity for new starts for the rest of the year unless we lease things quicker.
And then, one of your larger peers was talking about replacement costs going higher and the difficulty getting materials. Kind of where are you guys on purchasing, buying new projects? You've backfilled the land bank a little bit here, but as we look out to the balance of the year, I mean, do you have the steel and other materials to continue to keep pace with starts? Or is that going to be a little bit of a hindrance as we move to the balance of the year unless supply chains ease up a bit here on the material side?
So on the topic of steel, it's certainly more expensive than it was. This isn't an issue that just popped up. This has been evolving for the better part of 9 months to a year. And so we've been on top of this anticipating longer lead times to get steel. We're not having any trouble getting steel.
It's not holding up our new projects. The projects are, as I said, again, are a little bit more expensive. Joseph, do you want to go through kind of the expense increase for I mean, half the expense increase is land depreciation to start with.
Absolutely. Due to the increase in construction costs and primarily with steel, if you kept the land static, basically, the increase contributed to about a 5% to 7% increase in total investment, including land. And then you factor the land increase, then that's another probably 5% to 7%. So that's so basically half half half on land and half on the construction cost increase.
All
right. That's helpful. Then just Scott, one quick one. It seems like the sales this quarter kind of really helped to boost some of the occupancy and same store lift? And did it also drag enough on earnings and that's why you guys kind of kept guidance here flat?
Yes. So here I'll walk through the math Craig with you or you're going to love this stack because I know you love bad debt expense. But our bad debt expense was 0 for the Q1 compared to our guidance of $500,000 So that obviously is a benefit to FFO. And then you're correct, some of the sales in the Q1 caused some dilution that offset that which is the reason why we kept our FFO guidance the same the midpoint. Keep in mind those sales proceeds will be part of the funding source that we use to fund the 2 new starts that we discussed in the script and when those are completed and leased up obviously we'll see an increase in NOI from that activity.
Great. Thank you.
Thank you. Our next question or comment comes from the line of Rob Stevenson from Janney. Your line is open.
Good morning, guys. Thanks. Scott, what drove the 15% same store expense growth in the quarter? And is any of that carrying over in the back half of the year?
Sure. If anyone on the call lived north during this winter, it was snow removal costs being in Chicago. We definitely felt there and I'm sure many of the folks in the north felt it. So it was an increase in snow removal cost was the primary driver. And again the vast, vast majority of our leases are net leases so that's recoverable.
And again with our high occupancy rate we're recovering most of that and the leakage is pretty small. So that's it. As far as whether or not we'll experience that later in the year, I guess you'd have to look at the Farmers Almanac and see whether we're going to have a bad Q4 winter or not. But again, I think the main point is when we see expenses increase in the portfolio with a high net lease exposure and a high occupancy rate, the vast majority of it's going to be recoverable.
Okay. And then, any known move outs of size over the remainder of 2021 and into the 2022 leases? And where do you guys expecting the retention rate to sort of fall out for the year? It was low this quarter relative to previous quarters, but I don't know whether or not this just got some of the move outs out of the way.
Yes, this is Chris. As far as remaining rollovers for the year, as you've seen, we've taken care of 72% of them so far. The remaining rollovers average about 27,000 square feet, pretty good shape from that standpoint. As far as where we're going to end up for the year for retention, we should be somewhere in between that 70% 80% rate and looking forward all to 2022, it's pretty granular, pretty across all markets there. So no big surprise there.
Okay. And then last one for me. The 3 land sites you bought in the quarter supporting 275,000 square feet, Is there anything in particular, I assume the Oakland is probably a smaller asset, but the average of that is all 3 assets over 275,000 Square sub-one 100,000 square foot. Are you combining that with additional land sites to build bigger? Or are these all going to be relatively small developments once you
get to them? Yes. Your balance is correct. In terms of the 3 assets, the open half is a lower coverage building because we've been getting significantly higher rent to higher rent growth on surface parking and surface use. So the design there right now and we still have to get it all approved, the design right now is a bit lower in terms of FAR, and it's a standalone project.
Peter?
And then Rob, in the Lehigh Valley, that site is adjacent to one of our existing properties and is going to share some infrastructure and we're excited about that size given the difficulty in finding sites and serving demand for that size in that submarket.
Okay. Thanks guys. Appreciate it.
Thank you. Our next question comes from the line of Caitlin Burrows from Goldman Sachs. Your line is open.
Hi, good morning. Maybe just following up on that land acquisition topic. Cost was pretty high versus 2020 land acquisition. So could you just go through, what drove the decision to acquire the land given the economics and how quickly do you to build there? And what kind of yields you could expect?
Sure. Yes, David, thank you for your question. We're highly focused on the 880 quarter in East Bay. We expect significant rent growth from East Bay. It's one of the most infill markets in the U.
S. And both of Asia and in the peninsula, which the East Bay industrial market serves, continues to grow. So that's the overall strategy. If you look last year, we actually acquired some properties in the I-eighty corridor, specifically Fremont. This land site is in Hayward, which is the epicenter of the industrial market in East Bay.
And you will see us, going forward, acquire and develop more product all the way north from Richmond down to San Jose with the epicenter being Oakland and Hayward. So that's our overall strategy, and we expect to develop on this site that we acquired. And in terms of our acquisition, Burrows Avenue, we expect a whole lot of 4, 8 yield there. And if on the market stabilized for us right now, that property should trade on a sub-four. And in that property, we expect significant rental rate gross to rent.
They will be matching. East Bay will be matching. The rent growth will be matching what we experienced in South Bay, LA and IE.
Got it. Okay. And then maybe just more broadly on acquisitions of land. Can you talk about the competition that you're seeing in the target markets? I imagine it's high, but just how often you're being priced out or what the opportunity
is there?
Well, most of what we're doing, our teams on the ground spend a lot of time making unsolicited offers. And hounding the owners of these land sites until they basically cry uncle and agree to sell. And so typically, when we're successful or where we're most successful, and that's one of the reasons that we're able to develop to such high margins is, we only have limited competition. Obviously, they're going to talk to just more than just us, but typically these opportunities are not being widely marketed by brokers. So that's kind of the way we're after it.
Literally, hundreds of unsolicited offers a week around the country. And some of the land sites are smaller and every now and then we're able to get 80 or 90 acres at a pop. So and we're focused, as you know, on the higher barrier market. So by definition, large land sites are going to be tougher to come by.
And just to add to what Peter said, that we do we have done and we have very successful land assemblages, which is one of the most complex land acquisition you can do, where you need to tie up multiple sellers and close simultaneously, but we've been able to successfully do that. The net effect of that is a lower basis.
Got it. And then maybe just a last one on the maintenance CapEx, the non incremental building improvements and non incremental leasing costs were higher again in the Q1 year over year or if you look over the trailing 4 quarters, pressuring the AFFO. So I know last year you had talked about pull forward of some CapEx. Just wondering how long that's going to continue for and is that still what's causing the higher maintenance CapEx? Thanks.
Yes, Caitlin, it's Scott. I think that's probably more of a timing difference quarter to quarter CapEx is sort of you have to look at that on an annual basis. But we expect our CapEx for this year to be plus or minus $38,000,000 which is going to be a savings compared to our CapEx in 2020. And we feel that that number again if we keep the portfolio the same size will go down a couple of $1,000,000 over the next couple of years.
Okay, got it. Thanks.
Thank you. Our next question or comment comes from the I'm sorry, our next question comes from the line of Dave Rodgers from Baird. Your line is open.
Steve Harker, congratulations on the retirement, well deserved. Peter Schultz and Jojo, congratulations on the added work. Going back to the comments, I looked at your development pipeline. What's under construction today is about 20% larger than what you delivered last year. And I know some of that can just be changes in mix and all that.
But if we look at then the 2 weakest areas of occupancy in the portfolio, it's kind of Seattle and South Florida, both kind of smaller tenant markets typically. So I guess maybe talk about do you have a bent toward building bigger assets notwithstanding your recent comments that you just made in the last couple of questions. But I guess then broadly, can you talk about the activity in the small spaces and what you're seeing and how that part of the portfolio is recovering?
Sure. Let me start with that and then Jojo and Peter can jump in. The weakening or weaker occupancy that you referred to in some of these markets is really one property. So for example, in South Florida, we've got a 96,000 square foot vacancy in Broward County. In Seattle.
We've got a 62,000 square foot vacancy there. We don't have a huge portfolio. We're working on it, but it's still not large in Seattle. So that vacancy that you referred to, Grand Parkway in Houston. Other than Grand Parkway, we're pretty full in Houston.
So there's really no issue there in terms of demand. The largest rent increases are coming from the tenants as a building size is 100000 to 200000 square feet. Peter and Judge, I don't know if you want to add to that.
Sure, Dave. It's Peter. I would say in terms of building size, we're building to what we view as the strength of demand on a submarket basis. So in Pennsylvania, as an example, bigger is better and demand is strongest for larger buildings. In some of the other submarkets, it might be a midsized building.
But remember, we're always focused on the flexibility to accommodate single tenant or multi tenants in these buildings. And we've been surprised in a couple of cases where buildings that we've built for multiple tenants, we've ended up with a single tenant. Jojo?
Yes. So just to add example to that, Peter, so we've leased this building already. For example, 1st rent with Logistics 1, Building B. That's a 44,000 square foot asset basically in the IE and very, very successful, lease it very, very quickly after completion. If look at some like we have this build to suit, Nandina, First Nandina.
This is only 221,000 square feet in East IE. This is considered a small building, small building, but there's significant demand there. And that's why we became a builders, just because we were going to go spec and then tenant came in and want to acquire. Another building we said that we're going to start with a 303,000 square foot, again, in I. E.
Called First Wilson. So again, it shows you the breadth of the demand in marketplace. But like Peter said, we will continue to build to what suits the market. And just like Caitlin just asked, this mall and other gentleman asked about this asset in East Bay. In East Bay, a number of our assets are going to be a little bit of smaller size because that's what the demand is.
But if we find a bigger site as well, we'll build it because there's lack of a larger building there as well. I hope that answers your question, Dave.
It does. I appreciate all the added color. I think in there, I heard rent increases are biggest among the 100000 to 200000 square foot boxes. I guess as you rank maybe the smaller and the larger component against that range, so below 100 and above 200, how do those compare? Are they meaningfully different?
So the 50 to 100 are pretty strong as well. The growth is a little bit lower over 200,000 and under 50,000. So that's a broad generalization, but that's what we're seeing.
No, that's helpful. Thank you. Last for me, Scott, maybe for you, as you increase the development cap and it makes sense, thanks for running through the numbers, I guess, how do you think about the financing part of that, right? So now maybe you've got more speculative assets that you can add to the pool, but do you think about then having to keep lower leverage using equity more aggressively or selling more assets as the year progresses?
Yes. Dave, I think it's the same formula we've used in the past is you're going to use your sales proceeds and your excess cash flow after paying a dividend. We do have room to lever up a little bit because you're right our leverage is low at 4.8 times. And like we said before, if we see great investment opportunities there and equity, the price is attractive, we will consider issuing equity. So that's definitely on the table.
And again, we'll we have look back at what we did in equity issuances in 2020, 2018, 2017 2016, we put the vast majority of that money into spec development. And as we discussed in our Investor Day call, last year in November, the margins on there were very strong and we thought it was a great use of capital. So equity is a piece, but we have to like the stock price and we have to have the investment
question or question comes from the line of Vince Tibone from Green Street. Your line is open.
Hi, good morning. Given how land and overall replacement costs are trending, how much longer do you believe development cost margins can stay at the impressive levels they are now? At what point does just competitive market forces push these down some in your mind?
Sure. This is Jojo. In terms of margins have stayed pretty much flat because of 2 things. 1, investment costs have gone up, but rents have gone up as well. And then cap rates have actually have come down, too.
And I think I believe, rightly so, because most investors did not expect the high rental rate growth rates that we're experiencing. Everybody was at 3% to 5%, and the reality is that this year is probably going to be 5% to 10%, with some markets actually exceeding that. So we're at a stage right now that I think margins will continue. There is significant more competition coming in. But overall, the rents have come up.
The last one other comment I was going to make is that we always here ask the question and we talk to our customers about the cost of rail rate costs as a part of the total logistics costs, it still remains small. It's really under 7%. And the biggest component of any logistics company is transportation, labor and inventory management, and the rest comes down. And we're actually the lowest cost structure. Not that we can just go away and charge anything, there's room to grow on that because it's the lowest component of logistics costs.
Got it. That's helpful. And I want to follow-up on one of the comments you made on kind of growing competition.
Are you seeing
a lot of new players enter the space who traditionally haven't done industrial development? Or it's more kind of existing players just growing their risk appetite in maybe development pipelines?
Both. We're seeing both. Exactly what you cited was exactly the source of new competition. No increasing money from existing investors and no entrants and a lot from other product types where they see the actually, the tailwind is much, much better in industrial.
Does that worry you at all for some of the lower barrier markets just kind of ramping supply over the next few years? If there's more and more capital coming to this space, how do you think about overall supply risk in your various markets?
We look at it very, very closely. We don't worry about it. We calibrate our investment given the demand supply of each submarket. And that's why we have a platform because we always watch supply demand. And so far, we've been really pleased and a bit surprised on the 100,000,000 over 100,000,000 square foot net absorption in the whole market just this Q1 versus a constrained supply.
So that was that's welcome news to everybody in the industrial real estate industry.
Yes. There are lots of new entrants, as Jojo mentioned, where investment want to get involved in industrial. And they're extremely aggressive, and they actually become really good buyers of some of the stuff that we're selling. So from that standpoint, that's a plus for
us. The only other thing as to what Peter said is that we remember, we do have a platform for in our construction development, asset management, property management, leasing platform that not all the new entrants have. And that creates competitive advantage, interesting relationship, finding new deals, getting deals on low basis and marketing knowledge.
Makes sense. Thank you.
Thank you. Our next question comes from the line of Mike Mueller from JPMorgan. Your line is open.
Yes. Hi. You talked a lot about new development starts, but can you talk a little bit about what you're seeing in terms of the opportunity for buying vacant buildings?
Dewey? There's not a whole lot on the market to start with. So we track, we'll call it deals done away, that's an old banking term. We track all the transactions that happen. We see most of them.
And over the past few years, that analysis has thinned out considerably. So first of all, there's not a lot being sold. Then you break it down to where we want or would consider buying and that's higher barrier markets and that shrinks the available pool even more. We would certainly acquire a vacant building if it met all of our criteria. We do evaluate those opportunities from time to time, but it's not a high Got it.
That was it. Thank you.
Thank you. Next question comes from the line of Rich Anderson from SMBC.
And just a tweak to Mike's question there. I'm wondering I don't know that there's much in the way of distress in industrial space these days, but I wonder if there's a way to get creative in building your land position, perhaps, I don't know, a poorly located strip center that you can get for the dirt that would be a decent location for a moderate sized industrial building. Are you willing to take on sort of the risks and the time constraints of re entitling and all that? Is that in your crosshairs? Are you doing that at any level today?
Or is it just not necessary at this point?
Well, we absolutely take entitlement risk. It's what
we absolutely take entitlement risk. It's what we do on a regular basis today.
Well, I mean, let me rephrase the question. Of course, you do that, but I mean, more opportunistically, I guess, I would say, in the way I'm trying to describe. Sure.
Opportunities out there. There are some hurdles to doing that as well. As you know, retail rents tend to be higher per foot than industrial rents. So there's an economic challenge to overcome there. There's also the whole fact that most of these retail centers are surrounded by residential and the neighborhoods aren't going to want 53 foot trucks rolling through the neighborhood.
So those are all challenges. We do look at these opportunities. We're looking at a couple right now. So yes, we're like everyone else, we're trying to find where we can create some value for shareholders and in some cases, it may well turn out to be a reuse
site. Okay.
And then my follow-up unrelated question is just looking at how the market reacted today, I don't want to get too much into a single day's worth of trading, but you reiterated your guidance from last quarter. And I guess in the industrial space, reiterate is viewed as a cut, which is a product of your own past success and saying that tongue in cheek. But I guess what I am asking is in 2020, as that year evolved, you saw e commerce demand build in that environment and hopefully an environment that's going away slowly. In 2021, what is your perspective of is your perspective of future growth somewhat lower because we're kind of approaching more of a normal operating environment? And hence, maybe we've kind of got a pretty good sense of what 2021 guidance will look like in future periods?
Or are you call it just as excited or more excited this year despite the fact that you won't have the sort of doubling down of demand like you had last year? Thanks.
Nobody knows what the growth trajectory of e commerce is going to be except that we did see adoption of online buying by millions of new customers, if you want to call it that, last year. It tends to be sticky. So you saw this hockey stick growth in online sales, probably not going to continue that trajectory, but we've had a step up, I guess, if you want to call it that, and we would expect the trajectory to be at least as good as it was pre COVID, which is still pretty strong. So we do believe e commerce is going to continue on a very, very strong growth trajectory, probably not the hockey stick we saw in 2020. And look, there's a lot of competition out there.
Everybody is competing to grow their footprint and trying to maximize and optimize their supply chain. So it's not just the e commerce guys, it is the traditional sellers of goods and products and services and we like that competition. It's good for us and it's good for rent growth.
Our next question comes from the line of Nick Yulico from Scotiabank. Your line is open.
So maybe just focus on the Inland Empire for a minute. At the Investor Day, you did give some forecasted yields on the future land pipeline there as well as construction starts. And we just came off, I think some people are saying it was a record Q1 in the Q1 for the inland empire. I guess I'm just wondering there, you cited a cash yield there on that pipeline of 5.6% and construction starts that were starting sort of besides what you've already announced later this year and into 2022, 2023. And I guess I'm just wondering, based on the market dynamics since then, whether there's any increase in yield that you're seeing in that market and as well for some of the future starts to speed up some of the development in the inland empire?
This is Jojo. When I mentioned 5% to 7% increase, that was in relation to increase in construction costs over total project costs, which includes land, but land kept static, and that's due to a lot of the steel. To your question of rents accelerating, yes, I. E, the market where rents have actually increased at a higher rate than combined construction costs and land. And therefore, yes, if we look back in terms of our projections, we are forecasting increasing yields in the IE, and that's the function of the increasing rents.
So yes, I think that's where if that was your question, yes, that's the trend that we're seeing. The only thing I'd like to add is that there are a couple of reasons why market is one of the tightest in the U. S. If you look at I. E.
Itself, West and East, you're sub-three percent. South Bay, as we all know, is sub-two percent. This year, in terms of year to date, Q1 port activity, March probably shattered a record over the last 10 years. The top 13 ports in the U. S.
Have increased payers' throughput inbound only. And if I gave you an example of just the top two ports, Q1 of '21 versus Q1 of 2020, the increase in throughput was 47% through the ports of LA and Long Beach. And so the reason I mentioned that is that, that has impact on in terms of absorption and round rates and continued tight market for IE because IE is the biggest repository really of all the goods coming from Port of LA and Port of Maltese.
Okay. That's helpful. Just one other question is on the asset sales. You mentioned this quarter that there were some above market rents that drove that cap rate higher on the sale. How should we think about going forward some of the other property sales you may be doing and lining up in terms of that if there is also an above market rent impact we need to think about is or should cap rates on sales be more normalized going forward?
Well, just to give you a reference point, the tenants in those buildings are moving out in one building and moving out next month. When you take a look at where market rents are there, we project a stabilized cap rate on those deals is closer to the low 5s. So obviously, it is what it is today with the tenant in the building, and that's why we reported the 84. But the opportunity set going forward, both from a lease up risk standpoint and a growth opportunity, was just not there and that's why we sold those buildings. On a stabilized basis, so getting back to that stabilized basis, we think the sales for the balance of the year are going to be more like high 6, low 7 cap
rate. Okay, great. Thank you.
Thank you. I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Peter Baccile for any closing remarks.
Thank you, operator, and thanks to everyone for participating on the call today. As always, please feel free to reach out to me, Scott or Art with any follow-up questions. And we look forward to connecting with many of you at some point either virtually or in person this year. Take care.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.