Good morning, and welcome to the 2020 First Industrial Investor Day. Our last Investor Day was three years ago in New York City at the New York Stock Exchange, and we're sorry that we can't all be together today. We very much appreciate your dialing in, and we will endeavor to make the next few hours time well invested. We have a lot to cover today, so let's jump right in. You'll be hearing from most of the members of our senior executive team, and we will do a couple of round tables with several of our local office leaders who are located in some of our target investment markets. As you can see, this team has an average tenure in the real estate business of over 32 years.
We will review the state of FR today and what we see as the opportunity for growth over the next three years. We'll also give you some perspective on how our portfolio stacks up with our peers. In the end, there are several takeaways we want you to remember from our time together today. First, our strategy and portfolio are not only time-tested, but we continue to operate this portfolio through a very difficult economic period, the COVID period, and we have achieved best-in-class results thus far. I'm sure you have sensed our frustration over the recent years with negative comments from the Street about the quality of our tenancy and portfolio.
If we were all together today, I would ask for a show of hands of who of you expected FR would've collected 99% of our rents thus far during the pandemic and entered into only 14 rent deferral agreements, 10 of which have been repaid in full, four of which remain on schedule to be repaid by year-end. All best-in-class results from a portfolio of over 1,000 tenants. I would expect that not many hands would have gone up. It's time to let old impressions die once and for all. Takeaway number two. You know about the enormous growth opportunity in our sector that is being driven by the e-commerce train and the shift in how product is moved, stored, and delivered. What we will show you is that FR is extremely well-positioned to capitalize on the robust business environment and tailwind from the acceleration of e-commerce.
On our current land holdings, we have the capacity to develop approximately $1.4 billion of new investments, which equates to about three years of activity based upon our recent track record. Our capital allocation and risk management are second to none. Our platform and team have one mission in mind, profitable growth at manageable risk. We're not volume driven, but focused on long-term shareholder value creation, and you've seen it in every investment that we make and development we complete that generates sector-leading margins. Next is focus. Our team has worked hard to reposition the portfolio and has achieved some amazing results. Our investment focus is now limited to 15 key logistics markets, which I'll take you through in a bit later.
Not only do we have significant growth opportunity within our current land holdings, we also have experienced teams located in our key target investment markets that make hundreds of unsolicited offers per month for new opportunities. We believe you make your money when you buy well and through superior execution. We are achieving market-leading development margins because of the strength of our teams, our local relationships, hustle, grit, and determination to win in the trenches. Takeaway number four by now should be self-evident. Our team is outstanding, and this platform is getting stronger every year. Takeaway number five is a result of all of the above. We told you three years ago at our Investor Day in 2017 that we could grow AFFO 9% per annum through this year.
We've not only delivered, but we believe we have in place the platform, high-quality portfolio, land holdings, a strong balance sheet, and enough unmet market demand to grow AFFO at 9% per annum through 2023. We believe there is significant value embedded in our shares. We have the team, portfolio, capital resources, strategy, and proven track record of delivering leading margins and managing through a pandemic better than most of you might have imagined eight months ago. This is an attractive buying opportunity. Let me give you a quick catch-up on where we are today. As of September 30, we own 64.1 million square feet that was 96.3% occupied. Our average building size is 144,000 sq f t. We house 1,042 tenants in 445 buildings. Earlier, I spoke about growth. At September 30, our total market cap was $6.9 billion. Today, it's approximately $7.2 billion.
Four years ago, at the end of 2016, it was $4.75 billion. That's an increase in value of $2.1 billion in four years, net of the value of share issuance. That's growth in value of 43%. Our strategy is simple but effective. With the land we currently own, we can grow our owned square footage by approximately 17 million square feet, which is over 27%. We will remain U.S. only. If you look around the world, you won't find a better economy for the long term than the U.S. We will remain focused here where there is more than enough opportunity to make money in our 15 key distribution markets with a coastal orientation. Why a coastal orientation? 40% of the U.S. population live in coastal counties, but those coastal counties only account for 10% of the land in the contiguous United States.
Strong consumption zones and barriers to entry mean strong land value appreciation and strong rent growth over the long term. We will continue to build distribution and other critical supply chain properties with best-in-class functionality, so they appeal to the broadest possible set of tenants and remain competitive for many decades. We won't chase strong tenants to lower growth markets, and we won't build assets that are special purpose. Our development efforts are only one leg of the stool. We will consistently drive cash flow growth in the existing portfolio through best-in-class tenant service, driving rents, minimizing CapEx, and sustaining occupancy. You can't do any of this over the long term without a clean, simple, and very strong balance sheet, which we have and intend to maintain.
You've heard us talk a lot about how we've transformed the portfolio. We have indeed come a long way in the past decade. We've moved from 31% to 47% coastal and reduced our exposure to the Midwest by 50%. The increase in the proportion in Southern California, the best performing market in the country, has been the largest driver of this change. This is just another way to show where the coastal assets are. As we've said in many meetings with you over the past couple of years, the proportionate growth will favor the coastal markets, followed by the Southwest and the Southeast, with our presence in the Midwest continuing to diminish proportionately. These are the 15 target markets we are focused on. We have investment teams located in 11 of them.
As you can see by the call-out box at the bottom, 85% of our net rental income currently comes from these markets. By the end of 2023, we expect approximately 95% of our net rental income will be generated here, with 50%-55% coming from the coastal markets. Why are we focused here? That's where the people are. Land is difficult to come by, and national demand is the strongest. Over the next three years, more than 70% of the projected national net absorption, and by far the strongest rent growth, will be in these 15 target markets. That's a total of 655 million square feet of net absorption, according to CBRE EA. While we're talking about demand, I thought I'd point out this impressive group of tenants reflected on this slide. Some of the strongest and fastest-growing companies in the world.
Amazon and related entities now represent approximately 6.2% of our annual net rent. Amazon is also the fastest-growing business in the world, with a $1.6 trillion market cap. You should expect they will become a larger proportion of all investment portfolios. In the end, our top 20 only make up 26.3% of our annual net rent, so we remain very well diversified. I'll remind you that through our team's outstanding efforts, both in credit underwriting as well as collections, we've now collected 99% of rent billings year -to -date across these industries. On this slide, we've tried to bucket e-commerce, but the lines between traditional and e-commerce tenants can blur significantly. You will notice that as we've said, our revenue base comes from a very broad base of demand by industry. Most all are represented here.
I'll also point out that the 13.5% identified with the retail sector includes Lowe's, Harbor Freight Tools, B&H Photo, and Best Buy, most of whom have significant e-commerce platforms, and collectively, they represent 37% of our total retail exposure. Clearly, the transportation 3PL sector could also be defined as e-commerce to a large degree. Earlier, I talked a bit about the value-creating capability of our platform, and on this slide, we show you the math, both from developments and acquisitions. As you know, prices for existing assets are incredibly high and have been for several years. It's difficult to create shareholder value when you try to generate it via broad public auctions, so we don't participate in those. Nonetheless, we've generated meaningful value via modest acquisition volume over the past decade.
Clearly, the primary driver of value creation has been our development business, which has generated approximately $1 billion in profits, 61% margins, and a 7.1% initial cash yield. In total, we invested $2.4 billion and generated $1.2 billion of incremental value, which translates into more than $11 per share over the time period. I'll also point out that our total market cap at the beginning of this time period was only $2.7 billion. Let's talk a bit more about demand. As I mentioned earlier, it's not so easy to draw clear distinctions between the e-commerce players and many of the rest. According to JLL's 2020 Industrial Demand Study, 18.2% of demand is driven directly by e-commerce players such as Amazon, Walmart.com, Wayfair, and other similar platforms. 17.4% is driven by logistics and parcel delivery. The vast majority of their parcels are likely delivered to online shoppers.
12% is driven by traditional retailers, most of whom are growing their e-commerce platforms. 10.7% is driven by food and beverage, and we all know how large an e-commerce opportunity food and beverage delivery has become. E-commerce is everywhere, and the five most active industries account for about two-thirds of the demand today. Just another way to show the enormous growth of e-commerce. Again, as projected by JLL, a compound annual growth rate of 18%, generating an additional 1 billion square feet of industrial demand through 2025. Maybe we should stop calling it a tailwind and call it a hurricane. How has COVID impacted consumer behavior? This slide shows a step change in the growth trajectory of e-commerce with millions of new adopters. Retail sales grew during the past five years at 3% per annum, but e-commerce grew at 17.5% per annum.
In the second quarter, a nearly 50% jump in the e-commerce share of retail sales. Some have asked if this has merely pulled demand forward. While it's unlikely that the rate of change in e-commerce adoption will continue at such an astounding level, as we've seen, once people give online shopping a try, they tend to stick with it. Post-COVID, we expect the growth trajectory to resume at the same rate as the pre-COVID rate, but growing from a much larger base. Here's another perspective of how COVID has changed the retail landscape. This chart shows weekly card transactions and the change from a year ago. Again, in the second quarter, online card usage skyrocketed while in-person card usage plummeted. No surprise there, given we were all told to stay home.
Even now, with more mobility in society, in-person transactions have rebounded, but online card usage has remained well above the historical trend line, which confirms the step change in e-commerce demand. We expect very strong demand over the coming years. Just a few words about supply. Nationally, we are about 95% occupied. That's on an inventory base of about 17 billion square feet with 850 million square feet of capacity. That space, however, is largely dysfunctional, obsolete, poorly located, and not suitable for today's logistics needs. We showed that JLL expects a need for 1 billion additional square feet by 2025. CBRE EA projects national net absorption of over 900 million square feet in the next few years.
We also showed that over 70% of that net absorption will take place in our target markets, the higher barrier markets, where quality land is tough to come by and entitlements take longer. There's also the general challenge of rising construction costs, but so far, in the higher barrier markets, rents are rising faster. Lastly, it's early to call it a trend, but we've seen constraints on the volume of construction financing due to COVID, which has significantly limited the competitive position of the undercapitalized players. New supply, particularly in the higher barrier markets, will be tough to deliver. Again, we are very well positioned given our current land holdings as well as the opportunities our teams are pursuing. All of this boils down to growth, cash flow growth.
Our business is a generator of strong cash flow growth over time, and we believe we have the opportunity to generate another period of 9% per annum cash flow growth through 2023. That cash flow growth will come from a combination of rent increases embedded in our leases, overall rent growth, completed and in-process developments, and interest savings. This is our opportunity, and we will remain focused on delivering. The remainder of the agenda is dedicated to showing you how we get there, how we'll fund ourselves, how we find and pursue opportunities, and how our existing portfolio will continue to evolve. You'll also get to know many of our senior leaders on a deeper level during their presentations. Before we move on to Scott's section, I'd like to also review with you our efforts around corporate diversity. I'm sorry, corporate responsibility.
As you know, we are a company of only 150 people, but I think we punch above our weight class when it comes to corporate responsibility. It's part of our culture and always will be. More than that, we strive to make the world a better place by our actions and how we treat others and by offering respect first. Beginning with our portfolio and development program, corporate responsibility manifests itself in the energy and water efficiency features we are incorporating into our buildings. These help our tenants conserve precious resources as well as contain costs. We've continued to enhance the energy profile of our portfolio over time through our development program as we complete state-of-the-art buildings and retrofits. As an example, by square footage, 90% of our portfolio features energy-efficient lighting, with approximately 34% featuring LED.
In all our new developments, we look to minimize the impact to the environment of our activities via the reuse of local fill, recycling, and the use of recycled materials. Our people. We have a people-oriented business and culture, and so much of our social responsibility efforts are aligned with and tied to our culture. It all starts with our team. We have formed strong bonds forged by teamwork, a shared vision, and goals. We meet challenges together. We analyze our losses to find lessons learned and to seek out best practices. As I noted earlier, we are fortunate to have so many tenured members of our team who have shaped FR's growth and evolution. There's no substitute for the time and experience of working in the trenches.
These attributes make us strong and give us the great resilience we have demonstrated so well through the COVID challenges of the past eight months. To sustain a strong culture of continual self-improvement and that manages well through change, we strive to provide a learning environment that supports opportunities for personal and professional growth. We do that through training, promotions, and merit-based compensation that rewards individuals for personal performance, as well as the overall performance of First Industrial. We promote inclusion, diversity, equal opportunity, and social equity, and we invest in training and education that fosters these ideals. As part of our culture, we also value and embrace connecting with all of our constituents. We characterize that generally as engagement. The relationships that we forge are enduring and critical to who we are and to our financial and organizational success.
Those constituents include customers, investors, business partners, and the communities in which we live and work. With that, I'll turn the floor over to Scott, who will discuss our balance sheet and AFFO update. Thank you.
Thank you, Peter. Thanks for everyone joining us today. I'm going to walk through a couple of items with my presentation here. First, I'm going to walk through how we achieved our $200 million AFFO goal that we laid out at our 2017 Investor Day. Second, I'm going to walk through how we are going to be able to continue to reduce our interest costs and the incremental AFFO that reduction will yield. Lastly, I'm going to walk through a couple of operational metrics comparing us to our peers. Remember back in November 2017, we laid out an AFFO goal of $200 million by the end of 2020. That was a 9% CAGR over that period of time. Keep in mind that goal was based on steady state, meaning no new sales or investments during that period.
Obviously, we did have some of that transactions during that period, which I'll walk through in a little bit. Where we stand today, 2020, we think we'll be at about $191 million for this year. How do we get the other $9 million of AFFO? Well, it's pretty simple. If you look at the bottom of the page, we've got about $245 million of developments in process and completed developments in lease up. Giving us credit for the amount that we have funded, plus the cash yield, gets us another $12 million, which pushes us north of the $200 million goal. The drivers of that AFFO growth are very similar to what Peter spoke about earlier. Rental rate bumps embedded in the leases, pushing rents on new and renewal leasing, development lease up, and further lowering our interest costs. This slide is titled Cash is King.
This shows you what the team has done since 2016 to grow AFFO. As you can see, we've had a very good run during this period, growing AFFO 11% on a CAGR basis. We also grew our dividend in lockstep by about a 7% CAGR basis. Our dividend policy is pretty simple. We grow our dividend as we grow cash flow, and we try to keep our payout ratio as low as possible, which has been about ± 65%. The result of that for 2020 is about $70 million of excess cash flow that we've been able to invest in spec development at industry leading margins. Peter laid out a goal of hitting $260 million by the end of 2023. If we are able to hit that goal, that number jumps to $90 million that we can invest in our spec development pipeline.
This slide here shows the power of the portfolio and the platform, and you're going to hear me talk about this a lot in the next couple of slides. Starting at the top left with in-service occupancy, we've averaged a little over 97% since 2016. If you look at 2018, we actually hit 98.5%, which was a record for the company. Very impressive, and kudos to our regional teams for hitting that. Now, the question we've gotten from folks on the call today is, are you pushing occupancy too much, and as a result, are you not getting the rental rates you should be getting? The answer is no, we're pushing occupancy and rental rates. If you look at the slide on the right-hand slide, this shows our cash rental rate growth since 2016, which averages about 10%.
Looking at 2019, we had a record for the company of 13.9%, and if you look for the first nine months of 2020, we're at about 14.6%. If we're able to keep a hold on that cash rental rate increase for 2020, we might be able to create another record for the company. Let's be honest, this year was a little tough with COVID in place. Bottom right chart here, if you're able to keep occupancy high and grow cash rental rates, you're going to be able to grow your cash same -store growth, which has averaged 5% since 2016. Then last, on the bottom left, we've been talking to you about this for the last several years. As we continue to invest money in new developments and new high-quality acquisitions, we should be able to push down our capital expenditures.
You can see at 2016, that was about 16% of our NOI. We've been able to push that metric down about 40% since then. This slide here, the next couple of slides actually show us how we compare to our peers with a couple of metrics. The first one here is cash rental rates on leasing, and we've compared ourselves to Prologis, EastGroup, and Duke. As you can see, we are the green line here, and for four of the five periods, we're in first place. The one other period, we're in second place. A very strong showing here. I think this slide shows a couple of things, power of the portfolio and power of the platform, and it also shows that our folks are pushing occupancy and rental rates. If we were sacrificing rental rates for occupancy, we would not show up this well against our peers.
Another snapshot we wanted to give is how we've done with collections during the COVID environment. This measures collections since April until October. As you can see on the left-hand side, we've averaged 99% during this period, and in fact, that's been 99% every month. Our peers, the industrial group, has done very well during that period as well, with EastGroup being at 99%, Duke and STAG at 98%, Prologis at 96%, and I think Rexford's about 93%, 94%. Again, we've done very well compared to our peer group. Again, it shows the power of the portfolio and platform and how our regional offices work with our credit underwriting folks in the corporate office to ensure we have a solid tenancy. Last couple of slides I'm going to talk about are the balance sheet. As you can see, strong balance sheet, self-explanatory.
If you look at the top half of the slide, we talk about total leverage. Top left, this is our leverage per our line of credit, low and very steady. If you were to look at our leverage from a debt to total market cap point of view, it would be 23.5% at the end of the third quarter. We've also included the metric debt and preferred stock to EBITDA. We included that here because that's how we manage the business. Our policy is to keep our debt and preferred stock to EBITDA to 6x or less. As you can see since 2016, that metric has averaged a little bit below five times. Bottom right-hand corner is fixed charge coverage going in the right direction. We think by the latter half of 2021, that will have a five handle. Bottom left, secured leverage.
This will be the last time you will hear about this metric from us, 3.5% at the end of the third quarter. We're paying off most of our secured debt in 2021 and 2022, so this metric will be approaching zero, which means our portfolio will be fully unencumbered. Walking through our debt schedule, two takeaway points from here are as follows. One, our debt maturities are very staggered. There's not a lot of debt coming due in any one year. What excites me more about this slide here is the debt that's coming due in the next three years. We've got a little over $600 million of debt coming due at that period of time at an interest rate of 3.55%. We have several options to refinance this debt. The public bond market, which has been very hot over the last several months. We can do term loan debt.
As you can see, we've got some expiring here. We can look at private placements as well if that market becomes more competitive. No matter which way you slice or dice it, the savings from refinancing this debt is going to be about $7 million, which ties back to Peter's slide earlier, which is about $0.06 per share in incremental AFFO growth. In conclusion, I hope you walk away with a couple of points after my presentation. One is we have industry-leading COVID collection results, and we also have, I would say from a peer group point of view, very strong cash rental rate growth results, which show the power of the portfolio and platform. We have ample capacity to drive AFFO growth and grow the dividend. We have a very strong balance sheet.
With that, I'll turn it over to Bob, who will do a deep dive into the portfolio.
Thank you, Scott. When we were determining the agenda for today, we had a very robust discussion about whether to even include a section on the portfolio. Ultimately, we decided yes, simply for three key reasons. First, the transformation, as Peter mentioned, is complete, but the evolution of the portfolio has and will continue, and we wanted to show you what that might look like over the next several years. Second, we wanted to discuss geography of our portfolio and that of our peers, because we think, in particular, this is an area that's underappreciated by the marketplace. Finally, we wanted to show you the key metrics of our business and our portfolio and how they stack up versus our peers, because that really drives, at the end of the day, the AFFO opportunity that Peter mentioned.
Let's take a quick glance at the conversion of the last 10 years. Very simply, this is about $4.1 billion of turnover in the portfolio, just under 65 million square feet. This was accomplished with really no permanent dilution in terms of investment. We invested at a 6.7% stabilized yield overall and sold at about a 6.8% yield. It still doesn't tell the whole story. In lockstep with this conversion has been nearly a 300% increase in the value of the FR portfolio on a dollar per square foot basis. Admittedly, this has been aided by some cap rate compression, but a couple of observations. First, it really demonstrates the tremendous focus our teams have had in terms of investment on margin and execution.
It shows the discipline and patience we've had of disposing of assets, often on a one-by-one basis to, in many cases, user who, in all cases, will maximize value. Finally, this was accomplished without a significant change in the overall size of the portfolio. At the end of 2009, we were at about 69 million square feet. Today, we're at about 64 million square feet. Let's look a little bit more specifically at some of the specific metrics in the portfolio and what all these efforts have accomplished. As you can see, the number of properties and tenants have declined by about 50%. Specifically, what kind of assets? Really, it's R&D/Flex and light industrial. R&D/Flex is now under 1 million square feet, down by about 80%. Light industrial is down by about two-thirds to just over 6 million square feet.
You can see how all these efforts have manifest themselves in both the average building size as well as the tenant size, which is up over 100% since the end of 2009. We're not going to stop here. We set up for ourselves a goal that by the end of 2023, we'd like to be 95% by square footage-wise in bulk and regional warehouse. You may ask, why not 100%? The 5% difference is primarily going to be in light industrial in markets where, A, it's a core product type and very well accepted, B, where really no new supply is being added, and three, where we think the prospects for significant rail rate growth are very good. Those markets are New Jersey, Denver, Dallas, and Southern California. Let's touch a bit more on geography.
Peter mentioned this a bit. I think it deserves some attention in terms of breaking down where we sold and where we invested. Very simply, we sold the Midwest, we invested in the coastal markets. Midwest was just under 50% of our sales, our coastal investment at 63%. I would expect that this trend you will see continue over the next several years. Peter mentioned a goal of 50%-55% of our portfolio by rental income, by the end of 2023. Let's take a minute and see where we stand today. As you can see, First Industrial is about at 47%, Duke & EastGroup are about 42%, DCT, right before the merger with PLD, was at about 52%, and Prologis comes in at 65%. First Industrial is effectively in the middle of the peer set.
That's probably not a place a lot of people think we would be, and that's why we think we're underappreciated. Some might say, "Well, this is an interesting analysis, but it really doesn't encapsulate the full view of your portfolio." What about the other markets? To try to give you an idea of where that stacks up, we tried to put together a composite ranking of ourselves and our peer set by low, medium, and high barrier markets. Very simply, we ranked low barrier markets a one, and you can see at the bottom of the column on the lower left-hand side what those markets are defined as, and so on with medium and high barrier markets. Using this analysis, Prologis comes in at about a 3.8x with 13% in low barrier markets. DCT, again, right before the merger, 3.6x with 16% in low barrier markets.
First Industrial, again, in the middle of the pack at 3.4x, and Duke & EastGroup at about 3x. You can see Duke & EastGroup have a much higher percentage in the low barrier markets. Interestingly, right now, First Industrial has a lower low barrier market ranking than DCT did right before their merger with PLD. Here, again, is an area that we think is somewhat underappreciated by the marketplace. Another important aspect of geography is the infill nature of the First Industrial portfolio. Now, there are lots of different ways to look at this kind of data, and we look at basically on a population density and income perspective, basically with various centrics, with various circles drawn around each of our properties. Why do we use this methodology? Well, three key reasons.
First is precedent. This is really an analysis that's been used in the retail business for many years very successfully. Secondly, it can be very easily replicated. Finally, in discussions with our tenants, specifically e-commerce users, we've asked them what they define as, quote-unquote, last mile. The answer we received was anywhere from 2 mi all the way up to 30 mi. I'm not going to go through every one of these numbers, but you can see from a 30 mi radius from each of our properties, the average population in our portfolio is just under 4 million people, with about 95% of the portfolio having an average population in excess of 1 million people, with median household incomes of just over $70,000 a year, compared to a U.S. median of $62,000 a year.
We have the proximity to higher income populations that really fit a broad-based supply chain requirement need, including e-commerce. At the end of the day, these are all great stats, but it really boils down to how the portfolio moves we've made over the last 10 years really drive AFFO and AFFO growth. For that, what we wanted to do is share with you how we think about it internally and stack ourselves up against our peers to show you how the portfolio really compares. We do this three ways. First is the most basic. Let's look at occupancy. Here you can see over the last 15 quarters, from the end of the third quarter of 2020 back to the beginning of 2018, we're at the top of the peer group.
Well, as Scott pointed out, you could make the argument that you pushed occupancy at the cost of not pushing rental rates. That's fair. Let's look at cash rental rates on a weighted average basis over the same 15-quarter period. Again, top of the peer set. Finally, you can't forget about cost. That's a big driver of AFFO. Specifically, the cost to tenant the properties in terms of leasing commissions and tenant improvements, as well as the cost to maintain our properties. We look at this as a ratio based upon NOI to equalize differences across the portfolio. Like your golf score here, lower is better. As you can see, First Industrial performs quite well. To wrap it up, the transformation is complete, but our evolution continues. You can look to the goal of 95% warehouse by the end of 2023 to judge us.
Secondly, we have a significant and growing orientation to both coastal and infill markets, one that we think is frankly underappreciated in the market today. Finally, the basic portfolio stats that we just talked about really demonstrate the reason why we're so excited about the next number of years in terms of our AFFO opportunity. With that, let me turn it over to Jojo.
Thanks, Bob. Good morning, everyone. I'm going to go through our investment strategy, value creation, capital allocation by geography, and finally, embedded growth through our land holdings. How do we implement our investment strategy? We primarily execute it through development. We identify locations where we expect demand to exceed supply. We then employ our existing land holdings and/or acquire new land to meet this demand. Through our expertise, we then navigate through local entitlement and construction to execute on our development. With a Class A development, we lease the building to satisfy current demand. We only invest in a building with the highest functionality and flexibility for the long term. What are the five key questions we ask ourselves at every investment that we make? First, are we enhancing the portfolio?
We only make investments that will increase the cash flow and the cash flow growth rate of our company. Are we creating value? We only invest in acquisitions, redevelopments, or developments that can provide a healthy margin over exit values. Are we maximizing our platform? We don't focus on highly marketed situations. There is no value creation there. We only look for off-market transactions, leverage off our market relationships, and use our entitlement and construction expertise to uncover profitable opportunities. How will this asset perform across all cycles? We don't acquire or build buildings with special purpose features. The building we acquire or build has to have features and specifications that will stand the test of time and be attractive to lease by a broad range of users. Finally, we ask, what are the market barriers and dynamics?
We prioritize investments in infill submarkets, preferably those with development hurdles and constraints. These markets will experience constrained supply, which leads to growth. We will only build when we anticipate net absorption will exceed supply and our building attributes are superior to most or all of the competition. Have we created value? Yes, we have. From 2018 through year -to -date, let me give you some totals. We acquired 2.5 million square feet, $334 million at a 5.6% cash yield, producing a 35% margin. We developed, including under construction, 11.9 million square feet, $963 million at a 6.9% cash yield, expecting a 58% margin. That's a total investment of $1.3 billion at a 6.6% cash yield and a 52% margin. That has created about $670 million of value creation over the last three years, or more than $5 per share. Achieving high margin is not everything.
We are total return investors. The other question is, as long-term investors, have we allocated our investments in higher rent growth markets? The answer is yes, we have. Coastal markets was the largest allocation at 65%, followed by the Southwest. Coastal markets include the markets of Northern California, Seattle, Pennsylvania, New Jersey, Baltimore, D.C., Florida, and of course, our largest market by net rental income, Southern California. Far, so good. How do we continue this growth in value creation? In addition to looking for new investments, we have strategically located land to drive growth. Land that we own spans 11 of our target markets. Majority of these sites are already entitled. We can build 17 million square feet, and that is net of our joint ventures interests. Our future development is more diversified by markets and by building size.
Using today's construction numbers and our land basis, this is approximately $1.4 billion of total investment. $1.4 billion is roughly 7x our current development under construction as of September 30th of this year. This should provide us with a long runway for growth through development for many years. In summary, we have a disciplined investment strategy that has allowed us to create value and continue to create value with profitable margins. We have and will continue to allocate the majority of our capital to higher rent growth markets. We have a good runway for growth given our strategically located land. With that, I'd like to turn it over to Peter Schultz.
Thanks, Jojo. Good morning. Peter touched on the strength of our platform. You heard Bob cover the evolution of our portfolio, and Jojo just talked about how we allocate capital to new investments. In the next several minutes, David, Jojo and I are going to show you those value creation results in action with the successful execution by our team across a variety of different transactions. This is our First Park at Central Crossing Project, located at Exit 7 of the New Jersey Turnpike. This is an acquisition of an existing building and a site for a new spec development. In a high barrier market with strong rent growth, where demand continues to migrate south along the Turnpike, as vacancies hover at record lows, and following some success we've had in this sub-market with a couple of other investments.
In fact, we own the third building that you can see in the back of the slide. Our team acquired the lightly marketed and neglected assets, perfected the entitlements for the spec building, and made some improvements enhancing the existing building. The new building was leased at completion and fully occupied on a long-term basis at a cash rental rate 17% above our pro forma, generating an overall combined yield of 6.4% on a cash basis, about 225 basis points ahead of a market cap rate. Moving on to our next project, Nottingham Ridge Logistics Center. This is a forward acquisition of two buildings totaling 751,000 sq f t north of Baltimore along the I-95 North corridor.
The thesis here was that this is a high barrier market with limited remaining development sites and low vacancies, where Baltimore has been a strong performer for us and also offers a great labor profile. Additionally, the I-95 North submarket continues to account for the majority of the overall Baltimore market net absorption and continues to show strong demand. This was a broken retail site with unmatched access and visibility to I-95 that you'll see on the left side of the slide. We worked with the developer early in the entitlement and permitting process so that we could have the buildings delivered to our specifications as a long-term owner, including the opportunity and flexibility to demise for either single or multiple tenants. Shortly after closing, the two buildings were 93% leased overall to three tenants on a long-term basis, including our largest tenant, all ahead of our underwriting.
We generated a 5.9% cash yield, about 150 basis points spread to a market cap rate. Essentially here, we achieved speculative yields without the construction or entitlement risk. Moving west out to Denver. This is our First Aurora Commerce Center project, located in the I-70 East submarket, just south of Denver International Airport, which is the largest and most active submarket in Denver, serving the growing population. It's rapidly becoming infill with the expansion of airport activities, residential and commercial construction, and the services needed to service the growing population. Our team worked this deal for several years to resolve a variety of issues, including entitlements, site conditions, infrastructure, off-site improvements, and a series of seller entities.
We were very pleased to close on this at a great land basis of about $1.60 per land foot, where land is now trading north of $5 - $6 in that market. On the heels of the site acquisition, we completed our first spec building in 2019, that also was fully leased within a few months to Amazon, ahead of our underwriting, generating an initial cash yield of 6.9% and about a 250 basis points spread to a market cap rate. The remaining sites needed site plan and engineering approvals and some additional infrastructure. That is all in process. In fact, the next three buildings will be permit ready by the end of this year.
Our team is excited to continue our success at this project, and build out First Aurora Commerce Center over the next several years as we add 1.3 million square feet of additional product to our portfolio. Finally, this is our multi-market solution for Ferrero Candy, including our recently completed spec building in Pennsylvania and a build to suit in Phoenix. The Pennsylvania project included two buildings, just under 1 million square feet, located at the intersection of I-78 and I-81, offering excellent visibility and access, together with a substantial cost advantage, including a local tax abatement compared to the Lehigh Valley market to the east. Our team acquired this site from an assemblage, finished up the final entitlements, and immediately started construction.
In Phoenix, we had recently closed on the 532-acre acquisition of our PV 303 project together with our joint venture partner, and we had a site ready to go for a 643,000 sq ft building. Both markets here continue to benefit from strong demand, particularly from larger users, given the transportation infrastructure, operating costs, and proximity to population centers. Our regional teams worked together to provide a comprehensive solution to Ferrero in both markets, a lease on our Pennsylvania building, a build to suit in Phoenix, to accommodate their growth on a very tight schedule. Here we achieved an overall combined cash yield of 7.6% on a total investment of $112 million, and a spread of about 300 basis points above a market cap rate. Truly impressive, including the build to suit. Great value creation, great teamwork, and great servicing of a new client relationship.
With that, I'll turn it over to David Harker.
Well, thank you, Peter. For those of you on the call who don't know me, I oversee our offices in Chicago, Atlanta, Texas, and Florida. This first case study is an example of the commitment we have to customer service. We had a 120,000 sq ft tenant go out of business earlier this year due to the pandemic. We own about 2.5 million feet in this submarket, in this case, the GSW submarket, infill submarket between Dallas and Fort Worth and south of the DFW Airport. Because of our relationships with our existing tenants, we were able to backfill the space with less than two months of downtime and a 55% rental rate increase. What do we do to enhance our customer service and satisfaction? Well, we have a couple of things. We have our two-hour rule, where all tenant calls are returned within two hours.
We require our property managers and our maintenance people to make frequent in-person visits to all our tenants. Then most importantly, we have our annual customer satisfaction survey. We poll all our tenants, and we ask them how we're doing on customer service, and we rank all our property managers and all our offices on the results we get. This is an important part of our compensation program for our property managers, and it really encourages people to provide great service to our customers. This is an example of how that paid off. Because of the relationships we had, we were able to backfill the space quickly. ADESA is one of our largest tenants. They have several large auto auction lots across the country. Their Atlanta location is in the heart of the Atlanta Airport submarket, right on I-85 South.
We worked with ADESA to find a way to create a development site for us by taking back a portion of their space. We were successful in reconfiguring their operations to recapture 42 acres from them and then combine that with an additional 40 acres to create an 82-acre development site where we could build 1.2 million square feet. Within a few months, we were successful in securing a build-to-suit with Post Consumer Brands for 703,000 sq ft. This project currently yields 6.2%, and that will increase significantly when the balance of the site is developed. A few years ago, we made a commitment to expand our presence in South Florida. We were attracted to South Florida for a number of reasons. One, very limited land supply. Two, very high barriers to entry. Three, explosive population growth. This effort is just now starting to pay off.
We currently have five projects in South Florida where we can develop a total of 3.6 million square feet, and we currently are under construction at four of those projects for a total of 1.2 million square feet. This map shows the location and size of our various projects in South Florida, and the box on the right details the sites that are currently under construction and their expected completion date. I'll go into a little more detail on these projects now. The first project out of our South Florida pipeline is First Sawgrass. This is a 103,000 sq ft building that we'll deliver December 1, in just a few weeks. We commenced construction on speculation, but were able to lease it up during construction to a single tenant, and this will deliver fully leased upon completion at a 5.6% cash yield.
The next project in our South Florida pipeline is First Cypress Commerce Center. This is a three-building, 374,000 sq f t project. It will deliver in about three months, sometime in February. We're currently discussing leasing with several prospects on the site, and we expect a 7.1% cash yield when this project delivers. Next, we just broke ground on the first phase of First 95 Distribution Center. First 95 is a 29-acre project in Pompano Beach. As you can see from the slide, it has fantastic frontage all along I-95, and we just broke ground on the phase one, 141,000 sq f t building with great I-95 visibility and access. This first phase will yield 6% when it's completed, and it is expected to be completed sometime in the third quarter. The balance of the land, approximately 19.8 acres, is a covered land play that won't be developed until 2026.
While we're holding this, when fully leased, we will have a 7.5% stabilized yield on this covered land play. Next, our largest and most ambitious project in South Florida is First Park Miami. When fully leased, when fully developed, this will be a 2.5 million square foot, 119-acre industrial park. We recently closed on the first 60 acres and are under construction on our first three buildings. We will take down the balance of the site, approximately 59 acres, over the next five years. This is a former stone quarry that is being filled by the land seller. As the property is filled, we will take it down in phases. This is a large, complex deal that had a lot of moving parts that we have been working on for over five years. In 2019, we received final site plan approval.
In January, we closed on the first 60 acres. In the summer, 87th Street was completed north all the way to Okeechobee Boulevard. You can see 87th Street on the slide on the screen. When we first put this property under letter of intent, it was a two-lane asphalt road in very poor condition. It is now a four-lane major thoroughfare and one of the major arteries, north-south arteries, in this market. In November, just a couple of weeks ago, we received the final environmental approval that we needed to begin construction. We started construction on the first three phases. First three buildings. These buildings will deliver in the third quarter of this year. We're projected to have a cash yield of 5.6% on the first three buildings. Over the five years we've been following this project, we've seen rental rates increase 8% annually.
This next slide is the site plan of the final development. The buildings shown in blue and gold are the land that we currently own, and the three buildings shown in gold are the buildings currently under construction. We will develop the buildings shown in blue as we lease up the first three buildings and as demand dictates. The buildings shown in green, gray, and red outline the next phases of the development. As the seller fills the quarry over the next five years, we will take this land down in phases for future construction. We're delighted to finally be under construction on First Park Miami, which will be one of the premier industrial parks in South Florida and will deliver value to shareholders for many years to come. With that, I will turn it back to Jojo.
Thanks, David. I want to start with a case study on how we create value in our existing portfolio. Before I do that, I want to tell everyone that we have sizable holdings in the South Bay submarket of Los Angeles. The South Bay is a large submarket with approximately 225 million square feet, and it boasts the tightest infill submarket in the U.S. with a 1.7% vacancy rate. Rents are growing very significantly. We're currently and always constantly looking for situations where we can unlock value by marking up below-market rents. Here's what our SoCal team did in South Bay. We bought out a tenant at 19067 Reyes and replaced with a port -focused 3PL at a 92% rent increase. We replaced the 3PL at 1315 Ana with Amazon for use as a delivery center and last-mile fulfillment center at a 9% rent increase.
We replaced a trucking company at 19021 Reyes with a 3PL at a 58% rent increase. These three leasing transactions total an increase of $2 million of annual net rent over 300,000 sq f t, or almost $7 per square foot increase per year. Given our success here, we continue to expand our holdings here. We acquired this corporate surplus property in the South Bay Q1 of this year. It's very close to the properties I just discussed. This is a submarket where surface rents are rising faster than warehouse rents, which in itself is growing fast. Our plan is to redevelop this property and demolish 72% of the improvements. This will result in a very low-coverage building that will be very attractive to tenants who need a lot of yard space and outside storage space.
Total investment is approximately $18.5 million with a 5.1% projected cash yield, which will give us at least 100 basis points spread over exit. We also plan to create significant value in our SoCal region through our land holdings. Before I get into our land holdings and case studies, I want to give you an update on the Inland Empire market. The Inland Empire market is the largest submarket in SoCal at 570 million square feet. It is also one of the tightest at 2.7% vacancy rate and definitely the most active submarket in terms of volume. Net absorption for the first three quarters of this year was 16.3 million square feet. We designate the Inland Empire between west and east. In general, Inland Empire West includes Fontana and everything to the west. Inland Empire East includes everything east of Fontana. I'm first going to discuss our land holdings.
They're shown with the yellow stars. Follow up with the development in Inland Empire West, which is shown with a green star. Conclude with the development in Inland Empire East, shown with a blue star. What is our embedded growth through our land sites in the Inland Empire today? Due to the hard work of our SoCal team, we own and control a total of seven sites we are currently entitling. Our plan, subject to market conditions, is to build on these sites over the next three years. This would total 1.9 million square feet with a total projected investment of $225 million at a projected cash yield of 5.6%. Let me give you an example of value creation through development in the Inland Empire West. Off-market land acquisition from a corporate user. We bought it unentitled.
We entitled the site, demolished the existing structure, and developed a two-building complex, a 358,000 sq ft and a 44,000 sq ft building. We leased the 358,000 sq ft building shortly after completion to a third-party logistics firm. That's after the third quarter earnings call. Total investment for this project is $47.4 million at a minimum 6% projected cash yield. Cash yield we previously announced. We expect to beat this minimum yield by at least 10% once we lease the 44,000 sq ft building. By the way, I have another piece of good news. We have another development about five blocks south of this site in the same sub-market we call First Redwood Logistics Center II. It's on page 98 and 99 of the appendix. We just finished that 72,000 sq ft spec development, got it leased basically at completion to a communications infrastructure provider. Total investment is $12.3 million.
We came in below budget. We beat the pro forma cash yield by almost 10% at 5.7% cash yield. That's at least 170 basis point spread and over a 40% margin. Let me now give you an example of a development in the Inland Empire East. This is in the 215 corridor, a very strong active corridor. FR has about 4.3 million square feet in this pocket, comprised of 12 buildings, a majority of we developed and currently 100% leased. First Nandina II was an off-market land assemblage of two unentitled sites. We successfully entitled it and decided to go spec. Prior to breaking ground, we negotiated a 10-year lease with a material handling company called UMH. We expect a $22.4 million investment and a 6.2% cash yield and approximately a 50% margin. Let's now move on to a different market.
In Phoenix, the largest and most active industrial sub-market is the southwest sub-market. This sub-market has experienced the most amount of large user activity and has been in the sub-market at the juncture of I-10 and 303. This is due to the excellent access, visibility, highway infrastructure, and lack of congestion. This is where our focus has been. Let me give you some history here. We made our first investment here five years ago. We bought land, outlined in blue, from a multi-billion AUM private equity firm who's not active in the industrial real estate development business. Built a 643,000 sq ft spec building, and prior to completion, UPS came to us and wanted to lease our building and make a significant investment in this location and establish the major hub for the Southwest.
We were thrilled to add the leading parcel delivery company to the park, as we knew they would attract more e-commerce companies to this location. We leased them the building, including the additional land outlined in blue. As you can see now, they've made significant investments, including adding two narrow building extensions for their high throughput deliveries. Given that success, we turned around and built another 644,000 sq f t spec building just north of the UPS building and pre-leased that to XPO Logistics. We own the site that's outlined in yellow, where we can build up to 900,000 sq f t. Our success with UPS, XPO Logistics, and HD Supply, and the great corporate neighbors that includes Dick's Sporting Goods, Sub-Zero, and REI, really proved to us that this location will continue to have the most absorption than any sub-market in Phoenix.
The only problem was that we were running out of land. About three years ago, we acquired through a JV 532 acres for $49 million, or $2 per land square foot. Our share was 49%, or $24 million. Since then, this JV has sold five sites, shown in white and yellow, totaling 315 acres, and already returned 137% of invested capital. FR acquired the land from the JV for a 644,000 sq ft build to suit with Ferrero. That was the multi-market solution that Peter Schultz talked about. There we achieved a 7.8% cash yield or a 300 basis point spread. The JV still owns 138 acres, shown in blue, where we can build approximately 2.2 million square feet. The JV has one building under construction, shown in green, which we pre-leased to MLILY, a mattress manufacturer.
Yield to the JV on this development is 7.1% cash yield or 225 basis point spread. Earlier this year, we developed the same problem we had three years ago prior to acquiring PV 303, which was we were running out of land again to service future demand. We chased an off-market opportunity just a mile north of this site. That brings us to Camelback 303 JV. The thesis is the same. We found a great opportunity to create value but did not want to over-allocate to Phoenix. We did another venture with our same partner at PV 303, which is Diamond Realty. We acquired 569 acres for $73 million or $3 per land square foot. FR share is 43% or $31 million. The value creation here is the same as PV 303, and that is to sell land to users, develop spec, and do build -to -suits.
We're already in the money, as our land base is well below market. If you impute today's construction costs and market rent, the pro forma cash yields should be in the 7% range. That ends our section on case studies illustrating value creation and growth. As you just saw, we create value, whether it's running our portfolio or in acquisitions or developments. We execute these value creation activities through our very valuable platform. In the next section of our presentation, you'll get to meet some of our market leaders who lead our teams and execute on the value creation activities we just discussed. Now let me turn it back to Peter Schultz.
Thanks, Jojo. Our first market leader I'd like to welcome is Chris Willson, who oversees our Florida market. Chris, good morning.
Thank you, Peter. Good morning.
For the audience, before we get into some of our discussion, give them, if you would, a quick overview on our geography in Florida, where our assets are.
Sure. In keeping with Jojo's slide show, our focus is on Class A industrial in land-constrained, rent growth, population growth areas. As you can see on the map on this page, in Central Florida, that is Orlando. Our targets are core infill sites and those with proximity to the 417, 429 beltway that loops the Orlando market. In South Florida, we're talking about Fort Lauderdale or Broward County, which is north of I-595, and the Miami-Dade markets south of I-595.
Thanks, Chris. Let's talk a little bit about the fundamentals in your market, what you're seeing today compared to the beginning of the year, and as you think about any areas of relative strength or weakness.
Q1 was rockstar in Florida. Everything was hitting on all cylinders. In Q2, clearly, we hit a dip. It wasn't such a good quarter. Third quarter, a little bit better, but not quite where we want to be. In fourth quarter, holy moly, I'm expecting some good things. The bigs showed up. Who are the bigs? Walmart, Target, Lowe's, XPO, Best Buy. Who am I forgetting? Oh, yeah, Amazon. Amazon showed up in the fourth quarter and in the third quarter, actually, in the South Florida and the Orlando markets in a tremendously large way. That company is going to single-handedly change the landscape of the Florida markets with all of the space they're absorbing. It's tremendous. Other sectors of note would be construction supply, food, and 3PLs.
On the flip side, if you're in Orlando and you're in the convention business, you're probably not having a whole lot of fun. Similarly, if you're in South Florida in the cruise business, times are tough. Both of those industries I expect to recover. It's just a matter of time.
Chris, South and Central Florida are growing markets for us. David certainly covered a number of projects. What's the strategy here, and where do you think about the opportunities and how you focus on both building sizes and sub-markets?
Yeah. Thanks, Peter. Well, in Orlando, we're going to focus on Central Orlando and South, Northwest, and West Orlando, sort of the left side of the dial, if you will. That's because that's the area of greatest residential growth. We also like being near the Orlando Airport, the convention center, and the theme parks, which, again, looking at the map, is sort of southwest of Orlando along I-4. In South Florida, different story. Land is particularly scarce, and most everything is essentially infill. We've had to use all of our tools in that market to be successful, whether that's taking on environmental challenges, utilizing covered land plays, demoing existing dilapidated buildings, or filling in lakes, as David mentioned. Our platform has been up to the challenge each and every time.
Speaking of our First Cypress project, it's an infill project just one block north of the Fort Lauderdale Executive Airport, which, by the way, is a facility being used more and more by Amazon Air. This project absolutely screams infill, screams last-mile users. In Miami-Dade, as we mentioned, we're underway with First Park Miami. It's going to be the finest new infill project in the seventh most populated county in the U.S. All of our projects are designed to be flexible to meet the market, which today is users in the 40,000-60,000 sq ft range.
Chris, you have quite a number of new investments that you're working. Tell us how you think about the drivers to assessing those land opportunities. What do you think about the top three?
Peter, certainly, when I think about what we look for when we try to find a site, the first thing is going to be location. I think without location, you really don't have a project that is worthy of our time. Best-in-class location, best-in-class access with a strong preference towards visibility. The second thing I would look at is the site layout. You need to be able to lay something out on the site that fits the site, but you also need to lay something out that fits the market. With our long-term ownership perspective, we really need to be careful that we're building the right buildings in the right locations. Lastly, I would say, and it seems fairly simple, but the economics have to make sense.
We have to be able to afford to build a building on the right site with the right design for the market, understanding what the market rents are so that we can achieve the kind of returns that we need to return our shareholder value.
Chris, you touched a little bit about tenant demand earlier in your remarks. What are you seeing in terms of any preference for size ranges or sub-markets? Talk a little bit about the activity on some of your new projects?
Sure. As I mentioned, we're seeing in Florida, even in Orlando and South Florida as well, our tenant average size is 40,000 - 60,000 sq f t. That being said, I think this goes pretty much across the country, the tenants are getting larger. We're seeing more and more 100,000 sq f t tenants. Activity has been pretty strong for our new stuff. Case in point, First Sawgrass. We just completed the building, and it's already leased to 103,000 sq f t single tenant in the construction materials business. David mentioned First Cypress, three-building project due to be completed in February. Wonderfully infill location. We've got just a very good amount of activity on that. I'm very anxious to see what happens with that in the next few months.
Finally, although we just announced First Park Miami, we've also already have a number of RFPs and a number of proposals that have gone out on that site, which I think tells you a little bit about the quality of the site and the quality of the opportunity there. I'm extremely bullish going into 2021 on the wings of the bigs, it's really going to be an interesting year.
Chris, with that comment on First Park Miami, David certainly gave the audience a little color on 2.5 million square feet m ultiple phases. Filling in an old quarry is no small project, creating developable land in a very land-constrained market.
Yeah.
Talk a little bit about the entitlements there and your expectations for the project.
Yes. Peter, hands down, best project, best site, best infill location in Miami-Dade County. It's going to be a great project. We've been cultivating it for five years. In that period of time, rents have increased 32%. Our project is going to lead the market and command market-leading rents, no doubt. You mentioned the entitlement process. Yes, it was lengthy. We spent five years putting the deal together, three years getting the entitlements, a year getting permits and so forth. If you think about it, we're creating literally 50+ acres of new land in a market that is super dense, super infill. I mean, Miami, it's remarkable. It's super exciting. Again, the project's at the corner of Main and Main. No question about it's going to be very well received.
Well, nothing good comes easy, Chris, that's for sure. You touched a little bit about some of the leisure-related businesses in Florida, cruise lines, conferences, theme parks. How do you think about the risks today from a demand standpoint, particularly with some of that activity, and just in general, as you pursue some of your new investments?
Fortunately, as in the last downturn, we were not overburdened by excess new construction going into this issue. Everybody knows tourism is clearly a major driver in Florida, and obviously, spring break was a disaster, and the summer vacations were nonexistent, essentially. That being said, Orlando theme parks are running at 50% capacity, and the South Florida beach hotels are expecting to be at 75% capacity by Christmas time. That would be awesome. The marine industry has been a COVID winner, as has the golf industry, and Lord knows the golf industry needed that. Interestingly, major cruise lines have actually increased their footprint because they're housing a bunch of products that would normally have been on their ships. Since the ships are all at dock, they've got all this extra product.
That said, I do think there's risk to the convention business and to the cruise lines if we have a lingering COVID situation. Everybody knows that Florida is a huge net inflow of migration. It's the third-largest state in the union at 22 million people. By 2030, they're expecting another 6 million people to move to Florida. I mean, it's incredible, and it tells you how big of a driver local consumption still is.
Chris, what's happening with land pricing and your view on development yields and value creation going forward in Florida?
Peter, land continues to be very challenging to source and increasingly expensive. That's not going to change. We're seeing prices in Orlando now from $200,000 to $275,000 an acre. I would fully expect that we'll see a $300,000 trade in the coming 12 months. We're doing deals and doing developments at yields of 6%-6.25% i n Orlando. In South Florida, you're seeing prices of $1 million an acre, and again, I see that being $1.2 million sometime in 2021. Look back to 2015, those prices were probably $700,000-$800,000. Really significant increases in pricing in the Florida markets.
Even though pricing is getting expensive and construction is getting expensive, our team and our platform is going to continue to find opportunities that will allow us to continue to develop the types of properties that we develop for the long term and make money doing it.
Chris, a couple of quick questions here to wrap up on Florida. Where will rents be in your markets in 12 months?
I would say 4%-5% higher, Peter.
How do you think of overall tenant demand and absorption will be like in 2021 compared to this year? Sorry.
Definitely higher, due in large part to the e-commerce and the bigs that I mentioned earlier.
How do you think supply will be next year compared to this year?
Again, supply is going to be down based on scarcity of entitled land and the absorption of a tremendous amount of space from Amazon and others.
Your view on a market cap rate for a long-term leased asset today and a year from now?
Orlando, you're looking at upper 4%-5%. I don't think that's going to change a whole lot. In South Florida, you're looking at 4%-5% again. I think that's going to be pretty static.
Great, Chris. Thank you for your time. At this point, we'll move to New Jersey. I'd like to welcome John Hanlon, my colleague who oversees New Jersey and the Philadelphia market. John, good morning.
Peter.
Before we start, similar to Chris, why don't you give the audience a quick overview on the geography in the Northeast and Mid-Atlantic?
Yep. Northeast and Mid-Atlantic comprises about 12.6 million square feet, with assets throughout Central Pennsylvania and Eastern Pennsylvania, Maryland, and up through New Jersey. As you'll see on the map, our assets are primarily concentrated in high population corridors, north and south along the I-95 corridor, and east to west along I-78. We have 67 buildings in this region, our average building size is about 188,000 sq ft.
John, let's kick this off with your thoughts on the fundamentals in New Jersey today compared to the beginning of the year, and how you think about relative strength and weakness.
Yeah, Peter, compared to beginning of the year, market fundamentals are a lot stronger. Rental rates are up, cap rates are equal or lower, and vacancy rates are trending lower all over. When we first had to deal with the COVID restrictions, deals that were already active in the first quarter carried forward. New deals were initially put on hold. As we came out of the second quarter and went through the third quarter, we saw tenant demand in all size ranges. This combined with some new building deliveries that had been put on hold because of construction restrictions, resulted in really robust third quarter net absorption that made up for any pause during the second quarter. Thus far into the fourth quarter, we're seeing many submarkets where tenant demand is outpacing supply.
What's worth mentioning, and we've all heard this to some degree thus far by, I think, almost every speaker, is the outsized impact, not only by the number of deals, but the size of deals for e-commerce companies and delivery service companies. Not just the household names, not just Target, Walmart, UPS, but a lot of lesser-known names that are new to the market. E-commerce and e-logistics have been aggressively taking down any available space and committing to build to suits.
John, New Jersey is certainly a high barrier market. We've seen demand accelerate south along the Turnpike, given the widening to 12 lanes. Give us your growth strategy here and where you see the opportunities.
Yeah. I'll first give a little background on the widening. Six, seven years ago, we were heading south on the Jersey Turnpike. It was a log jam at Exit 8A. About five years ago, the 12-lane widening that Peter talks about extended just north of Exit 8A down to where the Pennsylvania Connector comes in. This greatly enhanced opening up some of those submarkets down there. Tenant migration south was inevitable. The widening helped facilitate it, but it was inevitable because developable land north of Exit 8A just doesn't really exist that much. This opened up a lot of new markets. We were kind of early on in these markets and captured several opportunities and appreciated that tenant demand and growth south. What we're doing as far as pursuits, unentitled, entitled, new development, redevelopment, rezoning.
We're looking at it all, not only up and down the Jersey Turnpike corridor, but all the east-west arteries as well. This demand even goes further south of these markets that benefited directly from the widening of the Turnpike. We're swinging down into what I'm calling an expanded Philadelphia metro area. As much as we're aggressively pursuing things, where others may venture, we are not going to locations that are pioneering. We are not going to locations where there's lack of access to labor. We're long-term owners. I want rent growth markets, I want barriers to entry, and I want assets that are going to perform well no matter what the economy is. Speaking of barriers to entry, a good example of late is we just completed a true urban infill, 100,000 sq f t building in northeast Philadelphia.
This is a metro area where Amazon alone accounted for 50% of all new leases through the third quarter of this year.
John, thank you. Chris touched on large tenants. You made some references as well. We continue to see large tenants be active along I-95, Maryland, New Jersey, Central and Eastern Pennsylvania along 78 and 81. Talk a little bit about the demand that you're seeing by large tenants, kind of the supply scene that we've seen, and your perspective going forward, and how First Industrial would think about developing buildings of that size.
Yeah. This is a notable conversation. Year to date, there have been an exorbitant number of million-square-foot deals taking down not only existing spec space, but also committing to build-to-suits. Where a year and a half, two years ago in Central Pennsylvania and Eastern Pennsylvania where there was some concerns about too much exposure to million-square-foot availabilities, that pivoted given the leasing activity thus far this year. To give that some numbers and some perspective, this year alone, we've seen 11 one- million-square-foot leases in existing spec inventory, and we've seen nine build-to-suit commitments. Three of the nine build-to-suit commitments are for buildings that are actually 1.75 million square feet or larger. Would we pursue a million-square-footer? Yes, we'd be very selective. We'd have to have a true competitive advantage to anything else in the market.
I'm going to use New Jersey as an example. In New Jersey, there's one building that's 1 million square feet available right now. It's functionally obsolete. It's likely going to get redeveloped. Other than that, there's five sites that I would consider viable. One of them is under construction on a spec basis for 1 million square feet at the Exit 8A submarket. The other four are at various stages of perfecting their entitlements and approvals. We believe there'll be continued demand in this size range. The challenge is finding sites with the right attributes that are going to merit the risk and are going to have the economics to provide for the return that we would need to have for such an undertaking.
John, continuing with the site discussion, where is land pricing today along the Turnpike, and how do you think about current development yields?
Land pricing's all over the map, Peter, in the Jersey Turnpike. I'll try and break it down and give some examples. If you're up around the ports or north in the Meadowlands or Jersey City or Kearny, where people have attributes of immediate access into Midtown Manhattan, you're going to see land values vary from $85 an FAR up to $165 an FAR, albeit subject to site conditions. You move further south down the Turnpike, land's going to vary anywhere from $30 an FAR to $85. Again, subject to site conditions. Are the soils structurally sound? Is there environmental remediation? Do we need DEP approvals, DOT? It goes on and on and on and on, so much so that one site could have a marginal impact of up to $40 an FAR just to tackle some of these issues.
Relative to spreads, we're seeing yields with spreads 50 basis points to 125 basis points over market cap rates. There's a lot of competition out there that's more than happy to do 50 bps spreads for a spec project. These are on top of cap rates that are ±3.75% upto 4%. While land values are continuing to grow and construction's expensive, rent has grown as well. However, I think we're going to continue to see rent growth, but we're also going to see a lot of pressure on yields given the competitive landscape, Peter.
John, pivoting from development for a moment, are there any accretive acquisitions in New Jersey for us?
Accretive acquisitions are very difficult to find and few and far between. This year, there's been but a few quality assets that have traded at sub - four cap rate. These are assets that don't really have much appreciation because they had long-term leases or fixed renewal options. There's no ability to capture any rent growth over the long-term hold for these assets, or let's just say 10 years, which most people underwrite to. The only other capital markets activity this year, Peter, has been Class C portfolios in second-tier markets. That's it.
John, Peter, in his comments earlier today, talked a little bit about our ESG initiatives. How are we working those into our new developments? I know you've had a recent solar installation in New Jersey. Perhaps you could touch on that as well.
I will. To touch upon some of the basics initially, as we're re-tenanting spaces, we're taking out old lighting and putting in energy-efficient lighting. All new development projects have high-efficiency LED inside and out. We put on white reflective TPO roofs, where it greatly reduces the heat generated in the summer. Where possible, we try and stick to native landscape that requires the least amount of irrigation. Relative to solar, in the region, the only place to really discuss it is N.J. because N.J. has notable and accessible solar credits. A project we're working on right now on a 577,000 sq ft building, we're working on a project with a tenant of ours, and it's going to be two solar installations on the roof. We're a little bit more than 50% complete.
At the end of the day, the combined solar installations are going to be able to generate 2,744 kW. Going forward, the solar credits will change. I think they'll still be advantageous in New Jersey. We're kind of between what's going to be put out there. I'm having all of our new development projects designed to have the structural capacity to handle future solar installations should we so choose. We always have to take into account live load access for snow accumulation in the northeast.
Great. Thanks for that. Similar to other high-barrier markets around the country where the entitlement process is difficult, what are you seeing there, and how are you dealing with that relative to underwriting for new projects?
Peter, with very few opportunities to develop, and especially in northern New Jersey, and I kind of referred to soil conditions in the past, there's no low-hanging fruit. Every site comes with complications. Every site has different issues. It greatly impacts not only the cost, but also the timeline, and we're underwriting for it. We know these things ahead of time, and we're underwriting relative to the risks, the exposure, the cost, and the timeframe. Most of the factors that lead into this and reference longer timeframes, it'd be great if we could find something that's further along in the entitlement process, but if we don't, it is what it is. The team is fantastic at identifying the issues, managing the risk, and we perform. We roll up our sleeves, and we get it done.
I'll tell you, Peter, we've had several opportunities where it's been a competitive advantage showing the capacity of the team in securing a site that's been out on the market. In the end of the day, it is what it is, and it's a governor on new supply, and it enhances the value of our existing portfolio.
John, thanks. Just a couple of quick questions for you as we wrap up before we move to the next market. Where will rents be in your markets 12 months from now?
They'll be higher by at least 5%, Peter.
What will overall tenant demand be like next year compared to this year?
It'll be equal to higher, especially looking at the landscape of the tenants that are still active in the market looking for space.
How about supply this year compared to next year?
Supply is going to be equal or lower, and lower only because there's fewer development opportunities, and the entitlement process is taking a little bit longer.
Lastly, where do you think a market cap rate is on a long-term leased asset today, and where do you think it'll be next year?
Today, market cap rate in primary markets is ±3.75%, up to about 4%. It'll be the same or lower next year.
Great. John, thank you. At this point, we're going to move on to Southern California.
Thanks, Peter.
I'd next like to introduce Ryan McClean, our longtime leader of our largest market, Southern California. Ryan, good morning. Like we've done with Chris and John, if you could please give the audience a quick overview on the Southern California landscape and our assets.
Sure thing. Our portfolio in Southern California is located primarily in two clusters. One is in L.A. County, the second, Inland Empire. If you're looking at the map, you can see Los Angeles. If you look to the south, where you see Long Beach, that's the Ports of Long Beach in L.A. All the stars in between, that's really the L.A. portfolio. If you go down the coast, you then have Orange County, then San Diego County. If you go back up to Los Angeles and then go east, kind of follows the trucking routes to the Inland Empire, and you see the next cluster of stars, and that's the Inland Empire, west and east.
Thanks for that. Ryan, similar to our prior two market leaders, talk a little bit about the fundamentals in your market today compared to the beginning of the year, if you would.
Sure thing. Market fundamentals are definitely stronger. Any slowdown by certain tenant groups was easily eclipsed by the pickup in e-commerce demand with other tenants.
Do you see any pockets of relative strength or weakness, or is everything just terrific in Southern California?
Well, if you look at the market as a whole, it's about 2 billion feet, which represents approximately one-seventh of all the industrial real estate in the United States. The vacancy rate for that pool is currently about 2.6%. Really all submarkets and size ranges are strong at the moment. One outlier that's consistently outperformed is in the million square foot size range. The overwhelming majority of these buildings continue to be pre-leased. Currently, there's no Class A product available that's constructed in this size range.
With all that activity, talk a little bit about and give us some color on what industries are most active today, and if you're seeing, as you said, is it heavily weighted towards the larger users, mid-size users? What are you seeing there?
If you kind of break it down between the larger buildings, that's a lot of the likely suspects like Amazon, Walmart, The Home Depot. You look at the smaller and medium sized buildings, and you've got the various importers and fulfillment companies that supply the larger household names, if you will.
What are you seeing everybody looking for today, Ryan, in terms of facility design?
Class A, higher ceiling heights, and lots of trailer parking.
As everybody knows, Southern California is our largest market and continuing to grow. Talk a little bit about our strategy there, both for developments and acquisitions, and how you think about submarket focus, given some of your earlier comments.
Our strategy, I would say L.A., our focus is acquisition and redevelopment of low coverage, redevelopment, heavy freight type of uses that appeal both to the traditional freight users and now to the last mile users. For the Inland Empire, again, simplifying here, our focus is on developing ground up, Class A new facilities.
Is there much difference between our strategy between IE East and IE West?
With the enormous absorption we've had year -after -year, the East has really filled in in terms of both for the big size ranges and for the smaller and medium size ranges.
Given all that activity, what's happening with land pricing in those markets and your view on development yields today?
Land pricing is a direct correlation of current rents plus expected rent growth. It continues to increase. Fortunately, the supply story is, and the supply is intact, so it's allowed landlords to continually increase the rents, so really, yields have more or less remained the same.
Where would you peg yields at today?
Development yields between 4% and 5%.
You talked a little bit about Inland Empire East filling in. Where does the development go from there as that's becoming more infill, as you said?
Sure. Driven, I'd say primarily by the 1 million square foot users, we've seen a bump, and this has happened within the past few months, north out of the Inland Empire into the High Desert, and then further east towards Palm Springs and then deeper south into the Inland Empire. If you're looking at the map, that would be north into past the green area from the Inland Empire. That's the High Desert. By the way, all the green areas are mountain ranges, so that along with the ocean, really defines the geographic constraints within Southern California. Then south along deeper into the Inland Empire and then again east towards the desert.
Ryan, similar to other coastal markets, entitlements are a challenge, certainly in California. How are you dealing with that today, and how are you dealing with it from an underwriting and a timing standpoint? Certainly, projects are taking a lot longer. I suppose it's becoming a little bit of a governor on new supply as well. Your thoughts?
Yeah, absolutely a governor on new supply. Entitlements differ city by city, really site by site. We spend a lot of time upfront with our development team, really screening the sites and applying the appropriate contingency in terms of time and cost. We also like to work in jurisdictions and cities that we're familiar with and continue to do repeat developments in those cities. We take a lot of time to understand new cities before we start to take on a project in those areas.
Are you seeing any municipalities saying they simply don't want industrial development today?
Yes. We're seeing not only the municipalities push back, but we're also seeing the state push back. There is a huge housing crisis here as I think most people know. Converting land into industrial or converting land into anything besides housing has become a big struggle. We don't see that going away anytime soon.
Ryan, how do you think about the risks to development today? Certainly, Proposition 15 was threatening. It didn't pass, although we didn't view that was going to be that big of a deal for our portfolio. How do you think about the political landscape, the high operating costs, population leaving California, disruption to port traffic and imports? Give us some color about how you think about that and how it impacts our portfolio and the market in general.
Sure. The demise of California seems to be an unending topic to discuss, even here in California. California isn't going anywhere. It's 12% of the U.S. population. The GDP is fifth in the world between Germany and India, home to companies like Apple, Google, Tesla. Our port, rail, and highway infrastructure is second to none. Yeah, the migration's flat. It's actually been flat for about 20 years. As people move out, people also move in. We have birth rate growth as well. We have a trend of people moving from the rural areas to the cities. We're seeing growth from there as well.
Ryan, talk a little bit about what you're hearing from your tenants in terms of how they're adjusting their supply chains, particularly in the environment that we've been in, and how you think that's impacting demand for industrial space in Southern California.
Yeah. Interesting question. The activity comes from a combination of both the accounts growing and new accounts, and then just people wanting more inventory on hand. The supply shortages that's happened in the last six months, I think have really pushed people just to be more conservative and grow their inventories.
Is that resulting in more demand, less demand? What are you seeing there?
Across the board, both in terms of new accounts and accounts growing.
Terrific. California's had a moratorium on evictions. How have you dealt with that from an operational standpoint? Give us a little color on the dynamics with our tenants during this time.
First of all, we spend a lot of time upfront. We're very discerning about who we lease our buildings to. The moratorium on evictions has further reinforced this strategy. I think in the last 60 days, we've passed on 15-20, I call them startup import companies. I'm really looking for companies that have more of a track record. Not only do we get to know them upfront, but we stay close to them throughout the tenancy. In this last six months, we've successfully, in three different situations, been able to move tenants out and either increase credit term or rate or some combination or all three.
Do you think there are more opportunities to do that going forward?
Yes, I think there will be.
Great. Ryan, as we wrap up your discussion, a couple of quick questions for you similar to your colleagues. Where do you think rents will be in your markets 12 months from now?
Higher, 5%-10%.
Where do you think tenant demand will be next year versus this year?
Higher.
Where do you think supply will be like in 2021 compared to this year?
Flat, maybe slightly trending down due to lack of land.
Finally, where do you think market cap rates are for long-term leased assets today, and where do you think they'll be next year?
High threes, low fours. I think they might decrease a little bit based on expected rental rate growth.
Ryan, thank you for your comments. That wraps up the Market Spotlight section. Now you've heard from our three market leaders, their optimism about our growth prospects, and the strength of the fundamentals in their markets. With that, I'll turn it back to Bob Walter.
Thanks, Peter. We thought we'd spend our last session this morning talking a little bit more with Peter, David, and Jojo about what they're seeing across our various markets. We call it a macro perspective on the industrial business throughout the U.S. With that, Peter, we've talked a lot about Amazon, both today and in the news recently. When do you think they'll have enough space?
Well, if this year is any indication, no time soon. They've leased over 60 million square feet just this year alone. Their expansion is certainly correlated with their growth. As you think about the service levels that they're trying to deliver, certainly, that is fueling a lot of their activity. They continue to be very active, as you heard from some of our market leaders, and we're seeing them all over the country. I don't think there's a slowdown coming anytime soon for them.
Jojo, when you think about your portfolio, what do you think about your max exposure you want to have to Amazon?
Well, right now, overall, in terms of net rental income, we're about 6%. We're very, very pleased to have Amazon as a customer at 6%. They're the fastest-growing, most well-capitalized, I would say, behemoth, and has the strongest competitive position in the market as an e-commerce retailer. We're very pleased to have them at 6%, and I think it's going to grow. In addition, what I just also want to add is that those facility types at Amazon are a broad range. They're not just one facility type. They're spread across all our target markets, and in addition, that some of them are delivery stations and last mile fulfillment centers. Some of them are large, big box fulfillment centers, and some minor use for data centers. Diversified by property product type as well.
Peter, you've done a couple of deals with Amazon in the last year or so in your regions. One of the big topics of conversation is their new prototype, 70 ft clear multi-story. What are you seeing across the country with that prototype, and is that something First Industrial would entertain?
As we've said a number of times today, Amazon is very, very active around the country. They've certainly taken large spec buildings and put mezzanine levels into them. Bob, to your question, they are building a number of four and five story buildings around the country. We view those as special purpose. It's not something we're going to do. We're seeing those in more and more markets, and capital is certainly accepting to fund those. As Jojo said, and we've commented earlier, they have a diverse array of facility types, and the demand continues to be driven by service levels. They're certainly an innovator in the space for sure.
David, as you look across the country, what percentage of demand in 2020 do you think has really been from Amazon?
With 50 million -60 million feet there, at least 20% of demand nationally, which is unheard of. I don't think there's another tenant that's come close to that. They're a big portion of it.
Peter, finally on Amazon, what are you seeing from parcel companies as Amazon continues to evolve their business lineup and really evolve into the delivery parcel part of the business?
While Amazon certainly gets a lot of headlines, UPS and Federal Express, DHL, some of the 3PL providers, have all been very, very busy. You heard Jojo talk earlier about UPS's major hub in Phoenix, that we worked with them on. FedEx just finished their latest ground hub in the Lehigh Valley in Pennsylvania, which will be the largest ground hub in their system. We continue to see them very, very active around the country on a number of different deals and sizes. We think there's no slowdown there either, given the expansion of e-commerce, and they are two of the largest providers of package delivery to homes. We think they will continue to be a steady and growing tenant for the future.
Thanks, Peter. Let's move on to leasing for a moment. Jojo, what are you anticipating for market rental rate growth in 2021, and what do you view as the big drivers of that growth?
You know what? We're looking at maybe 3%-5% on average. I would say 3% more in the middle of the country. Basically, most of the country, we expect rents to increase. The higher end of the range would be more coastal markets, just because they're more infill. There's going to be a little bit less supply, and the net absorption there will continue to exceed supply. There are pockets in the coastal markets that will definitely exceed the 5%, just because the demand will just exceed supply by quite a bit. In terms of drivers, it's overall. Drivers are the economy is going to get better. It's got a broad range of users, just like Peter Baccile already explained in terms of all the types of users that we have. E-commerce is definitely still a tailwind.
The percentage of e-commerce sales as a percentage of total sales, we expect over years to the years to come to increase. One other thing, the productivity has increased as well.
Thanks, Jojo. Peter, what industries aside from e-commerce are you seeing as most active in the market today?
Bob, it continues to be very broad-based across the country. We're seeing, in addition to Amazon, UPS, FedEx, DHL, Home Depot, Lowe's. We're seeing food and beverage. We're seeing consumer products companies, like Kimberly-Clark, as an example, has been active. Walmart is very active. We're also seeing some of the manufactured goods sectors, the people that are making paper and packaging materials that are needed for the shipment of all of these e-commerce goods. We have a couple in our portfolio that have grown several-fold this year to try and increase capacity to meet the increase in e-commerce. We continue to feel pretty good about where the breadth of demand is.
David and Peter, talk a little bit, if you could, about what you're seeing from your Midwestern markets in terms of demand, et cetera. David, why don't you start?
Sure. Chicago, I'd say demand is good, but not anywhere near what it is in the coastal markets. The last numbers I've seen showed Chicago at 8.5 million feet, 8.4 million feet of absorption through the third quarter. They'll probably be on pace to do what they did last year, which is about 12.9 million feet. That's a 1.2 billion square foot market, records are up in the 20 million square feet of absorption. While it's solid, it's nowhere near what we're seeing in the coastal markets in terms of rental rate growth, nowhere what we're seeing in Dallas or Atlanta in terms of activity.
Okay. Peter?
Those other markets, Bob, would be Minneapolis, Detroit, and our Ohio markets. I would say similar to David, they're steady, but certainly not as vibrant as what we're seeing on the coast. Having said that, our occupancy levels are at or very close to 100% in all three of those markets. There's less new supply in those markets on a relative basis compared to others. Demand continues to be pretty steady. In Detroit, as an example, whenever we have a vacancy, it's quickly leased or sold to a user. We continue to be pretty pleased with demand. As you've seen, we continue to reduce our footprint in those markets, and you should expect us to continue to do that. All in all, they're doing just fine.
Peter, on that theme, talk about space sizes. What are you seeing across your markets and the U.S. in terms of where is demand for space size? We've heard a lot about big deals. What about other sizes?
Activity, I would say, it varies across certain markets. Sizes are relative to markets. Pennsylvania, New Jersey, Atlanta, Dallas, Chicago, Southern California, you're going to tend to see more of the bigger deals. A big deal in some of the other markets might be a small deal in some of those markets. In general, activity is pretty good across most size ranges. In the third quarter, most of the leases that we signed as a company were under 50,000 sq f t, as an example. There still is life and activity in the smaller sizes. I would say overall, demand is most consistent from the bigger tenants and the bigger spaces across the country.
Let's move on to what we're seeing from our tenants. Jojo, Ryan touched on it briefly in terms of what he's dealing with in Southern California with respect to eviction restrictions. How is FR dealing with those, not only in California but elsewhere in the country where those restrictions are in place?
Sure. By and far, courts are pretty much open everywhere except for a number of counties that Ryan may have mentioned. I'm not going to repeat those. In SoCal, there's some backlog in eviction moratoriums. By and large, courts are open and evictions can be made. Even those in situations wherein there's a backlog. On the legal side, as a landlord, you can file judgments, and then on judgments, you can pursue judgments. You just have to deal with the timing issue to go through the courts. More importantly, as far as industrial, before an issue becomes an eviction issue, what we really try to do is sit down with the tenant, try to understand what the issue is.
A lot of times, if it happens, it is financial, but sometimes maybe the fix is just moving the tenant to a smaller building or moving the tenant to a different location where there's cheaper rent, working with the tenant. For example, and the case in point is, as I just gave case studies of just recently in the last three months wherein we engaged some tenants wherein the plans changed. We were able to juxtapose that. A win-win approach. Some lease terminations and a big increase in net rental income for FR.
Thanks. When you talk to your tenants, what are you hearing from them in terms of post-COVID with respect to how they're adjusting their supply chains and how they position themselves going forward, and what do you think the result is of demand? I'd like to pose that question to both Jojo and Peter. Jojo, why don't you start?
Sure. It really depends, Bob, on fulfillment, the need for fulfillment. There's been an increase of direct fulfillment because of what this country went through. If you're a pure e-commerce retailer or pure direct fulfillment company already, so you're increasing your need. Now, to the extent that you're more traditional and you don't have a supply chain yet to handle the direct fulfillment, that's a big change because of all that's going on in the market. You need to ramp up that. That's basically increasing that change. It really depends on the business model of a business, but all of the businesses that need to direct fulfill or have a portion of their business on the direct fulfillment, they've experienced a significant change, and that's what we're experiencing with our tenants.
Peter, what are your thoughts?
The other thing I'd add to that is, and Ryan touched on this in his remarks, we're definitely seeing tenants increase their safety stock because they don't want to be stuck without product. To Jojo's point, no product, no sales. The other thing we're hearing from them is more of a diversification strategy so that they can better manage the access to the inventory. None of this happens overnight. It's certainly going to take a while for the supply chains to evolve yet again. We think it bodes well for demand for industrial space long term as more, whether it's manufacturing production or an increase in those inventories, as necessary. We think that's great for our business in the United States.
Okay. David, with all the changes brought on by COVID to working and schooling from home, have you seen an impact on housing-related tenants in your portfolio with a pickup in demand?
Yes. The housing markets in both Texas and Florida are extremely strong. In the last 60 days, we signed a 100,000 ft lease with a custom cabinet maker in Florida. We signed a 37,000 ft lease with a carpet supplier in Dallas. Housing has remained strong throughout the year, and if anything, it's picking up.
Peter, other than Amazon, how are other users addressing last-mile needs?
Well, a lot of them are using Amazon as their logistics provider. Part of Amazon's growth is certainly driven by that. We're also seeing, as we touched on earlier, Bob, UPS, FedEx, DHL servicing that. Geodis and XPO and the other third-party logistics providers continue to be very active there. We think there's a pretty long runway for a lot of companies that haven't yet built out their service delivery for same day, next day. That still is early in the stages for a lot of these companies. Amazon's clearly way out ahead. We expect more demand to come from that service level need.
Thanks, Peter. David, we spend a lot of time when we're looking at new deals talking about labor availability. Our tenants are obviously very keen on that aspect of their businesses. With the uptick in unemployment, have we seen any changes that are sticky, we think, going forward in terms of the labor markets?
I don't know if they're sticky going forward. In February, labor was the first, second, and third question that everybody asked. A lot of sites had real problems getting good labor. It's somewhat less of an issue now. At least it's not the first thing that everybody's talking about, but it's always an issue, and I'm sure it'll come back.
Guys, all three of you have markets where you've got port activity. Give us some color on what you're seeing in your markets with respect to the ports, and what's been the impact on industrial demand. Peter, why don't you start?
Port activity certainly dropped on the East Coast during COVID. It has increased based on the figures we've seen to about 95% of what it was. As you heard from John Hanlon, New Jersey has not slowed down at all. We continue to see high levels of demand, and the seaports don't move, and consumption is still very focused in that population area. We don't view it much more than a speed bump with what's going on at the moment.
Jojo?
If you look at the Port of L.A. and Long Beach, if you compare August and September year-over-year, the loaded inbound containers cargo increased 17%. That's what matters to industrial. Containers cargo imports, because those products that are in a containers cargo needs to end up in a warehouse. We do have recent stats. We don't have all of the stats from all the reporting agencies, basically, they do range. I'm happy to report that overall for the U.S., the container volumes have increased imports. Basically, if you compare October 2019 to October of this year, the total imports increased 20%. If you just limit that to imports from Asia, that's an increase of 24%. If you now limit that just to China in terms of October 2019, October 2020 for container volumes, imports only, that's an increase of 30%.
We don't exactly know yet what ended up in the east or the west, but that's still good news for the U.S. in terms of warehouse business.
David?
Well, I deal with a number of different ports. They're all very different. The Port of Savannah is now the third busiest port in the country. It's growing tremendously, serving the Southeast. Its effect on industrial real estate is a little harder to figure out because most of the stuff that comes into Savannah gets put on a train right on the dock. It is spread out between at least six intermodals spread around the state. While the port continues to grow, between the stuff that gets unloaded in Savannah and the stuff that gets unloaded in these six intermodals, the impact on industrial real estate is very diverse. The two ports down in South Florida, Fort Lauderdale and Port of Miami, they're both extremely busy ports. Most of the imports that come into those ports is just local distribution.
Not a lot of it is leaving the state of Florida. What is unusual about, especially the Port of Miami, is it's a very busy export port. It's got as much exports as it does imports because most of the stuff that goes to South and Central America and the Caribbean goes out of the Port of Miami. It does have a major effect on the industrial market there. Finally, the Port of Houston, it's also growing, but it's still primarily dominated by the petrochemical industry. A lot of what goes out, there's not nearly as much that comes into Houston as it goes out, and most of what goes out is never put in a warehouse. It's pelletized petrochemicals, plastics, that is being shipped around the world. Really, every port is different.
Okay, thanks. We've got a few more minutes to talk about investments briefly. Jojo, talk about margins. Peter touched on that a lot in his remarks. What kind of margins are you looking for in the world today as you're out looking for new investments?
We're still striving for 100 -1 50 basis point spread on spec development. So far, we've exceeded that, but the markets continue to be competitive today, and we continue to see that happening in the future. You can dial that down for build to suits. For build to suits, we're going to look for 50- 100 basis point spread. You can dial that a little bit down if you're doing for value-added acquisitions, because then you don't have any construction risk anymore, and you're looking to create value through lease-up or some redevelopment of that property. At that point, we're looking at about 50 - 75 basis points over exit values. Like I said in my prepared remarks, we're always looking to create that margin using our platform on any investment that we make.
Thanks, Jojo. David and Jojo, you talked about some of the land positions the company's taken in the last year or so in your markets. What drivers do you look at in assessing new land opportunities, and what strategies are we employing to source those opportunities? David?
Like any investment, we're looking for high barriers to entry. We look for population growth. Ideally, there's a supply chain component, either a port or an intermodal. All those things relate to higher than average rental rate growth over the coming years. We use a lot of different strategies. One thing we do a lot is we'll look at aerials of markets that we're interested in and see if we can identify any sites that are underutilized or could be redeveloped. Over the last few years, we've bought REO land from banks, we've bought from ranchers, we've bought from farmers, we've bought surplus real estate from nonprofits and corporations. We've now filled a quarry. We've rezoned retail land, and we've subdivided a lot of different parcels. There's a bunch of different strategies.
Jojo?
Just to add to what David said. What we don't buy is we don't buy widely marketed entitled land. There's no value there, because it's not difficult, nor is it complicated. We're using our platform to find situations where we can use our entitlement expertise and construction expertise to navigate through that and take the entitlement risk. There, at the end of the day, once we get entitled, it will probably be 50% of fair market value of the land. We employ that. In terms of what David said, almost all our land come from unsolicited offers. When David discussed the farmers and the non-professional real estate owners that we buy land from, those are unsolicited. We try to get to before it's widely marketed.
Okay. Thanks, Jojo. While we're on that topic, talk a little bit about what you're seeing from municipalities across the country with respect to development approvals and inspections through this last nine months of COVID or so.
It's definitely more difficult than pre-COVID. It takes longer, more reviews. Municipalities are less staffed. Then, just to add to that, municipal offices closures. There are some municipalities that were closed for 60, 90 days and not processing new approvals. It's coming back. The capacity has come back more and more, and now it's closer to pre-COVID. At the same time, there are a number of markets in the U.S. that we're actually focusing on to try to develop. The standard of approval keeps on increasing, and so reviews are increasing. The plan checks are taking more time. There are more groups protesting and challenging the development. It's getting a little bit more difficult.
Thanks, Jojo. Last question we have for the group this morning. Peter, what kind of threat do you all see from vacant malls, department stores, alternative retail locations? Do they pose a threat to your business? What are you seeing on the development front of those types of facilities?
Thanks, Bob. I would say there are certainly some conversions and opportunities there, but we don't think it's going to be significant and certainly not a threat. Having said that, it's very difficult to do given traffic issues, given economic issues where retail rents have historically been much higher than industrial rents. Municipalities generally do not want, nor do their residents, heavy truck traffic in some of those locations, particularly not what is now very intensive demand from e-commerce related users, even much more than traditional warehouse and distribution companies. There will be some of it, and there has been. We certainly look at those opportunities in market-appropriate areas. All in all, we don't think it's going to be that significant.
Thanks, Peter. Well, that wraps up our session for this morning. As you can see from the remarks by Peter and David and Jojo, as well as the remarks from Chris, John, and Ryan, we have a tremendous platform with a very broad-based depth of expertise. With that, I'd like to reintroduce Peter Baccile, who will wrap up our presentation for this morning.
A wrap up here. Over the past couple of hours, our senior team has taken you through our business plan, results, and strategy for future growth. Let me recap our goals for the next few years. By the end of the period, we expect that approximately 95% of our portfolio square footage will be in bulk and regional warehouse product. Second, we have the opportunity to once again deliver outstanding cash flow growth over the period and believe we can generate $260 million of AFFO in 2023. Third, we'll remain focused on 15 key logistics markets and expect those to account for approximately 95% of our rental income. Lastly, our coastal exposure will continue to increase and should comprise 50%-55% of our net rental income by the end of the period. I began my remarks today with this page, the six key takeaways.
If you were going to pin a page from this deck to the corkboard at your workspace, this would be the one. You've heard today from many of the senior members of our team. We believe, and we hope you believe, that the strength and resiliency of our platform positions us very well to take advantage of the tremendous growth opportunity ahead. We will remain focused on our strategy and strive to provide superior execution and cash flow growth. Thank you for the trust you have put in us through your investment in our shares. We also believe the value proposition is outstanding. That concludes our formal presentation. I'll now turn it over to Art Harmon, who will organize the question -and -answer session. Thank you.
Thank you, Peter. We have a few questions that have been submitted through the website. Can you talk a little bit about the capital needs that are assumed in the 9% annual AFFO growth opportunity that you laid out, and what does that translate into on a per-share basis?
Yeah. Scott, would you take that one?
Absolutely. The capital needs we need to achieve that plan are about $130 million to complete our developments and process as of September 30th, and to complete our two new starts we announced in our third quarter call. That will be covered with about two years of excess cash flow that we will have from the operations of the company. As far as AFFO per share is concerned, unfortunately, I have to say this because of the SEC rules, please look at our supplemental to see how we calculate it. We think that number will be about $1.97 if we can hit the $260 million goal in 2023.
Okay, our next question. Besides the R&D and light industrial sales that you have planned, how much bulk and regional warehouse sales are expected as part of the next several years? Would that all occur in non-coastal markets?
Sure. The bulk of our sales will be light industrial and R&D. There'll be a few bulk and regional warehouses, but most of it will be light industrial and R&D, and most of it will be in the non-coastal markets.
Next question's on Nashville. It's part of our target 15 markets that we've outlined during the slide presentation. What are our plans there, and how do you think about that market from a supply and demand perspective?
Sure. Tennessee is the fifth fastest growing state in the U.S. Nashville is the most populous city in Tennessee. We're intrigued. Tennessee also happens to be ranked by U.S. News & World Report as one of the most fiscally responsible in the U.S. With being a zero-tax state, we see the population growth there continuing, which is intriguing to us. We're spending a lot of time looking around. We have assets there. We have a land site there that we're currently targeting for a build to suit. We hope to see some additional growth there.
Okay, next question. You have a fairly low basis in your land sites in Denver and Miami. What's the opportunities to replicate those types of low bases as you look at potential new sites in those markets?
Jojo, you want to take that one?
Like we said, we have a platform, and we scour the market. We leverage off our relationships. We have entitlement and construction expertise. We make a lot of unsolicited offers. We are experts in terms of what we know about the market and where the demand is coming from. We've done this for multiple years. In addition to what you asked about Miami, if you look at the basis that we have in the Inland Empire, that basis is less than 50% of fair market value in multiple sites. That's how we're going to do it. We're just going to do it exactly like how we did it before with our platform. It's tough, but it can be done, and rest be assured, we have a platform out there constantly looking for those opportunities.
The only thing I would add is that as soon as we have bought well, we will then execute on the construction and development and lease the space just like we did before. So far, so good.
Okay, next question. When you're thinking about your NOI portion of your AFFO opportunity, what are your assumptions for rent escalators and rental rate growth that you have embedded in that? What are you assuming for market rent growth over the same time period?
Scott?
For the rent escalators, very similar to what our in place is. About 98% of our leases have rent escalators of about 2.7%. That is consistent for the next three years. As far as increases in rents due to leasing, what we've modeled in our AFFO growth scenario was 12% next year, 8% the following year, and 6% the year after that. Let me walk through those numbers. The 12%, we feel comfortable with that. We've signed about 34% of our maturities next year at about a 12% increase. Our budgets are looking like it is going to land on that number as well. For the next couple of years after that, 2022, 2023, we feel very comfortable with rent growth in our markets.
I think we might do better than the eight and six. We added a little bit of conservatism in there a couple of years out, just for any uncertainties that happen in the market. We're very bullish about rental rate growth, and hopefully, we could do better than that 8% and 6% increases in rents in 2022 and 2023.
Okay, next question is about our coastal market allocation and target for getting to 50%-55%. How do we think about PA and Central Florida as a component of that growth?
We're certainly going to grow in PA and Central Florida. As you heard during the day from our region heads and market leaders, we've got significant land holdings in South Florida. We have some in Central Florida, and we're pursuing a number of opportunities in PA. That'll certainly be part of the growth.
Question about development. Currently, it's estimated that development at risk is about $150 million. How do you see that evolving over the next couple of years?
Sure. This year, the numbers are a little bit lower than our track record of the past several years, due largely to the pause in the development pipeline because of COVID. You should expect that going forward, the development volumes will look a lot more similar to what they've been in past years.
This question's for Scott. What are the specific pieces of debt that will be refinanced as part of our AFFO growth opportunity of 9%? What are high-level refinancing plans for those debt maturities?
The $600 million, about $460 million of it are term loans that we have in place. The rest of it, the lion's share, is mortgage loans coming due in 2021 and 2022. Again, we have a lot of different paths out there. If you look at the public bond market right now, that could be an avenue we choose. If you look at spreads in that market right now for a company with our rating, it's probably 125 basis points. That execution puts you a little bit north of 2%. You use that math against the interest rate of what's maturing, and that gets you that $7 million opportunity, which is about $0.06 per share.
Next question is about operating expense savings. How much left is there related to the portfolio as we continue to transition from some of the smaller assets to larger bulk and regional distribution centers?
Scott.
I would say that the plans for the company are to grow the asset base. Any synergies we get from selling down further the high-tenant assets, instead of growing the employee base of the company, I just think we'll keep it consistent. You will see savings. We just won't grow G&A as the company grows.
Okay. Are there any other places where you can have meaningful operating expense savings over the next few years, beyond debt costs?
I think debt cost is it. With our property operating expenses are the largest part of our expenses, and at the occupancy level we're at, and the vast majority of our leases being net leases, they're recoverable from our tenants.
Okay. This is a question on grocery e-commerce penetration. If e-commerce related to grocery grows from 1.5% to 15%, how do you think FR will benefit from this trend?
Jojo, you want to take a shot at that one?
Yes. A big benefit. The reason is that in e-commerce requires 2.5x what a traditional business requires on a traditional warehouse, because direct fulfillment requires stocking more than the standard stocking rate or inventory to sales ratio of traditional business. That's not even adding the sheer increase, the volume of an increase in percentage. One thing that we didn't talk about during this whole session is returns. Industry research says that the range of returns range from 30%-40% of anything bought. Now, that has to go somewhere. De facto, you have 30%-40% more required space when you're doing e-commerce. All that is good for the warehouse business, and I think it's a long runway. What will happen is that more types of industrial facilities will come out, too.
You have your large fulfillment formats, you have your delivery stations, you have your sortation centers. That's all within our portfolio. Good. All good.
Okay. We'll take time for one more question. Based on private market cap rates today, what do you think is the appropriate cap rate for a portfolio such as First Industrial's?
Jojo, you want to take a crack at that?
Clearly not what we're trading at in terms of total cap today, but compared to our peers. It's hard to peg a range, when you look at I'll just give you the private market valuation. Basically today in the U.S., for good quality real estate, Class A property, the cap rates range from 3.5% to 4.5%. It's closer to 3.5% in the high infill markets of, let's say, Miami, L.A., and it goes up to 4.5% when you go spread across the country. The reason for that is that there's significant amount of under-allocation, a lot of buyers. We have one of the best fundamentals, maybe just second to data centers. Best fundamentals in the market. There's demand.
We think overall, in the future, the demand fundamentals of industrial will even widen the lead to the product type. I think it's going to be more valuable. That would be the range of cap rates on a private market. I'll let you, as experts, decide what would that be for a company like FR. For a quality product, again, 3.5%-4.5% is the range for exit values that you're seeing across the U.S.
Okay. Well, thank you very much for joining us today. Please get in touch with us with any questions, and we look forward to connecting with a number of you next week during Nareit.
Thank you.
Thank you.