My name is Catherine, and I will be your conference operator today. At this time, I'd like to welcome everyone to the First Industrial first quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during that time, please press star and then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Please note that today's conference is being recorded. Thank you. I'd now like to turn the call over to your host, Art Harmon, Vice President of Investor Relations. Sir, you may begin your conference.
Thanks a lot, Catherine. Hello, everybody, and welcome to our call. Before we discuss our first quarter 2019 results and guidance, let me remind everyone that our call may include forward-looking statements as defined by federal securities laws. These statements are based on management's expectations, plans, and estimates of our prospects. Today's statements may be time sensitive and accurate only as of today's date, Wednesday, April 24th, 2019. We assume no obligation to update our statements or the other information we provide. Actual results may differ materially from our forward-looking statements, and factors which could cause this are described in our 10-K and other SEC filings. You can find a reconciliation of non-GAAP financial measures discussed in today's call in our supplemental report and our earnings release. The supplemental report, earnings release, and our SEC filings are available at firstindustrial.com under the Investors tab.
Our call will begin with remarks by Peter Baccile, our President and Chief Executive Officer, and Scott Musil, our Chief Financial Officer, after which we'll open it up for your questions. Also on the call today are Jojo Yap, Chief Investment Officer, Peter Schultz, Executive Vice President, Chris Schneider, Executive Vice President of Operations, and Bob Walter, Executive Vice President of Capital Markets and Asset Management. Now, let me turn the call over to Peter.
Thank you, Art. Good morning, everyone, and thank you for joining us. 2019 is off to a great start. The First Industrial team has done an excellent job of building upon last year's achievements by signing 1.8 million sq ft of new leases at nine developments and value-add investments year to date. Largely on the strength of this leasing, we have increased our FFO per share guidance, which Scott will detail for you in his remarks. I will walk you through those leases shortly, but before I do that, let me provide you with a quick update on the state of the industrial market. On a national level, demand and supply were in equilibrium. In its recent flash publication, CBRE Econometric Advisors reported preliminary first quarter net absorption of 32 million sq ft and new completions of 33 million.
Those figures are consistent with the activity we are seeing in our markets, with new requirements across an array of businesses and size ranges. I would note that for the markets that are oversupplied, excess inventory is predominantly in larger facilities in specific submarkets, which speaks to the importance of building the right product in the right location at the right time. Moving now to our portfolio results for the quarter. Occupancy at quarter end was 97.3%, down 120 basis points from year end. This is in line with what we laid out for you on our last call as we experienced the seasonality that is typical for the first quarter and the expiration of several shorter-term leases. Cash same-store NOI growth was 3.2%, and cash rental rate growth was 8%.
To update you on our rental rate change for the year, as of today, we have now signed approximately 70% of our 2019 rollovers at a cash rental rate change of 13%. With tenants still facing limited choices for space, the conditions remain favorable for significant rent growth. Our team is doing a good job of capturing that growth and optimizing our overall leasing economics to drive incremental cash flow. We continue to see broad-based tenant activity across our markets, as evidenced by our recently signed long-term leases at our new developments and value-add acquisitions. Let me begin with our biggest signing. Per our press release last night, I am pleased to tell you that just last week, we signed a long-term lease for our 739,000 square foot First Logistics Center at I-78/81 in Central Pennsylvania.
Our lease is with Ferrero U.S.A., Inc., the U.S. arm of the third largest confectionery company in the world. Ferrero is the maker of a number of well-known brands, including Ferrero Rocher chocolates, Tic Tac mints, and Nutella hazelnut spread. The lease will commence by the fourth quarter. Moving now to Southern California at our six-building project we call The Ranch in the Inland Empire West submarket. There, we leased our two remaining buildings, the 221,000 and 137,000 square footers. These were leased by two different 3PLs, one which serves a food and beverage customer and another that serves a variety of industries. With the completion of our leasing efforts at The Ranch, our stabilized cash yield is 7.8% on our total investment of $86.4 million for the entire park.
This result significantly exceeded our original underwriting, which was in the low sixes. Our performance on this project gives you a window into the level of rent growth in Southern California these past few years. We also pre-leased 100% of our First Perry Logistics Center in the Inland Empire East submarket to a multi-brand fashion company. The 240,000 square foot building is scheduled to be completed in the third quarter, with lease commencement shortly thereafter. We also leased 67,000 square feet to a specialty tool company at our 171,000 square foot value add acquisition we completed last year in the L.A. market. Moving to Chicago, we were pleased to lease 207,000 of our 356,000 square foot First Joliet development to a 3PL serving a consumer goods company.
In the I-88 submarket, we leased 56,000 sq ft of our First Orchard 88 Business Center, the 173,000 sq ft development that we acquired in the first quarter. Switching now to Texas. In Dallas, at First Park 121, we signed a 63,000 sq ft lease with Triathlon Battery, bringing that 345,000 sq ft two-building project to 18% pre-leased. Completion is slated for the third quarter. Lastly, just last week in Houston, we signed an 80,000 sq ft lease at our First 290 at Guhn Road development to a logistics provider serving an automotive tenant. That building is now two-thirds leased. Turning now to new investments. We continue to source profitable opportunities in this very competitive environment.
In addition to the two first-quarter starts in Southern California and Dallas we told you about on our February earnings call, we are pleased to have broken ground on three new developments since then. The first is our two-building, 371,000 sq ft, First Grand Parkway Commerce Center in Houston, with an estimated investment and cash yield of $28.5 million and 7.7% respectively. The project is scheduled for completion in the fourth quarter. The second is our 120,000 sq ft First Park at Central Crossing 3 in Central New Jersey. When we complete this building by year-end, we will have expanded our portfolio in the Burlington County submarket to four buildings totaling 1 million sq ft. Our total estimated investment for the new facility is $12.1 million, and our projected cash yield is 5.8%.
The third is our two-building, 402,000 sq ft, First Redwood Logistics Center in the Inland Empire West submarket of Southern California. The total estimated investment is $47.4 million, with a pro forma cash yield of 6%. We expect delivery in the first quarter of 2020. We also added two new development sites in the first quarter. The first was the land site and subsequent 50,000 sq ft build to suit in Phoenix outlined on our February call. That building will be completed and occupied in the third quarter, and our total estimated investment is $7.7 million with a cash yield of 5.7%. The second was a 16-acre site in the Inland Empire East that we purchased for $4.2 million, on which we can build a 301,000 sq ft when entitled.
In the second quarter to date, we acquired 28 acres of additional land adjacent to our First Park 121 in Dallas for $7.4 million, on which we can build approximately 434,000 sq ft. Summing up our development pipeline, we currently have $298 million under construction, comprised of 3.9 million sq ft, with a projected cash yield of 6.4%, which is 49% leased as of today. At this cash return, our projected average margin on this batch of developments is approximately 37%, based on prevailing market cap rates for comparable leased assets. Moving to dispositions, we sold one building in the quarter, a high-finish 67,000 sq ft facility in San Diego for $10.5 million. In the second quarter to date, we had a sale of 8,400 sq ft in Miami for $1.1 million.
As a reminder, our balance sheet sales target for the year is $125 million-$175 million, which we expect to be back-end loaded, similar to prior years. I would also like to note that our Phoenix joint venture sold two land sites year to date to corporate users. The first sale was a 55-acre parcel in the first quarter. Our share of the sales price was $5 million. Just last week, we closed on the sale of the second site. That site totals 147 acres, and our share of the sales price was $18.2 million. Post these sales, the venture now owns 309 of the 532 acres originally acquired and has returned approximately 90% of our invested capital. Tenants remain active with many seeking additional space opportunities to accommodate new growth.
Our team is working diligently to uncover profitable investments, and we continue to execute on the sales side to refine our portfolio and provide capital for redeployment. With that, I'll turn it over to Scott.
Thanks, Peter. Let me start with our EPS and FFO for the quarter. Diluted EPS was $0.19 versus $0.30 one year ago. Diluted funds from operations were $0.41 per fully diluted share, compared to $0.38 per share in 1Q 2018. Excluding the severance and impairment charge from a year ago, 1Q 2018 FFO was $0.40 per share. As Peter noted, occupancy was 97.3%, down 120 basis points from the prior quarter and up 20 basis points from a year ago. Regarding leasing volume in the quarter, we commenced approximately 3.5 million square feet of long-term leases. Of these, 216,000 square feet were new, 3.1 million square feet were renewals, and 212,000 square feet were for a redevelopment and acquisitions with lease up. Tenant retention by square footage was 86%. Same-store NOI growth on a cash basis, excluding termination fees, was 3.2%.
This was driven by rental rate bumps, increase in rental rates on leasing, and lower free rent, which was partially offset by real estate tax true-ups for markets paid in arrears, predominantly in Denver. Lease termination fees totaled $571,000, and including termination fees, cash same-store NOI growth was 4%. Cash rental rates were up 8% overall, with renewals up 7.8% and new leasing up 10.4%. On a straight line basis, overall rental rates were up 16.7%, with renewals increasing 16% and new leasing up 24%. Moving now to the balance sheet. During the first quarter, we paid off $72 million of mortgage loans at a weighted average interest rate of 7.8%, bringing our secure debt as a percentage of gross assets to less than 6%. Quickly moving on to a few balance sheet metrics.
At the end of 1Q, our net debt plus preferred stock to adjusted EBITDA is 4.8 times. At March 31st, the weighted average maturity of our unsecured notes, term loans, and secured financings was 5.8 years with a weighted average interest rate of 4%. These figures exclude our credit facility. Moving on to our 2019 guidance per our press release last evening. Our new REIT FFO guidance is now $1.65 to $1.75 per share, with a midpoint of $1.70. This is an increase of $0.01 from our initial 2019 guidance, primarily driven by our ability to outperform our underwritten leasing assumptions at our developments. The key assumptions for guidance are as follows. Average quarter-end occupancy of 96.75%-97.75%. A same-store NOI growth range of 1.5%-3%. Our G&A guidance range is $27.5 million-$28.5 million.
Guidance includes the anticipated 2019 costs related to our completed and under-construction developments at March 31st. In total, for the full year 2019, we expect to capitalize about $0.03 per share of interest related to our developments. Our guidance does not reflect the impact of any future sales, acquisitions, or new development starts after this earnings call. The impact of any future debt issuances, debt repurchases, or repayments, other than the expected payoff of an approximately $33 million secure debt maturity in the third quarter, and an approximately $1 million secure debt maturity in the fourth quarter. These payoffs carry a weighted average interest rate of 7.5%. The impact of any future gains related to the final settlement to insurance claims from damaged properties. Guidance also excludes potential issuance of equity. With that, let me turn it back over to Peter.
Thanks, Scott. We're off to an excellent start in 2019 as our team continues to execute on all fronts to drive incremental cash flow growth from our portfolio and new investments. With that, operator, would you please open it up for questions?
Yes, sir. Ladies and gentlemen, just as a reminder, if you'd like to ask a question, please press star and then the number on your telephone keypad. Once again, that is star and then the number one. We will pause for just a moment. Your first question comes from the line of Craig Mailman with KeyBanc Capital Markets.
Hey, good morning, guys. Nice job on the development leasing. Just curious if you could give us a little bit of color on how deep the pool was of potential tenants there. In the case of someone like a Ferrero, is that a consolidation from other facilities in the area, or is that pure expansion?
Hey, Craig. It's Peter Schultz. Relative to Ferrero, you've probably seen some press on them that they've done a couple of acquisitions. This is growth for them. We're certainly pleased to have that deal done. There was a fair amount of activity in the market for that size space.
For the rest of the leasing, I would say that we had multiple inquiries and multiple business parties and the ones we picked were the ones who fit the space the most and who had the best credit.
That's helpful. Just on the rent spreads, the acceleration here on the deals you guys have done in 2Q. Is there anything particular geographic-wise or anything in particular that's driving that pure acceleration and, is it the same dynamic where you're getting better spreads on new leases versus renewals? Kind of just give us some insight into that.
Craig, this is Chris. On the renewals, as we had mentioned in the script, we're looking at all our commencements for 2019 that are completed. We're about 13% for the year. Obviously great results there. As far as where that's coming from, it's broad-based, but the leading markets where we're seeing those rental rate spreads are Southern California, our Houston market, Dallas, and Denver. We're seeing it across the board.
Craig, this is Art. Just to be clear, that's signed year-to-date. The commencements will be in the following quarters of the year, not just limited to 2Q.
Right. It's stuff that you guys have leased through April 20-
That's right. Through the date.
Correct.
Do you think as you're looking at the mark-to-market for the balance of the year, is that 13% sustainable, or did you guys kind of roll stuff that was well under market relative to what you kind of have left to do or what you can pull forward from 2020?
Yeah. As far as sustainability, as we said, it's about 70% of our renewals have been taken care of. We look to be in that plus or minus range, right around that 13% throughout the year.
Great. Thank you.
Your next question comes from the line of Rob Stevenson with Janney.
Good morning, guys. Can you talk a little bit about what you're seeing in terms of potential inflationary pressures on labor and material costs on new developments? Land is land. On the stuff that's more controllable, how much pressure are you seeing there, and is it starting to impact underwriting?
This is Jojo, Rob. It's actually leveled off from last year. It's still increasing. We're looking. It depends on market to market too, depending on building volume, because part of that is contractor margins. We're underwriting anywhere from 4% to 7%, depending on the market increase year-over-year.
How does that compare to last year or the year before?
Rents have been growing faster overall, in a number on the areas that we're developing. What's affecting margins for us is more on the competitive land prices. I think you set aside land price. That has been escalating more than construction costs.
How does that construction cost increase compare to 2018 and 2017?
2018 was larger, similar to 2017.
Okay. From that standpoint, anything that you're seeing today out there, either nationally or in any certain markets that would have you pause in terms of starting a new project in a market these days where you have land?
There are some submarkets where there is some excess supply. As I mentioned in our remarks, it's largely in the bigger spaces. Call it 900,000 feet and up properties, that would continue to be South Dallas, Northeast Atlanta, the I-80 corridor in Chicago, and Central P.A. We're watching those markets closely to see when and how the space there gets absorbed.
Okay. Scott, in terms of the balance sheet. Seems like the preferred market's come back strong. What's the company's thoughts on preferred's place in your capital stack, and where do you think you guys could issue today, and how's that sort of evolving in terms of your funding for the next couple of years?
I'd have to say, just looking globally as far as capital needs for the rest of 2019, we really only have about $34 million of debt payoffs that we're going to make in 2019. We got plenty of room on the line of credit. As far as preferreds, I think the last time we had it in our capital stack might've been 2012 or 2013. We look at it every now and then. I'd have to go back to the banks to get a refresher rate on it. I'd say right now our preference for capital is more the 10 or 12-year debt maturities.
Okay. Thanks, guys.
Your next question comes from the line of John Guiney with Stifel.
Hi, good morning, everyone. This is Joe Dempsey on the line for John. Could you provide some color on the straight-line rent? Looks like it came in just above $3 million, which seems a bit higher relative to prior quarters. Is most of that free rent?
Yeah. Typically, the spread with the straight-line rent or the gap rents is the free rent. That is the primary impact of that.
I think one big driver of that is you got to remember, we leased up the 1.4-million-square-foot First Nandina Logistics Center at the end of last year. That free rent is pushing through in the first quarter of 2019. My guess is that's probably one of the bigger drivers.
Got you. That's probably most of it. Okay, great. Then just looking at the development completed in 2018 and not yet in service, could you maybe provide a little insight as to when we might see those assets move into service?
When you look at that, The Ranch is already leased in Inland Empire, we just spoke about our largest lease, that's already leased. The only other three buildings that are not fully leased are the 250,000 sq ft First Logistics at I-78/81, a portion of the unleased space for First Joliet, and a portion of the First 290 at Guhn Road. We are having inquiries and activity in all those. As you know, we've projected a one-year downtime in those. We will announce when they're fully leased.
Great. Thanks for taking my questions. Nice quarter, guys. Thank you.
You're welcome.
Ladies and gentlemen, just as a reminder, if you'd like to ask a question, please press star and then the number one on your telephone keypad. Once again, that is star and then the number one. Your next question comes from the line of Eric Frankel with Green Street Advisors.
Thank you. I think per your guidance last quarter, you discussed property tax true-ups kind of distorting your same-store NOI growth. Can you provide the impact of that on 1Q19 NOI growth?
Hey, Eric, it's Scott. That's about 80 basis points was the impact on 1Q, and that's what we were projecting the impact to be for the entire 2019 year.
We should expect that 80 basis points consistently for each quarter for the rest of the year?
Absolutely, yes.
Okay. Thank you. With the First Nandina, the free rent, will there continue to be free rent in the second quarter as well?
Jojo, on Nandina, are we able to say when the free rent period runs out?
No. We're subject to confidentiality there. I will just tell you, Eric, that the range of market ranges from half a month per year to a month per year, we're within that range. I'm not at liberty to disclose the actual free rent.
Okay. What was the term of the lease?
That I cannot disclose as well. I can tell you it's long-term.
Okay, great. I appreciate that. Thank you. I understand your disposition program is usually back-end loaded for the rest of the year. Maybe can you describe the type of assets you're planning to sell for the rest of the year, as well as just some additional details on the San Diego sale? Obviously, that looks a little bit funky.
I'll talk about the overall, and Jojo will handle the San Diego topic. The profile of the assets that we're selling this year is very similar to the profile of the assets we've sold in the last couple of years. The profile of the buyer is also similar, it's typically going to be users, 1031 buyers, and high-net-worth individuals. Really, that program continues as you've seen it in the last two years. Yes, as you said, we expect it to be back-end loaded. Jojo, you want to talk about-
Sure.
San Diego?
Eric, that building's a high-finished building. It was leased with significant amortization with a current tenant. The tenant is moving out, and actually, by the end of next month, they'll be totally out. The reason for that is that they're consolidating to another building they own. We had an option to either redevelop it or sell it. We looked at redevelopment, and when we looked at the capital we would put in there and the end product, we felt that redevelopment did not make sense for us. The reason is that we would not have ended up with a high-quality building that we always look for when we develop or redevelop, meaning that it was not ultra-high clear, nor did it have very generous amounts of truck courts and parking.
Given all that, we said that it's better for us to take the capital and reinvest somewhere else. We sold it for $156 per foot to a flex property redeveloper in the market who had a 1031 exchange need.
Okay. Just the amortized rent, was that kind of included in NOI? Was that really literally like a 17% cap rate on trailing NOI, or should we think about it a little differently?
Eric, yeah. It was in trailing NOI. That's correct. Yes.
Okay. I appreciate that. Final question, just on the land sales in Phoenix, it seems like you're cycling through that pretty efficiently. Do you actually plan on developing anything on that big joint venture property?
Yeah. The strategy all along has been to execute on spec development, build to suits, and land sales. We've been very pleased with the activity there and the opportunities to achieve pretty high pricing on the land that we've sold. We are continuing to evaluate development opportunities there, and as soon as we have something that's ready to go, we will let you know.
Okay. That's it. Thank you.
Your next question comes from the line of Richard Anderson with SMBC.
Hey, thanks, and good morning. Early on in the call, you described the national market is in an equilibrium state, and on a theory that what happens before oversupply is equilibrium. I'm curious as to why you're not maybe a little bit more cautious in your approach. Second to that, you described 4 markets or listed 4 markets where you see some risk. Are there other markets that would perhaps be on a secondary list that have absorption outpacing supply, but you see the gap between those two metrics is shrinking?
Let me go at the first part of your question. Our entire business plan is meant to perform well through the cycle. One of the ways we manage or mitigate risk is through our self-imposed development cap, which today is $475 million.
Okay.
As we look at these markets, as you know, we have about 16 offices across the country, and we're evaluating the risk in each market on a continual basis. Where there are sub-markets, as I outlined earlier, where there's excess supply, of course, we're not going to go into those markets and start new projects. There are other markets in the country that are continuing to grow at a very rapid pace, where land values are appreciating significantly. It won't surprise you that most of those markets are on the coasts. On the other hand, Denver and Houston and Dallas are doing pretty well as well. We're constantly evaluating the risk assessment there and looking for reward. As I've said in the past, the cap is not a target, it's a risk mitigant. We're always looking to be profitable in our activities.
We're not a volume shop.
I just want to note that we actually only started three buildings, which we internally feel that it's kind of slow. We would've wanted to start more, but that just shows our discipline. There's under 200,000 sq ft in North Fort Worth market that is definitely not overbuilt. In the pocket that we have in Northwest Houston, again, this is multi-tenant. We've got a front load and rear load that is not oversupplied. We don't even have one building in right now that's not leased in the Inland Empire. We wish we had, but it's tough to buy land, it's tough to start. We're looking for a lot more.
I'm sorry, what was the second part of your question?
Yeah. You listed those four markets, Dallas, Atlanta, Chicago, Central PA, where you have oversupply. Is there a secondary list where the conditions are good but the spread between demand, supply is starting to shrink?
Not really. When you look at the markets where we are focused, that wouldn't be the case.
Okay.
I can't speak to other markets where we don't have targeted for new investment. The national vacancy rate still hovers in the 4% or 5% area. Even though deliveries and net absorption are in balance, it's still a landlord's market, and it will be for some time.
Good enough.
Rich, to add to what Peter said, to be clear, those four markets, or those four sub-markets rather, it's predominantly larger buildings, 900,000 square feet or up, that's feeling oversupplied. That doesn't mean that there aren't opportunities in sub-markets within those broader markets that we continue to feel bullish about. As Jojo mentioned, some of our starts in Dallas as an example.
Yeah, building-
Yeah, okay
the right product at the right time and the right place is really the answer here, and size matters depending-
Yep
on the sub-market.
Okay, which leads me to my second question, a nice segue. A lot of talk about even Amazon moving into smaller facilities, closer in, last mile, all that stuff. Are you seeing that within your circle of activity, where tenants perhaps are paying bigger rents but taking or interested in smaller spaces? Is that starting to materialize as you see it?
We continue to see really broad-based demand across a range of sizes. If you look at the development leasing that we signed, several in the 50-80, several in the 100-250, and obviously the largest one, the 739. We continue to see activity across all those size ranges. I would add that from a rent spread standpoint, we're definitely seeing more traction on under 200,000 square foot spaces than we are on some of the larger spaces.
To add to what Peter said, one of the reasons for that is that there's less building in the under 200,000 square foot spaces. Therefore, supply is more limited. Tenants have fewer choices, and their view, they pretty much are limited choice but to pay higher rents.
Right. Is that a palpable change that you've noticed in the past year, that sub-200,000 sort of number that you just described?
Yeah. If you look at even the first quarter results, under 200,000 square feet, we saw rental rate increases of about 9%. Over 200,000 square feet was about 7%. About a 200 basis point spread in the smaller spaces.
Thanks very much.
Your next question comes from the line of Ki Bin Kim with SunTrust.
Thanks. Did I hear you guys right that you got most of the invested capital back in your land in Phoenix already? And, on top of that, you already have $300 million land that's already left?
Yeah.
300 acres, sorry.
Yeah. The venture has 90% of its invested capital back, and we continue to own the 309 acres.
Yes. We have about 60%. We still own about 60%.
That's pretty impressive. Does that mean anything for percentage-wise, if you want to develop versus selling more parcels?
No. I think, again, we have had an idea of what we wanted the mix to be. We knew that execution on that mix was not going to be even, I guess, is the word I'm looking for. The fact that we're now getting through the land component of it in a pretty quick timeframe thrills us because now we can focus on the rest.
Our focus is, again, like we said, initial plan is maximization of value, creation of value, spread over land sales, spec development, and build-to-suits.
Yeah. We're not in the land speculation business. We came into this project because we had an opportunity to have a very strong position in what we think is the best sub-market there in Phoenix, and it's all working according to plan.
Now you're playing with house money, right? Second question, a little bit bigger picture. Obviously, industrial has done really well. Everyone knows that. How do you guys go about trying to do better in the market where you're located? How does that direct your attention to investing more in systems, processes, or people to do better than the market? Things like, if you get a 20% spread in a certain market, how do you try to inform yourself a little better so that maybe you have conviction that you can get 25%? Things like that.
Yeah. You're really talking about the strength of the platform and the breadth of our platform, Ki Bin. There's a lot of things that go into the mix. Customer service certainly goes into the mix. Being in constant contact with our tenants is very important. It allows us to see down the road a bit and to try to anticipate what's coming in terms of not only supply and demand, but their needs. You mentioned technology, and we're obviously focused on that as well. We are a real estate company, and that's going to be our business, and that's where we're going to focus most of our time, obviously. The other components are also important.
All right. Thank you.
Ladies and gentlemen, just as a reminder, if you'd like to ask a question, please press star and then the number 1 on your telephone keypad. Once again, that is star and then the number 1. Your next question comes from the line of Michael Mueller with JPMorgan.
Hi. Just 2 questions here. I think you said the development cap was 475. I guess the first question is, has that number gone up? I seem to recall, I thought it was a little bit lower. The second question is, can you remind us what do you typically underwrite for development lease-up and say, over the course of the past year or so, where has it been actually running relative to that?
I'll handle the first part on the cap. The cap's $475. We did raise that from $325 in January of 2018, a little bit over a year ago. Today, we've got about $245 million of capacity under the cap.
In terms of lease-up time, we continue to underwrite a one-year downtime from substantial completion of construction. On average, we've leased it well before that.
Okay. Is well before that nine months, six months? I mean, just rough ballpark.
Six months to a year. That would be the range. I can't give you the exact number.
Got it. Okay. That was it. Thank you.
Your next question comes from the line of Bill Crow with Raymond James.
Hey, good morning, guys. Just a quick question from me. When you set aside the industrial REITs and you look at the other developers out there, any change in pace in development? Are you seeing new merchant builders or new parties come to the table given the success that everybody's having in industrial?
Yeah, sure. I'll start, and then I'll turn it over to Jojo Yap for more color. The amount of capital that is looking for a home in industrial continues to grow significantly. There are some new players in terms of merchant builders, but the predominance of the growth is in demand for capital to come into the space. That definitely impacts the market. It impacts land values, it impacts transaction pricing, and ultimately it impacts the margins that we can all earn on the projects that we pursue. Jojo?
Yeah. Just to add to Peter, foreign capital and the foreign acquisitions of entities and the expansion of those entities
Through additional investment. That's over the past couple of years, there's been acceleration of that.
Yeah. That's pushed cap rates down, and as you said, Peter, it's pushed margins on development up and too much of a good thing can be a problem. You're just not seeing that yet, I guess. Not that many new developers coming on that might threaten to overbuild a market.
Well, I think, again, it's a very sub-market-oriented analysis. There are markets where it's easier to get entitlements. We don't happen to participate in those markets now. In the markets where it's tougher, that really does put a governor on the pace with which that money can get invested. When you look at the prospect or the potential of overbuilding, again, in the higher barrier markets, that's a tougher thing to do just by definition, higher barrier. There's less land.
Yeah
It costs more, entitlements take longer, et cetera. I call it a tale of two cities, but it's very much sub-market by sub-market based.
Okay. I appreciate it. That's it for me.
Thanks, Bill.
Ladies and gentlemen, just as a reminder, if you would like to ask a question, please press star and then the number one on your telephone keypad. There are no further questions. At this time, I'd like to turn the call back over to Peter Baccile for any closing comments.
Thank you, operator, and thanks you all for joining us today. Please feel free to reach out to Scott, Art, or me with any follow-up questions, and we look forward to seeing many of you at Nareit in early June. Have a great one.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect.