Sounds great. I will, I'll provide a quick overview of Rexford, and then we can get into market overview and your questions. Let me do introductions really quick. Joining me today, Howard Schwimmer, Michael Frankel, co-CEOs, and Laura Clark, CFO, and then John Nahas, who is our Managing Director of Asset Management. Rexford Industrial is the nation's largest pure-play, U.S.-focused industrial REIT. We have an entity value of over $15 billion today. We are exclusively focused within infill Southern California. Infill Southern California is the fourth largest industrial market in the world, behind only the entire nations of the U.S., China, and Japan.
Our portfolio consists of 50 million sq ft of highly functional, generic use industrial property, that's occupied by a stable and diverse tenant base that serves the largest regional zone of consumption and the largest and most diverse regional economy in the nation, with over 24 million people. Demand continues to be healthy and diverse within our infill mission-critical locations. We'll go into more detail on that in a few minutes. There is a virtual inability to increase new supply due to the scarcity of land and development constraints within infill Southern California. This persistent supply and demand imbalance insulates our portfolio and positions us for continued outperformance. Rexford's unique value creation strategy enables outsized returns and superior cash flow growth, and we do that through several key facets of our business.
First is our accretive internal growth, which is driven by our vertically integrated and entrepreneurial team. We're focused on repositioning and redeveloping assets to higher quality and functionality within infill Southern California. Next is our extensive external growth opportunity, which is created through our proprietary access to this 1.8 billion sq ft market. This market's highly fragmented within infill Southern California, and that's enabled by our off-market acquisition sourcing, our deep domain expertise within the market. Our external growth opportunity is driven by our proprietary acquisition sourcing platform, our deep market coverage that enables an informational advantage that is increasing in quality and volume every day through our dedicated research and market relationships. This positions us well to expand our current 2.7% market share within infill Southern California..
Lastly, we maintain an investment-grade, low-leverage balance sheet with net debt to EBITDA at 4.6 times, positioning Rexford to capitalize upon accretive growth opportunities. Rexford's value creation strategy is focused on driving shareholder value, as demonstrated by our earnings per share growth, which has averaged 16% annually over the past five years, outperforming the peer group by 75%. This earnings growth embedded within our portfolio today, assuming no acquisitions and no market rent growth, is significant. Over just the next three years alone, we project internal cash NOI growth of 35%, equal to $220 million, which is expected to grow NOI to nearly $900 million over the same period.
As we stated at the beginning of the year, the substantial internal NOI growth within our existing portfolio is projected to generate three-year average annual Core FFO per share growth in the 11%-13% range. Finally, it's important to recognize that our Rexford team is the primary determinant of our success. Their innovative, collaborative, and market-leading efforts enable our great business today and into the future. So with that, Camille, I'll turn it back to you.
A few of your peers so far have put up updates around the conference. I was wondering if you have come with any and what you're seeing on the ground in December?
Yeah, absolutely. Well, I'll start out with an update that we gave to the market on a key repositioning space that we have in the IE West from a leasing perspective, and then maybe, John, you can provide a little color on the market. So yesterday, we did announce that we signed a 275,000 sq ft lease at our 500 Dupont building. That's a repositioning within the IE West. That's key. That's an area of the market that has had more supply. We focus on regional consumption within our market and smaller tenant sizes. So our average tenant size in our portfolio is 26,000 sq ft. And so this that was one space that we had within the portfolio that was larger.
And so we were excited to be able to get that space leased, and rent will commence in October. So let me give a quick update on the market.
Sure.
From a leasing perspective.
So overall, in the infill markets in which we focus, and as Laura mentioned, our average unit size, we're continuing to see, you know, consistent activity and health with the tenants in the portfolio and those that are in the market. As we emerged from the typical summer slowdown, over the last 30 days, we've seen an uptick in touring. And so we're watching that and looking at the conversion as that translates into lease deals. Overall, the activity that we're seeing is consistent with the diversification of tenants we have in the portfolio, but we are seeing an uptick in interest from tenants that are in the aerospace industry, construction-related users, food and beverage, and even some of the more successful EV companies.
And so smaller product, call it under 50,000 sq ft, is continuing to plug right along. The markets in which we see some softness and weakness continue to be the Inland Empire, specifically in that 100-300,000 sq ft range. As Laura mentioned, we leased 500 Dupont, the property that we announced. We also had another 100,000 sq ft box at 302 Rockefeller that we leased.
Um also had a very high competitive advantage in terms of the typical product in the market. That was a property that was slated for repositioning, but we preempted that with a lease that resulted in zero downtime. Beyond that, we have a lot of product that is trading in North Orange County, as well as Mid-Counties. I'm continuing to see healthy demand for those, and looking forward to stabilizing some of those projects as we get into the fourth quarter.
More broadly, how would you characterize where we are in the cycle for Southern California?
It's very interesting. I mean, when you think about a cycle, normally, you attribute a cycle with, you know, an upturn, a downturn, and we're cycling up and down. What's really interesting about this phase of the cycle, if you want to call it, is we never really had a downturn. We had an upturn in the sense that in infill Southern California through the pandemic, over a few years, we saw rents increase on average, well over 80%. Some submarkets increased over 160% over just a few years during the pandemic. What we're really seeing now is I don't really think of it as a cycle. I think of it as more of just a normalization. I think that that is progressing in a way that is very encouraging.
I think it's encouraging for us in infill Southern California, because what the tenants are telling us generally through their behaviors is that these rent levels, that again, are on average, well over 80% higher than where they were in 2019. What the tenants are generally telling us by their behaviors is that, you know what? These rent levels are, generally speaking, here to stay. It doesn't mean that rents may not be up, down, or sideways, 1%, 2%, 3% quarter- over- quarter for some period of time as we normalize. But generally speaking, for the size, meaning under 30,000 sq ft, on average, plus or minus, for high-quality product, highly functional products similar to ours, the tenants are telling us that, "You know what?
These rents are sustainable." Not only that, but they're telling us through their behaviors that they expect to pay more rent in the future. Specifically, you know, we're locking in, on average, 4% annualized rent bumps in our leasing activity, and that's pretty substantial when you compare that to what we were obtaining in 2019, for example, where rent bumps averaged below 3%. Now, on a compounding basis, these are annual rent bumps. On a compounding basis, there's a quantum difference between 4% compounding rent bumps as compared to just under 3%. So again, the tenants are telling us that, generally speaking, they expect to pay more rent. So I think that's how I would characterize where we're on the cycle.
And also, if you look at the diversity of demand that John mentioned and other indicators, both, you know, within industries, within secular growth indicators among within industries, you know, we continue to see strength in the tenant base.
Yeah. I mean, just, a couple of comments to Michael's. We're in a land-constrained market, and this average size space, 25-30,000 sq ft within our portfolio, there's been no deliveries literally of that size product in decades in these infill markets. So really a different business than the headlines and what you hear about in terms of supply and disruption that can cause in other markets. And notably, that commentary is mostly around the bigger boxes in the Inland Empire area, especially in the Eastern Inland Empire, where Rexford doesn't do any business in those big box spaces.
And that's a key point. When we designed the Rexford business model a little over twenty years ago, we made a deliberate decision to focus solely and exclusively on infill Southern California and the size and scale of tenant base that you see us focused on today. There's a reason we decided at that time, and continue to not focus on the big box tenants in places like the Eastern Inland Empire, which is a big box market with an endless supply of dirt to build new buildings, where on average, you are seeing new supply and new construction in the range of 15-30 million sq ft annually, in terms of new supply in the IE East alone, for years. That's not what we consider to be a backdrop for a great business.
We prefer high-barrier markets like infill Southern California, where not only are you not gonna see that net increase in supply over time, you're actually gonna see a net decrease in supply over time, which is something we can talk more about. But that's what we believe makes for the... a favorable backdrop for a great business if you can penetrate that market in a manner that makes for great return on investment, which is part of the secret sauce at Rexford.
I see your perspective on the industrial side, but if we step out, there are growing concerns around the consumer, and you've seen a few more retailers announce that they're closing stores and bankruptcies picking up a little bit. So I'm wondering, how has that translated into their functions from a logistics standpoint, and is it getting harder to underwrite new tenants today?
So a lot embedded in that question. So, and we can attack it in a lot of different ways. But safe to say that we're not really seeing an erosion in fundamental underlying demand from a consumption perspective in infill Southern California. And our tenants are disproportionately driven by regional consumption. And by the way, the pain in retail is not new. You know, there's a shift in retail. It's going online, and those retailers, those mass-market retailers who are surviving, have adjusted and are continuing to adjust their business models so they can deliver product in an omni-channel and also e-commerce-driven world, which requires more space closer to the endpoints of distribution within infill Southern California, not less space. So we're actually a beneficiary of the pain that has, you know, been put upon the retail sector.
And we're not really seeing, you know, an increase in, say, bankruptcies. We have very isolated instances of bankruptcies among our tenant base. We can talk about, you know, where that is, but we're not seeing any trend line, or anything of material, significant concern.
... I think the most notable one is Lumber Liquidators. They occupy 500,000 sq ft in an asset of ours. It's something that we've gotten ahead of. About a year ago, we modified that lease so that we could access that real estate in 2026 for redevelopment. So as Lumber Liquidators entered into bankruptcy, we'd already had a plan in place. As far as we're aware, there's a deal on the table. I think it's going to hearing on the sixteenth. Our lease has been identified as one that they're going to assume, and they've continued to pay rent as recent as of this month.
In that scenario, are they, given that you have a business plan to redevelop, if they assume the lease through this process, will you be repositioning that asset still or keeping them in the asset? And what's the mark-to-market on that space?
Yeah, the plan is to move forward with the redevelopment. They're substantially below market in their lease, to the tune of over 200% upside if we were to roll that space to market.
Mm.
But the plan is to redevelop.
Yeah.
And-
It's not a high-quality building in terms of that overall market and the size of the space, and our base is well below land value. So it's a great opportunity to upgrade the quality of the facility by redeveloping it.
Yeah, and when we restructured the lease a year ago, extended the lease, we aligned that expiration to 2026. That aligns with our timing around entitlements, so that we could minimize downtime and then be able to get the space back and execute on the redevelopment.
I realize I'm not miked up, so please let me know if you can't hear the questions in the back. If you have any questions, please feel free to ask. Just shifting on to the rental side, so you've been updating us on just how quickly the market's been changing. I was wondering if you could update us on where that trend is, like, heading today, and your expectations into the year end.
We can't disclose what we haven't disclosed -- but maybe you can give a sense for, you know, the sentiment of the market.
Yeah. I think the sentiment is consistent with what we've described before. You know, the submarkets where we see some changing dynamics and some weakness, as we alluded to before, you know, the biggest one probably being the Inland Empire. We've leased two spaces that fall into the square footage category, where we see the most softness. Our average unit size in the IE West is 30,000 sq ft, and so it's a much different dynamic at that level. It's been a really long time since any new product has made financial sense to develop at that size, and so we don't have the same supply pressures that are affecting rental rates. Other markets, such as Central LA, which is another one that I think we've talked about in previous quarters, continuing to have some pressures.
We're actually starting to see some traction there. Again, that market has a high portion of product that is not functional. It's some of the oldest product in our submarkets. And our product there is differentiated as it is in most, and so we're seeing progress there, even though the market might continue to lag. And so overall, just due to the infill nature, we've seen demand continue to be consistent.
Yeah, and I would just say, I mean, we just looking at first quarter and second quarter activity, it's really, and then quarter to date, it's really come in in line with our expectations, and our expectations from a guidance perspective, we would expect that July and August tend to be slower. Summer months are slower. In the last thirty days, we've seen a pickup in touring activity across the market, across size ranges, and now we want to see that convert into executed leases.
Just sticking to that Dupont asset that you stabilized, can you talk about the terms that you managed to achieve on that deal and how that compared to your initial underwriting?
Sure. So our the rate that we ended up achieving there was slightly below what we had originally planned when we underwrote the asset at acquisition, which was back in 2021 . And so what happened in that market, rates increased substantially, and then came back down. And so we landed more or less about where we thought, and that results in the 5.5% stabilized yield. We did a three-year deal at 500 Dupont, largely because we think that, you know, in three years' time, we're gonna see improved market conditions that we can then capitalize on.
Were you able to achieve the 4% escalators that you were signing on the other deal?
That one, I think we landed at three and a half.
Yep.
Just sticking with your repositioning and development program, just given how this has been an area you're creating value, just wondering if you could update on the progress around that and how you're thinking about that?
In terms of deliveries to the market, for most of the projects, we're through the tough part, which is getting entitlements and permitting. There's quite a bit of space that, you know, we're now finishing up or delivering, or will be delivering into next year. You know, we're very optimistic about the quality of those buildings and the locations and size ranges. You know, as I think Laura mentioned, there's a little bit of a slowdown in some of the leasing activity in the summer, which is typical, and the touring's picked up. We're pretty optimistic on how that product fits in with some of the leasing that is gonna occur before the end of the year.
Why do you think you've had more success on leasing up the repositioning side versus the redevelopment? And is there anything you guys are working on, trying to market in a different way to bring that demand on the redevelopment pipeline?
... Yeah, I think, you know, when you look at our repositioning and redevelopment properties, the whole program is about delivering higher quality and higher functionality to the market. Dupont's a great example, but, you know, all of our other projects are similar. We're focused on delivering to tenants the features and quality that is most valuable to them. The investments that we make in the assets allow for more throughput. They allow for higher utilization of the cubic capacity of the building, more efficient workforce, you know, housing in terms of, you know, the office space. And so all of these things add up to efficiencies in terms of cost. Oftentimes, what we find with our repositioned and redeveloped buildings is that with smaller square footage, the businesses can actually handle more product.
And so it's allowed us to continue to deliver compelling opportunities to tenants in the market, and achieve, you know, rates that we're setting out to obtain.
Yeah.
Yeah, and I think on the redevelopment side, we're seeing interest, right? And I think it's a bit of it that's about the timing of deliveries. We've had more repositions deliver. We now have a number of redevelopments that are delivering as well. I mean, I think a great example of a lease-up and stabilization was the redevelopment of Monarch, which was in the Orange County market, that we stabilized in the second quarter. So, you know, we are seeing traction on those. Those are just delivering. Most of our redevelopments are now just delivering into the market.
Yeah. And our biggest opportunity is on the repositioning side. Over half the marketplace in the infill area was built before 1980 , so there's a lot of dysfunction and obsolescence in those properties. And Rexford has a unique expertise that you really don't find within the marketplace for companies that are able to reinvent that type of product. So going forward, that is gonna continue to be our biggest opportunity in the market, as opposed to occasionally we'll have more of, you know, of an opportunity to fully redevelop a site. But going forward, I wouldn't expect that to be as large of what will make up our repositioning and redevelopment pipeline, as it's a little tilted today on some of the redevelopment.
And when we think about the capacity of your portfolio to go through these developments, I think your repositioning and redevelopment's about, like, evenly split. When I was looking at it the other day, I think it's about 8% of your total portfolio in terms of sq ft. So I'm curious, as you think forward, you know, the functional obsolescence in this market, do you see potentially growing like that in one way or the other? How large could you take it?
As a percentage of our portfolio?
Yeah.
The underlying portfolio is growing nicely, and yet our opportunity set has probably never been better in terms of the quality investment opportunities in front of us. It's really hard to say, you know, going forward, what percentage of our portfolio repositioning will represent. But safe to say, we have a tremendous opportunity in front of us in terms of the quality of investments. Don't forget that, as Howard mentioned, over half the embedded base in the market, that's over a billion sq ft, that's half the market, a little over half the market, was built before 1980. Equally important, it's predominantly owned by mom-and-pop private individuals who are not real estate investors, who bought, built, or aggregated this product during the post-World War II era.
Today, we are experiencing a generational shift in these assets of historic proportions as the current generation ages out of the passive ownership, they were never active owners, of the passive ownership of those assets. The sweetest spot of the market, the best locations where there's the greatest opportunity to create value by modernizing and increasing the functionality of these assets, is marching increasingly into our arms right now. The opportunity set has never been better for our company, and the company's ability to capitalize on that has never been better because we're a better, deeper, more higher quality team today. There's reason to believe that the opportunity set is there for us to increase the repositioning activity. Again, we're gonna take it one opportunity at a time and focus only on the highest quality opportunities.
So hard to project whether that percentage of repositioning increases, decreases as a percentage of the portfolio.
But one other aspect that's important to keep in mind, when we're buying assets, either for repositioning or redevelopment, we've done a really good job of bringing in cash flowing assets. So that pipeline is not loaded with a bunch of assets that are sitting fallow and not producing revenue. And typically, we've timed those lease expirations, a lot of them are sale-leasebacks, that will have entitlements and building permits in hand as those leases expire, so we're minimizing the downtime.
Yeah. I think it's worth pointing out that, you know, it's not just the properties we're bringing in, but we maintain optionality for different outcomes for the properties throughout the portfolio. Every space in our portfolio has a strategic plan, and in a lot of cases, because we operate in California, we have to get started on some of those scenarios well in advance. For the typical space that doesn't really require, you know, discretionary approval from an entitlement standpoint, it's more just fits into our repositioning program. We're starting that process 18-24 months in advance of lease expiration. And then, as we move along through the milestones of planning and get to the point where we're actually engaging the existing tenant and talking about renewals, that's when we'll start to kind of firm up on plans.
You know, the 302 Rockefeller building that I'd mentioned earlier is a great example of that. We had permits in hand ready to go with a repositioning, but we were able to get a lease done even with a new tenant, not even with a renewal, at an attractive spread and prevent any downtime and maintain cash flow. We go through that analysis continuously with all of the spaces in the portfolio, and that also adds to some complexity in terms of truly projecting how much repositioning we'll be able to do.
... Could you talk to those stages of repositioning? Because I guess Howard described the tough part being the approvals, but, you know, the actual execution and then the leasing, could you, like, bring all those pieces together?
Yeah, in terms of timeline?
Just how you're finding the market, I guess, the cookie cutter nature of it, less versus you each is unique, and as you've scaled up, the ability to keep it going?
Yeah. So we've scaled up our process and have continuously focused on making it more efficient. I think the part that we sometimes can't control is what Howard was talking about, which is going through and dealing with any advisory agency and a discretionary approval, or just really the permitting process, which can take quite some time. Once we get into the point of actually starting the work, it becomes a lot easier to be able to move along in terms of schedule. And then, when you get to lease-up, you know, we, at this point, on average, you know, underwrite about six months for lease-up.
In some cases, we're able to do that more, and depending on what's going on in that specific size range, in that specific submarket, we might forecast a longer period of time or a shorter period of time, but on average, it's about six months.
Can you comment on, just like, speaking through this quarter, you kind of touched on this already, but if there's been a material change in the trend of both vacancy and rents and what they kind of still finding a bottom. Can you just touch on that a little bit?
Yeah. You know, I think it's nuanced, and it depends on the square footage, and it depends on the submarket. So we'd have to go through and talk about all of those. But remembering that our average unit size is 26,000 sq ft across the infill markets in which we operate, I think when you think about, you know, that size range, things have been consistent as we've typically described, as recently as last quarter.
Yeah, I mean, I'd say a few trends that we continue to see. I mean, renewal activity continues to be very strong, which we've seen all throughout the year. We are able to push rate more on renewals than new. That's been a consistent trend as well. You know, in terms of occupancy, you know, coming in right in line with expectations year to date. So overall, I'd say leasing activity, occupancy trends continue to be really in line with what we've projected, really since the beginning of the year.
Mm-hmm. And from a size standpoint, really anything under 50,000 sq ft still has very robust demand, which is frankly no surprise because no one's been able to deliver any competing product in terms of new build into the market in decades.
So are you guys worried about it? Like, is it keeping you awake at night?
This team, we spend a disproportionate amount of our time on the team-
Yeah
... and development of the team, and ensuring that we have the highest quality talent, the best collaboration, and, you know, therefore, strongest execution and penetration in the marketplace. You know, that's where we spend a disproportionate amount of our time. And, you know, we have a very entrepreneurial business model, and that requires entrepreneurial-minded people, you know, to enable and drive that business model. And so it's not a cookie-cutter business. We're not a commodity business. We don't just park capital, and we create value, and that's the sole focus of the business. So we spend a disproportionate amount of our time working with the team, developing the team, driving that domain expertise, that entrepreneurial attitude of value creation throughout the business. I mean, the individuals in the company, they are the single greatest determinant of our performance. It's not the market.
It's not the buildings. You know, the backdrop that we're operating in, the market dynamics are phenomenal and will only get better. We're gonna. I believe we're gonna continue to see an acceleration in terms of supply constraint. You know, the removal of industrial supply from infill Southern California sort of happens in waves. You know, it's not just linear. And the last wave happened over the last, what? You know, call it from 10, 15 years ago to 4, 5 years ago. There was a big wave where we saw whole micro markets removed from the market. For those of you familiar with Southern California, think of east side of Los Angeles, downtown. Now, it's called the Arts District. You know, it's got nightclubs, residential, even some creative office buildings.
It used to be a gritty industrial zone. We owned there at $17 a sq ft. We exited at $400 a sq ft. You know, it's no longer an industrial zone, industrial tenant base. That happened in many micro markets throughout infill Southern California during that period. We're entering a different phase that I think is gonna be more driven by housing. You know, we have an extreme scarcity and need for housing in Southern California. There's a political mandate to increase housing by 20%, minimally. That equates to over 1.5 million units of housing in Southern California alone. And the lowest friction path to increase housing is to take out industrial and replace it with housing, 'cause it's the lowest cost, typically the lowest cost land available.
And, we're starting to see that. Tremendous incentives being put in place by the local, governments, municipal governments, to develop housing. The local and state government is gonna lose a lot of funding if they don't reach housing development goals. So those politicians are heavily motivated. And, I have to give them some credit. They've actually done a great job putting incentives in place, reducing the entitlement process, hurdles, et cetera, and I think you're gonna start to see that happen in full force, and in particular, as interest rates start to come back down.
So what does that mean for you? How do you kind of-
It's a great outcome for us because it's gonna have several beneficial impacts to Rexford. Number one, it's gonna further reduce supply. It's gonna make our product and our portfolio that much more irreplaceable and that much more valuable to the customer base. Number two, it's gonna increase the households in and among and around our portfolio, so that's gonna drive demand for our tenant base. Third, it's gonna drive a long-term acceleration in demand from the building trades. And the building trades, think about everything that goes into an apartment building, you know, the infrastructure of an apartment building, the appliances, you know, everything that goes into creating housing in a large scale. And it's gonna take twenty to thirty years to increase the housing stock by anything close to 20%.
It's. We're looking at a long-term demand driver in the building trades.
Could you quantify your direct exposure to that? Or is it more like the extra demand that it creates? Because you're talking about withdrawing some of your stock for that higher embedding use, so.
Yeah, it's hard to get our arms around it, and, you know, we're not gonna entitle it for housing. That's just things that just sort of happen over time.
Yeah.
But we're in and amongst those areas that are susceptible to it.
Our business model is to be expert in one thing, to be the best in the world at one thing. If somebody wants to come to us and pay us a premium to the industrial value to convert it to multifamily, we're happy for them to do that, but you won't see us changing our business model.
Yeah. I think we had a question in the back there.
What are cap rates now for that massive modern portfolio external growth opportunity relative to...?
Where are the cap rates? In other words, where transactions occur?
[audio distortion]
Yeah.
Yeah.
Those would be all over the board because a lot of those rents are severely undervalued, that our business model allows us to unlock through some of the modernization we do. But overall, cap rates in the market today for a quality product similar to the Rexford portfolio, leased at market rents, are, say, slightly below 5%.
But if you want to think about how Rexford is buying in the marketplace, it's very different than those marketed cap rates that Howard just described. And that's why we do all the extra work associated with enabling ourselves to buy most of our transactions through off-market and lightly marketed transactions and investments that our competitors are not even seeing. So well over 80% of our transaction volume is acquired through off-market and lightly marketed situations that we're catalyzing. We're not waiting for the brokers to bring us our growth opportunities. In fact, we're identifying those growth opportunities ourselves, taking them to the brokers and saying, "Hey, Mr. or Mrs. Broker, here's this opportunity. The world's not yet aware of why this owner may need or want to sell, but this is what we found in our research and through our relationships.
“Oh, and part of our research entails understanding that you, Mr. and Mrs. Broker, are the best, most trusted broker relationship with this owner. Oh, you forgot their name and phone number? Here it is. Why don't you call that owner, and let's work on this together.” And so we're the only buyer in the market that brings opportunity and high volume to the brokers. And that creates a broker relationship with Rexford that is truly unique in the marketplace. And so that's why we're able to identify opportunities, where we're not trading at market cap rates. We're identifying value creation opportunities. As Howard said, we can unlock the value and stabilize at substantially above what are market cap rates at all phases of the cycle. And that's the fundamental value proposition of Rexford.
We're gonna deliver investment exposure in the highest quality, strongest fundamentals, lowest cap rate industrial market in the nation for marketed deals, but by delivering to you, the investor base, substantially higher yields and return on investment than is otherwise available to investors in that market.
You guys have mentioned a few of your peers as well. Renewal leasing is generally stable to good. New leasing is a little bit weak. Just talk maybe about that in the context of the development pipeline, the redevelop pipeline. Do you have any phases there over the next two to three years that's delivering? Is your, has your confidence gone down, you're gonna or is it slipping and pushing out a quarter or two to get it leased, or do you drop rents 10%, you're gonna get it done? How do you weigh those trade-offs? There's a lot of deals there, and I have no idea how they're all going.
Yeah. Well, I think John mentioned some remarks related to that. And, you know, each submarket's gonna vary, but when you look at the overall landscape in infill Southern California, we're really happy with the product we're bringing to market. And it's just a different landscape. It's not like, you know, we're bringing a 100,000-square-foot building to the market, and there's 30 of them or 50 of them, like you find in the Inland Empire West right now.
Mm.
If we deliver something, for instance, to the San Fernando Valley, we have a couple projects going there. I think we have in 75 and a hundred and 130-ish. They're the only buildings in the market. They're the best quality buildings in the market. So we're really excited about those projects. And those are the kind of projects that we believe will lease rather quickly as we're able to deliver them. And, you know, the dynamics of the supply will change market to market. I think John might have also mentioned that Orange County right now has a little more supply that was delivered to the market in a size range of a few of the projects we've delivered. So that might take a little bit longer to lease.
But overall, in the long run, you know, Orange County, for instance, is an unbelievable market, incredible demand. And so we have the utmost of confidence in all those type of projects we're delivering. We're not in a market where anybody's gonna be delivering, you know, 25 million sq ft to compete against us. It's an impossibility in these infill markets.
I appreciate that, but would you say you're underwriting pushed out a quarter or two relative to what you thought two years ago, or?
You know, in other words, if we have, you know, like the Orange County, for instance, yeah, those, some, a couple of those buildings probably are pushed out a little bit. But then again, you have other product you're delivering, which has that same six-month lease-up timeframe that John mentioned we're using now. We might lease those faster 'cause there's absolutely nothing available in that marketplace. So yeah, you blend it all together and, you know, you get to some of the broader numbers around what we think the timeline is in leasing, and sort of what those timelines blend to is, you know, still relatively low in terms of the overall portfolio.
A lot of those delays, by the way, were not so much driven by lease-up.
Yeah
... They're more driven by the entitlements, the permitting process, and some of the issues around supply chain, you know, that were a little bit of a hangover from the pandemic, and we're pretty much past that, and I think our current underwriting really incorporates what we feel is very realistic timeframes for all those factors, and lease-up, frankly, we're not, it's moved slightly, and I think we've underwritten for that already. We shouldn't see too much incremental slip, you know, going forward.
Yeah, I mean, if you look back at the update that we provided in the second quarter, net net, 'cause we pulled some things forward, and we pushed a few out, you know, we pushed timing on stabilization by one month. So, and we're accounting for, you know, any maybe some incremental pushes there, but we, we have other projects that are pre-leasing. So on average, we feel pretty good about that six-month lease-up period. We may have some that lease up before, and some may take a little bit longer.
All right. I think we're out of time, but the spirit of the questions, I think, for investors, given that we appreciate visibility, is really just trying to understand your capital allocation strategy and how you're managing risk from that front. But given we're out of time, we'll end it there and continue this discussion next time.
Okay.
Thank you.
Thanks, everybody.
For joining today.