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First Industrial Realty Trust Inc
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Good day, ladies and gentlemen, and thank you for standing by. Welcome to the First Industrial First Quarter 2021 Results Conference Call. [Operator Instructions].
At this time, I would like to turn the conference over to Mr. Art Harmon. Thank you. Sir, please begin.
Thank you, Howard. Hello, everybody, and welcome to our call. Before we discuss our first quarter 2021 results as well as updated guidance, let me remind everyone that our call may include forward-looking statements as defined by federal securities laws. These statements are based on management's expectations, plans and estimates of our prospects. Today's statements may be time-sensitive and accurate only as of today's date, Thursday, April 22, 2021. We assume no obligation to update our statements or the other information we provide.
Actual results may differ materially from our forward-looking statements and factors which could cause this are described in our 10-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 will open it up for your questions. Also on the call today are Jojo Yap, Chief Investment Officer; Peter Schultz, Executive Vice President; Chris Schneider, Senior Vice President of Operations; and Bob Walter, Senior Vice President of Capital Markets and Asset Management.
Now let me turn the call over to Peter.
Thanks, Art, and thank you all for joining us. We were very pleased with our first quarter performance, and we are encouraged by the continuing strong economic growth supported by improving consumer confidence and significant government economic stimulus.
Similar to our fourth quarter call, we continue to see exceptionally strong fundamentals in the industrial market. Per the recent CBRE flash report, U.S. industrial net absorption totaled 100 million square feet in the first quarter. This marks the first time ever that demand has exceeded 100 million square feet in consecutive quarters.
Net absorption also significantly exceeded first quarter completions of 57 million square feet. As you would expect, in response to this demand, high occupancy levels and strong rent growth, we are continuing to invest in new development projects, which I will discuss shortly.
Before I recap first quarter results and activity, let me start by updating you on a couple of items since our last call. As we announced earlier this month, David Harker will be retiring as Executive Vice President of our Central Region effective June 30. David has been a valued member of the FR team since 1998 when he joined the company as our Regional Director in Nashville. He has served our company and our shareholders as Head of our Central Region since 2009, helping to shape and grow our portfolio. We will miss Dave's enthusiasm, tenacity and energy and wish him well in his retirement.
With David's departure, we will consolidate our regional structure into 2 regions with Jojo Yap and Peter Schultz, each assuming responsibility for portions of David's region. Also during the first quarter, we were pleased to welcome Marcus Smith as the newest member of our Board, where he will serve on our investment and nominating corporate governance committees. Marcus is a Director of MSCI, Inc., and was most recently the Director of Equity and a portfolio manager at MFS Investment Management.
We also want to acknowledge Peter Sharpe, who will be retiring from our Board. Thank you, Peter, for your more than 10 years of valued service to our company and our shareholders.
Now moving on to our portfolio results for the quarter. Occupancy at quarter end was 95.7%, and cash same-store NOI growth was 2.2%. For the quarter, we grew cash rental rates 10.4%, and as of today, we have renewed approximately 72% of our 2021 expirations with a cash rental rate increase of 12.7%.
Moving on to sales. During the quarter, we sold 3 properties and 2 condo units for $67 million and an in-place cap rate of approximately 8.4%. The vast majority of the sales total related to 2 larger properties leased at significantly above market rents to tenants we expect to move out. Thus far, in the second quarter, we sold a land parcel for $11 million, bringing our year-to-date total to $78 million, well on our way to our sales guidance of $100 million to $150 million.
Turning now to new investments. As we continue to seek out profitable opportunities, development remains our primary means of new investment to drive future cash flow growth. As most of you are aware, as part of our underwriting process and to manage risk, we operate with a self-imposed speculative leasing cap. Based on the strong fundamentals, combined with the growth of our company, our balance sheet strength, portfolio performance and our significant future growth opportunities, we believe it is prudent to increase our speculative leasing cap by $150 million to $625 million.
When we first initiated this leasing cap 9 years ago, it represented approximately 9% of our total market cap. The new cap level represents a similar percentage. Further, we are pleased to announce 2 new development projects scheduled to break ground in the second quarter. These are in addition to the 3 first quarter starts in the Inland Empire, Nashville and Phoenix, we told you about on our February earnings call.
The first project is at our First Park 121 in Dallas, comprised of 2 buildings totaling 375,000 square feet with an estimated investment of $30 million and a targeted cash yield of 7%. This is the third and final phase of our park in Louisville, adding to the 3 previously completed buildings that total 779,000 square feet. We pre-leased the 125,000 square foot building, so we're 33% leased on the new phase prior to groundbreaking.
The other start is the second building at our First Aurora Commerce Center project in the airport submarket of Denver. It's a 588,000 square footer adjacent to the 556,000 square foot building we completed in the third quarter of 2019, which was 100% leased within a couple of months of completion. Estimated investment is $53 million with a targeted cash yield of 6%. This new building positions us well to serve the significant demand for larger spaces we are seeing in that market, and we look forward to future growth at that park on our remaining land on which we can develop 3 additional buildings totaling approximately 700,000 square feet.
Including these 2 new development starts, our developments in process today totaled 3.3 million square feet with a total estimated investment of $318 million. At a cash yield of 6.2%, our expected overall development margin on these projects is a healthy 45% to 55%.
Moving on to acquisitions. During the quarter, we bought 1 building and 3 land sites for a total purchase price of $24 million. The existing asset is a 62,000 square foot distribution facility in the Oakland submarket. The total purchase price was $12 million, and the expected stabilized cash yield is 4.8%.
The three new land sites totaled 16.6 acres and are located in the Lehigh Valley in Pennsylvania, the Inland Empire East and the Oakland market of Northern California. Total purchase price was $12 million, and these sites can accommodate up to 275,000 square feet of future development.
In total, our balance sheet land today can support more than 10 million square feet of new investments, and our 2 joint ventures can support 11 million square feet with our share around 5 million. So we're well positioned for future growth. As always, we continue to utilize the strength of our platform to secure profitable new investments. Our team is working around the clock to execute our capital deployment plan with a focus on growth.
With that, let me turn it over to Scott.
Thanks, Peter. Let me recap our results for the quarter. NAREIT funds from operations were $0.46 per fully diluted share, compared to $0.45 per share in 1Q 2020. And our cash same-store NOI growth for the quarter, excluding termination fees and a gain from an insurance settlement, was 2.2%, primarily due to an increase in rental rates on new and renewal leasing and rental rate bumps embedded in our leases, partially offset by lower average occupancy.
Summarizing our outstanding leasing activity during the quarter, we commenced approximately 3.3 million square feet of leases. Of these, 600,000 were new, 2.3 million were renewals and 500,000 were for developments and acquisitions with lease-up. Tenant retention by square footage was 76.5%. Cash rental rates for the quarter were up 10.4% overall, with renewals up 8.3% and new leasing 17.8%. And on a straight-line basis, overall rental rates were up 21.4%, with renewals increasing 17.6% and new leasing up 35.5%.
Now on to a few balance sheet metrics. At March 31, our net debt plus preferred stock to adjusted EBITDA is 4.8x, and the weighted average maturity of our unsecured notes, term loans and secured financings was 6.1 years with a weighted average interest rate of 3.6%.
Moving on to our updated 2021 guidance per our earnings release last evening. Our guidance range for NAREIT FFO remains $1.85 to $1.95 per share with a midpoint of $1.90. Key assumptions for guidance are as follows: quarter end average in-service occupancy of 95.75% to 96.75%, an increase of 25 basis points at the midpoint helped by property sales in the first quarter.
Same-store NOI growth on a cash basis before termination fees of 3.5% to 4.5%, an increase of 50 basis points at the midpoint due to first quarter performance and property sales in the first quarter. Please note that our same-store guidance excludes the impact of approximately $1 million from the gain from an insurance settlement.
Our G&A expense guidance remains unchanged at $33 million to $34 million. Guidance includes the anticipated 2021 costs related to our completed and under construction developments at March 31 plus the expected second quarter groundbreakings, First Park 121 Buildings C and D and First Aurora Commerce Center Building E.
In total, for the full year 2021, we expect to capitalize about $0.05 per share of interest. And lastly, guidance also reflects the expected payoff of $58 million of secured debt in the third quarter with an interest rate of 4.85%.
Other than previously discussed, our guidance does not reflect the impact of any future sales, acquisitions or new development starts after this call; the impact of any other future debt issuances, debt repurchases or repayments after this call; and guidance also excludes the potential issuance of equity.
Let me turn it back over to Peter.
Thanks, Scott. We're off to an excellent start in 2021. Our team is focused on capitalizing on the positive momentum generated by the recovering economy and the continuing evolution and growth in the supply chain.
And with that, operator, would you please open it up for questions?
[Operator Instructions]. Our first question or comment comes from the line of Michael Carroll from RBC Capital Markets.
Can you guys talk a little bit about your near term, I guess, development starts? You've been pretty aggressive at the beginning of this year and you just mentioned that you're increasing your speculative development cap. I mean can we assume that FR will continue to break ground on, I mean, the $80 million to $100 million of development starts as we move into the back half of this year to kind of continue this pace you started at the beginning of the year?
So, the cap is now $625 million, and we've got about $225 million of capacity under the cap. So that's $400 million underway. About $318 million is currently under construction and the rest has been completed. So we've got some room there. We're evaluating new opportunities, and you can expect us to announce some additional starts in the second and third quarter.
Okay. And are there specific markets you're willing to pursue spec projects? I mean are you really focused on the Tier 1 markets to do spec projects or are you willing to go on some of the smaller markets, too?
Well, as you know, we're pretty focused on the higher barrier markets now with not only our new development projects but also any acquisitions. And so that's where we'll continue to focus our new investment dollars. That's not really size related. It's really more growth opportunity related.
Okay. Great. And then last one for me. Can you talk a little bit about the activity you're seeing at the former 1 -- former Pier 1 space? Is there interest in that site right now? And I guess, what's the timing of being able to release that block?
Sure, Mike. It's Peter Schultz. Activity in that market continues to be very good. A number of large lease signings in the first quarter. We've had some interest in our building. Nothing to report on today. Our assumption is that it releases on October 1. And given the high level of demand and the few choices that tenants have, we're optimistic about outperforming on our rental rate there.
Our next question comes from the line of Craig Mailman from KeyBanc Capital Markets.
Peter, just a clarification to the previous question. You said there was $225 million of capacity left under the cap or used under the new cap?
We have $225 million of the $625 million is available. Of the $400 million that is used, $318 million is underway. And the difference are 3 projects that we have completed but not yet leased.
And that already includes the projects that we just announced that is going to start Q2.
Got you.
So that $225 million is pure capacity for new starts for the rest of the year unless we lease things quicker.
And then one of your larger peers was talking about replacement costs going higher and the difficulty getting materials. Kind of where are you guys on purchasing, buying new projects? You backfilled the land bank a little bit here. But as we look out to the balance of the year, I mean do you have the steel and other materials to continue to keep pace with starts? Or is that going to be a little bit of a hindrance as we move to the balance of the year unless supply chains ease up a bit here on the material side?
So on the topic of steel, it's certainly more expensive than it was. It's just an issue that just popped up. This has been evolving for the better part of 9 months to 1 year. And so we've been on top of this, anticipating longer lead times to get steel. We're not having any trouble getting steel. It's not holding up our new projects. The projects, as I said, again, are a little bit more expensive.
Jojo, do you want to go through kind of the expense increase for -- I mean half the expense increase is land appreciation to start with.
Absolutely. Due to the increase in construction costs and primarily with steel, if you have the land static, basically the increase contributing to about 5% to 7% increase in total investment, including land. And then you factor the land increase, then that's another probably 5% to 7%. So that's -- so basically half on land and half on the construction costs increase.
All right. That's helpful. And then just, Scott, one quick one. It seems like the sales this quarter kind of really helped to boost some of the occupancy and same-store lift, and did it also drag enough on earnings and that's why you guys kind of kept guidance here flat?
Yes. So I'll walk through the math, Craig, with you. You're going to love this stack because I know you love bad debt expense. But our bad debt expense was 0 for the first quarter compared to our guidance of $500,000. So that obviously is a benefit to FFO. And then you're correct, some of the sales in the first quarter caused some dilution that offset that, which is the reason why we kept our FFO guidance the same, the midpoint.
Keep in mind those sales proceeds will be part of the funding source that we used to fund the two new starts that we discussed in the script. And when those are completed and leased up, obviously, we'll see an increase in NOI from that activity.
Our next question or comment comes from the line of Rob Stevenson from Janney.
Scott, what drove the 15% same-store expense growth in the quarter? And is any of that carrying over in the back half of the year?
Sure. If anyone on the call lived North during this winter, it was snow removal costs. Being in Chicago, we definitely felt there, and I'm sure many of the folks in the North felt it. So it was an increase in snow removal cost was the primary driver. And again, the vast, vast majority of our leases are net leases. So that's recoverable. And again, with our high occupancy rate, we're recovering most of that and the leakage is pretty small.
So that said, as far as whether or not we'll experience that later in the year, I guess you'd have to look at the Farmers' Almanac and see whether we're going to have a bad fourth quarter winter or not. But again, I think the main point is, is when we see expenses increase in the portfolio with a high net lease exposure and a high occupancy rate, the vast majority of it is going to be recoverable.
Okay. And then any known move-outs of size over the remainder of 2021 and into the 2022 leases? And where are you guys expecting the retention rate to sort of fall out for the year? It was low this quarter relative to previous quarters, but I don't know whether or not this just got some of the move-outs out of the way.
Yes, this is Chris. As far as remaining rollovers for the year, as you've seen, we've taken care of 72% of them so far. The remaining rollovers average about 27,000 square feet. So pretty good shape from that standpoint.
As far as where we're going to end up for the year for retention, we should be somewhere in between that 70% and 80% rate. And looking forward all -- to 2022, it's pretty granular -- pretty -- across all markets there. So no big surprises there.
Okay. And then last one for me. The three land sites you bought in the quarter supporting 275,000 square feet, is there anything, in particular, I assume that Oakland is probably a smaller asset, but the average of that is all 3 assets over 275,000 square feet, sub 100,000 square foot. Are you combining that with additional land sites to build bigger? Or are these all going to be relatively small developments once you get to them?
Yes. You're correct. In terms of the three assets, the Oakland land is a lower coverage building because we've been getting significantly higher rents -- higher rent growth on surface parking and surface use. So the design there right now, and we still have to get it all through -- the design right now is a bit lower in terms of FAR. And it's a standalone project. Peter?
And then, Rob, in the Lehigh Valley, that site is adjacent to one of our existing properties and is going to share some infrastructure, and we're excited about that size given the difficulty in finding sites and serving demand for that size and that submarket.
[Operator Instructions]. Our next question comes from the line of Caitlin Burrows from Goldman Sachs.
Maybe just following up on that land acquisition topic. I think this is the first time in recent history that you acquired lands in Northern California and the cost was pretty high versus 2020 land acquisition. So could you just go through what drove the decision to acquire the land given the economics? And how quickly do you expect to build there? And what kind of yields you could expect?
Sure. Yes, thanks for your question. We're highly focused on that 880 Corridor in East Bay. We expect significant rent growth from East Bay. It's one of the most infill markets in the U.S. and those creation in the peninsula, which the East Bay industrial market serves, continuous to grow. So that's the overall strategy.
If you look last year, we actually acquired some properties in the I-880 Corridor, specifically Fremont. This land site is in Hayward, which is the epicenter of the industrial market in East Bay. And you will see us, going forward, acquire and develop more product all the way North from Richmond down to San Jose with the epicenter being Oakland and Hayward. So that's our overall strategy, and we expect to develop this site that we acquired.
And in terms of our acquisition, First Avenue, we expect a whole lot of yield there. And if the market stabilizes right now, that property, I should say, on a sub-4. And in that property, we expect significant rental rate growth or rent. It will be matching -- East Bay will be matching. Their rental will be matching with the experience in South Bay, L.A. and IE.
Got it. Okay. And then maybe just more broadly on acquisitions of land. Can you talk about the competition that you're seeing in the target market? I imagine it's high, but just how often you're being priced at or what the opportunity is there?
Well, most of what we're doing -- our teams on the ground spend a lot of time making unsolicited offers and hounding the owners of these land sites until they basically cry uncle and agree to sell. And so typically, when we're successful or where we're most successful, that's one of the reasons that we're able to develop to such high margins is we only have limited competition. Obviously, they're going to talk to just -- more than just us. But typically, these opportunities are not being widely marketed by brokers.
So that's kind of the way we're after it. Literally hundreds of unsolicited offers a week around the country and some of the land sites are smaller. And every now and then, we're able to get 80 or 90 acres at a pop. So -- and we're focused, as you know, on the higher barrier markets. So by definition, large land sites are going to be tougher to come by.
And just to add to what Peter said that we do -- we have done and we have been very successful in land assemblages, which is one of the most complex land acquisition you can do, where you need to tie up multiple sellers and close simultaneously. We've been able to successfully do that. The net effect of that is a lower basis.
Got it. And then maybe just a last one on the maintenance CapEx, the nonincremental building improvements and nonincremental leasing costs were higher again in the first quarter year-over-year or if you look over the trailing 4 quarters, pressuring the AFFO. So I know last year, you had talked about pull forward of some CapEx. Just wondering how long that's going to continue for? And is that still what's causing the higher maintenance CapEx?
Yes. Caitlin, it's Scott. I think that's probably more of a timing difference quarter to quarter. CapEx is -- sort of you have to look at that on an annual basis, but we expect our CapEx for this year to be plus or minus $38 million, which is going to be a savings compared to our CapEx in 2020. And we feel that, that number, again, if we keep the portfolio the same size, we'll go down a couple of million dollars over the next couple of years.
Our next question or comment comes from the line -- I'm sorry, our next question comes from the line of Dave Rodgers from Baird.
Dave Harker, congratulations on the retirement. Well deserved. Peter Schultz and Jojo, congratulations on the added work.
Ask them how much they got paid.
Going back to the comments, I looked at your development pipeline, what's under construction today is about 20% larger than what you delivered last year. And I know some of that can just be changes in mix and all that. But if we look at then the 2 weakest areas of occupancy in the portfolio, it's kind of Seattle and South Florida, both kind of smaller tenant markets typically. So I guess, maybe talk about -- do you have a bent towards building bigger assets, notwithstanding your recent comments that you just made in the last couple of questions? But I guess then broadly, can you talk about the activity in the small spaces and what you're seeing and how that part of the portfolio is recovering?
Sure. Let me start with that, and then Jojo and Peter can jump in. The weakening or weaker occupancy that you referred to in some of these markets is really one property. So for example, in South Florida, we've got a 96,000 square foot vacancy in Broward County. In Seattle, we've got a 62,000 square foot vacancy there. We don't have a huge portfolio. We're working on it, but it's still not large in Seattle. So that factors into that vacancy that you referred to. Grand Parkway in Houston. Other than Grand Parkway, we're pretty full in Houston.
So there's really no issue there. And in terms of demand, the largest rent increases are coming from the tenants in the building sizes of 100,000 to 200,000 square feet. Peter and Jojo, I don't know if you want to add to that?
Sure, Dave. It's Peter. I would say in terms of building size, we're building to what we view as the strength of demand on a submarket basis. So in Pennsylvania, as an example, bigger is better and demand is strongest for larger buildings. In some of the other submarkets, it might be a mid-sized building. But remember, we're always focused on the flexibility to accommodate single tenant or multi tenants in these buildings. And we've been surprised in a couple of cases where buildings that we built for multiple tenants, we've ended up with a single tenant. Jojo?
Yes. So just to add an example to Peter itself, we leased this building already, for example, First Redwood Logistics I Building B. That's a 44,000 square foot asset, basically in the IE and very, very successful. Leases very, very quickly after completion.
If you look at some like -- we have this build-to-suit, First Nandina. This is only 221,000 square feet in the East IE. This is considered a small building -- smaller building, but there's significant demand there. And that's why it became [indiscernible] because we were going to go spec and the tenant came in and wanted to acquire. Another building, we said that we're going to start with the 303,000 square foot, again, in IE called First Wilson.
So again, it shows you the breadth of the demand in marketplace. But like Peter said, we will continue to build to what suits the market. And just like Caitlin just asked [indiscernible] and other gentleman asked about this asset in East Bay. In East Bay, a number of our assets are going to be a little bit of smaller size because that's what the demand is. But if we find a bigger size as well, we'll build it. It's just lack of a lot of people who live here. I don't know if it answers your question, Dave.
It does. I appreciate all the added color. I think in there, I heard rent increases are biggest among the 100,000 to 200,000 square foot boxes. I guess, as you rank maybe the smaller and the larger component against that range, so below 100,000 and above 200,000, how do those compare? Are they meaningfully different?
So the 50,000 to 100,000 are pretty strong as well. The growth is a little bit lower over 200,000 and under 150,000. So that's a broad generalization, but that's what we're seeing.
No, that's helpful. Last for me, Scott, maybe for you. As you increase the development cap and it makes sense, thanks for running through the numbers. I guess, how do you think about the financing part of that, right? So now maybe you've got more speculative assets that you can add to the pool, but do you think about then having to kind of keep lower leverage using equity more aggressively or selling more assets as the year progresses?
Yes. Dave, I think it's the same formula we've used in the past, is you're going to -- we're going to use your sales proceeds and your excess cash flow after paying a dividend. We do have room to lever up a little bit because you're right, our leverage is low at 4.8x.
And like we said before, if we see great investment opportunities there and equity, the price is attractive, we'll consider issuing equity. So that's definitely on the table. And again, we'll -- we have looked back at what we did in equity issuances in 2020, '18, '17 and '16. We put the vast majority of that money into spec development.
And as we discussed in our Investor Day call last year November, the margins on there were very strong. And we thought it was a great use of capital. So equity is a piece, but we have to like the stock price and we have to have the investment pipeline.
Our question comes from the line of Vince Tibone from Green Street.
Given how land and overall replacement costs are trending, how much longer do you believe development profit margins can stay at the impressive levels they are now? At what point does just competitive market forces push these down some in your mind?
Sure. This is Jojo. In terms of margins have stayed pretty much flat because of 2 Phase I. Investment costs have gone up, but the rents have gone up as well. And then cap rates have actually -- have come down, too. And I think -- I believe, rightfully so, because most investors did not expect the high rental rate growth rates that we're experiencing. Everybody was in the 3% to 5%. And the reality is that this year is probably going to be 5% to 10%, with submarket actually exceeding that.
So we're at a stage right now that I think margins will continue. There is significant more competition coming in. But overall, the rents have come up a lot.
The last -- one other comment I was going to make is that we always hear as the question that we talk to our customers about the cost of -- rental rate cost as acquired total logistics cost. It still remains small. It's really under 7%. And the biggest component of any logistics company is transportation, labor and inventory management and the rest comes down. And we're actually the lowest cost structure. Not that we can just go away and charge anything, there's room to grow in that because it's the lowest component of logistics costs.
Got it. That's helpful. I want to follow-up on one of the comments you made, you saw kind of growing competition. Are you seeing a lot of new players enter the space who traditionally haven't done industrial development or it's more kind of existing players just growing their risk appetite and maybe development pipelines?
Both. We're seeing both. Exactly -- what you cited was exactly the source of new competition. No increasing money from existing investors and new entrants and a lot from other product types where we see the -- actually the tailwind is much, much better in industrial.
Does that worry you at all for some of the lower barrier markets just kind of ramping supply over the next 2 years? As more and more capital wants to come into the space, how do you think about overall supply risk in your various markets?
We look at it very, very closely. We don't worry about it. We calibrate our investment given the demand/supply of each submarket. And that's why we have a platform because we always watch supply/demand. And so far, we've been really pleased and a bit surprised on the 100 million -- over 100 million square foot net absorption in the whole market just this Q1 versus a constrained supply. So that was -- that's welcome news to everybody in the industrial.
Yes, there are lots of new entrants, as Jojo mentioned, where investment managers or investors in traditional assets, apartments, retail, et cetera, want to get involved in industrial. And they're extremely aggressive and they actually become really good buyers of some of the stuff that we're selling. So from that standpoint, that's a plus for us.
The only other thing I'd add to what Peter said is that we -- you remember, we do have a platform or in our construction, development, asset management, property management leasing platform that not all the new entrants have. And that creates embedded advantage in terms of relationship, finding new deals, getting deals at low basis value.
And market knowledge.
[Operator Instructions]. Our next question comes from the line of Mike Mueller from JPMorgan.
You talked a lot about new development starts, but can you talk a little bit about what you're seeing in terms of the opportunity for buying vacant buildings?
There's not a whole lot on the market to start with. So we track. We'll call it deals done away. That's an old banking term. We track all the transactions that happen. We see most of them. And over the past few years, that analysis has thinned out considerably. So first of all, there's not a lot being sold. Then you break it down to where we want or would consider buying and that's higher barrier markets and that shrinks the available pool even more. We would certainly acquire a vacant building if it met all of our criteria. We do evaluate those opportunities from time to time, but it's not a high volume.
Our next question comes from the line of Rich Anderson from SMBC.
And just a tweak to Mike's question there. I'm wondering -- I don't know that there's much in the way of distress in industrial space these days. But I wonder if there's a way to get creative in building your land position, perhaps, I don't know, a poorly located strip center that you can get for the dirt that would be a decent location for a moderate-sized industrial building? Are you willing to take on sort of the risks and the time constraints of re-entitling and all of that? Is that in your crosshairs? Are you doing that at any level today or is it just not necessary at this point?
Well, we absolutely take entitlement risk. It's what we do on a regular basis.
Well, I mean -- just let me rephrase the question. Of course, you do that. But I mean more opportunistically, I guess, I would say, in the way I'm trying to describe.
Sure. I mean, yes, we would. There are some opportunities out there. There are some hurdles to doing that as well. As you know, retail rents tend to be higher per foot than industrial rents. So there's an economic challenge to overcome there. There's also the whole fact that most of these retail centers are surrounded by residential and the neighborhoods aren't going to want 53-foot trucks rolling through the neighborhood.
So those are all challenges. We do look at these opportunities. We're looking at a couple right now. So yes, we're -- like everyone else, we're trying to find where we can create some value for shareholders. And in some cases, it may well turn out to be a reuse or redevelopment of a retail site.
Okay. And then my follow-up unrelated question is just looking at how the markets reacted today, I don't want to get too much into a single day's worth of trading. But you reiterated your guidance from last quarter and I guess in the industrial space, redo rate is viewed as a cut, which is a product of your own past success and saying that tongue in cheek. But I guess what I am asking is, in 2020, as that year evolved, you saw e-commerce demand build in that environment and hopefully, an environment that's going away slowly.
In 2021, what is your perspective of -- how -- is your perspective of future growth somewhat lower because we're kind of approaching more of a normal operating environment? And hence, maybe we've kind of got a pretty good sense of what 2021 guidance will look like in future periods? Or are you -- you call it just as excited or more excited this year, despite the fact that you won't have the sort of doubling down of demand like you had last year?
Well, nobody knows what the growth trajectory of e-commerce is going to be except that we did see adoption of online buying by millions of new customers, if you want to call it that, last year. It tends to be sticky. So you saw this hockey stick growth in online sales. Probably not going to continue that trajectory, but we've had a step up, I guess, if you want to call it that. And we would expect the trajectory to be at least as good as it was pre-COVID, which was still pretty strong.
So we do believe e-commerce is going to continue on a very, very strong growth trajectory, again, probably not the hockey stick we saw in 2020. And look, there's a lot of competition out there. Everybody is competing to grow their footprint and to -- and trying to maximize and optimize their supply chain. So it's not just the e-commerce guys. It is the traditional sellers of goods, products and services and we like that competition. It's good for us and it's good for rent growth.
Our next question comes from the line of Nick Yulico from Scotiabank.
So maybe just focus on the Inland Empire for a minute. At the Investor Day, you did give some forecasted yields on the future land pipeline there as well as construction starts. And we just came off, I think some people were saying it was a record first quarter in the first quarter for Inland Empire.
I guess I'm just wondering there, you cited the cash yield there on that pipeline of 5.6% and construction starts that were starting sort of besides what you've already announced later this year and into 2022, 2023. And I guess I'm just wondering, based on the market dynamics since then, whether there's any increase in yield that you're seeing in that market and as well for some of the future starts, do you speed up some of the development in the Inland Empire?
This is Jojo. When I mentioned 5% to 7% increase, that was in relation to increase in construction costs over total project cost, which includes the land kept static, and that's due to a lot of the steel.
To your question of rents accelerating, yes, IE is the market wherein rents have actually increased at a higher rate than combined construction cost and land. And therefore, yes, if we look back in terms of our projections, we are forecasting increasing yields in the IE, and that's the function of the increasing rents. So yes, you're -- I think that's where -- if that was your question, that's the trend that we're seeing.
The only thing I'd like to add is that there'll be a couple of reasons why market is one of the tightest in the U.S. If you look at IE in itself, West and East, you're sub-3%. South Bay, as we all know, is sub-2%. This year, in terms of year-to-date Q1 port activity, March probably shattered a record over the last 10 years. The top 13 ports in the U.S. have increased container throughput, inbound only. And if I gave you an example of just the top 2 ports, Q1 of '21 versus Q1 of 2020, the increase in throughput was 47% through the ports of L.A. and Long Beach. And so the reason I mentioned that is that, that has impact on in terms of absorption and rental rates and the continued tight market for IE because IE is the biggest repository really of all the goods coming from port of L.A. and port of Long Beach.
Okay. That's helpful. Just one other question is on the asset sales, you mentioned this quarter that there were some above market rents that drove that cap rate higher on the sale. How should we think about, going forward, some of the other property sales you may be doing and lining up in terms of that, if there's also an above-market rent impact we need to think about or should cap rates on sales be more normalized going forward?
Well, just to give you a reference point, the tenants in those buildings are moving out in one building and moving out next month. When you take a look at where market rents are there, we project stabilized cap rate on those deals is closer to the low 5s. So obviously, it is what it is today with the tenant in the building and that's why we reported the 8.4%. But the opportunity set going forward, both from a lease-up risk standpoint and a growth opportunity, is just not there and that's why we sold those buildings.
On a stabilized basis, so getting back to that, stabilized basis, we think the sales for the balance of the year are going to be more like high 6, low 7 cap rate.
I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Peter Baccile for any closing remarks.
Thank you, operator, and thanks to everyone for participating on the call today. As always, please feel free to reach out to me, Scott or Art with any follow-up questions, and we look forward to connecting with many of you at some point, either virtually or in person, this year. Take care.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.