Market Insights | AvalonBay 1Q22 SoundbitesFred Krom, 05/02/2022
What's Happening Next in Multifamily? Explore 1Q 2022 earnings soundbites from AvalonBay (NYSE: AVB).
AvalonBay 1Q22 Takeaways
Very robust 6.9% yield on developments completed 1Q22. For the year, we're projecting about $700 million of completions at an average yield of 6.3%, which represents a substantial spread to current market cap rates.
We're also optimizing the portfolio through the selective sale of older, slower-growth assets from our established regions, this quarter with $270 million of dispositions at a high 3% cap rate, with the intention to then redeploy this capital primarily into acquisitions in our expansion markets.
Continue to see elevated move-ins from greater than 150 miles away, which speaks to a continued flow of residents back to our established markets – a particularly a positive indicator for our urban and job-centered suburban communities. We also continue to see de-densification, with fewer roommates and the desire for more space, leading to fewer adults per apartment and is a driver of incremental demand across our portfolio.
As rents continue to grow, they are supported by greater household income from new residents, which was up 12% yoy 1Q22. The monthly cost of renting versus the cost of owning a home materially favors renting in our markets, with a difference of almost $1,000 per month, a historically high level and one which provides a meaningful cushion and support to our rent growth.
Occupancy remains strong and steady at about 96.5%. to historic figures. And 30- day availability, effectively the near-term inventory limited at less than 5% of our units.
Core operating performance is quite strong, but there continues to be some uncertainty about net bad debt in certain markets, particularly in SoCal and Alameda County in NorCal. In some other markets, while eviction moratoria have expired, the core processes are moving slowly. As a result, some of the growth we are expecting in 2H22 may get pushed to 2023.
Development activity: The 5 consolidated communities currently in lease-up, which are widely dispersed across 5 different regions, have rents currently $230 or 9% above proforma, which in turn is contributing to yields points ahead of our initial expectations at 6.1%.
At 1Q22 end, our development rights pipeline had grown to $4B, up from $3.3B at the start of the year, with new sites added in our expansion regions of Denver and Austin as well as established regions in New England and NorCal.
We also launched a new investment vehicle in 1Q22, which we are calling our Structured Investment Program, or SIP. This is a mezzanine lending platform that provides short-term construction financing to local third-party developers in our established regions, plus Denver and Florida, with our position in the capital stack between the primary construction loan and the sponsor equity.
The SIP provides another way for us to leverage our deep expertise in development, construction and operations to generate attractive risk-adjusted returns for our shareholders, and we expect to build this program to a $300 to $500M total investment level over the next few years.
The market conditions are probably shifting in a way that's going to make this program more attractive going forward, as development capital maybe gets a little more challenging, as first loan proceeds start to get constrained. We're pretty bullish.
In Austin today, for example, which is one of the markets that have the most supply coming online, you'll hear developers and GCs talk about job completions extending from 2 to now 2.5 to 3 years.
Most pressure in Denver and Austin not being able to keep up with the amount of supply, not in terms of demand, in terms of deliveries and kind of like final inspections.
Read the full release from AvalonBay on Businesswire.