Alexander Kim

Alexander Kim inquired about the strong performance of UDR's Seattle market, which exhibited almost 4.5% revenue growth and negative year-over-year expense growth, asking what factors are driving this strength and how the job outlook in that market is considered in forecasting.

Answer

Michael Lacy, SVP of UDR, explained that UDR's Seattle portfolio, which is diversified (6% of NOI, 60% urban/40% suburban) and has no exposure to downtown Seattle, saw growth in areas like U District, Renton, and Bellevue. He noted current occupancy at 96%-97%, decreasing concessions, and positive blended lease rates in January compared to negative trends in Q4. Supply is also decreasing, with 9,000 units expected versus 13,000 a year ago. Job growth in Bellevue is positive, and UDR is not seeing layoffs impact its resident base or prospects.

Alexander Kim inquired about the strong performance and forecast for UDR's Seattle market, which showed almost 4.5% revenue growth and negative year-over-year expense growth, asking about the drivers of this strength and the job outlook's influence on forecasting.

Answer

Michael Lacy, SVP at UDR, explained that UDR's Seattle portfolio (6% of NOI, 60% urban/40% suburban) benefits from no exposure to downtown Seattle, with growth seen in the U District, Renton, and Bellevue. The market is experiencing 96%-97% occupancy, abating concessions, and positive blended lease rates in January (compared to negative 2%-3% in Q4). Reduced supply (9,000 units vs. 13,000 a year ago) is also a contributing factor. Despite news of layoffs, UDR is not seeing a direct impact on its resident base or prospects, with job growth remaining positive in areas like Bellevue.

Alexander Kim of Zelman & Associates asked about the drivers behind the dynamic in the West Region where new move-in rent growth outpaced renewal growth during the second quarter.

Answer

SVP & COO Michael Lacy identified San Francisco as the primary driver, where the portfolio is seeing strong momentum with 97.5% occupancy and 5.5% blended rent growth in Q2, driven by return-to-office trends. He noted market rents have moved faster than expected, exceeding renewal offers sent out 75 days prior. President & CIO Joseph Fisher added that renewal growth for the region is also constrained by a cap of ~1.8% in the Monterey Peninsula market, which makes the new lease growth appear stronger in comparison.

Alexander Kim asked for an update on the transaction market for stabilized products, including pricing power, cap rates, and expectations for future transaction volumes, given the soft new move-in pricing.

Answer

Brad Hill, President and CEO of Mid-America Apartment Communities, noted robust investor appetite and increased transaction volumes in 2025 as interest rates stabilized. He expects this trend to continue in 2026 with healthy cap rates, seeing no significant changes. He acknowledged some underwriting uncertainty on new lease rates for lease-ups but believes the market is optimistic about concession burn-off.

Alexander Kim asked for further insights into the transaction market for stabilized products, specifically how soft pricing power on new move-ins coexists with strong investor demand and market cap rates in the 4-6% range, and expectations for future transaction volumes.

Answer

Brad Hill, President and CEO of Mid-America Apartment Communities, noted robust investor appetite and steadily increasing transaction volumes in 2025, expected to continue in 2026 due to decreased interest rate spreads and cost of capital. He anticipates healthy cap rates and increased activity, despite some underwriting uncertainty on new lease rates for lease-ups.

Alexander Kim of Zelman & Associates asked what surprised the company about the supply environment this year and for expectations on the operating environment when current developments deliver.

Answer

EVP Timothy Argo said the surprise was not supply levels but the slowdown in leasing velocity and operator nervousness in Q2. President and CEO A. Bradley Hill expressed optimism for when current projects deliver, citing a future low-supply environment with starts at 1.7% versus a 3-3.5% historical average, which should support strong performance.

Alexander Kim from Zelman & Associates asked which factors are being tracked most closely to determine upside or downside to the rent growth forecast for the second half of the year. He also questioned if demand is sustainable amid slowing job growth, despite strong rent-to-income ratios.

Answer

EVP & COO Michael Manelis responded that they track a combination of levers, including pricing trends, retention, and prospect behavior, to make decisions on favoring rate versus occupancy. President & CEO Mark Parrell added that demand sustainability varies by market, noting that significant wage growth in markets like San Francisco provides room to push rents, making their high-earning resident base more resilient to a job market slowdown.

Alexander Kim from Zelman & Associates asked which factors are most closely tracked to determine upside or downside to the rent growth forecast for the second half of the year. He also questioned if strong rent-to-income ratios provide an opportunity to push rents despite slowing job growth.

Answer

EVP & COO Michael Manelis explained they monitor multiple levers, including pricing trends, retention rates, and prospect behavior, to make decisions on favoring rate versus occupancy. President & CEO Mark Parrell added that strong wage growth relative to rent growth since 2019, particularly in West Coast markets, provides ample room to push rents, and their higher-earning resident base is resilient to a slowing job market.

Alexander Kim from Zelman & Associates asked about the trajectory of the rent growth recovery and what has been different about this year's leasing environment compared to historical norms.

Answer

President & CFO Alex Jessett explained that the seasonal leasing pattern is following a typical curve, with a peak in Q2 and Q3, although the swings are more muted than in past years. He noted their forecast for Q4 is slightly stronger than normal, which is justified by the record pace of supply absorption that should restore some pricing power.

Alexander Kim of Zelman & Associates asked about the implications of the widening spread between renewal and new lease rates and whether this spread is expected to tighten.

Answer

President & CEO Angela Kleiman explained that a wide spread between renewal and new lease rates is typical in an environment where market rents are accelerating. She projected that if market rent growth normalizes to its long-term average of 3-4%, the spread between the two metrics would likely converge, with the exception of markets like Los Angeles that have other influencing factors.

Alexander Kim of Zelman & Associates inquired about any recent demographic shifts in AvalonBay's renter base, particularly concerning aging millennials and younger cohorts. He also asked which specific markets offer the most potential for further bad debt improvement.

Answer

COO Sean Breslin stated there have been no recent meaningful demographic shifts but noted the portfolio is being positioned for future demand from aging millennials with more suburban and townhome products. He identified New York/New Jersey, the Mid-Atlantic (specifically D.C. and Maryland), and parts of California (L.A.) as the regions with the greatest opportunity for bad debt improvement.