Supply Pressure in Sunbelt and Seattle
Q: When will supply pressure peak in Seattle and the Sunbelt?
A: Supply in Seattle is expected to peak in the back half of 2024, especially in Redmond and the city of Seattle. Starts are coming down, so competitive pressure should lessen in 2025. In the Sunbelt, supply remains constant throughout the year, with pressure expected all year long. It's likely to take a couple of tough years to absorb the units coming to these markets. "

Acquisition Timing and Strategy
Q: Are acquisitions assumed for the second half due to market conditions?
A: While our guidance assumes acquisitions in the second half, we'll act earlier if opportunities arise. We aim to balance price and rent growth expectations, acquiring when rents are down at better prices or paying higher prices later when rents recover. Our primary goal is to build out the portfolio in expansion markets and reduce exposure in Washington, D.C., New York, and California. "

Investment Hurdles and IRRs
Q: What are the current investment hurdles and IRRs in the market?
A: The transaction market is choppy with a standoff between buyers and sellers. Buyers are generally looking for a 5.5% cap rate, while sellers want around 5%. Most deals aim for an 8% IRR, depending on rent growth assumptions and residual cap rates. In the Sunbelt, despite short-term challenges due to supply, long-term demand is strong, leading to IRRs roughly the same as coastal markets. " "

Coastal Rent Growth Expectations
Q: Why aren't coastal markets seeing stronger rent growth despite positive factors?
A: While factors like limited supply, unaffordable homeownership, and solid wage growth are present, some coastal markets are coming off significant rent growth years. There may be a pause as resident incomes catch up. We're optimistic about the Northeast markets like D.C., Boston, and New York but are being cautious due to various economic crosscurrents. "

Recovery in San Francisco and Seattle
Q: When do you expect rent recovery in San Francisco and Seattle?
A: We anticipate an elongated recovery in San Francisco, with conditions improving but full recovery likely in late 2024 or 2025 as tech job growth resumes. In Seattle, supply peaks in late 2024, and with strong wage growth outpacing rent increases, there's potential for significant rent growth once the supply is absorbed. We're cautious but optimistic about these markets. "

Renewal Rates and Rent Growth
Q: Will renewal rents hold up better than new rents?
A: Yes, we expect to renew about 55–60% of residents, achieving 4–4.5% rent growth off about 6% quotes. Despite negative new lease change in some markets, renewals tend to be more stable due to our centralized renewal negotiations and data-driven processes. We've modeled for some deceleration later in the year but remain confident in our renewal performance. "

Tax Assessments and Property Values
Q: Are lower property values affecting tax assessments?
A: Yes, we're seeing lower assessed values in some markets for 2024. Assessors are acknowledging that values are lower than initially assessed, which could benefit us through lower real estate taxes. However, rates may vary, and we'll continue to challenge values where appropriate. " "

Advocacy Costs Impacting FFO Guidance
Q: What's causing the difference in FFO guidance?
A: A significant contributor to the difference in FFO guidance is higher advocacy costs. We're forecasting increased spending in 2024 due to it being an election year and facing ballot initiatives, predominantly in California. "

Investment in Other Capital Stack Positions
Q: Would you invest in other parts of the capital stack to acquire properties?
A: While we prefer straightforward acquisitions, we're open to opportunities in other areas of the capital stack if it leads to property ownership. This could include participating elsewhere in the capital structure with a likely path to owning the property. " "