Q2 2020 Equity Residential Earnings Call
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Good day and welcome to the equity residential second quarter 2020 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Marty Mckenna. Please go ahead.
Good morning, and thank you for joining us to discuss equity residential second quarter 2020 results are featured speakers today, Mark Parrell, our president and CEO, Michael Mcnellis, Our Chief operating Officer, Bob Care, China, Our Chief Financial Officer. Please be advised to certain matters discussed during this conference call may constitute forward looking.
It's within the meaning of the federal Securities laws. These forward looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because the subsequent events now I'll turn it over to Mark for Us.
Good morning. Thank you all for joining us today during one of the most challenging periods in our country and industries history, we feel that our business showed considerable resiliency.
We continue to be pleased with the financial strength of our customer base.
Their average annual household incomes of $164000.
Data suggests and only 4% of workers.
Making more than $150000 of year have recently lost their jobs compared to the low teens for lower income categories. We have collected about 97% of our residential rents during the second quarter and attribute this to a customer base that remains well employed and capable of meeting their obligations July is trending similarly, we are.
Also demonstrated strong expense results, while the pandemic both added in subtracted costs from our operations the innovations around leasing and service that we've described in prior calls have really taken hold and we expect a durable reduction to our expense growth rate. Even after cobot is in the rear view mirror.
And while our 90 basis point decline in same store residential revenue was our first quarterly revenue decline in 10 years, our residential business held up reasonably well under very trying circumstances.
We also believe that we have stabilized our physical occupancy and 95% in a moment Michael will give you some color.
What is going on in each of our markets and Bob will address our expenses nonresidential operations and balance sheet and then we will welcome your questions, but before I turn it over I want to highlight a couple of things first in the quarter, we stabilized to development properties, one in Cambridge, Massachusetts, and another in Seattle, Washington.
Cambridge asset is 64 unit property adjacent to an existing asset of ours and was built for $47 million and stabilize at approximately 5% yield on cost. This property complements our large existing Cambridge portfolio of six properties with about a 1100 units and is ideally suited to how's the biotech employee.
He is working in that area.
The other property consists of 137 units and is located in the Capitol Hill neighborhood of Seattle and cost $65 million to build it stabilize at about 5% yield on cost.
In terms of transactions were pleased to close on to dispositions during the quarter and have sold more than $750 million in assets during 2020.
We feel that we received strong pricing on this quarter sales as both sold assets were over 50 years old and our combined disposition yield was 4.4%, but we note that these sales were priced prior to the pandemic and so shouldn't be seen as a look through on current pricing.
We have not acquired anything this year, but we like to think of ourselves as professional opportunists and have a balance sheet that is as strong as it has ever been which will allow us to take advantage of opportunities when they present themselves.
And now a bit about our capital allocation strategy, we have spoken on prior calls about the company broadening its portfolio by expanding into Denver and into the dense suburbs of our markets.
For the last few years, we've been actively pruning our exposure in some urban locations, including Manhattan and buying more dense suburban assets. Our current portfolio mix stands at about 55% urban and 45% suburban.
We will continue to build and by apartments in locations, both urban and dense suburban or affluent renters wished to live that in markets, where we feel long term returns will be maximized. We believe that our strategy is sufficiently flexible to retain high quality urban properties, while adding some breadth to the portfolio over time. So we can continue to produce.
Dues reliable and growing stream of income for our shareholders and now I will turn the call over to Michelman Ellis.
Thanks, Mark let me start by acknowledging the dedication and hard work of our employees during the second quarter. Despite very challenging operating conditions that team was able to focus on the health and safety of their fellow employees and our residents by implementing our new operating standards to address covert concerns.
Heighten cleanliness standards have been well received by residents and prospects.
The team elevated their voices in various listening sessions held throughout our organization to share how they were navigating and managing stress due to the unrest in our country.
Our voices will help us continue to cultivate a culture of inclusion at equity residential.
They stayed on top of delinquency by executing a consistent and transparent process that emphasize frequent communication with residents who are financially impacted by the virus.
Our collection rate remains strong and fairly stable throughout the quarter with a little over 97% being collected.
They focused on retaining existing residents as evidenced by turnover at 11.8% for the quarter, which has a 130 basis points lower than the second quarter of 2019.
This was driven by a 10% reduction and move outs during the quarter as more residents opted to stay in place.
Achieved renewal rate increases were positive 70 basis points for the quarter, but we expect this number to trend lower as negotiations become more challenging.
Right now about 20% of our renewal offers for July and August include a slight market rate increase.
The team also adopted new technologies for both sales and service.
That allowed us to meet the needs of our customers, while creating operating efficiencies, which contributed to the low growth and our operating expenses.
As to occupancy we stated on the last call that we expected the occupancy impact to be the most pronounced in the second quarter setting a new base from which we hoped we would improve a shelter in place orders were lifted that so far appears to be the case.
The portfolio was 95% occupied today, and we averaged 94.9% through the quarter. After recovering from a 94.2 low point in mid May.
The rate side since last we can may face rents have been relatively stable, but this is bit of a bifurcated story pricing remains challenged in the urban cores of the or the city of Boston in downtown San Francisco, which represents about one quarter of our portfolio. The rest of the portfolio is showing.
Any more price stability the rents are still lower than last year, new lease change was down 7%. This quarter for our same store portfolio before concessions new lease concessions during the quarter were heavily concentrated in the urban cores of New York, San Francisco in Boston factoring in concessions.
The net effective new lease change for the portfolio during the quarter was down 9%.
Overall traffic and application activity improved throughout the quarter as net effective prices were being lower as we mentioned on last quarter's call application activity was recovering at the end of April and continued to do so through the remainder of the quarter.
By late May into June we are seeing somewhat higher new applications week over week relative to the same periods. In 2019. This improvement however was not sufficient to make up for the nearly 40% year over year reduction experienced in April as a result, the total number of move ins for the second quarter.
We're 20% below the second quarter of 2019.
At present, we think it is helpful. The split our portfolio into three pieces as we think about our forward operating performance first our suburban assets, which represents approximately 45% of the company's portfolio have been more resilient during the pandemic with occupancy declining to a low point of 95 point.
2% before recovering fully to levels at or above prior year and ending the quarter at 96.6%.
Suburban renewal percent was very strong at 65% and continues to trend well above prior year.
Rates have been slowly recovering since early may and there have been very limited concessions used in this portfolio.
Second our urban assets that are located in the city of Boston in Cambridge, Manhattan in Brooklyn, and downtown San Francisco, which represents about 25% of the company's portfolio and is currently 91% occupied as stated earlier. This portfolio has the highest use of concessions and the most.
Pressure for the quarter. This urban portfolio renewed 58% of residents, which is 500 basis points lower than Q2 of 19 and was trending down throughout the quarter ending at 53% in June.
The urban cores in Boston, New York in San Francisco has the highest risks of volatility and operations for the balance of the year.
Our third grouping consist of urban assets and other markets like Washington, DC, Seattle in Southern California, and consist of about 30% of our portfolio. These assets reached the low point in occupancy of 94% in mid may that quickly bounced back and remained at 95.2% pricing has been stable.
Since the middle of May with rates being down year over year and concessions being used on about 15% of our applications.
During the quarter, 57% of residents renewed from these assets, which is 300 basis points better than the second quarter of 2019.
Overall this group of urban assets has had consistent operations for the past two months with a slight uptick in occupancy in the past couple of weeks.
Let me provide some quick color on the markets starting with Boston The urban center of Boston, Cambridge represent about three quarters of our total Boston portfolio and were more impacted by early termination and Nonrenewals from international students and third party corporate providers, while neither one of these represent us.
Significant amount of total units the impact was concentrated.
The Boston Urban Center is now 91.5% occupied and continues to be pressured on rates and occupancy, especially given the uncertainty around international students and the competitive supply being delivered.
The other submarkets in Boston had been operating at 95% with consistent rates and very little concession years overall applications have been running at or above prior year for the entire market as we see good demand for our product. We continue to like this market long term due to its combination.
One of bio education, and technology jobs, and the high quality of lifestyle.
Washington, DC continues to demonstrate some resilience, although the market is not escape pricing pressure absorption of new supply continues and the use of concessions remain extremely limited and our portfolio applications have been running at prior year levels and the portfolio is 95.8% occupied.
Moving on to New York, which continues to be one of our most challenging markets leasing traffic and application volume returned to 2019 level by mid may but at reduced rental rates and higher levels of concessions.
The leasing traffic in this city is heavily centered around local bargain hunters, who are moving within the market and searching for a deal concession uses widespread with about 50% of our applications, receiving concessions, which now average greater than one month.
While the application count has recovered to prior year levels. This was not enough to make up for the deficit created by the lack of volume in April.
Retention started strong in the quarter, but has since moderated during June we renewed 57% of our renewal offered which is strong by all accounts, but lower than June of 2019.
Our assets on the Hudson Waterfront, New Jersey, which is about a quarter of our New York exposure have performed better than Manhattan in Brooklyn, We have held 95% occupancy on the waterfront for the past month and while concessions are being used its at a lower level than in Manhattan.
Our New York same store portfolio, including New Jersey is about 92% occupied today recovery in Manhattan in Brooklyn will take some time, but if office Reopenings began in early 2021 is currently expected and the city continues to show good progress and controlling the virus.
We may see higher than usual demand later this year in early next year during a period when demand is typically seasonally soft.
Heading over to the West Coast, Seattle delivered the strongest revenue results in the quarter. Both in terms of absolute revenue growth and the combined impact of new lease change in renewals. The portfolio is 95.3% occupied today and overall revenue performance has been very consistent since early April although pricing.
The decelerated slightly through what normally is the growth period of the peak leasing season.
We have not seen big layoffs in tech jobs in the market, but we are keeping an eye on employers like Amazon last week announced that they were extending their corporate office employees working from home until early January and have delayed new hires start dates from August into September October overall, this trend may cause some short term.
From pressure on demand and occupancy, but could also provide a boost to the fourth quarter, which typically slows down.
San Francisco's revenue performance is very different depending on the submarket, most notably between urban and suburban our portfolio. In this market is approximately 30% urban and 70% suburban in the city of San Francisco, we are seem declining rents that are presently well into the double digits year over year and right.
Presents the largest year over year decline in our entire portfolio.
The city also has widespread concession use at or above four weeks and has experienced the biggest impact from startup layoffs and the lack of foreign immigration.
Our suburban portfolio located in the Peninsula, South Bay in East Bay, as well as a few urban assets that we have in those submarkets stabilized in early may while rates are down on a year over year basis here. They have been holding in place for over a month with very limited use of concessions.
A south Bay is still at risk as new supply enters that sub market at a time when the large tech companies have slowed growth and are trying to figure out longer term work from home policies that said the San Francisco Bay area remains a great place to live Tech companies remain a strong high wage job growth engine and the long term.
From outlook remains positive.
Having to southern California, overall pricing is down and our law, but very stable through June with very little concession use in our portfolio at La has 96.1% occupied today West L.A. remains the most challenged submarket that even hear occupancy recovered to 94.1% and the Dow.
Downtown Submarket, which currently has supply pressure has been stable at 95%, although rent declines are the most pronounced in this submarket.
Overall, we are seeing strength in the suburban submarkets of L.A., which is about 45% of our la portfolio. This strength is mitigating the rate and occupancy declines in downtown Hollywood Mindy will share and less delay.
While the high levels of competitive supply being delivered in the second half of the year recent spike in coated cases in the reversal of phased opening plans for the market are certainly potential short term negatives that content creation and technology jobs story in this large diverse market remains positive, we think jobs and la.
I have the potential to grow even more strongly coming out of the pandemic in order to meet the increasing demand for new online content.
Finally, Orange County in San Diego are both performing well with occupancy above prior year and very limited downward pressure on rates. These are beyond challenging times, but our business is demonstrating resilience and our teams have shown that they can deliver at this point I will turn the call over to Bob.
Thanks, Michael and good morning, everyone. Today, I will make a couple of brief remarks on same store expenses delinquency in bad debt and conclude with the balance sheet.
Same store expenses declined for the quarter relative to prior year driven by the advancements in our technology initiatives that Michael mentioned and delayer deferral of certain expenses largely stemming from the pandemic.
Page 16 of the release provides detailed color on specific line items I do want to highlight that expenses in the quarter included approximately $1 million related to onetime bonuses for our frontline workers and another $500000 from elevated cleaning and other health and safety costs.
As evidenced by our strong 97% collection rate for the quarter, our high quality resident continues to pay their rent.
That said the combination of a small percentage of our residents that have been financially impacted by the pandemic and our conservative accounting policy has led to elevated residential bad debt in the quarter.
Residential bad debt reduced revenue growth by approximately $9 million or a 150 basis points in the same store portfolio.
That is about 100 basis points higher than the comparable period in 2019, which would've been a more typical level.
For the next quarter or so economic and regulatory uncertainties may lead to continued elevated bad debt.
Turning to our non non residential business.
I would remind you that the nonresidential business is a small part of our overall operations at approximately 4% of revenues historically, but it is likely to have a disproportionate impact on total same store performance for the next few quarters.
Retail tenant collections were about 60% for the quarter with collections trending slightly higher in June.
Uncollected amounts that were deferred we're almost entirely reserved against during the quarter from a financial statements standpoint.
Out two thirds of the decline in non residential revenues quarter over quarter stemmed from these reserves and other bad debt related items.
Much like in residential we've applied a relatively conservative accounting policy.
This business is likely to continue to face challenges and we expect that the third quarter could be even tougher given likely delays and reopening activity and the potential lack of additional government small business stimulus.
If retail performance continues to be stress.
We expect that a significant portion of the straight line nonresidential receivable disclosed on page 11 could be at risk and therefore could be written off.
Finally, a quick highlight on our fortress like balance sheet, we entered the pandemic from a position of strength and have further enhance that position through thoughtful refinancing activity and incremental debt reduction from disposition proceeds by taking these steps, we have insurance sufficient liquidity and incremental debt capacity for any opportunities that may present themselves.
Yes, we have limited near term maturities modest development spend an incredible access to capital with that I'll turn it back over to Mark.
Thanks, Bob.
Final note, while we fully acknowledge that the next few quarters will be difficult the cities in which we operate have shown great resilience overtime and while some of them are certainly challenge today, we believe that they will bounce back when we reach the other side of this pandemic.
We expect that these cities will remain at the center of the knowledge based economy, and we'll continue to attract high income renters, we think that the obituaries for the greater been centers have been written much to prematurely. The world's grade cities have continued to adapt and drive overtime and they will do so again.
We appreciate the continued support we have received from the investment community as we navigate the current storms and look forward to coming out of this pandemic well positioned for long term growth now I'll turn the call over to the operator for the Q in a session.
Thank you.
Like to ask a question please signal by pressing star one on your telephone keypad.
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Again for any questions. Please press star one now.
We will pause briefly for any questions.
And we will take our first question today and that is from rich Hightower with Evercore. Please go ahead with your question.
Hi, Good morning, guys hope everybody is doing well.
Good morning Marring.
So a lot of ground, we could we could cover on this but I'll try to limited to a couple of questions here. So thanks for taking the questions but.
Just to go back to the topic of renewal rents for the second so I wanted to backup to want to Michael's comments, I guess, 20% of renewals.
For July and August you said included a slight increase does that imply that 80% roughly or are flat to negative and then are you are you sort of seeing.
Increasingly bold asks among your tenants on the renewal side specifically.
Given that it's probably a pretty well informed tenant base.
Yeah, Hey, rich this is Michael So I guess I would start and say really for the past couple of months. The performance in renewals has been relatively consistent so the comment about 20%, having an increase thats the quote going out the door and you need to remember, we're still subject to a lot of various rent freezes in place.
So you are correct, 80% of our offers that went out for July and August include no increase.
The negotiation process has been very consistent we're kind of quoting about a one and we're achieving about a negative one so about a 200 basis points spread on that performance.
And that negative one that's inclusive of any concessions just just to clarify that.
Yeah. So we're not doing a lot of renewal concessions are we havent been in the portfolio I think we've seen a handful in the quarter in New York, but it's very insignificant dollar amounts.
Okay.
That's helpful and then.
Just a quick one on capital allocation.
Mark I know that you said in your prepared comments that the the pricing that was achieved on the dispositions.
In Twoq is not really reflective of I guess private market reality today, but.
Where do you see that spread between private market today, and you ours implied trading cap rate, and then where to share repurchases potentially fit into.
The capital allocation strategy.
Wow rich that's the compound question. Thank you for that.
So we'll start itis talk and that's all right I will just talk about values and we'll start with the private market, meaning in the quarter. There just hasn't been that much activity, we think activity in our markets for our kinds of assets, meaning assets with over 50 units that are type of quality, we're probably down 70% in the second quarter. So what I have.
Got to tell you is based on pretty limited volume, but it seems to us that the private market values and held in there. So we've seen a few deals trade in downtown Seattle stuff in north side of the suburban Denver complex in Washington, DC, and the Virginia side than the couple of these New York deals that we've been watching but having closed.
Those are all trading at values that indicate to us that the pandemic has not taken private market values down or not taken them down very much at all and again very small sample sizes in fairness.
And then you asked about share repurchases well certainly the company rarely trades at this significant a discount to NPV and munis is very unusual for us.
I'm not at all dismissive of share buybacks I would just tell you that you start has a right with the inability to retain earnings. So and you start also with the ability to return capital through a pretty large dividend our annual dividend is $900 million of capital returns to shareholders every year. So I'd say to you that we're open to it we have a third.
$18 million share allocation on the share buyback side, that's a conversation on continue.
Between the board and myself than.
So we will think more on that but I will say this is pretty unprecedented for us to trade at this discount and I think again as far as I can tell private market value changes don't don't justify.
Okay. Thanks very much.
Thank you.
Thank you we will take our next question and that is from Nick Joseph with Citi. Please go ahead with your question.
It's Michael Bilerman here with Nick.
Mark do you have.
Quoted an opportunistic mindset in the press release.
And I wanted if you could sort of drill down a little bit about what you are implying about having an opportunistic mindset is it acquisition is a tale of more asset is it.
Strategic portfolio Reallocations isn't you just after the stock buybacks what did it encompass.
Yeah. Thanks for that question, Michael it's sort of all the above I mean again not much going on in the transaction market does not much of an opportunity for us to demonstrate that opportunistic mindset that historically this company as an equity company has always been looking for opportunities to purchase assets at prices that we.
I think we create long term value about a year or a year and a half after the great financial crisis, you saw us by a lot of assets you are part of the industry. Then see remember that we are only four months into the pandemic. It feels like a lot longer but it's only been four months I'd expect that at some point there would be opportunities maybe their development deals that need to be completed or lease stop work.
Hi, good at that.
Maybe there are opportunities in retail where you've got out lots on existing retailers big boxes that have closed that we can knock down and reposition as apartments or whatnot. So we're open to all of that.
I just answered a question on the share buyback that certainly something we'll keep in mind as well.
But it sounds being opportunistic as much more on the deployment of capital rather than trying to narrow the gap. If you believe your stock's trading at a discount selling off a substantial or maybe it's in substantial amount of assets.
And sort of narrow the gap that way.
Sounds like you want to add more externally focused and then internally focused.
I'll take your question I mean, whether we could sell enough assets for example, and buy enough stock back to close the gap on any V. and I guess I'd say to you I don't see that as possible I think the company's is too large and when you start selling assets and start implicating large tax gains you start to create other issues you also need to scale the business.
This differently. So I'd tell you I don't see it has likely that we would do a massive stock buyback in an attempt to.
On a closed in any gap equal you're likely to see if we do a share buyback is that we just think it's a good investment in a good trade and doesn't preclude other opportunities because thats the big thing on reach because you're using capital, it's rather borrowing or you're selling assets. You are changing your opportunity set and you might make it harder a year from now to take advantage of some of those.
Opportunities, we just spoke about.
Right.
The second question on what that assets just in terms of your commentary around cities in urban versus suburban environments and thank you made the comment that we shouldn't write off cities at this point urban environments, and and I wanted to answer to drill down in terms of.
What's your what's your forecast on when city start to recover because clearly there's been a substantial amount of home buying in suburban.
And generally employee yours follow talent and if that talent is leading the urban environments as evidenced by your trends that you.
Speaking about in New York City in Brooklyn, and San Francisco.
Why wouldn't the corporation ultimately then move to that.
Overtime.
Yes, I think right and the whole changing nature to of where people are living if there if they're exceeding.
Even at the wealthier.
Specs and moving where those decision makers named.
And so what gives you the confidence that it may rebound quicker than what the market is expecting.
So we think about that as both a short term in a long term question I mean in the short run in some of these dense urban centers the ones that Michael just mentioned that are pressured you're certainly seeing people say these are the urban centers I want to leave and right now because they're not energized they're not as activated.
You know overtime. The pandemic will go away when is a really good question, but if it doesn't mean there'll be a point, where this pandemic will go away or be less than in any cities will open up and there'll be an opportunity for people to move back and I think are sort of resident who again is someone who has an average household income of 164000.
Who median age of 33 is going to work along day in the biotech industry or as a lawyer or maybe even as a as a research analyst and they're going to get element seven or eight o'clock at night, and they're going to say I want to do something with my life I want to be active and energetic in the market I don't.
Value Justice sedentary lifestyle. So I think the actions that we're seeing that are hurting us right now in our urban centers are all about the here now I think as this pandemic wanes and again I can't tell you when that is but it isn't it isn't forever. Then there will be a term and there'll be interest in these markets again, because I don't think anything's changed in the.
The long run Theres still huge network benefits, if you're in the content creation business, there's a lot of benefit being in Los Angeles, if you're in the technology businesses, a lot of benefit to being in Seattle or in San Francisco and the same in the financial field in New York I think those network benefits combined with the fact that our demographic tends to value.
Site man and energy and the urban centers a lot I think there will be there and work from home is a fair question and all of that and I think I'd answer it by saying, Michael you've been rollout of our properties even in the middle of the day on Tuesday before the pandemic. There are plenty of people working from all I don't think work from home in urban living our inconsistent at all.
I think when you're done working denom, you're happy to wander often do those exciting things that you like to do culturally and entertainment lies in our markets. So I guess I'd tell you I am very confident in the long run, but I can't tell you is because it's a public health matter is when the pandemic wings.
Well I was always tell from all of those people sitting in their shorts and T shirts, while we're walking around suits. So now I better appreciation for what they have.
Thanks for that.
But we'll see how much fun hamptons are in November and how great. The Adirondack so.
Ill give me, Rob, let Mike, Mike I'm ready to I'm ready for an office environment I can't live at work I.
Anymore.
There you go.
And I go ahead I'm sorry next question. Please thanks Michael.
We'll take our next question and that is from John Pop Lupski with Green Street Advisors. Please go ahead.
Hey, Thanks for taking the question Michael I appreciate the detail thoughts on the market. So I wanted to talk a little bit more about just New York and San Fran.
Those markets, which are being disproportionally impacted by just employers not coming back to the office. So based on what you see in terms of your schedule move outs today in New York, and San Fran and just a leading demand indicators what does the trajectory of occupancy look like in these markets. These next few months.
And trajectory of rental rates as well.
Well I guess I would say right now they have been very consistent right. So the urban cores of New York in San Francisco money, but they've been running and the 90, 191.5% occupancy and the rates is that kind of alluded to it if they were bouncing around we go few weeks, where we find that stability.
Right. So I think our forward outlook for the near term is consistency on that front.
We did see some shifts in like the migration patterns. So we're we're looking at forwarding addresses for those people that are leaving US both New York in San Francisco, where the two markets that stood out that saw a change in behavior from Q2 20 over Q2 of 19, and New York typically we would.
See about 35% of those residents, leaving provide us affording address out of state in Q2 of 20 that increased up to 50% and the number one state that they were going to was new Jersey.
In San Francisco, It was a little bit different and that we didn't really see a strong uptick in those residents that we're leaving the state of California. What we saw is in the city of San Francisco, we saw pretty pronounced uptick in leaving the MSR day.
And really the number one place they were going to with Santa Clara County, So they were going down. So we're seeing some changes in the patterns, but I think from a consistency and operations standpoint, we've been optimizing revenue of 91, and a half and that's probably where we would expect to see it stay for a little bit and and John It's Mark just to add there was something we put on.
On page three of the release that we just want to draw your attention to we mentioned that the July 2020 results were about equal to the June results were trying to talk about the rate of change. So we talk first about stabilizing occupancy in April and we did that and then we talked about what's going on with new lease in renewals and for the most part Michael at least for.
Two months, we've stabilized now we're not suggesting is a permanent plateau, but it feels pretty good natural Michael means by stability now we're fighting the concession battle and we're working through that and we're happy to talk about that but it's sort of step by step I think this sense that things are in some sort of precipitous decline is not how we feel.
It feels like here at the company it feels like one thing that we've got plenty of demand. So the occupancy feels okay. We feel okay on what our new lease rate and renewals are going to be give or take from July in June being about the same number and then now we're going to address these concession issues and again the markets reopening are key to that.
Sure I understand nobody knows when the market cheery opened but I guess I struggle with that consistency tone, because concessions are part of the game in Chile.
Somebody could argue a lot of folks private and public operators are buying that floor and occupancy right now so I.
I guess the concern is new York in the fall or San Fran in the fall you start pushing up against occupancy is within a handle so new York occupancy of 94, one in the quarter sounds like at 92% in July, but new leases declining and then concessions getting worse. So I just I'm still.
Juggling with the kind of floor a consistency.
It's not just is not just this call its its other other public and private operators out there as well.
So maybe let me just address one thing just on concession use because I think the markets that we've been talking about just to give you. Some color I mean, the portfolio as a whole we have been very consistent about 25% evolve our applications every single week have been getting some form of concession and it's about equivalent to one month.
When you look at New York, New York, we've been running at about 50% of our applications, receiving a concession and for US. We're typically at about a six week concession in that marketplace and strategically going up to the two month concession San Francisco, it's like 40% of the applications are receiving a concession we're.
Predominantly at four weeks and every now and strategically we go up to six and Thats been fairly consistent in our platform for the last month or so the use of concessions and I think as your comment to the fall I don't know, where we're going to be in the fall I was kind of that alluding to the next kind of 30 60 days as to how we think that the portfolio.
Will play out because we have a little bit of transparency into traffic application volume as well as renewal at some point here youre going to sit on the sidelines. So concessions continue to go up you may just see US park ourselves right at the levels I'm talking about and you may have occupancy kind of decline in the fourth quarter, but I don't know yet how to.
Kind of think about that I'm kind of forward thinking for the next quarter and how we want to run the portfolio.
Hey, Great last one from me could you share what economic occupancy is currently in L.A. versus the physical given the concerns around eviction moratoriums getting extended.
Yeah, Hey, John it's Bob.
So for economic occupancy in Los Angeles, specifically, an eminent Rick I'm going to give you the quarter number. So Q2 2020, we're at 93.7%.
Thats compared to 94.7%.
As a coal occupancy so about 100 basis point Delta.
You're correct that Los Angeles is where we've seen the higher delinquency pattern and that corresponded to the higher bad debt write off.
And while we're at it if you if you want I thought I also might talk a little bit about because I know in different notes, we've seen kind of comparability related to both kind of concessions.
Accounting for concessions and bad debt as well if that makes sense John to kind of maybe walk that group through that.
When looking at bad debt, because I think theres, some comparability concerns or issues I think it's important that we first kind of take our approach and understand what our policy is I wanted to take the opportunity to explain that on the residential side. We continue to apply the same policy we've applied for many years and our policy is as follows.
We write off all of our former resident account balances once they move out Sophie vacated the unit we write it off the 100% of anything that you owed us and those accounts convert to a cash basis.
For residents that continue to occupy the units, but still owe us money.
We write off 100% of their account balance once they reach three times their monthly rent so from from that point forward, we convert to a cash basis. So we think thats helpful to understand we also think it's helpful to understand what the net receivable balances as of the ended the quarter, which we provided in the release.
For residential our net receivable balance before security deposits was about $11.7 million and after security deposits about 9 million or 150 basis points a quarterly revenues.
So in the second quarter.
Same store reported revenue growth, which I talked about in my prepared remarks was reduced by about one percentage point.
Overall consistent with this policy.
Going into the third quarter, we expect that bad debt will remain elevated as I mentioned in our residential business by the collection rates remain the same and consistent.
The impact shouldnt be hugely different than the second quarter impact we continue to be remaining yeah. We continue to remain diligent on writing off those delinquent accounts now nonresidential the little bit of a different story and as more of a tenant by tenant analysis. So we continue to account for that on accrual basis, but this quarter as you heard me talk about it we reserved again.
It's pretty much all of the unpaid rent so effectively converting it to a cash basis and we also wrote off a portion of the straight line receivable.
We continue to monitor that straight line as I mentioned and Thats consistent.
Thats really more a function of the future prospects of those tenants.
We have a number of those on a on a watch list and depending on future conditions that could write off that could result in future write offs I thought that would be helpful kind of summary on bad debt because I know as you guys work through the earnings season, you're going to see a difference in kind of how people think about bad debt et cetera, and then finally kind of the other comparability item you might take note on its just.
Concessions I wanted to be completely clear that in our same store reported numbers. We report in line with GAAP. So what that means is that.
Is that we run the straight line concession through.
Through the reported revenue numbers and we've done that for a number of years. After general FTC publication on kind of non-GAAP metrics and encouraging companies to do so but I'm happy to give you kind of the cash basis numbers by market.
Or in aggregate like I mentioned earlier, so it was 120 basis points that we so for a residential only we reported in the second quarter, a 90 basis point decline if that was on a cash basis. It would've been 120 basis points.
If you go to market by market that relationship so it'd be a 120 that relationship of being call. It 30 basis points down it's pretty consistent overall by Im happy to kind of gave you guys. Those numbers by market. So Boston would've been a negative 1.7, New York would've been a negative 1.9 DC would've been flat.
Seattle would've been 1.5, San Francisco would have been negative 1.4 alloy would have been negative to Orange County would have been 90 basis points positive and San Diego would've been flat. So hopefully that gives you a little bit of color in the end the call a little bit of color on comparability items.
No. That's that's great. Thanks, Thanks very much for further details it's a very much appreciated.
Great.
Thank you we'll move on to our next question and that is from Richard Hill with Morgan Stanley. Please go ahead with your question.
Hey, good morning, guys.
Thank you for the the details on on the bad debt that was on my primary question and I think that was very helpful and efficient explanation I did want to come back to.
Allocation of capital.
And maybe some of the questions at the beginning.
I think there is a case to be made can a lower interest rate regime and against the backdrop, where apartment fundamentals probably still remain quite strong over the medium to long term.
That cap rates can compress.
I know there hasn't been a tremendous amount of transaction volume, but I'm curious if you can talk about that and maybe go back to.
The previous comments about external growth and maybe you being opt.
Opportunistic about buying some properties that does that sort of fit into your thesis and the way you're thinking about things.
Yes. Thank you for that question, which we had a conversation in fact that was a bit of an off hand remark on my part in the last earnings call about cap rates potentially going down with treasury rates with the tenure at 60 basis points. When you look at the spread of the 10 year to prevailing cap rates, it's very high on a relative basis. So.
So I do think a case can be made because of that and because of the very significant amount of capital that to your point because of performance long term wants to get into the apartment business. So I think again as we talked to private folks there seems to be no lack of capital still interested they're anxious about their underwriting or trying to figure things out, but I think theres a lot of people that when the dust.
Models will continue to want to allocate capital into the apartment sites, so how that impacts external growth well to get more aggressive on your exit cap rate is what your comment implies and that means that you've got to feel comfortable for us that 10 years from now cap rates will continue to be levels, yet to be thoughtful about that so.
For us the two main inputs and being more aggressive in acquiring assets would be our thought about growth growth rates of our then why and then thinking a lot at the end about exit cap rates and right now we're not in a situation where a lot of external growth as possible. We're certainly not issuing stock at this stock price so for us it be mostly recycling.
And I think again, we will have an opportunity to do that because our assets will trade well some of them lab renovation possibilities that maybe we don't believe in but maybe the buyer believes in which is the case in some of the assets. We sold recently and then we'll be able to get newer stuff with less capex and better growth prospects in your point have opportunities on the capital on the yet.
Cap rate side, I mean, if cap rates compress we're ready sitting on $40 billion real estate I mean, I would hope that that would benefit us greatly.
Okay helpful.
Maybe I can ask the question slightly differently or maybe take a slightly different perspective, but I could there's obviously a tremendous amount of money on the sidelines with private equity funds I think by our measures around $370 billion globally.
Would you ever consider partnering with a private equity fund that wants to take a longer term perspective to to maybe demonstrate that that your net asset value where is your stock's trading relative massive value is.
Too cheap.
Well I guess I'd have to ask you to be more specific I mean, it doesn't lack capital I mean, if we had I lack currently opportunities to allocate capital we have a ton of debt capacity. If we could find say half billion dollars of things to buy above what we could sell we could easily issue debt to do that in which we will.
Very comfortable doing so so I don't need anybody else's capital and I feel on Thats at least in the way you you said and we like joint ventures, we have a couple of we do more if they made sense in some way maybe it's a risk diversification play maybe it's because the PE firm has an opportunity lined up they can't execute on operationally, but I I.
Don't know that a PE firm would help us for example, validate the value of the company I think people know what the company's worth I think folks just think that the next couple of quarters will be tough and so thats, what the stock prices reacting to I'm not sure I've I feel like there is lot of folks that are confused about the platforms long term value.
No I understood I was I was I was politely trying to ask a question about.
Take private because I do think that there is a lot of discussions or a lot of interest from some investors, but like in recent relative to private market valuations and replacement cost, but I assume that's not a question not a question that you'd be willing to it to address on on a public earnings call. So I do appreciate that feedback thats very helpful.
Thank you.
Thank you we'll take our next question and then its permit Nick Yulico with Scotia Bank. Please go ahead with your question.
Thanks, just had a question first off but you know if there's any way that you have these stats, but I'm wondering if you had an idea how much.
Of your renter base.
Has a job that is actually an office using job versus working in a hospital or some other.
Type of industry, which you can't work from home.
I don't really have insight into that.
Like recapture the employer at the time of the application, but we won't have a sense right now I think it's pretty clear when you look through the properties that a large percentage of our resident base are working from home.
Okay, and sorry, if you had that said about how much of the portfolio right now or you think I'm employees working from home.
I don't I do not.
Okay. Thanks.
Other question was just how we should think about it.
A typical summer leasing period right I mean, you have in certain markets you have.
Students returning to school you have internships over created in the summer you have jobs that are created in.
September sometimes internships turn into jobs is starting September lot of that's happening right. Now obviously, so is there any way to kind of frame out how much of that typical benefit.
From those factors you would get in the summer that.
Now probably is not going to happen this time around.
Well I don't think that there's a way to frame it out I guess I would tell you in normal seasonal patterns. We right now are at a high point in rents. So if I look back over the past couple of years. This is about the time of the year, where rents are the highest and then we start.
Seasonal decline in rent and on an occupancy front you kind of have to peaks in a peak leasing season, yet this period right now and then I think with you just alluded to somewhere right around that end of August into September you have that other high point.
In occupancy and I think what we're trying to understand right now given just the demand that we see is we could be just shifting some of this demand and we could just go longer through September maybe even into October where we would start to show greater gains on a year over year basis and application doesn't mean, you're not going.
You are still going to be facing pricing pressure, you're still going to be facing concessions in these markets that I've just been discussing but you still may see a longer runway of the demand profile and I think it's too early to know if that really plays out but that is clearly a possibility that could happen.
Okay. That's helpful. Just just let's see I know you guys provided some and inform them move outs in New York in San Francisco, which was interesting in terms of where people are moving.
Do you have any stats on.
When residents are leaving or how many of them when you're looking at I don't know if you could figure this out from a flooring address if you care or not but how many are moving into a home whether it's a rental home or a for purchase home and then I guess I'm also wondering how how it's working right now within your.
Loan portfolio, if you're seeing any trends if you're offering.
Incentives that make it easier to move the tenant wants to move to.
To a suburban location you can offer that.
And any stacked you have on on those types of issues.
Yes, so first I don't have insights as to whether people are moving out to go ran a home I do get a reasons for move out. So if somebody is disclosing that they're leaving us to go by a home we have that stat, we have that stat going back in time, we typically run about 12% of those that are leaving provide that reason.
Right now I guess I would tell you in the second quarter, we actually went down a little bit for reason for move out to buy home.
But a lot of that is just because of April nobody was leaving I also believe in our markets homes are really expensive to buy so while kind of we're balancing the move outs that are occurring we're not seeing people kind of run out to go by the homes. We did see an uptick in DC and southern California markets, but it was a small.
Paul increase in that percent on on a year over year basis.
Okay. Thank you Michael.
Yes.
Okay.
Thank you we'll take our next question and then just from a Lula ask her back with Bank of America. Please go ahead with your question.
Just a quick one.
In terms of early terminations I know you guys mentioned Boston.
That was initially early on in the corner, but have other markets.
And.
Recently as more companies.
Working from home.
Yes.
Early termination.
So you were kind of breaking up on me, but I believe what your question is is around early terminations or lease breaks and then based on the recent announcements from a few employers have we seen anything take place is that correct. Yes, yes, yes, okay. So so first.
During the quarter, we did see an increase in early terminations or lease breaks predominantly in New York in Boston and very much weighted towards the month of April if I look at the performance for May June and even through July right. Now we're really are not in this period of time, where we're seeing more people kind of breakdown.
Our leases with us, but we did experience in the quarter as far as the recent announcements I think it's too soon to understand it's something we're clearly watching right now you know as Google dismayed their announcement extending kind of return to the offices until the summer of next year.
It's something that we'll be watching in the South Bay and the city of San Francisco to see if we see kind of those individuals kind of leave early but it's also most likely going to put a little pressure on the renewal conversations and I still think when a week, it's too early for us to see any pattern from that yeah. I'll just add and this is just anecdotal there are a lot of folks that.
As the summer Wayne's is going to want to be back in their normal routine. It's certainly not a bad thing, especially when cities or this deactivated to maybe at some other remote location for those who can afford are able to do so there's a number of people and I can tell you test to a 20 year old lives in my house, Who's very anxious to get out of mom and Dad's House.
I'd go back to her life in one of the Big cities. So I think that we're also going to see almost no matter, whether the employers want and are not.
A stream of people that are kind of residence slowly deciding that they've had enough of where they are and they're interested in again trying to be in a little bit more activated environment to potentially see a little bit more of the city that day.
Move to for a reason so again I can't predict maybe the pandemic gets worse and that slows down again, but we've had pretty steady demand and I I think Michael and I are of the general opinion without certainty being associated with it that the leasing season will extend itself, but it won't necessarily be vigorous going into the Q3.
In early Q4 period.
Got it thank you.
Thank you.
Thank you and we'll take our next question and then it's from Rich Anderson with S. M. B C. Please go ahead.
Thanks, Good morning, everyone.
Bob I just wanted to just make sure to simplify the talk about bad debt first three buckets every month every quarter right. There's the.
97% collection rate and then of the remaining three there was a deferral that is.
Recorded as is collected in the month and then the bad debt reserve those are the three buckets that we we have to deal with every depending on the trading question is that correct.
Yes, that's correct and I would add that the bad debt reserve is in just the allowance for doubtful accounts. It's also the write off of any resident who would have moved out during that period as well.
Okay, I just want to make sure that was stress point.
Talk a little bit Michael when Youre kind of going through the offer of 1% getting minus 1% on renewals.
I don't like to maybe.
Sort of throw out of lower or the concept of maybe pushing too hard there and if you think about the math is agreed to ask for 1%. When if you don't keep them you lose the resident you have downtime cost of releasing the space and then you take an 8% shit to that because the new leasing you need to do that to get somebody in the.
You want it so I'm wondering if you see equity residential becoming a little bit more willing to negotiate downward. So you avoid some of these dynamics and and take your lumps of.
You know by renewing it perhaps a lower luck number then you're doing so far today.
Yes, well I guess I'll point out so first and foremost the 20% that I cited that was receiving some form of increase for July and August those our residents that are actually kind of below street today. So thats why those increases are going out.
And the willingness to negotiate I mean that is part of our renewal process and we're going to make sure that we are always being cognizant of what that replacement rents is going to be.
And as we're working through these negotiations I mean, we go back to the fact that listen the largest thing that people want to avoid is moving the number one reason they tell us. They just don't want to move so they want to work with US you want Diane.
Yes, exactly so were but we're being very sensitive to the situation right now, especially to those residents that had been financially arm and we're working with residents through this process. So I think right now just looking into August and even into September I think our increases are going to stay in this 1% we have pockets.
In that suburban portfolio, where we can actually start pushing rents up a little bit and those increases will start to grow a little bit but at the same points. You got pressures that are balancing this out. So I think the process is very fluid and I agree with your point fully and I think the way we execute is following the mindset that you just shared.
Okay Fair enough and then last question for me.
[noise] tomorrow.
No.
You are.
Sort of double down on urban in 2016, when you sold to.
Barry Sternlicht, the suburban portfolio and so now we're in this mass and your 55% Irving 45% suburban based on your definitions.
I'm curious if you are being the opportunistic entity that you described.
The willing if the market you know sort of allow Florida transaction market.
Attractive enough not to see urban go down as a percentage of total go up because you believe so fully that.
Urban is going to come back people want to be there [laughter] that 55 to go to 65, rather than to 45. That's my question.
Yes, Hi, rich, we're open to buying urban or suburban we talked about selling Manhattan, we buy Matt we bought two assets in the suburbs in New Jersey and it just got to make sense. Then it may have to make sense to waste. The property has to make sense. The underwriting of the actual asset has to make sense in terms of our total exposure if theres any response.
All regret we have is just in some sub markets like the upper West side in New York, We just had a lot of units, we like New York, we didn't need them all to be in one little area. So we're just trying to spread out a little and that's been sort of the theme of the last few years is being in our markets, but being spread out a little more so there was an urban asset than underwrote, we wouldn't hesitate to purchase.
It it just has to make sense relative to our allocation in that submarket already.
Did you say 55 is more likely go down or up in the next couple of years.
I was hoping that we would grow and that the urban Wynn shrink as much as the suburban would grow but I would think we'll get rid of a few urban assets here and there and there's some older suburban stuff in fact this quarter. Both the assets. We sold were suburban properties. They were older 50, plus year old suburban assets that you know we're renovation.
Ladies but weren't from our perspective, you know ones that we wanted to undertake.
Excellent thanks, very much everyone.
Thank you.
Thank you and we'll take our next question and those from Haendel St. Juste with Mizuho. Please go ahead your question.
Hey, they're running out of good ones left rich just took by one of my Bedouins Hey.
[laughter] what about you about cost control you mentioned that there's some things you're doing here in the corner of helped same store expenses and expect that to continue beyond the club appeared to me a bit more color commentary around that and maybe on top of that some comment on tech investments and I, just quantifying what the opportunity here or how we should.
Think about the potential savings.
On a dollar or in Pakistan store expense basis over the next couple of years.
Great I'll start I'll start on the dollar piece and I'm going to have to take you back a few months before covance to kind of give you a good frame of reference to be honest with you I think to give some color, but yeah, we had excellent expense control.
In the second quarter and as I kind of mentioned in my remarks, a lot of that came from the initiatives that Michaels talked about so it is the ability on our front line kind of leasing and admin and other things you convert to a more digital platform to do virtual tours to be more efficient to understand our employee utilization et cetera and.
That certainly helped in us achieving our goals in terms of our onsite payroll reductions right via attrition. So that was incredibly helpful. We also in our an end.
Experienced benefits through the deployment of our mobility for our service personnel and our ability to use them as well and so that impacts the payroll line and the are an online because it helps your decision making in terms of staffing. So you can staff internally as opposed to using contractors et cetera, what gets a little bit tough right is that you know there.
Our other things going on unrelated to cultivate in the quarter.
And so there were some deferral of expenses in some incremental expenses that I mentioned in both of those categories, but overall I think from a sustainability standpoint.
We're running call. It 50 to 70 by five basis points ahead, or lower and expense growth than what we would have thought at the beginning of the year before cobot ever ever occurred and that's a real positive and it's really those two items that I was talking about.
Yes, and I think your other question was regarding tech investments.
So I think for first we are involved in two different Tech fund, one with fifth wall and one with avatars with really trying to just helps us.
Stay on top of the new technologies that are emerging not only in our own industry, but really other industries to see the applicability for us and I think this is still an area that we're pretty excited about on a go forward basis that there's still opportunities out there to improve the efficiencies of the operations in these platforms and it will come from tech.
Allergy I think later this year will be deploying kind of our sales technology piece, which is moving 100% of our sales process to a mobile app and we're beginning piloting that shortly similar to what we just did on the service side of the business.
You'll see us continue to move forward and explore kind of building access smart home access so there's still a lot of opportunities for our industry to advanced technology to increase efficiencies.
That's helpful. Thank you and Mark you mentioned earlier and that is do transactions on the market that have close here there is likely done or they were negotiated FICO, but curious if you're hearing or seeing anything in the shadow market. What buyers are underwriting right now and maybe what iron ores that targeting and then curious on when do you think New York City and.
Why returns.
On a wireless turn positive.
The 22 work will be looking at 2023 here. Thanks.
All right.
Well in terms of what other folks are underwriting I would say the first question I had for the Chief investment officer over the course of the quarter was are we seeing more from brokers is there actually shadow stuff going on.
The answer is a very little going on right now so there doesn't seem to be like Theres. This pent up desire to sell assets in the apartment business is not a whole bunch of stuff that the brokers are looking at and hoping to get out soon in the marketplace. So I don't know if I have any insight into how other people are underwriting except that we talked to private equity sponsors and.
Other private real estate investors. They continue to be very interested in this space now whatever turbulence. We have right now is not dissuading them from long term interest in our space.
So I think thats good in terms of hazard to guess on New York that requires a couple of things I mean next year youre going to be pretty aggressive on real estate tax Appeals in New York because.
Factors in New York for properties are in part based on their incomes and certainly we are going all have different incomes than we had hoped for for 2020 and we'll be looking like we did in the great recession for relief and we obtain that relief in our markets and we would hope to do that again I'm not sure thats going to change 21, and there's a certain trajectory and your question imply.
Got it.
This quarter's because the rent rolls deteriorating the quarters, we'll keep getting worse for awhile, and then thats sort a rate of change and some of these new lease and renewal numbers will change and then the whole thing I will turn around and that just takes time, so I really can't hazard, a guess on when New York changes, especially when you talk about annualized because that im implicates for new.
New York property taxes, So in New York, It's very hard for me to think about how that might but I would hope that they would be less of an increase or a little bit of a decrease in 21.
Thank you.
You.
Thank you we'll take our next question and that is from Alex culminates with Zelman and Associates. Please go ahead with your question.
Thank you for taking my question.
When looking at your concession results are concessions consistent across the suit studio one bed to both product or the over exposed to.
The one bedroom products.
Well I guess I would tell you in the urban cores there they are pretty much sitting on most of the unit types. There. We are seeing the lowest occupancy in our studios specific specifically in like downtown or Manhattan areas City of.
Boston that those unit types are pressured but the concessions right now are pretty much across the board on unit types. The ones that are being used I think the demand coming in we are seeing demand for one bedroom. We're also seeing demand for two bedroom. So I think that concessions flowing through to the revenues are probably slanted more towards the one and two bedrooms and.
Studios, just because the application counted studios is not as high.
Got it makes sense, just taking a three to five your view.
Considering the shifting demographics and the millennial older cohort moving too.
Well, there's potentially for single family homes, because we now have income.
And a softer generation the coming up.
Would you rather be overweight and you want to these products in particular.
So its mark I guess I like having a variety of these I mean, I think studios have an advantage of being.
The lowest price ticket so the pandemic again feels like it's gone on forever and will continue at some point it won't and then people who are new to a market and new to their job and maybe a working their way up as a professional we'll look to a studio as a great way to get entre into the big city, So I'm happy to own a little bit of a variety of.
These products I wouldn't want to own all twos all.
All one bedrooms, all all of anything and so we've tried to be thoughtful about low tickets. So we do have a good number of studios in one bedrooms in the markets.
But we do a plenty of twos and a few threes. These large unit types a hard for us to clear I'll tell you consistently we have a harder time renting three and four bedroom units and our buildings and they tend to be competing against luxury product in condos and stuff. So I think studios ones and twos or where it's at for us and I'd like a nice mix of that.
Notwithstanding your comment I would point out I mean Gen Z is a very large group as well and we don't know their preferences, but I have a few of them living with me in a talk a lot about both moving out of my house and moving to a city.
Yes.
Makes sense. Thank you very much.
Thank you.
Thank you we'll take our next question and that is from John Kim with BMO capital markets. Please go ahead with your question.
Thank you you guys mentioned a limited amount of concessions are dropping on renewals.
I have noticed that you changed your definition on renewal rent growth to no longer being effective growth number and I'm. Just wondering why you change that definition.
So we haven't changed the definition, we've always given renewal rate growth, excluding concessions and we also have given new lease excluding concessions as well what we gave you instead to give you a concept and in the path to be honest with you. The concessions were so in material that neither one of those numbers or the blended rate.
Would've been any different what we gave you. In addition, this quarter is we gave you the effective blended lease rate.
Which is with the impact of the concession. So you can see that blended impact with and without concessions.
Is that something that you could break out.
Going forward by market.
Yes.
So your request for is to see renewal rates by market net of renewal concessions.
Well I guess, it's the effective rental growth rate.
I might have blended rate would be the blended rate correct.
I think that we can take that.
Well move on.
Have you discussed your plans for your retailers are your non residential part of the portfolio do you plan to just re tenant that at the retail or.
Is there potential to convert this to others other use.
Yeah, I mean, we're still working through things with our retail tenants were hopeful we're able to save a few of those folks is the cities and try to reopen but one of the conversations we've had as a group. Several times now is in properties in this alludes to the question Michael just pardon me addressed a moment ago in these markets where we.
Do have buildings that have studio apartments could we re purpose the retail as office space for those studio folks as Amenitized space. They could go to a lounge of sorts is that something that would be useful you you would need to put a lot of t. iron that that's just some lounge furniture and really good internet connect.
And then again not office space for the general public, but could you get a change to use in at retail and that would likely require rezoning and so it's kind of easier said than done but that is intriguing to me as you see retail footprint shrink in general the idea of having unsightly vacant retail is in very appealing and the idea of taking on additional retail.
Risk isn't that exciting so maybe there is an opportunity here to be of service to our existing residents put our square footage to you. So that's one of the ideas we've been kicking around.
Great. Thank you.
Thank you.
Thank you we'll take our next question and then is from Alexander Goldfarb with Piper Sandler. Please go ahead with your question.
Oh good morning, Thank you.
Mark certainly appreciate your your comments on the premature obituary for for urban certainly a healthy discussion, but you brought up an interesting point of your of your children living at home looking to get out in live in the in the cities right. Now you you guys said your average ages 33 with average income I think you said 160000, if theres sort of a ship.
Here, where that older demographic sort of moves out and buys homes and then the cities are still populated by the young singles.
Do you feel that the portfolio as his position right now the price point is commensurate to let's say a late twentys crowd, that's not earning that 160 that may only be earning let's say upper ninetys or 100.
Sort of curious if there's a generational shift how you feel that your portfolio would line up to that some of price standpoint.
Yeah, I'd start by saying for example, in New York City, only 10% of our residents have children. So notwithstanding the age.
List you had we also have people in their twentys youre, earning a good living or people in our one bedrooms, who are two people right. There a couple of living there. So I guess I'm I, that's certainly a theory, but it's not anything weve sort of seen I mean, these are really deep when you look at the number of people in these markets making.
Over 100 or 150000, that's one of things, it's really exciting about our markets is it's a really big group of people. When you go to some of the smaller markets you have good growth of that number of high earners as renters, but it's just a small absolute number Alex and I worry that most of those folks are going to buy homes anyway. So I guess.
Yes, I appreciate the theory I've not seen any evidence of it and our our demographic doesn't tend to be like seemingly that anxious to buy home I mean, we're seeing a little in New York as Michael said folks moving out of New York City and out of New York proper, but they're mostly moving in new Jersey, and I Wonder if win.
We get the all clear sign some of them don't go back to Manhattan. So I just I am not is convinced is you are that this is some sort of permanent change depend demick as rod I think dependent has put a lot of people on the heels about living in an urban environment right at the moment, especially in the summer and I think people will constantly reappraised that decision I mean.
Lived in a city for a reason before.
Okay and then the second question is just thinking to the November election.
Clearly New York underwent a change when Democrats took over Albany in 2018 odd given some of the rhetoric on the on the Progressive platform. Do you guys have concerns about increased regulation on housing and moratoriums and rent control et cetera, if the dems when the Senate and the White House and.
How do you think.
The industry, it's sort of preparing itself based on lessons learned over the past few years.
Yeah. It's a good question I put aside the party labels and the rest and just speak to policy I mean.
I do think that additional regulatory burdens and our fair number of those that are being added in our markets. Some of them related to this valid Cove emergency and some of US some of them seem almost opportunistic buy activist groups to me.
These are just going to restrict the amount of investment in housing and that's the message we're trying to get across as these limits, you're putting in place, which kind of fuel emotionally good.
To some folks are just not going to work that they're going to end up with housing that substandard theres going to be less built that it's all bad in some of these ideas again and I think it's in the house package. So I believe it's a Democrat idea is to give the states money in bulk grants for the stage to pass out directly to landlords have folks.
That are under stress from cobot. So again I don't know what will end up in the final package, but I think the idea of upholding the system and encouraging it to produce additional units. So I'd say what the industry is doing right now is trying to do a little bit of an education campaign to have conversations with people about whats effective regulation and what isn't and then try.
To help think that through could there be some zoning reform could there be more affordable units built with market rate could we address it that way as opposed to the sort of right regulations. Some of the other stuff that folks at floated that.
Economists universally say is going to end up creating more problems. Then then solutions for sure.
Thank you Mark.
Thank you Alex.
Thank you.
There are no further questions at this time I will now turn the conference back over to Mark Parrell for any closing comments.
We thank you all for your time and the call and I have a good rest of the summer good day.
Everyone else has left the call.