Jul 28, 2015
Executives
Jason Reilley – Senior Director Investor Relations Timothy Naughton – Chairman, President & Chief Executive Officer Matthew Birenbaum – Chief Investment Officer Sean Breslin – Chief Operating Officer Kevin OShea – Chief Financial Officer
Analysts
Steve Sakwa – Evercore ISI Nick Joseph – Citi Ross Nussbaum – UBS Jeff Spector – Bank of America Austin Wurschmidt – KeyBanc Capital Markets Chris – Credit Suisse Rob Stevenson – Janney Dan Oppenheim – Zelman and Associates John Kim – BMO Capital Markets Haendel St. Juste – Morgan Stanley Vincent Chow – Deutsche Bank Ryan Peterson – Sandler ONeill Tayo Okusanya – Jefferies Drew Babin – Robert W.
Baird Wes Golladay – RBC Capital Markets Conor Wagner – Green Street Advisors
Operator
Good afternoon, ladies and gentlemen, and welcome to AvalonBay Communities' Second Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Following remarks by the company, we will conduct a question-and-answer session. [Operator Instructions] Your host for today's conference is Mr.
Jason Reilley, Senior Director of Investor Relations. Mr.
Reilley, you may begin your conference.
Jason Reilley
Thank you, Christine and welcome to AvalonBay Communities' second quarter 2015 earnings conference call. Before we begin, please note that forward-looking statements may be made during this discussion.
There are a variety of risks and uncertainties associated with forward-looking statements, and actual results may differ materially. There's a discussion of these risks and uncertainties in yesterday afternoon's press release as well as in the company's Form 10-K and Form 10-Q filed with the SEC.
As usual, this press release does include an attachment with definitions and reconciliations of non-GAAP financial measures and other terms, which may be used in today's discussion. The attachment is also available on our website at www.avalonbay.com/earnings, and we encourage you to refer to this information during the review of our operating results and financial performance.
And with that, I'll turn the call over to Tim Naughton, Chairman and CEO of AvalonBay Communities for his remarks. Tim?
Timothy Naughton
Yeah. Thanks, Jason, and welcome to our second quarter call.
Joining me today are Kevin O'Shea, Sean Breslin, and Matt Birenbaum. We'll each provide some comments on the slides that we posted earlier this morning, and then be available for Q&A afterwards.
Our comments will include and focused on summary of Q2 results and the revised outlook for the full year. We’ll provide an overview of fundamentals and portfolio performance and lastly we’ll touch on development activity and funding.
Starting on Slide 4; overall results in Q2 were better than expected as apartment demand continued to strengthen. As a result of an approving macro-environment along with housing fundamentals that continued to favor rental housing.
Highlights for the quarter include, core FFO growth of 10% or about 250 basis points higher than last quarter, as rent growth continued to improve to the peak leasing season. Year-over-year same store revenue growth was 4.7% for Q2, up about 40 basis points from Q1 and when you include redevelopment that came in at 4.9% on a year-over-year basis.
Sequentially revenue growth came in at 2% or 2.1% when you include redevelopment from Q1 and was the strongest sequential growth in Q2s that we've seen since 2010 and one of our strongest second quarters ever. We completed three communities this quarter totaling $275 million at an average initial yield of 7.3% and started another four communities this quarter totaling about $400 million.
Year-to-date starts are right around $0.5 billion and from a funding perspective we are active in the second quarter as well, raising over $600 million through a combination of unsecured debt and asset sales. Much of the capital going to payoff secured debt, which Kevin will touch on later.
Turning to Slide 5, as a result of stronger fundamentals and increasing operating performance, we’ve updated our projections and outlook for the full year. Core FFO growth per share is now expected to increase 11.1% at the midpoint of our revised range or about 270 basis points above our original outlook from the midpoint.
More than half of this increase is coming from our operations and the balance from a combination of favorable capital markets activity and lower interest expense. Same-store revenue growth is now expected to come in at 2.5% to 5% or about 75 basis points at the midpoint above our original outlook.
NOI is expected to come in at about 5% to 5.75% or up over 100 basis points from our original outlook at the mid-point. Development starts are largely unchanged and more or less on track to start about $1.2 billion this year at share, and capital funding is up about $200 million from what we had originally dissipated, largely to fund additional – refinance additional secured debt.
Now moving on to Slide 6; this operating environment is benefiting from improved economic conditions. Jobs continue to grow at a pace of north of 200,000 per month with growth increasingly in the mid-to-higher wage jobs.
Our job openings are now outstripping hiring as you see in Chart 2 in the upper right, which combined with our higher-quality jobs is leading to stronger wage growth. As you see in Chart 3 the employer cost from employee comp survey now reflects wage growth north of 4% nationally.
When you combine the stronger job picture with lower debt burdens, as shown in Chart 4, this is driving consumer confidence and is providing a strong foundation for a healthy housing market, which is evident when you turn to Slide 7. Annual net household formations now appear to be recovering from prerecession levels of about – and are now running at about $1.5 million per year after having languished below $1 million really over the last several years.
Meanwhile, housing starts are not keeping pace as you can see in the upper right coming in at 1 million, maybe just over 1 million per year as of late. And this is balance is even more severe once you consider the impact of housing attrition around 300,000 to 400,000 homes annually.
No surprise then that housing inventories continue to be depleted as evidenced by following rental vacancy rates as you can see in chart 3 in the lower left. And for sale housing stock, which is now less than five months of inventory, a level that is considered to be quite tight for the for-sale market.
Moving to Slide 8, the picture is even more favorable when you look at the apartment sector. Young adult job growth continue to outpace the rest of the population by about 100 basis points, which is leading to strong rental housing demands and is particularly tight with unemployment rates for college graduates of less than 3%, which we think bodes well for higher end rental housing and new lease up performance.
Our homeownership rates continue to decline since the recession with reductions pronounced in young adults under 35, but also those ages 35 to 44, which is also a significant part of our rental rates. The one area that Bay is watching is new supply as you can see in the lower right after multi-family starts had leveled off over the previous 18 months and the mid 300,000 range; we saw it increase to over 400,000 in Q2.
Some of the increase can be explained or maybe explained by the threat of the potential expiration of the 421-a program in New York City as many developers have rushed to get deals permitted and started. But with real demand fundamental still healthy and housing inventories falling, the market may simply be increasing production and be strengthening demand.
Any event it’s a trend worth watching and particularly in relation to total housing production and what’s happening in the single-family market. Turning to Slide 9 you know, perhaps we ought to be looking at the rental housing market through a different lens this cycle than we have past cycles.
Here are just the couple of exercise from recent research published by Moody's in the Urban Institute that suggests one that the economic expansion may be far from reaching its end according to Moody’s, particularly when you consider, but that’s for the recession and the moderate level of growth we’ve experienced since then. In fact, Moody’s and many other believe that this cycle is far from over which we think will benefit cyclical industries like housing.
And second the researchers at the Urban Institute posit that rental housing demand is actually in the midst of a generational surge, that still has 15 years to run, a period when they anticipate that five out of every eight new households will be rental households. So we have been looking back over the last couple of cycles to draw a comparison as to how this cycle may play out for the industry, but maybe we need to start asking whether this cycle really have a president when you consider the confluence of trends that are positively driving rental housing demands.
Indeed when you turn to Slide 10 you can see that effect of rental rate growth has recently reaccelerated despite what is still a moderate economic expansion. If we are in the middle of a prolonged economic and housing cycle this decade, it may prove to be the best we’ve seen in our industry and our markets, even surpassing the 1990s when cumulative rent growth reached almost 60% over a 10 year period or more than twice what we've seen so far this cycle in our markets.
And now I’ll turn it over to Sean who can provide some color in terms of how our portfolio is performing given this favorable environment.
Sean Breslin
Thanks Tim. Turning to our portfolio results on Slide 11.
We’re certainly experiencing the acceleration Tim highlighted in the previous slide. Same-unit rent change during the second quarter averaged 6.2%, about 80 basis points greater than the first quarter and 250 basis points greater than Q2 2014.
All of our regions are experiencing greater rent change as compared to last year including the mid-Atlantic, which is up about 100 basis points, so roughly 1% as compared to basically flat last year. July is generally consistent with the second quarter with achieved rent change as of earlier this week as 6.4%.
Turning to Slide 12; our results in the first half of the year combined with the current positive momentum in the portfolio supports our increased outlook for the full calendar year. We increased the midpoint of our same-store rental revenue outlook by 75 basis points to 4.75% excluding our redevelopment activity.
We expect better revenue growth from four of our six major regions; the exceptions are the greater New York and New Jersey and mid-Atlantic regions, which are expected to be within our original range. In the mid-Atlantic, better job growth is supporting the higher end of our original range; in New York and New Jersey which is expected to be at the lower end of original expectations, New York City, Westchester County and Northern New Jersey are performing as planned, but both Long Island and Central New Jersey are coming in below original expectations.
New England supported mainly by Boston, and the West Coast markets, especially Southern California are expected to outperform our original expectations for the year. As we highlighted last quarter momentum in Southern California remains quite positive.
In the second quarter, rent change was about 7% in LA and San Diego and almost 8% in Orange County; and San Diego rent change is running about 200 basis points above last year, while in LA and Orange County it’s between 300 basis points and 400 basis points greater than last year. Turning to Slide 13, we believe the positive momentum in our portfolio supported by our allocation to many supply constrained infill suburban submarkets, this slide Axiometrics shows the year-over-year effective rent growth in urban and suburban submarkets over the past several years, while urban submarkets certainly outperformed in the early part of the current cycle, new apartment supply, which takes longer to deliver in urban submarkets given the nature of the product is now beginning to keep pace with or has surpassed demand in many market.
As a result, urban growth rates have slowed, while the suburban submarkets have improved. Moving to Slide 14, this suburban urban trend is highlighted in a couple of our markets.
On the left is year-over-year effective rent growth in Boston for both suburban and urban assets. While every asset is unique and performance varies depending on where your portfolio is located within a certain submarket, the general trend over the past year has been improved performance in the suburban submarkets, while the urban core has moderated due to increased supply.
We are certainly experiencing this trend in our Boston portfolio. On the right-hand side of the slide is the same data for Seattle, which is experiencing a similar trend given the significant amount of supply being delivered in the urban submarkets relative to suburban submarkets.
Overall, Seattle is still a really healthy market given the very strong job growth that is being produced in the region, but on a relative basis suburban assets have started to outperform recently. Turning to Slide 15, I thought I’d like to highlight a relatively recent shift in our operational strategy; one that we believe has improved our performance over the past year and will continue to do so.
The two charts on this slide represent our lease expiration profile throughout the calendar year in 2014 and 2015 for both Boston and Seattle. While many of you are familiar with the seasonal nature of our business, the demand patterns in these two markets are much more seasonal than the rest of our footprint.
In Boston, the seasonal weakness in the fall and winter is driven primarily by the weather. In Seattle, it somewhat relates to the use of contract workers in the high-tech industry, a percentage of which leave the country during the holiday season.
And both regions experience greater demand in the summer from short-term rentals, corporate hires coming out of college et cetera. Over the past year we changed our inventory management strategy to better align our supply of available units with a highly seasonal demand patterns in these two markets.
Specifically we’re pushing even greater percentage of our lease expirations into the months for the best demand and highest rents. In New England we had 20% more expirations in May through July compared to last year, while in Seattle it’s about 40% more.
We reduced contracted inventory in the fall and winter months in both regions when demand softens and rents typically decline from their summer peak. By further reducing expirations in the fall and winter seasons when demand is lower, we’ll have less inventory to lease and therefore either higher rents for the unit that are available to rent or fewer transactions and lower rents.
We continue to identify opportunities to enhance our operational execution and including these refinements to revenue and inventory management practices and believe they will produce dividends for us in the future. With that, I’ll turn it back over to Tim.
Timothy Naughton
Thanks Sean. I’ll now ask Matt and Kevin to take a few minutes to development activity and funding, which together helping to drive outsized core FFO and NAV growth in 2015, and we believe over the next few years.
So, Matt?
Matthew Birenbaum
Alright great. Thanks Tim.
Turning to our development activity you can see on Slide 16 that our lease-up communities continue to post impressive results. As a reminder, our general practice is to report rents on an untrended basis on our development communities until we open for business and at least enough apartments to get a good sense of where our current market rent levels are compared to where they were when the deal broke ground.
This quarter we’ve mark to – rents to market on 10 of our 29 development communities and the rents of those 10 communities are running $200 per month above the initial underwriting, which in turn is driving 50 basis point increase in the yield on those deals to 7.1%. And importantly, we’re achieving those rents while getting absorption of on average 29 leases per month in the second quarter, which is actually the strongest pace – lease-up pace we've seen so far this cycle.
With cap rates wrestling mid-4% range across our markets, this provide significant NAV accretion as these developments come on line. Turning to Slide 17, we broke ground on four new development communities last quarter, representing approximately $400 million versus new investment.
Many of our starts this year have been transit oriented infill suburban locations, picking up on the theme Sean had mentioned as we’re seeing better rent growth in those submarkets due to less supply, but our largest start so far this year is actually AVA NoMa community in the North of Massachusetts Avenue district Washington DC. This project should have a pretty compelling cost basis of less than $340,000 per unit, in addition to benefiting from $7 million 10-year tax abatement provided by the District of Columbia and it’s also a good example of our multi-brand platform provides us with a wider variety of product and service offerings to appeal the different customer segments.
This community was originally acquired this land as part of the Archstone acquisition and Archstone had designed it to be the second phase kind of companion to the First & M community next quarter. We were able to reprogram it to provide, but we expect will be a very different living experience with different price points, floor plans, amenities and services, as well as the different style and sensibility that will reflect the contrast between our Avalon and AVA brand.
This is similar to the approach we have taken at our downtown Brooklyn, West Chelsea and Somerville sites where we diversified a concentrated investment in a single location by building multi-brand communities. On Slide 18 you can see that our local teams have also been busy backfilling the development pipeline and identifying new opportunities for future development.
Our development rights pipeline, which represents sites which we control mostly under option contracts has expanded over the past few quarters after bottoming out late in 2014 and now stands at $3.7 billion. The pie charts on the lower part of the slide also show how the future development pipeline is migrating a bit towards suburban transit infill oriented locations.
And that’s just reflection of the fact that we’re finding better risk-adjusted returns in these submarkets at this point in the cycle, which is not surprising given the concentration of new supply in the urban cores and a higher cost basis of high rights construction, which tends to make urban development more profitable in the early part of the cycle. And with that I’ll turn it over to Kevin to talk about our activity on the right hand side of the balance sheet.
Kevin OShea
Thanks Matt. Turning to Slide 19, we highlight the Company's funding position against both our updated capital plan and our development activity underway.
As you can see on this slide, company remains exceptionally well funded in both areas. Specifically for our updated capital plan, we now contemplate raising $1.95 billion in external capital.
Through June 30, we raised about $1.4 billion including $570 million in remaining proceeds under our forward equity contract. In the second half of the year, we expect to raise another $580 million in external capital through a combination of asset sales and the issuance of unsecured debt.
As for our development activity, as of quarter-end our development underway of $3.8 billion was nearly 100% match funded by the combination of $2.6 billion in capital spent to date, plus over $1 billion from cash on hand, projected free cash flow and remaining proceeds under our equity forward. As a result, we’ve eliminated nearly all funding risk, while locking-in significant value creation as these communities are completed and stabilized.
On Slide 20 we show the evolution of a few key credit metrics since 2010, in order to highlight how we have further improved our already strong credit profile through recent refinancing activity. During the second quarter, we raised $620 million in external capital including $520 million in 10 year unsecured debt at about 3.5%.
And we repaid $580 million of secured debt with a cash interest rate of 6.2% and a GAAP interest rate of 3.7%. As a result of this activity, our unencumbered NOI percentage is now 76%, up 700 basis points from year-end 2014 and the highest it’s been since before the financial crisis.
In addition the composition of our debt significantly improved such that 56% of our debt is now unsecured, up 900 basis points from year-end. Further, since 2010 our weighted average GAAP interest rate has steadily declined by 130 basis points to 3.9% today, while we’ve reduced the amount of unamortized debt premium from the Archstone transaction down to $60 million today from about $150 million when we closed that transaction.
The next two slide highlight the contribution that development provides both to our earnings growth and to our NAV growth and serve to underscore the merits of our time-tested development capabilities. In Slide 21, we depict the components of our projected growth in 2015 core FFO per share.
Of the $0.75 in projected core FFO growth this year $0.37 is projected to come from development and redevelopment activity net of financing costs. Of this $0.37, development is projected to contribute $0.34, while redevelopment is projected to contribute $0.03.
Thus development alone should add 500 basis points to our growth rate this year and account for nearly half of our overall earnings growth. In Slide 22, we highlight developments contribution from an NAV perspective and over a longer period of time, by estimating how much NAV per share we’ve created or we expect to create through development thus far in the cycle.
Specifically, development starts and completion since the beginning of 2011 totaled $6.1 billion; of this about $4 billion has been completed or is undergoing initial lease-up and has produced or is producing an initial stabilized yield of 7%. Applying this 7% initial yield to the $6 billion in starts and completions and then capitalizing the resulting NOI to current market cap rate of 4.5% produces an implied value creation above our cost of $3.3 billion.
This in turn equates to an estimate of $30 per share in NAV accretion from development starts and completions since early 2011. So in sum, through our development capability AvalonBay has provided and continues to provide significant incremental earnings and NAV growth for our investors, while at the same time adding new and exciting apartment communities that enhance the quality of our portfolio and our product offering for our customers.
With that I’ll turn it over to Tim.
Timothy Naughton
Well thanks Kevin. So 2015 is shaping up to be another strong year.
Core FFO growth is expected to come in at more than 11%, driven by strong same-store portfolio performance you heard from Sean, with same-store NOI expected to be north of 5%, a healthy external growth from development as Kevin just touched on, and finally a strong and a flexible balance sheet that as long as the fund and support this growth with attractively priced capital. And with that Christy, we’d like to open the line for questions.
Operator
[Operator Instructions] Our first question comes from Steve Sakwa with Evercore ISI.
Steve Sakwa
Hi, good morning. A couple of questions, I know you guys are not providing 2016 guidance and just revised the 2015, but if you just kind of look at the trajectory of rent growth that you've kind of seen over the course of the year and you look at where you are sending out renewals, is it a fair assumption to think that absent the real occupancy change that revenue growth will next year at least equal to 2015 kind of from a directional standpoint?
And I guess the other question would just be for I guess Kevin there was I guess on Page 20 of the supplemental, there was a little change it said in expensed overhead and it almost sounded like that might have sort of retarded how much the FFO would've gone up this year. I'm just wondering if you could sort of expound on that and kind of quantify that for us.
Timothy Naughton
Okay. Maybe I’ll take the first question Steve and certainly others can join in and maybe Kevin take the second question regarding overhead.
As you saw on one of the slides, we’ve been saying like-term rent change north of 6% for the last few months. It's been positive in terms of its trajectory this year and that’s obviously a leading indicator in terms of portfolio of performance.
And as Sean mentioned, we’re expecting to see same-store revenue growth you know 5% or north of 5% in July and just imply from our guidance based upon what we did in the first half of the year we’re expecting 5% range for the back half the year. We have said, we think we’re you know, we've got another two, three, four years of – potentially above trend growth and the question is how much above trend then, it’s a little bit depending upon the ebb and flow of markets.
We don't anticipate that Northern California will continue to grow at 10%, but on the other hand we don't anticipate the DC area to continue to languish roughly flat rent growth. So Steve it’s going to be a function ultimately of different markets, but when you look at just from a macro standpoint, particularly I guess the point I made about the end of production of housing and we think sort of a stronger employment picture in terms of the quality of the jobs and we’re starting to seeing decent wage growth, we expect we’ll continue to see good healthy above trend growth and that fundamentals would continue to pay warehousing and specifically rental housing, you know whether that translates into 4%, 5% plus growth, more to come on that.
Kevin OShea
So Steve, this is Kevin. Just to answer your question on overhead and I guess to begin by providing a little bit context for everyone on college, you referenced on Page 20 of our supplemental or our attachment 13 we provided our outlook for the year at the bottom of that, we indicate that our expectation now is for expensed overhead, which comprises corporate G&A, property management and investment management, we expect that that will increase year-over-year from initially 0% to 5% to now 6% to 8%.
Just to give you a little more color there, we now project total overhead to increase by about 7% this year versus basically a 3% increase at the beginning of the year. This 4% increase represent about $4 million of which about $1 million was recognized in the first half of the year and $3 million is expected to be recognized in the second half of the year.
The majority of the increase is tied to increases in expected compensation based on expected performance to date and expected performance from the year. In terms of the underlying 3% growth that we initially expected for the year, about half of that was driven by legal settlement in 2014 that’s not present this year and the other half was driven by severance costs recognized in the first half of the year.
Operator
Our next question comes from Nick Joseph with Citi.
Nick Joseph
Thanks. For the lease expiration management, how do you think about the benefit from having more leases rolled in the peak leasing season versus the risk of being concentrated too much at one time, and then do you expect to keep tweaking from here as the portfolio currently optimized?
Sean Breslin
Yeah Nick, this is Sean. Just talking about it a little bit, we highlighted the two markets where it matters a lot, which is the New England and Seattle they tend to be the two more seasonal markets in our footprint.
So we have applied the same basic strategy to the rest of the portfolio, and you know when you think about it in our portfolio typically what we've experienced is we’re optimizing revenue when occupancy is somewhere in the that mid-95% to 96% range, every market is a little bit different by the way in terms of what sort of average market occupancy is, but that’s been our experience. So as we looked at what was happening with demand patterns across the portfolio we felt like we continue to push more expirations into the second quarter and through July, and to the extent that we could drive enough traffic to the portfolio to continue to push rents at the pace that we have actually experienced.
We think we're in pretty good shape and it allows for us to I guess if you want to call, this growth have an appropriate glide path as we go into the fall because expirations were up in second quarter about 7%, 8% that actually peaks in July, which is up about 14%, but then it comes down in August and September 7%, 8% and 4% or 5% in the fourth quarter. So, we expect to be able to continue to maintain pricing power at a pretty healthy cliff as we go into the fall and winter season, probably more or so than we've experienced in the past, as a result of the expected lower supply of inventory that we’re going to have during those periods.
And in terms of the balance between occupancy and rate growth, we think we’re in a pretty good position right now as it relates to what we did in the second quarter, what we expect in the third quarter, but it's always a little bit of dance in terms of whether you experienced too much availability and you have pricing pressure or not, we did not experience that in the second quarter. And based on where we sit today, we think we’re in pretty good shape, our 30 day availability peaked around 6%, now it’s down about 50 basis points to 5.5%, physical occupancy is mid-95, it’s going into a period where we’ll have low expiration.
So I think we’re positioned pretty well and this strategy we pursued was the right one. In terms of whether we’re sort of done, you know lease expiration management is something that is sort of a continuous activity, you have lease breaks, you have short-term rentals, lot of things that occur in the portfolio and so you’re always adjusting what allowable leases you’ll offer to a customer, at what price points for those leases to make sure your profile stays optimized.
So, might be a little more detail than you like, but I thought maybe it would help in terms of providing context to everyone about our strategy.
Timothy Naughton
Hey Sean, if I can just add to that too. Obviously, the models dynamic is always responding to – adjusting demand as we see it, but it’s also for an understanding what the market is doing, what the rest of the market is doing in terms of expiration management, and so that alone is going to make us try to maneuver to optimize the opportunities.
So for example if the market is smooth – starting to smooth its expirations relative to where we think demand patterns are, then we’re going to benefit from concentrating more expirations in the peak leasing season, the opposite could be true as well. So it’s going to be a dynamic process in terms of how we manage through it in part because there is always demand dynamic, but also supply in terms of how the rest of the market is using revenue management.
Nick Joseph
Thanks that's very help. And then just in terms of capital needs looking out to 2016, it seems like the spend in terms of development will be similar to this year, so would you do another forward equity offering at this price?
Matthew Birenbaum
Obviously Nick, we don’t comment a lot about future activity in the capital front. And I think we’ve been asked a number of times what our views are in the use of an equity forward, so I guess just to kind of provide everyone that answer again I guess, you know we’ve know about an equity forward as a tool in our tool kit for probably five or six years, we’ve used it only once.
It takes sort of a special confluence of events to justify using it, it’s a good tool to have. And it really is a function of what one has elevated funding needs, what ones capital position is at a given point in time and what one expects capital pricing might be as well as availability in the coming period.
Given where we are now we feel like we’re in a really great shape from a balance sheet point of view with net debt to EBITDA in the mid-five times range, and we’re potentially nearly 100% match funded against the development that is underway. So we feel good from a capital standpoint even if as it might turn out that spend next year is roughly on par with the share, we’ve haven’t gone through the budget process, so we don't have – we have some visibility on it, but we don't have – call it final visibility on what spend levels would be next year, but they’re likely to be meaningful, just given the level of start activity.
But in terms of the capital choices we might make they often involve naturally what capital pricing is and at this point today, if I were to rank order or track – based on attractiveness the choices we have, asset sales are much more attractive as the source of equity than is common equity at this point in time. So I would rank them asset sales, then unsecured debt and then followed by common equity issuance.
So as we stand here in July it’s far too early to say what our capital spend might be for 2016.
Nick Joseph
Thanks.
Operator
Our next question comes from Ross Nussbaum with UBS.
Ross Nussbaum
Hey guys good morning. Tim you commented a little bit in your slides about the uptick in starts and permits over the last few months obviously the 421-a situation in New York has put some noise into the numbers, I guess I’m curious if you had to sit back and say on a scale of 1 to 10 how nervous are you that we're moving into a new threshold or new level of supply in the multifamily business.
How would you sort of rank your level of concern how that compared maybe where your head was six to 12 months ago?
Timothy Naughton
Yeah, that’s obviously a question on everybody's mind, as I said I think bears watching. But you know maybe to start with the demand side of the picture, I think as the industry – I think investors and honestly developers and sponsors are looking at the demand side of the picture as being stronger than they may have a year and two years ago, and the cycle maybe play out a little bit longer.
So I think there's probably some truth that there is just more confidence, more investor confidence, more developer confidence and there is probably good reason for that, when you look at demand. So I think there is a decent probability that supply will move up from here.
I think it needs to move up in order for the market to be anywhere close to being in balance. We’re seeing how it can get distorted in places like Northern California and Seattle, even Seattle where we’re delivering over 3% deploying it, you would continue to see 7% revenue growth.
I think what’s interesting though, and probably my biggest concern is who would provide the supply, but if you just look at our kind of our outlook we’re looking in terms of constant dollar volume roughly in 2015 that we started in 2014 and 2013 and 2016 won’t be materially different. It’s actually a smaller unit count.
And as you go around and you talk to some of the more experienced, it’s kind of a similar story, you hear, so the additional supply I think will likely come from new entrants oftentimes who I think sometimes, you know muddy up the market a little bit. So I think that's probably as worth watching as much as anything Ross where the supply coming from, who is – where the net new kind of add is if you will.
So there is somebody who is developing an apartment community, at least the land that they’ve owned for a long time. For the first time – commercial and retail developers are doing this for the first time and have other objectives in terms of providing additional supply to the market.
So – and that’s a little bit of a long-winded, I think it's a decent chance that it will occur. I think it’s, the market can absorb it when it probably needs it, just based upon household formation and just the balance of demand between rental and for sale.
Ross Nussbaum
Okay thanks. And just a question on the second quarter turnover ratio.
I think you guys did a good job of explaining that, I think you intentionally had higher turnover because you accelerated where the lease expirations are. Were there any markets where the turnover surprised you, maybe as a sign that you might've pushed too hard on the rent gas pedal or was it all kind of intentional?
Sean Breslin
This is Sean. Good point about being somewhat intentional.
Turnover rate was certainly up, but if you look at it as move outs as a percentage of expiring leases, it was actually down about 120 basis points year-over-year. All the markets were down with the exception of Northern California which was up about 120 basis points.
I wouldn’t say it was necessarily surprising given the level of rent growth in that region, but Northern California is certainly the one outlier where there is continued pressure on rental rates and driving more turnover in terms of the existing residents, but still being able to replace them with high quality residents and higher incomes.
Operator
Our next question comes from Jeff Spector with Bank of America.
Jeff Spector
Good morning. Just a follow-up question on previous comments on where we are in the cycle Tim and your comments today just given the better first half of the year acceleration, expected to continue, you know do you think we're still in mid-cycle?
I mean have you, do you feel that maybe obviously things are stronger than you were expecting that we're still in earlier stages or still mid-cycle, but longer? I just want to clarify those comments and how that ties into the increasing you know the decision to increase the development pipeline.
Timothy Naughton
Yeah, Jeff thanks. I would say somewhere in mid-cycle.
I don’t know if I could be more specific than that, as we said, we think it’s probably, both this economic expansion and this apartment cycle probably feel more like – more like the 90s, when you just look at sort of the economic drivers that usually start to portent that maybe the expansion is starting to slow down it’s just not present right now, and you know when they start becoming present, usually it often has another two, three, four years before you see any kind of economic correction. So things that change, but just based upon sort of the underlying fundamental it just seems like this has a few years to play out from our perspective economically and from a real estate cycle standpoint.
Now, how does that impact us in terms of this, I would say in certain markets it’s probably, we’re probably more – a little bit more confident in other markets we’re probably as gun shy as maybe we’ve been over the last six to nine months. For example in Southern California we bought a $100 million piece of lands and six acre site and Hollywood where it’s kind of a unique opportunity to build 700 apartments on a dual branded site, that we felt, you know we felt pretty confident about.
On the other hand if that opportunity had been infill Northern California where rents have already increased 50% this cycle, and to when the auction you might have to assume they’re going to grow another 50%, we probably would've been bold enough to take a piece of land down that side. So I think it’s going to be a little situational and we’re probably going to be a little bit more in press key in markets like Southern California or DC, just fundamentally a different part of its real estate and expansion cycle.
Jeff Spector
Okay. And can you comment, specifically on New York City and especially on the supply front the numbers we’re seeing for 2016.
How do you feel about New York City?
Timothy Naughton
Well we are expecting supply deliveries to go up in 2016 as you know. I think the big question are all these permits going to translate into starts, you know last time we saw the threat of the 421-a expire, we did see a bit of spike a couple of years later, so that risk is out there.
I think from a land market and a construction cost market you need to be extremely careful in New York City today. I think there's a chance that some of this will translate into starts, which is going to put additional pressure on construction cost.
I think there's a chance that the land markets get a little noisy for a while, and that you might be, you might benefit from standing back a little bit and just kind of seeing where the dust settles and take advantage of opportunity that's permitted and after a point at which markets, construction markets maybe have a chance to settle down or replace a little bit. So I think it's going to create – I think anytime you see uncertainty around regulation that creates more distortions and uncertainty and you know that will create its own set of opportunities, I just don't think it's today right now.
Jeff Spector
Great. Thanks.
Operator
Our next question comes from Austin Wurschmidt with KeyBanc Capital Markets.
Austin Wurschmidt
Just given the continued momentum that you guys have seen into August and September, and sort of that 8% range on the offers, should we expect that you guys are going to continue to run at that pace or would you anticipate you’d dough that back a little bit and look to rebuild occupancy as traffic could slow later this year?
Sean Breslin
Yes Austin, this is Sean. 8% is what we've got out there at this point.
You know we haven't necessarily doughed-up what the offers are going to look like for the fourth quarter. I guess I’d just maybe refer back to the common I made earlier is that based on our lease expiration strategy with fewer expirations beginning in August through year-end, our expectation is that we'll be able to hold better pricing power potentially than we have in the past during that season.
8% is a pretty healthy level. And so our expectation is that as availability has come down, pricing power has remained healthy naturally just through lower expiration volume we would expect fewer move outs and better occupancy.
But how that plays out in terms of what the rent offers might look like going into the fourth quarter is hard to comment on at this point.
Austin Wurschmidt
Thanks. And then I guess just touching a little bit on homeownership, look like that declined another 30 basis points in the second quarter, as we get sort of to one standard deviation below the historical mean nationally, 2 plus standard deviations looking at sort of the primary rendering cohorts, how does that stack up today versus in your markets versus the historical average?
Timothy Naughton
I think when you look at homeownership in our markets versus historical average, I think it's obviously lower because our markets have lower homeownership, but I think they're running at around 53. Right now for our market, if you look at the four quarter average, it’s about 51% right now as compared to the previous peak it was 58%, so we’re down about 700 basis points in our market at this point.
Sean Breslin
The 58% wasn't the norm because nationally the peak had gone up about 500 basis points from 64% to 69%. So I would guess that it was pretty consistent in terms of that trend.
Austin Wurschmidt
Great. Thanks.
Operator
Our next question comes from Ian Weissman with Credit Suisse.
Chris
Hi guys. This is Chris for Ian.
Congrats on the great quarter. It makes sense that you’d be developing more in the suburbs given where we are in the cycle, but just curious about your thoughts on the volume of those starts, especially as you work through the shadow pipeline.
It sounds like there's some good value creation there, but just concerned about adding to aggressively to the suburban markets, particularly in the Northeast any concern there?
Matthew Birenbaum
This is Matt. Actually if you look at what under construction today, it's actually more urban than our portfolio as a whole, so kind of our urban percentage is going to rise here in the next year or two.
But the shadow pipeline is more suburban focused that I mean ultimately when you play that out five years from now, our portfolio just based on that probably kind of those proportions don't change a whole lot. It's a big portfolio.
The other thing that we find is we can shape the portfolio much more aggressively through dispositions and potentially through acquisitions really on the development front most of the time what we’re looking at is where we find the most compelling opportunities where we can add value through what we do so well. And it is true a lot of that is in those northeastern suburban submarkets and you will see us tending to sell more out of those locations to keep the portfolio balanced.
We did sell one asset that’s here for example in Stamford, we sold an SOS here in Danbury. So those are the types of locations where we're probably more likely to sell.
Chris
Okay that makes sense. I guess just thinking kind of recovery loss as long as we’re kind of talking about now a few more years that would be giving you the ability to kind of work your through, all the way through the shadow pipeline and if you did that you'd kind of increase the suburban exposure, but it sounds like you just sell out of your – some of the older assets in those same locations is that kind of what you're saying?
Timothy Naughton
Yeah, I think that's fair. It's also important to note that the character, not all suburbs and not all suburban locations are the same, and a lot of the character of what we’re focused on now is pretty high density infill job centers suburban, so as compared to say a Danbury for example, when you look at what some of the infill suburban starts that we've had recently or we have coming up whether it's great neck, which is North Shore Long Island where we’ve been trying to get in for years and years very close in or we have a big development start coming probably early next year in Amityville in the East Bay or even some of the stuff we’re doing in Seattle, which is kind of in the infill suburbs, Mosaic district at Merrifield that’s this corner, those are some pretty exciting locations as well.
And it will be great long-term investments too.
Q – Chris
Great. Thank you very much.
Operator
Our next question comes from Rob Stevenson with Janney.
Rob Stevenson
Good morning guys. It looks like the redevelopment [indiscernible] drop in the supplement, can you guys just talk about how many projects are in there and what the additions to the pipeline and expected returns look like for the rest of the year?
Sean Breslin
Sure Rob, this is Sean. In terms of the redevelopment activity right now there's, as noted about $123 million underway at seven committees, it’s about 2,800 apartment homes.
The mix does continue to shift. Our expectation will be as expressed in the past is we plan to start between $100 million to $150 million per year in redevelopment activity.
And as you look at our track record, the track record is actually been quite healthy in terms of returns from that activity where if you think about redevelopment there is two components to it, there is certainly some capital that does not earn a return that sort of end of useful life activity whether you’re replacing roofs and things like that. But there's also the enhancement component, and the enhancement components for us we typically underwrite somewhere in the 10% to 12% range.
We've actually been hitting probably more mid-teens in that activity. So I think you’re going to expect it to be somewhere again running in the $100 million to $150 million range and the kind of return profile that I expect, we don't expect to ramp it up dramatically North Sea has softened up materially over the next few quarters.
Rob Stevenson
What is that $100 million to $150 million mean on a per unit basis?
Sean Breslin
You know it varies a lot. We have deals that run anywhere from I’d say a low of 15,000 to 20,000 up to about 50,000 a unit.
The average in the portfolio now is probably running somewhere in the neighborhood of about 40,000.
Rob Stevenson
Okay. And then are you guys seeing any meaningful difference between the operating performance over the last six months in the various suburban DC, suburban Maryland district and even into the district?
Sean Breslin
Yeah. I’d make a few comments on the submarket.
So out of the three major markets, here in Metro DC, best to be in the district suburban Virginia and suburban Maryland. Suburban Maryland has been the weakest I’d say over the past quarter.
A lot of supply being delivered in Rockville, North Bethesda, a little bit in Gaithersburg, so that's certainly been the softest. In suburban Virginia it’s probably holding out relatively well and western Fairfax as an example.
The submarket, sort of the softest in Northern Virginia or the RBC corridor in old town right now, and then in DC, it’s a function of positioning first off, but I'd say geographically the softest points are in NoMa as an example. And we've also had some softness around gallery place.
And keep in mind for us, we don't have a material relative to the whole portfolio in DC. So our experience is relatively small sample size, but that's what's happening in the district for our portfolio.
Rob Stevenson
Okay. Thanks guys.
Operator
Our next question comes from Dan Oppenheim with Zelman & Associates.
Dan Oppenheim
Thanks very much. I was wondering if you can talk a little bit more about the Northern California about the rent growth, as given the difficulty in terms of just incomes keeping pace with the rent growth as it is.
What are you doing in terms of thinking about obviously a good problem to have in terms of the rent growth at these levels here, but are you doing anything in terms of the tenant screening upfront in terms of looking at residence, some central residence thinking about if you're getting 8%, 9%, 10% rent growth, it can quickly mean that the residence will qualify today won’t be able to handle a year or two from now, are you doing anything to think about that in terms of how to minimize the turn over the next couple of years?
Sean Breslin
Dan, this is Sean. In terms of that point, I mean obviously you're talking about a topic that is somewhat regulated if you want to think about it that way, in terms of how you screen people and who you can turn away and who you can’t.
So for us it's a pretty disciplined process, hasn't really changed. People qualify based on their incomes today you know they're going to move in.
We tend to keep an eye on it, just to know what the opportunity is to push rents on those folks in terms of who's in the existing portfolio. But it's hard to sort of size people up to say you can afford this today, but can you afford it year from now I’m not sure.
The question really is that if people are moving out can we continue to replace them with enough demand to pay the higher rents and the answer thus far this cycle has been yes.
Dan Oppenheim
Got it. And then AVA Theater district in Boston, looks as though certainly the rents in that submarket moving up, and I think you're expecting now nice and higher rents, but keeping the stabilization timing as – probably in terms of pushing the rents more than leasing out faster than you would plan with the construction cycle, and how are you thinking about that overall?
Sean Breslin
Yeah, this is Sean. I’ll make a couple of comments and Matt or Tim can add on if they want.
Theater district first off very – not surprised, we’re very pleased with the rent profile that we've experienced thus far. But I'd say for two reasons we've pushed rents, but probably are leaving a little bit of gas in the tank if you want to call it that.
The two issues are; one, the seasonal nature of Boston which as you get into the fall, it falls off pretty quickly and then as you get into the winter it can be pretty quiet. And then secondly there's a fair amount of supply being delivered in the urban submarkets there in Boston and more to come, so our strategy with that asset has been to rents to market based on where we see today, but making sure that we're continually adjusting them to reflect the supply demand dynamics in that market to achieve targeted velocity each month.
And thus far we been able to do that, but given the seasonal patterns that we experienced in the supply we probably aren’t going to push too hard on that and we’ll probably opt slightly more for velocity than rate, as we move through the fall and the winter in Boston.
Dan Oppenheim
Great. Thanks very much.
Operator
Our next question comes from John Kim with BMO Capital Markets.
John Kim
Good morning. I had a question of your disposition guidance because it looks like your net gains will be at the highest level this year other than maybe 2011 or 2013 on a GAAP basis.
So I wanted to know if you could provide us some guidance on the gross proceeds you expect for the year, and if these proceeds are already characterized as capital already sourced on Slide 19 of your presentation.
Kevin OShea
John, this is Kevin. I'm not sure if I fully understand sort of the thought process in terms of your comments on gains.
But in terms of dispositions for the year they really come in two types; wholly-owned dispositions and fund level dispositions. Wholly-owned obviously being much more meaningful here, so I’d focus my comments on that.
In the first half of the year, we sold one asset Stamford Harbor for about $115 million. We had some additional asset sales lined up for the second half of the year.
Earlier in my comments I talked about what our remaining capital sourcing activity was for the second half of the year, we expect to source about call it roughly $600 million of capital in the back half of the year, and probably about roughly half of that we expect currently will come through the issuance of unsecured debt and the balance through asset sales. So in terms of – I’m not sure how you triangulate on gain activity, but if there's comments that the question you have on that, let me know.
John Kim
Sure. It’s just on your outlook for the year, you have net gain on asset sales of $1.69 to $1.83 for the year?
Kevin OShea
Right.
John Kim
So just backing in for that, just the full year number?
Kevin OShea
Yeah, I mean, this is – I'm not sure it's necessarily a cyclical high, it’s certainly not cyclical high in terms of the dollar value of assets that we've sold so far this year, but some of the assets we’re selling have a fair bit of gains associated with them. The case of an asset like Stamford Harbor was an asset that we built a long time ago held through quite a bit, and had a lot of built-in gain based on profitable development activity and that's true for a couple of the other assets we expect to sell in the second half of the year that come from more of a suburban market profile that we did long time ago.
John Kim
Okay. And then just sticking to your guidance, your capitalized interest for the year has increased, but your development spend is pretty much unchanged and your interest cost have declined.
So can you just elaborate on why the increase in capitalized interest?
Kevin OShea
Yeah. There's a couple of pieces there.
Overall we expect an additional $6 million in capitalized interest expense for the year. A portion of which or about $0.02 is included in the capital markets and transaction activity in the table shown on the earnings release.
So – and that relates to additional investment in land that would be held for development. As Tim mentioned, we bought $100 million parcel in Hollywood California, so that's part of that.
The remaining $0.02 to $0.03 that flows from that variance in capitalized interest is included in the interest expense line item and is driven by a mix of variables related to calculation of capitalized interest, but primarily due to slightly higher projected CIP balances throughout the year.
John Kim
Okay great. Thank you.
Operator
Our next question comes from Haendel St. Juste with Morgan Stanley.
Haendel St. Juste
Good or I guess good afternoon now. So a couple of quick ones here.
I guess Kevin, one is for you looking at the debt maturity schedule, it looks like there's a couple above market unsecured tranches high five coupons set to mature in 2016 and 2017. Pretty well above the 3.5% you recently issued 10- year [ph] paper.
So I'm curious as to what's your current thought here how are you weighing the opportunity to perhaps replace these slugs given the rate risk and versus I guess that debt prepay penalties?
Kevin OShea
Sure Haendel. You know we've got about $250 million [ph] maturing next year, its unsecured debt high five coupon.
And it's something we'll take a look at as we roll forward here, nothing planned as yet in regard to that. But it's a relatively modest maturity for us.
We have $6.4 billion of debt, probably about $5 billion of it is maturing call it the next 10 years or so. So an average maturity year for us is about $500 million.
So that makes 2016 actually a pretty light year with only about $250 million, probably the $280 million if you put some amortization on top of that maturing next year. But there may be an opportunity there for us to act on, but nothing that's in the plan as yet.
In terms of 2017, that's a larger tower about $950 million. Most of that is represented by secured debt of about $700 million that is in a GSE pool that we assumed in connection with the Archstone transaction.
Much of that is in place to help support some tax protection obligations that Archstone had made and that we inherited. That matures as we indicated in 2017 it has two extension options, so we can extend it for one or two years based on our election before that point in time.
So we've got some financial flexibility about how we address that. But given that it's tethered to some tax protection obligations, it's less likely a candidate for early action for retirement – retiring that debt.
I guess probably what's more germane right now is that within our guidance we do anticipate paying off additional debts about $200 million in total that we expected at the beginning of the year and it’s driven by I guess your comment which was what’s the opportunity for refinancing and the prospect of – facing, potentially rising rate environment. And we do see some opportunities in our debt portfolio if you will to pay off some debt here in the next quarter and do so in an accretive basis.
From an interest rate perspective just to clarify one thing, while the cash coupon on some of the debt is 2016 and 2017 is attractive, it’s in the high fives in the case of 2016 and the cash interest rate in the 2017 debt is also relatively high, the $700 million of debt that we inherited from Archstone, while it has a 6% cash pay interest rate, it has a GAAP interest rate of about 3.4%, but that's just something to point out for modeling purposes. But from our point of view, if you could repay that secured debt in 2017 today, we’d likely to – consider ways of doing so because it would be certainly attractive to try to refinance that and to a lower coupon, but that does have a prepayment penalty associated with it, that makes an economically unattractive choice today.
Haendel St. Juste
Great. I appreciate the insightful comments.
Next question maybe for Tim, maybe for Sean. A question on Seattle; the last couple of years we saw meaningful uptick of supply in downtown Seattle, plus 6% more or less of supply as a percentage of stock.
But the next two years, the supply picture really shifts out to Bellevue, we’re looking at about 15%, 16% expansion over the next two years, which is more where I believe your Seattle exposure and as well as some of your peers are. So I’m curious how you’re thinking about your Seattle exposure and price point positioning today can and should you be calling, and then is it inconceivable that your SoCal portfolio could surpass your Seattle portfolio this time next year in terms of same-store revenue growth?
Sean Breslin
Yeah, Haendel this is Sean. I’ll make a couple of comments and Tim or Matt can jump in as it relates to development.
Your comment is, certainly accurate that the majority of the supply, high percentage has been focused in Downtown, Capitol Hill, Queen Anne, and if you go there today, I was there just a couple of weeks ago there, sort of cranes everywhere in those various submarket. It’s certainly starting to accelerate in terms of the volume of the supply that is planned in the Eastside and North-end submarkets which is where most of our portfolio is concentrated.
And we will continue to watch that carefully. At this point, you're talking about a market that's producing close to 4% job growth.
There is some supply coming on line in Bellevue and North-end, that is meaningful as Downtown, but is being observed quickly and we’re still producing 7% revenue growth. So, at this point what is planned there in terms of the level of supply at current rates of job growth, probably concern us a lot that job growth is not likely to continue at that pace forever obviously, so we’ll have to continue to watch how it evolves on both sides.
At this point what's in the pipeline though for Bellevue, Redmond, [indiscernible], Lynwood some of those submarkets isn't all that concerning. And we've got a pretty diversified portfolio in terms of our positioning.
We have a lot of older product at reasonable price points, and we been opportunistic on the development side and have some higher-end assets that we are underway with in Newcastle, Redmond et cetera that we think will do quite well in the environment. There should be early deliveries in those submarkets relative to the rest of what's in the planning cycle.
So we think we’re pretty well-positioned, but certainly it’s going to have to be something we’re going to watch, as supply starts to ramp up more on the Eastside.
Haendel St. Juste
Any thoughts on SoCal versus Seattle, as we move into well next year?
Sean Breslin
Yeah, I mean it's a very good question. I mean historically Southern Cal hasn't been nearly as volatile as Northern Cal, North Seattle, just given the underlying kind of macroeconomic fundamentals in that market.
But there certainly have been times in the past where it's produced numbers up in the call it 7% range. We'll call it roughly 6% now, demand is pretty healthy, still the lowest region of any region in terms of supply over the next two years.
So while it's hard to predict where things are going, it's not unimaginable that if you had job growth slow a little bit in Seattle and it continues to move up in Southern Cal with the supply we have that it could get to that level.
Haendel St. Juste
I appreciate the comments. Thank you.
Operator
Our next question comes from Vincent Chow with Deutsche Bank.
Vincent Chow
Hey, good afternoon everyone. Just a few follow-up questions here.
Just going back to the debt side of things, just curious if the recent treasure rate volatility has really significantly impacted your cost of debt here, do you think you'd still be close to that 3.5% that you recently issued at or is that somewhat higher today?
Kevin OShea
You know the quotes that we’re receiving today for issuing new 10-year unsecured debt for us range between 3.6% and 3.7% today, so a little bit back of the 3.47% yield to maturity that we achieved in May, but not in an awful lot. Call it on average about 20 bps back.
Vincent Chow
Okay. And just given the funding your need for next year as well as expected issuance here sometime in the second half, would you consider increasing that amount just to sort of prefund given the rising rates and also just again, lock-in some pre-funding?
Kevin OShea
Our approach is when it comes to funding is not really necessarily to try to speculate on where rates might be tomorrow and mobilized, capitalized – mobilized capital as a result. It’s really much more driven by our uses and our development activity.
And so what we’re much more inclined to do is to match fund capital, so as we make development commitments go out and try to find the long-term capital with that. So given that we're nearly 100% match-funded today, you know I don't know it would be necessarily, need to be more than that at any point going forward.
So probably not highly inclined to try to go out and issue new debt today in advance of the need next year.
Vincent Chow
Okay. Thanks for that.
And then just one last question; just on the comment earlier that you made about bringing – or on the turnover side bringing in folks with higher incomes and that's helping support some of the rent growth. Just curious if you had the stats of what the renewal income was for sort of the new move-ins versus the existing portfolio?
Sean Breslin
Yeah, Vince this is Sean. On the lease income data for us if you think about the way we’ve managed the business and I think it's the case for most of our peers as well, is you get a snapshot of someone’s income that they apply, but at the time that they renew their lease, whether it's one year, two years, five years later, you're not re-verifying income.
So really the income data that we have for the most part is based on new applicants coming to the community that convert to a move-in, so I can't really disaggregated for you between move-ins versus renewals based on the new applicants. So lease income is up about 6% year-over-year for our portfolio.
Vincent Chow
6%?
Sean Breslin
About 6% correct.
Vincent Chow
Okay. Thank you.
Sean Breslin
Sure.
Operator
Our next question comes from Ryan Peterson with Sandler O'Neill.
Ryan Peterson
Yeah. Thanks guys.
Just touching again on development pipeline, you added $400 million in the quarter, you’ve talked previously kind of tapering it back, is that $400 million you consider that still tapering or is this a reflection of your increased optimism that you talked about the legs of this cycle?
Timothy Naughton
Ryan, I’ll start. This is Tim, and Matt feel free to jump in.
If you look – no, we don’t consider tapering. We've been running you know starts at about $1.2 billion to $1.4 billion in the last three years.
If you looked at our total pipeline, development rights and development communities underway, we’re about where we were at the end of the 2013 right now in terms of dollar volume, a little less in terms of unit count, but about the same in terms of dollar volume. We’ve talked about in the past, we’ve said, one, we would expect that tapered back a bit just based on opportunities, so it’s really driven more by opportunities than anything else and we have seen some good opportunities over the last few quarters, but may not as expected to seeing call it a year ago.
Now there are markets where are being more judicious as I mentioned earlier, particular the Bay area and New York City to name a couple, where I guess you know I would be surprised if our pipeline didn’t dial back a little bit just based upon the underlying construction cost, land cost, fundamentals and project the returns given where we are in the cycle.
Ryan Peterson
Hey great, thanks. And then, and if you could just touch again on the New England fundamentals being at your expectations for the year, is that – what's driving that?
Is that all from your new kind of management or is there something that you aren’t expecting in the actual market?
Sean Breslin
Ryan, its Sean. A couple of things; one, the market is performing better, particularly the suburban submarkets.
Job growth has picked up and there is very little meaningful supply really in the suburban submarkets as compared to the urban core in Boston and then certainly we have changed our expiration strategy as I alluded to earlier with New England and Seattle being the two where it’s probably the most pronounced, and so we had set a greater volume of transactions in the second quarter, which will continue through July in that market, which has put material upward overpressure on gross potential growth and a good quarter in New England. So our expectation is that this urban markets will continue to perform well and so good market combined with shipment strategy are really the two components.
Ryan Peterson
Okay, great. That’s it from me.
Thanks.
Operator
Our next question comes from Tayo Okusanya with Jefferies.
Tayo Okusanya
Yes, good afternoon. Just two quick ones from me.
First of all just same-store operating expenses in quite a few regions in 2Q was I’d say, probably higher than we were expecting. Just kind of curious about the high levels of OpEx that quarter and what we should be expecting in the back half of the year?
Sean Breslin
Sure Tayo, this is Sean. In terms of the second quarter, we provided an original guidance, which was between 3% to 4%.
We were a little bit low in the first quarter, a little bit higher in the second quarter. It’s always our plan to be a little bit higher in the second quarter, in fact our original expectation for the second quarter was a little bit higher than what it came, but we received some favorable adjustments on the properties tax side of the house, which helped alleviate some of the year-over-year pressure.
I mean as we reiterated in the outlook, we still expect operating expenses to be between 3% and 4%, that hasn’t changed since the beginning of the year, the components may have changed a little bit, so probably a little bit more favorable outlook on tax as an example, but obviously we took a hit in the first quarter in terms of the storms in the New England markets. So it’s starting to move around, but still expect it to be in the 3% to 4% range and it’s about, was about as planned in terms of second quarter.
Tayo Okusanya
That’s helpful. And then second one is along the lines of construction, could you just talk a little bit about what you're seeing in regards to construction cost trends at this point and specifically if you’re starting to run up again, is there any issues with labor has construction is generally ramping up?
Matthew Birenbaum
Sure Tayo, this is Matt. It’s a challenge, it’s a real challenge in Northern California, where it seems like hard cost are still growing at you know as much as 1% a month.
It’s a challenge in Southern California a little bit less pronounced there, probably a deeper subcontractor base that have more spare capacity when you think about the for sale market and how after that had been last decade there, and how far it’s held back. New York right now, I think we’ve been a little surprised at how’s been moving up in New York and again that could be related to the spike and permits of the 421-a, but you know it is definitely a challenge in those hot markets.
Seattle, I don't think is any different that it’s been in the last couple of years, it’s been a little bit, it’s moving up in a more measured way. And I do think in some of these markets, San Francisco maybe high-rise in Boston similarly where some of these subcontractors are just fuller and they probably are scrambling to get labor and they’re also making hay while the sun shines and really pushing their margins.
And ultimately that probably does correct itself because it will at some point make it difficult for deals to pencil and we’re already starting to see some of that.
Tayo Okusanya
Okay. That’s helpful.
Thank you very much.
Operator
[Operator Instructions] Our next question comes from Drew Babin with Robert W. Baird.
Drew Babin
Good afternoon. I was hoping you could talk about the New York Metro area, we’re seeing property revenue growth year-over-year has been relatively sticky around 3%.
Is that primarily a product of new supply hitting, is rent fatigue real? If you can just kind of break that out and talk about kind of the individual submarkets and where they fit in?
Sean Breslin
Sure Drew, this is Sean. Happy to talk about that.
It depends on which markets you’re in, so maybe I’ll kind of walk you through some of them. If you’re looking at New York City generally speaking for our portfolio, for the most part the impact that is keeping a lid on revenue growth is really supply, and it’s probably most acute in Brooklyn and in Midtown West.
As far as performing assets that we have in the Greater New York City area is the two Avalon Riverview Towers, which are in Long Island City, as well as our Morningside Heights deal up near Columbia those two are the outperformers at this point. Midtown West has been a little bit on the weaker side, Brooklyn has been a little bit on the weaker side, and the Bowery had done okay.
When you move outside of New York City, Northern New Jersey has actually been one of the stronger performing submarkets right along the Gold Coast we’ve been seeing 4% or 5% revenue growth. And then as you push out into Central New Jersey it tends to be weaker more in a 2%, 2.5% range.
Long Island has done okay, but a little low average. Long Island has been in the 2% to 3% as well.
And then Westchester has been holding its own, but you know it’s kind of market that is if you’re doing 3%, 3.5%, maybe 4% at the high end that’s sort of about what you expect in that market and for those, when you think of Central New Jersey, Long Island, Westchester it’s not typically about supply that’s the issue, it’s more about just demand and where the choice – the choices that are people are making. So it’s typically about the demand side in those markets generally speaking.
Drew Babin
Would you say that rent fatigue is a real phenomenon in Manhattan or are you seeing anybody kind of voluntarily pushing it further out of the city in the interest of saving money?
Sean Breslin
Not really, no. I mean there is plenty of supply, plenty of options and so it really hasn’t been a big issue there in terms of people moving out due to rent increases relative to other markets like [indiscernible] just something like that, so not related to significant rents too.
Operator
Our next question comes from Wes Golladay with RBC Capital Markets.
Wes Golladay
Hey good morning guys. Looking at the expiration shifting, will this give you guys a new structural high for the occupancy or is this more of a rate phenomenon for you guys?
Sean Breslin
Yeah Wes, this is Sean. I wouldn’t think of it as a structural high in terms of occupancy going forward, is that’s what you were talking about in terms of being high.
I mean if anything in the second quarter through July probably, it would actually put a little bit of downward pressure on occupancy given the greater expression volume, greater move outs potentially, but also gives us more of a rate opportunity really in terms of more expirations at that point, more transactions when rents were at the highest point during the season. So that was the main reason to shift, it was to take advantage of that opportunity and give us a little more protection going into the fall and the winter in terms of continuing to hold pricing power with just fewer transactions.
Wes Golladay
Okay. Thanks a lot guys.
Operator
Our next question comes from Conor Wagner with Green Street Advisors.
Conor Wagner
Thank you guys. On the Hollywood deal that’s a fully entitled landsite, how does that work from an Avalon AVA mix given that you target different unit sizes and mix with AVA versus Avalon.
Matthew Birenbaum
Sure Conor, this is Matt. Typically the way it work is the entitlement and it’s true in this case as well are more about the overall FAR parking count, unit count, building mass, and that site actually has five different buildings, four or five different buildings on it, and multiple street frontages.
But the entitlements usually don't drill down specifically into this many one-bedrooms, this many two bedrooms, this much average unit size. So we have the flexibility within what's been approved to kind of repack the building if you will and we may take one of the buildings and it’s the whole site been approved for 695 units, we may take one of the – it’s 300 on one side part, 400 on another, we may shift that around and put 380 up here and 320 down there, as long as we stand there in kind of the overall limit.
So there is the flexibility to reprogram and we've done that in a number of places.
Conor Wagner
Great, thank you. And then earlier you guys alluded to a slight increase in debt cost this year versus where you could issued 10-year now versus earlier in the year, have you seen any movement in the debt cost influence cap rates in the dispositions that you are looking at?
Matthew Birenbaum
It’s Matt again. No, not yet.
We have not been as active in the last quarter as we were kind of last year, but we do have some fund assets in the market or getting to come to market now and trying to kind of take advantage of it, we see it as a pretty compelling opportunity. But we just closed one fund asset in the second course, the only closing we had last quarter and it was right around the four cap rate on an older asset in Southern California that was bought by value ad buyer.
So we're hearing the talk that maybe buyers are going down the duration, so they’ll – 7-year debt, instead of 10-year debt to make their numbers, but obviously they may be getting more bullish on rent growth or NOI to make up for it. So, so far it really hasn’t had an impact on the transaction.
Kevin OShea
Conor, this is Kevin O'Shea, just to add to that. I mean, there are – interest rate cost I guess for 10-year debt are up 20 bps over the last two months, but they have been pretty flattish over the past year or so.
In the fourth quarter we did 10-year debt and I think was around 359 [ph], which is pretty much where we are now. So I think, unless we’ve been told there is much pronounced and durable move upward in interest rate it seem like other factors will probably drive asset pricing more.
Conor Wagner
Okay. Thank you very much.
Operator
Ladies and gentlemen this does conclude today’s question and answer session. At this time, I’d like to turn the call back to Tim Naughton for any closing remarks or comments.
Timothy Naughton
Thanks, Christine. I think it’s been a long call.
So I just want to thank everybody for attending today and I hope you’d have a great summer and we’ll see you in the fall.
Operator
That does conclude today’s conference. Thank you for your participation.