Oct 25, 2016
Executives
Jason Reilley - AvalonBay Communities, Inc. Timothy J.
Naughton - AvalonBay Communities, Inc. Sean J.
Breslin - AvalonBay Communities, Inc. Matthew H.
Birenbaum - AvalonBay Communities, Inc. Kevin P.
O'Shea - AvalonBay Communities, Inc.
Analysts
Richard Allen Hightower - Evercore ISI Nicholas Joseph - Citigroup Global Markets, Inc. (Broker) Nick Yulico - UBS Securities LLC Jeffrey A.
Spector - Bank of America Merrill Lynch Juan C. Sanabria - Bank of America Merrill Lynch Austin Wurschmidt - KeyBanc Capital Markets, Inc.
Hardik Goel - Zelman & Associates Conor Wagner - Green Street Advisors, LLC Robert Chapman Stevenson - Janney Montgomery Scott LLC Gaurav Mehta - Cantor Fitzgerald Securities Alexander David Goldfarb - Sandler O'Neill & Partners LP Richard Hill - Morgan Stanley & Co. LLC Omotayo Tejumade Okusanya - Jefferies LLC Drew T.
Babin - Robert W. Baird & Co., Inc.
(Broker) Vincent Chao - Deutsche Bank Michael Jason Bilerman - Citigroup Global Markets, Inc. (Broker) Neil Malkin - RBC Capital Markets LLC
Operator
Good morning, ladies and gentlemen, and welcome to AvalonBay Communities' Third Quarter 2016 Earnings Conference Call. Today's call is being recorded.
At this time, all participants are in a listen-only mode. Following remarks by the company, we will conduct a question-and-answer session.
Your host for today's conference call is Mr. Jason Reilley, Senior Director of Investor Relations.
Mr. Reilley, you may begin your conference.
Jason Reilley - AvalonBay Communities, Inc.
Thanks, Jessica, and welcome to AvalonBay Communities' third quarter 2016 earnings conference call. Before we begin, please note that forward-looking statements may be made during this discussion.
There are a variety of risk and uncertainties associated with forward-looking statements, and actual results may differ materially. There is 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 measure and other terms, which may be used in today's discussion. The attachment is also available in 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 J. Naughton - AvalonBay Communities, Inc.
Yeah. Thanks, Jason.
And welcome to our third quarter call. With me today are Kevin O'Shea, Sean Breslin and Matt Birenbaum.
I will be providing management commentary on the slides that we posted yesterday after the market closed, and all of us will be available for Q&A afterwards. My comments will focus on providing a summary of Q3 and year-to-date results, our outlook for 2016, a look at fundamentals and lastly an update on investment activity and a look back on our capital allocation track record.
So let's start on slide 4. It was a solid quarter where we achieved core FFO growth of 7.3% from a combination of same store NOI growth of over 4% and healthy contributions continuing from new lease ups.
Year-to-date, core FFO per share is up over 9%. And in Q3, we raised over $1 billion in new capital including the October bond deal and disposition activity to fund ongoing and the upcoming development and to pay off maturing debt.
Turning to slide 5 and our updated outlook for the year. We've updated our outlook for FFO and same-store metrics.
Core FFO per share has been reduced by $0.05 per share or 70 basis points for the full year to 8.3% due to a combination of factors including same-store revenue growth being trimmed by around 12 basis points from our midyear forecast from a mix of lower projected occupancy and rate for Q4. Secondly, higher same-store operating expenses related primarily to higher utility costs and delayed resolution of several tax appeals.
Thirdly, lower redevelopment NOI and lastly higher interest rate – a higher interest related cost in connection with our recent $650 million bond deal that we completed earlier this month. Turning now to slide 6.
We thought we'd spend a couple of minutes on fundamentals that are shaping portfolio performance and the overall outlook for the apartment sector. GDP and job growth, as many of you know, continue to decelerate.
GDP growth has been below 1.5% now for the last three quarters, while job growth is running more than 20% less than its cyclical peak, and well off last year's pace so far year-to-date. Lower corporate profits and business confidence is resulting in less investment in labor and capital, as businesses appear reluctant to make new commitments.
Turning to slide 7, while businesses are slowing down, the consumer appears to still be in good shape. The labor market continues to tighten with more job openings helping to contribute to an improved wage picture.
Consumers' balance sheets are in the best shape in many years. And these trends are contributing to cyclically high consumer confidence, which in turn is helping to drive stronger household formation, which is running north of a million per year, after lingering at generational lows earlier this cycle.
Turning to slide 8, longer term secular trends should continue to support apartment demand. Young adult job growth is outpacing the U.S.
average, driven obviously by strong growth in this age cohort. This generation is marrying and having children later, and unsurprisingly, we have seen the strongest household formation for singles and couples, as one- and two-person households have been responsible for more than 80% of all net new households formed so far this cycle.
Home ownership rates have in turn continued to fall through this segment, helping to stimulate healthy apartment demand this cycle. While the leading edge of millennials are now in their mid-30s, the largest part of this generation are still in their mid-20s and are expected to stimulate rental demand for several years.
So overall, despite slower economic activity, demand fundamentals are still healthy for the housing market in general and for the apartment sector, specifically. Turning to slide 9.
Let's take a look at what these trends mean for our markets. So far, this cycle from 2010 to 2015, we benefited from a significant imbalance between demand and supply.
This slide looks at this in a couple of ways. On the left, we look at the broader housing picture as household formation significantly outpaced housing starts during this period.
And on the right, job growth outpaced new apartment deliveries by roughly 2 times. So, in the first part of the cycle through 2015, demand has run well above supply and apartment rates have grown well above the long-term trend.
Going forward over the next two to three years, you can see from the right-hand side of both those charts, through 2018, we expect demand and supply to be more in balance, reflecting an industry moving toward equilibrium after years of significant outperformance. Turning to slide 10.
That notion is certainly reflected in recent rent performance across our markets and in our same store portfolio. Overall, market rent growth according to Axiometrics has declined from around 5% to 2% to 3% over the last four to five quarters.
Similarly, in our same-store portfolio, we're seeing same unit rent growth decline from over 6% to 3% to 4% range during that same time or to levels that are closer to historical average. Turning to slide 11 and double clicking through on our portfolio bit here, we can see a couple of other trends.
First, we are seeing convergence in performance between east and west as differentials in rent growth have narrowed by around 300 basis points over the last year, driven mainly by deceleration in Northern California and some improvement in the Mid-Atlantic. And second, and as we've been discussing in recent quarters, rent growth in the suburbs continues to outpace that in urban submarkets by around 200 basis points, given this concentration of new supply in urban centers.
Let's turn now to investment activity onto slide 12. Lease up performance continues to be strong as rents are roughly 200 basis points above pro forma and yields are 30 basis points higher.
And with yields well-above prevailing cap rates and our marginal cost of capital, redevelopment is contributing meaningfully to NAV and earnings growth well into the current cycle. Turning to slide 13 and as discussed a couple of quarters ago this really has been the case during our life as a public company.
This slide depicts development performance across various phases of the cycle since 1995. The strongest performance generally occurs during the expansion phase for sure, but it's been healthy even when new development has delivered into the downturn.
We believe this speaks to our capability in this area and our disciplined approach to allocating capital to this activity. Turning now to slide 14.
In addition, we continue to be disciplined in how we capitalize new development commitments. Excluding the benefit of any free cash flow or retained earnings we may enjoy, we're still currently 85% match funded against our $3.1 billion pipeline.
That is we've already raised most of the permanent capital for this bucket of assets well in advance of it producing operating cash flow. So, as this development stabilizes, it will add meaningfully to future growth in free cash flow.
Turning to the slide 15 and shifting gears a bit, we thought it might be helpful to briefly review our capital allocation track record over our life as a public company. While we understand that there's a lot of focus right now on moderating fundamentals, and the impact on portfolio performance.
We are investing in long-lived assets with an aim to deliver outsized total returns over the long run. As you can see on this chart, over the last 20 plus years, we've been able to generate strong investment returns with unlevered IRRs of around 13%.
A few points worth noting here. First, we've been able to deliver healthy returns, double-digit IRRs across all of our regions.
Second, we generated strong IRRs across both urban and the suburban submarkets. Third, we generated the highest returns in markets where we have the longest tenure, the mid-Atlantic and Northern California.
In our business, tenure matters in terms of market intelligence, experience, reputation and relationships. And lastly, while these returns represent a mix of unrealized or projected returns and realized returns, the average is consistent with what has been realized through our dispositions over the last 10 years, as shown on attachment 12 of this release.
And lastly, turning to slide 16, this long-term track record has certainly extended to the current cycle. So far, this cycle, we've delivered around $4.5 billion of new development at yields that have generated initial NAV accretion of around $2 billion and healthy earnings accretion contributing to annual compounded growth in core FFO of almost 13% over the last six years, a period of time when core FFO per share has more than doubled and dividends have grown by more than 50%.
So, in summary, while we are seeing some moderation in fundamentals, it appears that we are settling into a period of equilibrium as the economic expansion plays out. Of course, some markets and some markets will outperform while others might lag.
But overall, demand and supply seem to be really in balance and projected to remain that way over the next two to three years. And as we move into the later stages of a very healthy apartment cycle, we continue to exercise a disciplined approach to the capital allocation, both in how we raise and deploy capital, and that should allow us to generate solid earnings and NAV growth that will help us outperform.
And with that, Jessica, we'd be happy to open the call for some questions.
Operator
Thank you. And we'll take our first question from Rich Hightower with Evercore ISI.
Richard Allen Hightower - Evercore ISI
So, looking through the presentation last night, we noticed that I guess this quarter, you didn't break out the market-by-market assumptions that are driving the changes in guidance versus guidance as of last quarter. Are you able to provide those on the call this morning?
Sean J. Breslin - AvalonBay Communities, Inc.
Hey, Rich. This is Sean.
I can give you a sort of a general overview of where we're seeing market performance relative to our midyear expectations, if that's helpful. Obviously, it was a very modest reduction in terms of full year same-store revenue guidance.
And essentially, where the shortfall is occurring is primarily in four places: it's Northern California, the Greater New York Region, including parts of New Jersey, the Mid-Atlantic and then in Ferry Field County. Those are the four main drivers of the shortfall relative to our original expectation.
So, it's not a meaningful difference, but enough that the adjustment was required.
Richard Allen Hightower - Evercore ISI
All right. Thanks, Sean.
And then would you be able to breakout the new and renewal divisions to the different markets from 3Q (14:35)
Sean J. Breslin - AvalonBay Communities, Inc.
For the third quarter?
Richard Allen Hightower - Evercore ISI
...4Q? Yeah, third quarter and then maybe what you're seeing today in the fourth quarter as well?
Sean J. Breslin - AvalonBay Communities, Inc.
Sure. For the third quarter blended rent change was 3.5%, and I'm just going to walk through the markets here that represent 3.2% in New England, about 2.5% in the Metro New York/New Jersey region, just over 3% in the Mid-Atlantic, 5.2% in the Pacific Northwest, 2.7% in Northern California, and mid-5% in Southern Cal.
That blends to 3.5%.
Richard Allen Hightower - Evercore ISI
Okay. Thanks.
And then my final question here concerns development. So, it looks like implicitly, I guess, starts are expected to go up in the fourth quarter versus what happened in the third quarter.
And just a general question, I guess, how are you guys feeling about the development pipeline today? And have any of your assumptions changed in terms of how you're underwriting the projected yields on the overall pipeline or the things that you're starting in the near term?
Matthew H. Birenbaum - AvalonBay Communities, Inc.
Hi, Rich. This is Matt.
Yeah. No.
We are expecting a lot of start volume here in the fourth quarter. It was always really in the plan that the starts were going to be back loaded this year.
And it's really just a function of when those deals work their way through the system and are ready to start. So, we haven't – I wouldn't say our view has changed in any material way in terms of the attractiveness or the profitability of the development platform.
We're still adding new development rights through the course of the year. They're still kind of at the same current economics.
Again, we underwrite to kind of today's rents and cost and expenses that don't really trend. That we're still seeing on average our development rights pipeline underwriting to about a mid-60s yield.
Some variation by region, but that's been pretty consistent really for the last several years. The only thing that's really potentially changed is just different deals will move around quarter-to-quarter.
So, whether we wind up with the start volume for the total year that we expect at the beginning of the year, probably just depends on what happens with the Columbus Circle deal and whether that starts this quarter or it may slip-in to the first quarter next year.
Richard Allen Hightower - Evercore ISI
All right. Yeah, thanks for that, Matt.
I guess maybe one follow-up there. Just simply to the extent that the current environment has deteriorated over the course of 2016, I think where we might be a little bit confused is just how some of the assumptions haven't changed much.
I mean, is that just a function of underwriting rents versus the basis that you guys have locked in or is it – or are we misinterpreting kind of the way the numbers move there?
Timothy J. Naughton - AvalonBay Communities, Inc.
Rich, this is Tim. I mean rents are continuing to increase in our markets generally.
And so, it's a function of how it interplays with the construction costs, for sure. We are seeing some moderation in some markets on construction cost now.
Land cost as you know is locked in. So, in terms of overall economics on a current basis, as Matt mentioned, we haven't seen a big change.
We published the deals that completed this quarter that stabilized at a 6.4%. We've got about $2.5 billion that are under construction that we still estimate are a 6.4% and that's what most of that pipeline not really mark-to-market yet, which we would anticipate that to gravitate up.
And then just the deals we've been putting under a contract in 2016, which probably has been a little bit of surprise that they've been as attractive as we – from an economic standpoint as they've been are kind of consistent with those kinds of returns. So, the assumptions are always based upon what we're seeing in the markets today and I think that's what Matt meant in terms of our underlying assumptions haven't changed in terms of how they're derived.
Richard Allen Hightower - Evercore ISI
Okay. That's helpful, Tim.
Thank you.
Timothy J. Naughton - AvalonBay Communities, Inc.
Sure.
Operator
We'll take our next question from Nick Joseph with Citigroup.
Nicholas Joseph - Citigroup Global Markets, Inc. (Broker)
Thanks. Tim, you mentioned the increase to same-store expense growth is driven by utilities and the delay in tax appeals.
But can you talk about what's driving the growth of the more controllable expenses? Looks like payroll, R&M and the office operations were up this quarter?
Sean J. Breslin - AvalonBay Communities, Inc.
Yeah, Nick. This is Sean.
Why don't I give you an overview of the change from the mid-year guidance that we've provided as compared to what we provided last night, if that's helpful? But the growth change, if you call it combined third quarter and fourth quarter or back half of the year represents around $2.6 million, $2.7 million.
About a third of that is timing related. And the majority of that ties to three tax appeals in LA County that were scheduled and anticipated to occur in Q4 that looks like they're going to slip into Q1.
And then the balance of the timing-related component relates to the start-up of a co-gen facility at one our New York high-rise assets that's been delayed a little bit. So, about a third that we'll get, we're just going to get it probably closer to Q1 as opposed to Q4.
But in terms of the absolute amount of the change, it's about 70 basis points if you look at the mid-year guidance we provided basically around 2.4% to where we are at 3.1% today. The major components are the utilities.
It's about $1.8 million, taxes around $700,000, and then there's couple hundred thousand related to insurance and payroll. Again, that's sort of comparing back half of 2016 as compared to our mid-year reforecast.
So, a big chunk of it, again, is timing-related. But those are the primary drivers of the difference as compared to what we had said earlier at mid-year.
Nicholas Joseph - Citigroup Global Markets, Inc. (Broker)
Thanks for that breakdown. And then when you say concessions, can you talk about if you're using concessions on any stabilized properties today, what markets you're doing that?
And if it's free rent or gift cards or any other details you can provide on that?
Sean J. Breslin - AvalonBay Communities, Inc.
Yeah. Sure.
For the most part, we don't use a lot of concessions, but we do use them in certain markets. And I'd say it depends on a couple of things, Nick.
Obviously, in New York, you'd probably see a greater use of concession given some of the legal rent issues that surround that market. And then in certain situations where we think there may be just a bulk of delivery that's coming through at a particular quarter or two, that sort of impacts the then current environment, and we want to take sort of a temporary hit as opposed to the full 12 months of reducing the rent when it comes to lease renewal for those customers, that we tend to use.
But in terms of the concessions that we granted in the third quarter, it's about $440,000. About 50% of it was in San Francisco.
About another 25% is in the Pacific Northwest, which has been a healthy market but it tends to be a market where there's just a greater use of concessions. So, we used concessions last year, we used concessions this year.
It's just sort of the nature of the barter in Seattle. But if you look at the year-over-year change, about 85% of the year-over-year increase is really in San Francisco.
And that's primarily concentrated at the Mission Bay assets, a little bit at 55 9th, a little bit at Ocean Avenue, which are competing with more of the new deliveries.
Nicholas Joseph - Citigroup Global Markets, Inc. (Broker)
Thanks.
Sean J. Breslin - AvalonBay Communities, Inc.
Yep.
Operator
We'll take our next question from Nick Yulico with UBS.
Nick Yulico - UBS Securities LLC
Thanks. A couple ones.
First, on – a couple markets like – you think about New York, San Francisco. If you look at actually at Axiometrics data, it's showing that year-over-year there's been no rent growth or slightly negative rent growth in the markets.
At what point does that flow into your portfolio, more so, where if market rents just aren't moving, how do you still keep up let's say positive renewals in both markets?
Sean J. Breslin - AvalonBay Communities, Inc.
Yeah, Nick. This is Sean.
In terms of a bleeding through the portfolio, the softer market environment this year obviously has already started to bleed through the portfolio, which was our original expectation at the beginning of the year and the guidance that we provided. The rate at which it bleeds into the portfolio really is a function of a couple of different things.
For the most part, it really does depend on turnover rates, because if you're turning over say 54% or 55% of the portfolio year-over-year, that's going to get mark-to-market to some degree. And then the balance of it really is in renewals.
And historically, we have seen more pricing power with renewals relative to new move-ins because of switching costs and things of that sort. So, it takes a period of time for that to happen.
So, obviously in some markets, we are seeing rents go down relative to this point last year, I'd say particularly in markets like San Francisco or a little bit in New York City. But we're seeing overall positive rent change currently in those markets.
I'd say it's due to two reasons. One is, we probably are performing slightly better than the market average in those markets.
And secondly is just the function of the renewals versus new move-ins that I described previously.
Nick Yulico - UBS Securities LLC
Okay. That's helpful.
Just second question maybe for Tim. Are you seeing any change in cap rates for where multifamily assets are trading in the private market?
I mean, if we think about how much rent growth has slowed in some markets and just looking at multifamily sector overall for the REITs, we've also seen growth slowing. How – it's hard for I think some people to imagine how cap rates won't move higher to reflect this.
What are you seeing for asset values today? Thanks.
Timothy J. Naughton - AvalonBay Communities, Inc.
Well, Nick, I think I'll probably defer to Matt or acquisition dispositions reports to him. But obviously we've been active on the disposition side both for our own portfolio and as we wind down some of the funds and that we've been more active on the acquisition side in a couple of markets.
But, Matt, maybe you can just speak to kind of what we've been seeing there from a cap rate perspective.
Matthew H. Birenbaum - AvalonBay Communities, Inc.
Yeah. I think it probably does vary by market and by asset type.
And really it's a function of where the capital is most aggressive. So, what we're finding is older assets are the value add story, particularly on the West Coast, it's still very, very deep.
In early October we sold one asset, Avalon Brandemoor in the northern suburbs of Seattle and that was a sub-5% cap rate on an asset that was 15 years old and a good submarket but not one of the more sought after submarkets in Metro Seattle. And that's just a reflection of the fact there's a lot of value add money chasing that story, if you will.
In some other locations, I don't know really. I couldn't tell you where Northern California cap rates are today.
Obviously, there's been a lot of deceleration of NOI growth there. And we have not bought or sold anything in Northern Cal in a while.
And I think that volumes are down a little bit there because of that. So we haven't been selling kind of real core stuff and that's where you might see the impacts felt more so.
But we don't have any direct evidence to speak to that on either the buy or the sell-side?
Nick Yulico - UBS Securities LLC
All right. Thanks, everyone.
Operator
We'll go next to Jeff Spector with Bank of America Merrill Lynch.
Jeffrey A. Spector - Bank of America Merrill Lynch
Great. Good morning.
I'm here with Juan Sanabria. I guess just wanted to focus a little bit more, Tim, on some of your key points talking about moderation equilibrium the next two to three years.
Obviously, this year, there were a few issues to cause management to lower guidance. How should we think about those comments in the next two to three years?
What's giving you comfort that we stay there, or what are some of the assumptions behind those comments?
Timothy J. Naughton - AvalonBay Communities, Inc.
Well, Jeff, we've tried to say that in slide 9. I mean, first of all, in terms of changes in guidance, that's really a reflection of it being a weaker economic environment than consensus or us had anticipated.
So, to the extent the environment deteriorates further, and we are anticipating some moderation in both in job growth and an increase in supply in our markets over the next couple of years. But I think we show on slide 9 that we think it's roughly about – and if you look at the overall housing picture, we're starting up between 1.1 million and 1.2 million units per year, about 400,000 of those are multi-families and almost all of those are rental.
On a percentage basis, that's about what you're seeing in terms of rental propensities right now. It just seems like the market is producing housing that's consistent with what we're seeing from a marginal demand standpoint, which auto translates into inflation or maybe a little bit better in terms of rent growth.
And I think if you're seeing tightness anywhere, it's probably more in the for sale arena where there's still seeing 5% kind of growth in value. So, we're not seeing too much supply in terms of the overall housing picture.
We are seeing pockets of oversupply for sure. We've talked about those markets, and so, some will lead and some will lag, but overall, based upon on an economy that's growing at, call it 2% and jobs that are growing around 1.5% and supply that's being delivered into the market at about 1.5% of stock.
That just looks like the equilibrium to us. Supply being roughly equivalent to demand.
Jeffrey A. Spector - Bank of America Merrill Lynch
Thanks. Do you also assume that in 2018 that supply is going to really come down or no, that's not part of the thought process right now?
Timothy J. Naughton - AvalonBay Communities, Inc.
Modestly, Jeff. I think it may come down less for a couple of reasons.
One, I think the projections for 2017 are probably going to prove out to be too high again because it's just seems like supply just gets delayed. Some of this what I think over the last couple of years, 15% to 20% of what we're expecting to hit in that year and it ended up getting delayed.
So, if anything, we've been overestimating supply for the next year. And so, I suspect some of the 2017 deliveries will leak into 2018 and that you'll see a more – I think you'll see a fairly level supply picture for the next couple of years is our own sense.
Jeffrey A. Spector - Bank of America Merrill Lynch
Okay. Thanks.
And Juan has a question.
Juan C. Sanabria - Bank of America Merrill Lynch
Just, if I could follow-up on Jeff's point, if you could just talk through your 2017 supply assumptions across your major markets? And in particular, maybe if you could touch on Northern California, how that comes on line throughout 2017?
Is it front-end loaded or is it kind of pretty evenly distributed throughout the year?
Sean J. Breslin - AvalonBay Communities, Inc.
Yeah, Juan. This is Sean.
Why don't I take that one? In terms of the expectations for 2017, before I kind of run through the markets, one thing to keep in mind, as Tim noted, is for the most part over the last three years, I'd say supply has been – call it stretched out if you want to think about it that way where expected deliveries are pushed off into the subsequent period.
But in terms of what we're seeing for 2017 right now across our markets, the expectations were going to be somewhere in the neighborhood of about 2% of inventory. And the way that breaks down, to give you some perspective, is the New England market is about 2.5%; Metro New York and New Jersey, around 1.8%; Mid-Atlantic, 5.2%; Pacific Northwest, still elevated up at 3.7%; Northern Cal, mid-2%s, and Southern Cal kind of in the mid-1% range.
My expectation is those are going to trend down as we digest numbers and refresh our supply pipeline when we get to January.
Juan C. Sanabria - Bank of America Merrill Lynch
Okay. Thank you.
Sean J. Breslin - AvalonBay Communities, Inc.
And one thing to keep in mind is some of those deals that are in the pipeline are projected starts, but when people start looking at their numbers and I would say construction costs, up quite a bit over the last couple of years if they've been processing a deal, and then a tightening that we've seen in the financial markets as it hits the construction lending and a little bit on the equity side as well that some of those deal prices aren't going to make.
Juan C. Sanabria - Bank of America Merrill Lynch
Great. And just one quick follow-up, are you seeing any pull into San Francisco of demand that otherwise would have been in Oakland or San Jose from the discounting for the new projects?
Sean J. Breslin - AvalonBay Communities, Inc.
A little bit, but nothing that's really discernible that shows up in the data that you could call it a significant trend. Typically, it takes a period of time for that to happen.
And we've been talking about certainly decelerating growth in San Francisco for the last few quarters, but it's really only, I'd say, in the last six months that it's really come down quite a bit and people on year leases and things like that. So, it typically takes a year or two for that phenomenon really to occur.
If you think about the early part of this cycle, San Francisco outperformed quite a while and San Jose as well before the East Bay sort of caught up. And the East Bay has been outperforming in the last couple of years of the cycle.
Juan C. Sanabria - Bank of America Merrill Lynch
Thank you.
Sean J. Breslin - AvalonBay Communities, Inc.
Yep.
Operator
We'll now take our next question from Jordan Sadler with KeyBanc.
Austin Wurschmidt - KeyBanc Capital Markets, Inc.
Hi. Good morning.
It's Austin Wurschmidt here with Jordan. I was just curious if you could update on your outlook for job growth.
I think last quarter, you mentioned it came down 50 basis points roughly from your expectation, but just curious where your outlook is as we move into 2017?
Sean J. Breslin - AvalonBay Communities, Inc.
Yeah. Austin, this is Sean.
Why don't I take the first and then maybe Matt would want to comment as well. But in terms of the forecast for 2016, we rely on several different jobs to kind of get aligned around where we think job growth is going to end up, that includes sort of the (33:02) consensus as well as Moody's.
And right now, the numbers are sort of in the 2.3 million to 2.4 million jobs range for the calendar year. And in terms of 2017, the expectation is for job growth at least at this point to be relatively similar to 2016.
So, certainly, that will be updated as the Q4 evolves and we get to January, but the expectation is that job growth will be relatively similar next year and for this year, which is down, as Tim mentioned, relative to 2015 and 2014.
Matthew H. Birenbaum - AvalonBay Communities, Inc.
And maybe just a follow up to that, as I mentioned earlier, it's around 1.5% and our markets were expecting about 1.7%. And the only real anomaly is at Seattle where we're still expecting job growth north of 3%.
The others are kind of in the mid 1% range, all of the regions.
Austin Wurschmidt - KeyBanc Capital Markets, Inc.
Thanks. And then, just on D.C., it's been one of the few submarkets that's been accelerating.
It stalled a bit this quarter. I know you highlighted it from a question earlier in the call.
But just curious what your thoughts are and how this market – how it should fare moving forward? Do you still see acceleration coming?
Sean J. Breslin - AvalonBay Communities, Inc.
Yeah. This is Sean, Austin.
Yeah, the trend we believe that will occur is continued acceleration and revenue performance there. We thought it would have accelerated probably a little bit more in the third quarter and fourth quarter, but it's still kind of bumping along here.
So, still one thing to realize is job growth has been much better in the D.C. metro area, but supply has still been plentiful.
So, we're going to continue to see it rise, but it's going to be at a pretty moderate pace as we move into next year.
Austin Wurschmidt - KeyBanc Capital Markets, Inc.
And what are supply projections in 2017 versus this year?
Sean J. Breslin - AvalonBay Communities, Inc.
For D.C. facility?
Austin Wurschmidt - KeyBanc Capital Markets, Inc.
For your market. Yes.
For your markets in D.C.
Sean J. Breslin - AvalonBay Communities, Inc.
For the Mid-Atlantic, it looks like it's right around just over 2.5%, and that's just a little bit higher than it was this year.
Austin Wurschmidt - KeyBanc Capital Markets, Inc.
Thank you.
Sean J. Breslin - AvalonBay Communities, Inc.
Yep.
Operator
We'll take our next question from Hardik Goel with Zelman & Associates.
Hardik Goel - Zelman & Associates
Hey, guys. Thanks for taking my question.
Just wanted to talk about the two acquisitions that I know you've mentioned attractive merchant deals in the past. Just wondering given the fact that you have such good economics in your own development pipeline, how did you think about the two deals there?
I think if I'm not wrong, one of them was a lease-up, another one was the land swap of sorts. Could you provide more details on that and the yields you expect?
Matthew H. Birenbaum - AvalonBay Communities, Inc.
Yeah. Sure, Hardik.
This is Matt. I can speak to that.
I wouldn't say it's either or between the two investment activities. We're really not funding acquisitions through expansion of the balance sheet.
It's really portfolio management. So essentially, we are in the market when we think that there are assets that are attractively priced.
And if we find assets that we like, then we can always fund those through incremental dispositions. And we've wound up this year selling more than we probably plan to sell at the beginning of the year because we have been successful in finding some interesting acquisition candidates.
So, that doesn't really displace development activity from a funding point-of-view. So, that's the first thing.
And then in terms of the specific deals, we have been concentrating in the Mid-Atlantic. For the most part, we sold down in the Mid-Atlantic back in 2011 and 2012, kind of saw the softness coming here.
So, we're actually under allocated against our kind of long-term targets. We haven't been as actively developing in this market through this cycle either.
So, the one deal we bought in South Arlington after you allocate to the retail, we think, basically, it's a low-5% cap. 330,000 a unit for concrete frame construction, it's eight or nine years old, that's below replacement cost for that submarket.
So, we felt that was a pretty compelling buy. That's a submarket that's suffered some in the last couple of years and we think has bottomed out and we're starting to see positive revenue growth there again, so, we feel like it was a well-timed acquisition and should be a great investment, The other deal we bought, just completed a lease-up.
It's a smaller deal in North Hollywood and that the other region, I'd say were under allocated too at this point, is Southern California. It's been more difficult there because cap rates are quite a bit lower than there in the Mid-Atlantic.
But still, that deal we think it's a low 4%s cap. And after allocating to the retail, we think the basis in the residential is about 400,000 a unit, which again, is a pretty compelling basis for that location, and that's a submarket where we are looking for more exposure where we see a lot of good things happening.
And we think that we're in a good point in the cycle there.
Hardik Goel - Zelman & Associates
And just as a follow-up. Those are economic cap rates, right?
And it'd be really helpful to get economic caps on the dispositions as well, overall.
Matthew H. Birenbaum - AvalonBay Communities, Inc.
Yeah. Those are – I would say those are – I'm not sure what you mean by economic cap rates.
Hardik Goel - Zelman & Associates
Minus CapEx, I guess. CapEx-adjusted (37:58)
Matthew H. Birenbaum - AvalonBay Communities, Inc.
Yeah. There's kind of a typical lender reserve CapEx number in there, but it's consistent.
The dispose we've been selling this year we sold about $275 million in wholly-owned assets, and the cap rates there have been in the mid-5%s. And then we've also sold some fund assets.
And of course, we've sold the asset in Seattle earlier this month that's not in that $275 million. That was a high-4%s cap.
Timothy J. Naughton - AvalonBay Communities, Inc.
Yeah. To be clear, when we quote cap rates, we're putting them on a market convention basis in terms of how the market would underwrite CapEx, not necessarily how we might underwrite CapEx for a particular asset.
Hardik Goel - Zelman & Associates
Got it. All right.
Thank you. That's all from my end.
Operator
We'll take our next question from Conor Wagner with Green Street Advisors.
Conor Wagner - Green Street Advisors, LLC
Good morning. Sean, what were overall new and renewals in 3Q for the portfolio?
And how is that trending into October?
Sean J. Breslin - AvalonBay Communities, Inc.
Yeah, Conor. In terms of movements in Q3, average 2.1%, renewals were 4.8% blended to the 3.5% in Q3.
And in October, obviously, the call is a little bit earlier this year than last year as I recall. But basically low-2% range for October to-date.
This data is as of I'd call it a few days ago basically and still running in the high-4%s on the renewals, but slightly negative on the new move-ins, which is primarily a result of Northern California and New York and New England and Boston markets. A little bit of a push on our part to get a little more occupancy as we get into the latter part of the fourth quarter.
So, a little more pressure on rate in October.
Conor Wagner - Green Street Advisors, LLC
Great. And, Sean, I know last year in 3Q, you guys were aggressive in pushing price and taking the dip in occupancy.
Do you think you're too aggressive this year in dropping occupancy to get price and particularly in the mid-Atlantic?
Sean J. Breslin - AvalonBay Communities, Inc.
Yeah. I mean, last year, I'd say we were relatively aggressive.
This year, as the years evolve, the posture has changed. Every market's a little bit different and really every asset's a little bit different.
But I'm not sure that we would revisit the decisions a lot in the mid-Atlantic. We basically put out an expectation mid-year that things would continue to improve at a greater rate than what's actually occurred.
Whether you can tie that back to rate of occupancy and say that we were too aggressive, I wouldn't necessarily say that. We were trying to push a bit.
But to get the rate growth, you've got to have some of the occupancy, and if the occupancy doesn't show up, you're just not going to get it. So, I think it's really a blend of both.
I wouldn't just say it's a one piece or the other.
Conor Wagner - Green Street Advisors, LLC
Great. Thank you.
And then, Matt, you earlier mentioned the delay at Columbus Circle. Is that due to permitting, or is that more a continued problem with finding a retail partner there?
Timothy J. Naughton - AvalonBay Communities, Inc.
Conor, its Tim. I can speak to that.
I mean, we've been demolishing the existing building there for a good part of the year. We're just completing that process now, and still need to get final sign-off by the city.
So, it's really been probably more a function of that. And I think as we reported maybe last quarter or the quarter before, we are still considering bringing in a capital partner there.
It's not necessarily a requirement from our perspective, it's something we are considering, but that isn't holding up work. And we'll probably get started with maybe some site-enabling work here before the end of the year, but between kind of where – how long it took us to get the demolition done and finishing up our plans is looking at it's just looking like right around the end of the year for the start of the new building.
Conor Wagner - Green Street Advisors, LLC
Okay. And that will be the only deal that would possibly cause you to miss your guidance for $1.2 billion in starts this year?
Timothy J. Naughton - AvalonBay Communities, Inc.
We think so. We think so at this point.
The others look like they're pretty much going to happen in November, early December.
Conor Wagner - Green Street Advisors, LLC
Great. Thank you.
Operator
We'll take our next question from Rob Stevenson with Janney.
Robert Chapman Stevenson - Janney Montgomery Scott LLC
Good morning. Sean, you talked earlier about the weakness in Northern California and New York City among other markets.
When you're looking at supply coming on line in those markets that are directly impacting your assets or likely to directly impact your assets, if you assume job growth remains static, I mean, when is the sort of peak sort of disruption to your assets from an operational standpoint? Are we in that now?
Is that sometime in early 2017? Is that back-end 2017?
How are you guys thinking about that?
Sean J. Breslin - AvalonBay Communities, Inc.
Yeah. And you think about two specific markets thereof in terms of New York and Northern Cal, I assume.
Robert Chapman Stevenson - Janney Montgomery Scott LLC
Yeah.
Sean J. Breslin - AvalonBay Communities, Inc.
Is that what you're thinking about primarily?
Robert Chapman Stevenson - Janney Montgomery Scott LLC
Yep.
Sean J. Breslin - AvalonBay Communities, Inc.
Yeah, so, I think for the most part, if you look at it, New York, supply is actually expected to increase in 2017 relative to 2016. So, I think the pain is going to continue in New York through 2017 for certain.
It's really going to be what Tim said, which is a function of job growth with that being the economic environment that will determine rent change performance and ultimately revenue performance. But supply is expected to continue.
And as it relates to our specific portfolio in New York City, really, what you worry about is supply being delivered in Midtown West is impacting us. That's probably the bulk of it.
There's some supply in Long Island City, but it's more downtown than on the waterfront. And Long Island City is actually performing quite well.
The other market that we'll probably going to start to see more pressure is in Brooklyn. There's more deliveries in Brooklyn next year as compared to this year.
For the most part, it's been a relatively light year in deliveries. It's just starting to pick up in Q4.
So, that's sort of the broad picture in New York. As it relates to Northern California, also expect to see a pickup in deliveries in Northern California next year, about 40 basis points, 50 basis points as compared to 2016.
It goes from about 1.8% to 2.3%. Again, we're going to be massaging those numbers as we get to December and January.
A number of those deals are already under construction, of course. But for the most part, what we're seeing is that those deals have been delayed in terms of actually getting through the system, getting everything signed off, et cetera.
But if you look at where the deliveries are going to be concentrated, it's sort of the same places really in terms of what's happening mid-market, south market, et cetera. So, in terms of our portfolio, the Mission Bay assets and 55 9th will continue to be impacted in 2017.
I don't have the quarterly breakdown for 2018 at this point, probably a little premature to talk about it. But by January, we'll have a pretty good outline of that.
Robert Chapman Stevenson - Janney Montgomery Scott LLC
Okay. And then your turnover levels look pretty sort of static.
Are you seeing any material increase in days vacant between turns?
Sean J. Breslin - AvalonBay Communities, Inc.
Not really. When you look at it on a quarter-over-quarter basis, it's not really changing much.
I think the third quarter was around 22%, 23%. That's pretty consistent for the third quarter, a lot of leasing velocity, a lot of turn activities.
So, they're not changing materially. You'll see that number increase in the fourth quarter and in the first quarter, as a result of just the seasonal nature of the market and you don't have to turn things as fast because demand is not as robust in those quarters as compared to Q2 and Q3.
Therefore, you're not going to outsource turns and things like that that cost more money just to get it done faster.
Robert Chapman Stevenson - Janney Montgomery Scott LLC
Okay. And then any increase in bad debt?
Sean J. Breslin - AvalonBay Communities, Inc.
Bad debt has been higher than our expectation, pretty much all year, around 13 basis points, 14 basis points higher. We expect it to be around 76 basis points or so.
We're running closer to 90 basis points. And really, if you look at it for the full year in terms of operating expenses relative to our original budget, we're talking about an insignificant variance.
It's like 0.2% in terms of total operating expenses relative to our original budget. And the only difference really is in bad debt.
Robert Chapman Stevenson - Janney Montgomery Scott LLC
Okay. Thanks, guys.
Sean J. Breslin - AvalonBay Communities, Inc.
Yep.
Operator
Our next question will come from Gaurav Mehta with Cantor Fitzgerald.
Gaurav Mehta - Cantor Fitzgerald Securities
Yeah. Thanks.
Good morning. So, going back to your comments on supply and the performance divergence between suburban and urban assets, I was wondering if you could comment – if you expect that trend to continue, meaning suburban outperforming urban for next couple of years, and supply to remain focused on urban markets?
Timothy J. Naughton - AvalonBay Communities, Inc.
Yeah. Maybe I can – I'll start and maybe Matt or Sean will step in.
I think we are expecting supply in urban markets, urban submarkets to be twice that of suburban submarkets in 2017, which is actually a larger disparity than what we saw in 2016. So, you can see on that chart, it's been about a 200-basis-points delta on rent performance over the last, call it, eight quarters.
We would expect that certainly to continue into 2017, and maybe to a lesser extent, as you get out into beyond 2018. But over the next one to two years, we think that trend's going to continue.
Gaurav Mehta - Cantor Fitzgerald Securities
Okay. And then in your initial remarks, you also talked about equilibrium over next couple of years, and disciplined approach to capital allocation.
I was wondering what that translates into development starts over the next few years?
Timothy J. Naughton - AvalonBay Communities, Inc.
Well, we have a pipeline of close to $4 billion, which would suggest kind of low-$1 billion range in terms of starts assuming they continue to make sense and they get through the process, and the economics make sense. But from a discipline standpoint, I guess I'd say a few things.
Once we start Columbus Circle and the Hollywood deal, we'll actually have less than $100 million of land on the balance sheet, which actually is a cyclical low and maybe lower than last two cycles. So, part of the discipline has been around managing that land exposure in terms of when you actually buy the land versus option the land.
And then secondly, as we've been talking about over the last few quarters is how we capitalize the deal once we do start them. As I mentioned, we're around 85% match-funded without consideration of any free cash flow right now.
So in effect, we've already capitalized what's already been started and not just in – as we get later and later in the cycle, we'll continue to be conservative with how we manage the exposure of unfunded commitments. So, it's going to be somewhat dependent on how attractive the deals are relative to the capital environment at this time.
But as we said, on one of the slides, we showed one of the slides, over the last 20 years as a public company, we have demonstrated we can continue to create value through all phase of the cycles as long as you are disciplined, how you bring those deals into the pipeline and ultimately how you capitalize them.
Gaurav Mehta - Cantor Fitzgerald Securities
Okay. Thank you.
Operator
We'll now take our next question from Alexander Goldfarb with Sandler O'Neill.
Alexander David Goldfarb - Sandler O'Neill & Partners LP
Hey. Good morning.
Just two questions here. First, on slide 15, the returns that you guys have had on the developments over time, just surprised that the West Coast has had lower returns on average than the East Coast.
Would have thought that there would have been more cap rate compression to drive higher returns, so if you could just give a comment maybe it's the fact that's just land from the get-go was more expensive out there, and therefore, you just never get there but that part was a little bit surprising given cap rate compression?
Timothy J. Naughton - AvalonBay Communities, Inc.
Yeah. Alex, Tim here.
Yeah. I guess the point here and part of the slide is being a good or a skilled capital allocator is as much about sort of timing and being tactically smart.
And by the way, this is all investment, so it isn't just development, this would include acquisitions to be clear. And interestingly, our return on acquisitions aren't materially different than development, which sort of speaks to being highly disciplined sort of – in terms of investing earlier in the cycle with respect to acquisitions.
I mentioned in our comments, we've made more money where we've been the longest, Northern California and Mid-Atlantic. So, part of that is just understanding the markets, having deeper relationships, being confident that you're focused on the right deals at the right time of the cycle, which only comes through experience and track record in our view.
So, I think – and then the last thing I'd say is this is only through Q3 of 2014. So, I think if you looked at Seattle in particular, just given some of our recent deals that have completed, those numbers actually will go up from what you see there of around 10.3%.
In the case of Southern California, you're just starting at such a low going-in yield, cap rate compression has really occurred throughout, really, all of our markets, probably through all the markets nationally. And if anything, where you're probably seeing it is there's probably a more cap rate compression on the urban product than there has been in the suburban products.
So it's probably been – it probably hasn't been geographical as much as it's been sub-market focused. But again, it comes down – we're looking at managing to total return and sometimes that's investing at higher-yielding, slower-growth markets.
Sometimes it's lower-yielding, higher-growth markets. And I think this chart just really reflects that.
Alexander David Goldfarb - Sandler O'Neill & Partners LP
Okay. And then the second question is in response to one of the analysts' questions earlier about San Francisco and if you're seeing sort of a back flow from East Bay back into San Francisco, you said you're not.
Are you seeing any change in demand in San Francisco or is it because your portfolio has a – good chunk of it is suburb that, maybe, you're not seeing – you're not feeling the impact of a lot of the two-month rent concession that's attracting renters to move around San Francisco?
Sean J. Breslin - AvalonBay Communities, Inc.
Yeah, Alex. Sean.
A couple of things. In terms of my comment earlier about people moving from the East Bay back into the city or back into San Jose, my response is really that we've seen a little bit of that, but it's not a meaningful number at this point, given things have decelerated in San Francisco obviously pretty quickly that if someone was considering living in San Francisco at this time last year relative to the East Bay, that's a pretty expensive proposition.
And whether you've started to see meaningful deceleration in the second half of this year in that market, people sign one-year leases, they typically lag a year or two before they say, okay, the rents have really come down. I think that's the right kind of trade to make.
And my point was during the beginning part of the cycle, San Francisco and San Jose outperformed quite well before the East Bay caught up, and then the East Bay has been outperforming the last couple of years. So, you would expect that to occur just in the opposite direction as the market decelerates.
And in terms of the comment about demand, I mean, certainly, as Tim pointed out, it is a weaker economic environment and I think many of us anticipated, which has resulted in lower job growth across the market with the exception probably of Seattle. And Northern California has not been immune from that.
So, there's certainly a weaker demand profile in Northern California. It just so happens to be at a time when we have meaningful supply being delivered in San Francisco.
And, therefore, you're seeing one month or two month concessions sort of the norm on all of the new deliveries in San Francisco as an example.
Alexander David Goldfarb - Sandler O'Neill & Partners LP
Sean, do you feel that you're sort of on the tail end of that or you think that we're having – you guys expect to have another year of that and, therefore, as you outline next year, you're still going to be talking about the pressure on demand and supply in San Francisco?
Sean J. Breslin - AvalonBay Communities, Inc.
Yeah. I still think there's going to be demand.
I mean, assuming that job growth is basically the same and deliveries continue at the rate that's forecasted, which pretty much is vague at this point because those buildings are delivering now. I would expect that Northern California and San Francisco specifically, that's what you're interested in, will continue to be a weak environment.
So, we saw a significant uptick in job growth. That equation might change.
Alexander David Goldfarb - Sandler O'Neill & Partners LP
Okay. Thank you.
Sean J. Breslin - AvalonBay Communities, Inc.
Yep.
Operator
We'll take a question from Rich Hill with Morgan Stanley.
Richard Hill - Morgan Stanley & Co. LLC
Hey. Good morning, guys.
I just was curious about your comment about the apartments reaching sort of a steady state. And as I'm thinking about what you've put on the boards the first nine months relative to your full year guidance, it looks like to me, maybe revenue growth and NOI growth in the fourth quarter might be decelerating to 3.4% and 2.7%.
So, I'm wondering if I was thinking about that correctly. And then number two, if that's sort of the steady state we should be thinking about going into 2017 or are we supposed to be more bullish or maybe a little bit more cautious?
Any color or transparency would be helpful in that regard.
Timothy J. Naughton - AvalonBay Communities, Inc.
Rich, Tim here. In terms of Q4, I think your math's approximately correct as it relates to kind of what we're looking for the – in terms of year-over-year growth.
Steady state for us or equilibrium shouldn't be a whole lot more than inflation from our perspective. I think historically, if you looked at our markets, we've been able to generate roughly 70, 75 basis points stronger growth than inflation, whereas nationally, it's been probably a little bit closer to inflation.
And that's equated into a kind of high 2%, maybe just sub-3% kind of rent growth. And so...
Richard Hill - Morgan Stanley & Co. LLC
Got it.
Timothy J. Naughton - AvalonBay Communities, Inc.
...we're talking about equilibrium. That's the kind of rate of growth we expect to see.
We obviously started this year well above that trend. And so, while we have seen moderation, our view has been it's been moderating more towards an industry that's starting to approach demand and supply being roughly equal after six years of really in balance.
And it's kind of what you'd expect after a while in capital markets where capital should flow freely to businesses that are sustaining outperformance.
Richard Hill - Morgan Stanley & Co. LLC
Yeah. Yeah.
I mean – and to that point, and maybe taking a little bit more of a positive and longer-term view, do you characterize this supply that's coming to market as more of a bottleneck? Or looking longer term, can you make the case that we have enough apartments in the United States or maybe we even need a little bit more apartments in the United States?
So I'm curious in your view as an owner of apartments...
Timothy J. Naughton - AvalonBay Communities, Inc.
Yes.
Richard Hill - Morgan Stanley & Co. LLC
...and most likely taking a 10-year view rather than a 6- to 12-month view, how do you think about that? So, said other way – yeah, go ahead.
Timothy J. Naughton - AvalonBay Communities, Inc.
Yeah. No.
I think I followed. Our expectations, we're going to see household formation of over 1 million, 1.2 million to 1.4 million kind of on a steady state basis based upon a reasonable growth in population and jobs.
And our view is that if you just look at underlying demographics in I would millennials age that we're going to see more balanced housing demand between for sale and rental. Most of the rental has been – I mean most of the multi-family that has been built has been purpose built as rental.
And so, right now, you have an industry that's generating about 1.2 million houses, new units against demand that's about 1.2 million. About two-thirds of that is single family, which is the only purpose built is for sale, and about a third of that is multi-family, which is purpose built as rental.
The numbers almost can't be more imbalanced than that.
Richard Hill - Morgan Stanley & Co. LLC
Yeah, got it.
Timothy J. Naughton - AvalonBay Communities, Inc.
So, we look at – we're going from an industry that's been out of balance where real housing demand has been close to 80% or more of total housing demand, kind of an earlier sort of cycle to where it seems like we've found sort of a new normal, if you will. So, that's our view.
Richard Hill - Morgan Stanley & Co. LLC
Okay. That's very helpful.
Thank you.
Timothy J. Naughton - AvalonBay Communities, Inc.
Sure.
Operator
Our next question will come from Tayo Okusanya with Jefferies.
Omotayo Tejumade Okusanya - Jefferies LLC
Hi. Yes.
Good morning, everyone. Just there's been a lot of talk recently about rent control hitting the ballot during the election season in the Bay Area.
Just kind of curious what you're hearing, what you think the probability of that happening is, and what could be the potential impact to your portfolio?
Sean J. Breslin - AvalonBay Communities, Inc.
Yes, Tayo. It's Sean.
You are correct that rent control is on the ballot in about five different municipalities in the Northern California market. Only one of the – I can't speak to exactly what's likely to pass and what's not.
That probably changes from week to week depending on which poll you read. But there is support for – more of the majority support for some of those ordinances based on recent polling.
There's really only one that potentially impacts our portfolio, which is the proposed rent control ordinance in Mountain View. And if you look at it, it depends on how it's actually adopted.
There's actually two proposed ordinances on the ballot in Mountain View, one that's sponsored by the city, and the other that is sort of a voter referendum. And to the extent that it comes to fruition, Mountain View, overall, when you look at the assets that are impacted, it would impact around 9% to 10% of our Northern California revenue in terms of the specific assets that fit the vintage that would be governed by the proposed ordinance.
And the rent increases, it is a blend. It's limited to CPI Plus but it's got a collar on it, minimum 2, max 5.
And you can bank it, so you're going to get it over time one way or another in terms of what's happening in the market through (01:00:53) control, et cetera.
Omotayo Tejumade Okusanya - Jefferies LLC
Okay. Great.
Thank you.
Operator
We'll now take a question from Drew Babin with Robert W. Baird & Company.
Drew T. Babin - Robert W. Baird & Co., Inc. (Broker)
Thanks for taking my question. I wanted to break down New York Metro a little bit more.
You mentioned that New York Metro results disappointed year-to-date relative to your expectations. I assume that's been driven more by New York City with New York suburban and New Jersey actually both showing sequential acceleration in 3Q.
Did that sequential acceleration in those suburban markets surprise you or is that something that was in the underwriting?
Timothy J. Naughton - AvalonBay Communities, Inc.
No. We did expect some acceleration in those markets.
It actually came in a little bit short of our expectations, but we did expect some acceleration in those markets. If you look at the fourth quarter, we are falling short across the geography, New York and Metro New Jersey, less so in New Jersey than certainly in New York and particularly in New York City.
But for the most part, I'd say, the Greater New York region has fallen short of expectations and to a certain degree in New Jersey but just more moderately so.
Drew T. Babin - Robert W. Baird & Co., Inc. (Broker)
You would characterize the suburban kind of marginal weakness kind of trickle-down from what's happening in New York with new supply and people just adjusting to pricing in the market or what might be behind that?
Timothy J. Naughton - AvalonBay Communities, Inc.
No, I wouldn't say that it's significantly weaker. Just we thought things would pick up a little bit more, but the job growth in that region has been weaker over the last six months.
So, I think, it's more widespread as opposed to as it relates to – most people are moving from Central Jersey to Manhattan, as an example, just that trade and rent, usually doesn't make much sense. You don't see that happen.
The same thing when you get into Westchester or Long Island, making the trades come into the city is just prohibitively expensive.
Drew T. Babin - Robert W. Baird & Co., Inc. (Broker)
Okay. And then one quick one on the Downtown Brooklyn development.
I noticed the completion date was away from 4Q 2016 to 1Q 2017, but it looks like the leasing statistics and stabilization date are on pace and nothing's really changed there. So, I'm just curious what's behind kind of moving the completion date?
Matthew H. Birenbaum - AvalonBay Communities, Inc.
Drew, this is Matt. It's really just – when we get into finishing a building, particularly a building of that size and complexity, when we're actually going to be able to kind of close out all the books and everything.
And whether the last apartment homes' turn over for occupancy in December or January, it's going to be somewhere right around that timeframe. So, it's not a response to anything we're seeing.
As you pointed out, the lease up's been doing great. So, it's just a question of it's a 440-some-million-dollar asset.
So, we may keep the books open one quarter longer just to make sure we've got everything.
Drew T. Babin - Robert W. Baird & Co., Inc. (Broker)
Okay. Thank you.
That's helpful.
Operator
We'll take our next question from Vincent Chao with Deutsche Bank.
Vincent Chao - Deutsche Bank
Hey, everyone. Thanks for taking my question here.
Most have been answered already. But just sticking with the New Jersey commentary, not necessarily the answer to just the last question but earlier I thought it sounded like Jersey was specific markets where you're seeing some of that slow down relative to earlier expectations.
I would presume that's sort of Jersey City Waterfront markets, but just curious if it's more widespread than that.
Sean J. Breslin - AvalonBay Communities, Inc.
Yeah, this is Sean, Vincent. In terms of our portfolio, we really only have one asset in Jersey City.
So, there's certainly a meaningful amount of supply being delivered there. But the portfolio performance isn't significantly impacted by just that one asset.
As I mentioned, I said job growth has slowed in that region over the last six months. And I think it's more widespread and it's just representative of what you're seeing across all of those markets, whether it'd be parts of Central Jersey, Northern, Long Island, Westchester et cetera, job growth has come down across the entire region.
So, yeah, that's really what you're seeing is more softer demand. The supply is sort of as expected.
Vincent Chao - Deutsche Bank
Got it. Thanks.
And then you really have talked about most of markets here except for LA. So, just curious if you could give us some commentary on what you're seeing there.
We have seen some slowing in the same-store revenue growth for a couple quarters now, and job growth there also seems to be also decelerating. So, how should we be thinking about LA going into 2017?
Sean J. Breslin - AvalonBay Communities, Inc.
Yeah. I mean, for the most part, LA is performing quite well.
I mean, there's the only place where there's any pocket of weakness, really, is to get stabilize the assets let's say in Downtown LA as an example. Whether it's a meaningful amount of supply being delivered there, we only have one operating asset there, (01:05:46) that we completed earlier in the cycle.
But for the most part, LA is tracking just fine. Job growth has been slightly weaker, and so that's weighed on performance a little bit.
But in terms of our expectation for that market, we're tracking pretty close to what we expect in the back half of the year.
Vincent Chao - Deutsche Bank
Okay. Thanks a lot.
Sean J. Breslin - AvalonBay Communities, Inc.
Yep.
Operator
Our next question will come from Nick Joseph with Citigroup.
Michael Jason Bilerman - Citigroup Global Markets, Inc. (Broker)
Hey, it's Michael Bilerman. Tim, I'm curious as you think back to the Archstone transaction where you and EQR split up the portfolio.
If assets were to come to market within your six regions, I guess, where and obviously at the right price, and at the right cost of capital, I guess, which regions or markets would be most interested to you to deepen your presence?
Timothy J. Naughton - AvalonBay Communities, Inc.
Yeah, Michael. I've got couple of comments.
First of all, one of the things that was great about the Archstone transaction, it basically allowed us to get roughly to a target portfolio, particularly as related to Southern California, which we sort of had always been short in. But right now, we're not significantly off kind of where we'd like to be in any one region.
I think Matt mentioned it's been a little bit behind our buying in the D.C. area.
But we think tactically, it's not a bad time to be buying there, and we have been a little under-allocated since we (01:07:15) bid kind of in early 2010 or earlier this decade. So, it's probably from a market standpoint, it's probably still D.C.
and Southern California because those are markets where we could probably still stay in a little bit more allocation, and we don't think from a market condition standpoint and cycle standpoint, it's too bad of a time to be investing a little bit more cap loans and trimming in some other areas.
Michael Jason Bilerman - Citigroup Global Markets, Inc. (Broker)
And as you think about sort of the debt and equity capital that's out there to finance apartment transactions, obviously we've been – we've come off two years of significant activity by private equity and buying large apartment portfolios and platforms. How do you sort of look at the market today in terms of being able to finance larger deals both from a debt and equity perspective?
Timothy J. Naughton - AvalonBay Communities, Inc.
I'll maybe just speak from a public market standpoint and maybe wake up Kevin over here, who's been absent in this conversation. So...
Kevin P. O'Shea - AvalonBay Communities, Inc.
He gets one. He gets one.
Timothy J. Naughton - AvalonBay Communities, Inc.
But you look at where the apartment rates are trading obviously relative to underlying NAV. It doesn't make sense to be using your balance sheet to finance.
To the extent you see a portfolio out there looks better than what you currently own and you can finance it through some kind of asset swap or 1031, perhaps that makes sense. That (01:08:41) from an unsecured standpoint, but we wouldn't be looking – and I don't know that – I guess I'd be surprised if anybody is actively looking at really levering up to grow at this point in the cycle.
And so, unless you can find a way to do it on a leverage-neutral way, I think public entities are probably at a disadvantage today to the extent something came to market. Kevin, any other thoughts?
You want to say hello?
Kevin P. O'Shea - AvalonBay Communities, Inc.
A comment on Southern California leasing spreads, too. So, Michael, I guess, certainly, from a financing point of view in the private markets, things are tightening up a little bit, particularly on the construction area, as many of you are well aware already.
So, I think from a supply standpoint, longer term that is a bit of a headwind for those who are looking to add new supply on the private side and finance it. And the debt markets particularly for small, less well-capitalized developers, pricing and construction financing has probably moved beyond 300 basis points over LIBOR, which affects, of course, what kind of deals pencil.
And then, you've got the OCC, which is – it's pushing banks to lend less on real estate. And the regulatory environment for banks has become more expensive for them to be active in the construction market and be profitable.
And so, I think you're seeing that getting construction financing, particularly in some of these urban submarkets, is a lot more difficult than it has been before. For stabilized financing, the GSEs certainly have been active for the uncapped business.
There is certainly availability that's mostly affordable and types of opportunities. I think they do expect a record production year.
The caps have been lifted a number of times but their interest in Class A product is more modest as you're well aware. Nonetheless, banks and insurance companies have been pretty active while CMBS has been far less so due to the risk retention rules.
So, I think when you step back in time to some of the comments Tim made, capital's there for deals that make sense, but it's certainly not as plentiful now as it has been in recent years on the debt market side. And I think probably a lot of – on the equity side, joint venture sources of capital have been a lot more disciplined because they like you and we have been seeing the same headlines about supply in some of the markets that are out there.
So, they're probably a little bit more cautious, but at the same time, relative to some other sectors in real estate, multifamily even at trend level revenue growth does provide pretty healthy returns that one can reasonably bank on achieving over a long term.
Michael Jason Bilerman - Citigroup Global Markets, Inc. (Broker)
Right. Well, I guess that's what sets up divergence between the public stock trading at discounts and whether there's enough private capital out there both from a debt and equity perspective that would find those attractive enough to – or the companies themselves saying, you know what, I don't want to trade at a discount anymore.
I can monetize that spread by tapping into it. The question is is that debt and equity as excited about the multifamily business as it has been over the past couple of years, given the volume of deals that has transpired already.
I'm looking for you for the answer.
Timothy J. Naughton - AvalonBay Communities, Inc.
Yeah and I think it's going to be some of the function of the balance sheet as a target to the extent they're financed more through secured versus unsecured and maybe more doable than – and we've seen some recent examples of that in the apartment space. Obviously, where we had cleaner balance sheets and more unsecured, they tend to be more kind of public-to-public and where you had more secured financing and maybe a little higher leverage, it tend to be more attractive to the private side.
So, I think that's probably as big of a factor as well as just kind of where private versus public market valuations are trending.
Michael Jason Bilerman - Citigroup Global Markets, Inc. (Broker)
Okay. Thanks for the time.
Operator
Our next question will come from Neil Malkin with RBC Capital Markets.
Neil Malkin - RBC Capital Markets LLC
Hey, guys. Good afternoon.
Thanks for taking my questions. The first one is on jobs.
You've kind of made a commentary about job growth being basically in line with this year and next year. But I wonder, digging a little bit deeper, do you guys look at the types or quality of that job creation?
And I ask that because if you look at the higher-paying jobs, professional business services, tech, stuff like that, in some coastal markets we're seeing slowdowns, which would auger for less traffic, especially at the high price point type of assets that you guys have. And I wonder if you've kind of baked that into your guidance, because not all jobs, not all demand is created equal.
So, how do you kind of think about that particularly in, let's say, New York and San Francisco when you have job growth that's may be flat but, for example, in New York, you have a lot of hotel and leisure jobs. And I don't know if they can afford $4,000 a month, $5,000 a month apartment.
So, do you guys have a view on that at all?
Timothy J. Naughton - AvalonBay Communities, Inc.
Well, we're looking at jobs in a number of ways. I mean, there's pretty good data out there related to kind of mid, high and low-wage job growth.
And I think actually we've gotten later in the cycle, we've actually seen stronger growth in our markets, and kind of the mid to higher-wage segments, particularly the mid-wage segments, where it's kind of early in the cycle because I think its little bit more tilted towards lower. There does seem to be a bit of a disconnect right now.
Openings are higher than hires right now, which is putting – which is a good thing from a wage growth standpoint, which allows people to pay higher rents for sure. But it does seem to be that there may be a growing disconnect between what jobs are open versus the availability of labor to fill them.
Certainly, if you look at college graduates, the unemployment – we're at full employment for sure, people with college degrees. And that is the majority of our residents.
So, you may not see as much job growth there, Neil, for that reason over the next year or two. And I think it's likely to sort of mimic something closer to population growth, but on the other hand, it should translate into stronger wage growth than we've seen maybe kind of in the early years of the cycle.
Neil Malkin - RBC Capital Markets LLC
Okay. Thanks.
And then next question is just given that new leases have slowed across the board, but renewals stay in the mid-single-digits, what is the gain or loss lease in your portfolio, and what's your comfort level on that either way as we go into 2017 or in maybe a slower or a more dubious part of this cycle?
Sean J. Breslin - AvalonBay Communities, Inc.
Yeah. No.
Neil, that's a good question. One thing to think about related to that is gain or loss lease sort of moves around throughout the seasons of the calendar year.
In our business, market rents grow pretty rapidly from sort of early-February up through July, early August, and then trail off in terms of what's expected for basically the latter part of the third quarter and the fourth quarter. So, taking a snapshot of loss to lease, at this moment in time, doesn't necessarily represent how you want to think about rent growth for next year.
So, I think you've really got to sort of model it in a way that you look at the typical trajectory of rents from the trough late in the fourth quarter to the peak, to the following August. And then, determine how much you think you're going to get during that period of time that will then ripple through lease expirations.
So, that's how we think about it more so than, we've got X percent or X dollars sort of baked in right at this moment based on today's market rent, if that makes sense, does that make sense?
Neil Malkin - RBC Capital Markets LLC
Well, yeah, I understand it goes through cycles based on peak or shoulder season. I just mean if you think about how you're rolling over sort of a trailing four quarter period, right, you would have a full cycle or a leasing season.
And I just wonder, I think someone asked the question earlier, I mean, when does that start to impact potentially renewals, to essentially you don't want to generate a gain to lease that's unsustainable or that will leave you susceptible if markets turn or job growth slows more than you think.
Sean J. Breslin - AvalonBay Communities, Inc.
Yeah. I mean, I guess one way to describe that too, I guess if we just sort of take a snapshot of where the rent roll was today relative to what the rent roll has averaged for 2016, you're kind of in the low 1% range, 1.25% or something like that if nothing happen next year in terms of rents growing at all, you'd be delivering north of 1% revenue growth in sort of a static market.
I mean, that's one way to look at it. And then you just have to apply what you think is going to happen with rent growth through the fourth quarter and then throughout 2017 to determine what you think you're actually going to really do in 2017.
Neil Malkin - RBC Capital Markets LLC
Okay. Yeah.
That's helpful. Thank you, guys.
Sean J. Breslin - AvalonBay Communities, Inc.
Sure.
Operator
And that does conclude today's question-and-answer session. At this time, I'd like to turn it over to Mr.
Tim Naughton for any additional or closing remarks.
Timothy J. Naughton - AvalonBay Communities, Inc.
Thanks, Jessica, and thanks, everybody, for being on today. And I think we'll see most of you next month in Phoenix at NAREIT.
So, take care. Have a good day.
Operator
This concludes today's call. Thank you for your participation.
You may now disconnect.