← The Rent Roll with Jay Parsons
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Foreign. Of the rent Roll your podcast on all things rental housing apartments, single family rentals, and Build to Rent. It's time for one of the more popular recurring episodes that we do, our REIT recaps kicking off with the big six apartment rates today. You know, I read through all these earnings call transcripts and presentations so you don't have to for avalon Bay, Camden, MAA, Equity, Residential, Essex and UDR. For those of you curious about those smaller REITs, they're reporting a little bit later in this cycle. So we'll share some, any kind of big highlights or themes that come out of that. I'll be sharing that on my newsletter@jparsons.com Newsletter and if there's anything big, I may highlight that next week's episode as well. And then of course, the single family REITs, a lot of focus on them of late thanks to the proposed institutional and SFR investor ban imitation and amh, they're a little, a little bit later in this cycle as well. And so we're gonna be covering those highlights here in a couple of weeks. But again today it's all about the big apartment REITs. I'm gonna give you seven key themes and takeaways from those Q4 2025 calls that just wrapped up this week. You know, I say this all the time, but they really give us some great color on what's happening in the multi family market. And, and most of it has broad applicability to the private sector as well. And I always tell people it's, you know, I think that, you know, the, the REITs, they're a really tiny share of the overall market, but obviously they play an outsized role by nature being public and, and, and so, you know, they're, they're being forced to share things that obviously we don't get from most market participants. So we're going to cover some, some of those highlights today and then as usual, we're going to talk about some headlines and some big headlines in the last week, touching on some updates about that potential ban on institutional investors and SFR that I just referenced. Um, just this week we had a congressional hearing on housing affordability. I listened to all three hours of it and I'll share with you some brief highlights. I'll tell you the punchline though is it sure didn't feel like an investor ban is a big priority for members of Congress on both sides of the aisle, at least in this, at least in the Financial Services Committee. So what that means, I don't know. But I'll give you some, some thoughts on that in a bit. Before we jump in, I want to give a big shout out to our sponsors. First and foremost to jpi, a leading apartment developer with a state of purpose to transform building, enhance communities and improve lives. Check them out@jpi.com also a big thank you to Madera Residential, a leading apartment owner and operator based in Texas expanding into the Southeast. Check them out@maderaresidential.com all right, so as always, kick it off with a section that we like to call here. Here's a chart and this is going to be sponsored by my friends at Mason Joseph Multifamily Finance, the number one FHA construction lender in the Southwest for a reason. Since 2016, Mason Joseph has closed as many FHA construction loans in Texas and surrounding states as the second and third place lenders combined, according to my friends there. So check those, check them out. Mason Joseph Multifamily Finance all right, so instead of charts, this week we got Some, we got seven takeaways from those Q4 2025 heart and recalls that just wrapped up. Let's get right to it. Number one, fundamentals are incrementally improving and concessions are finally abating as supply is trending down. Okay, now don't, don't, don't assume this means everything's hunky dory again, okay? This is, we're talking about some incremental improvement here and some, some signs that concession starting to burn off a little bit. A little bit, not all the way. Mark Perel at Equity Residential said they saw momentum in December and January. They're pulling back on concessions. Essex said the same. UDR said they're seeing concessions starting to abate as well, even in Sunbelt markets like Dallas, which they call that specifically. UDR's Tom Toomey said this. He said the positive operating momentum we achieved in the final months of 2025 has continued into 2026 with further acceleration in lease rate growth coupled with high occupancy. Brad Hill MAA said, we're seeing the momentum now. It takes time that to make its way into the revenue and earnings portion as the rent roll turns. But we've had four straight quarters now of blending improving year over year. I'm sorry, blends, rent blends improving year over year, which really indicates that we're turning the corner. And of course, obviously reduced supply plays a role in all this. After three years of heavy deliveries, we're now seeing a lot less. And that's true pretty much everywhere across the country. Now to Be clear, no one is saying the boom times are back, except maybe those with assets in San Francisco. But it's really more about being over that hump. It looks like at this point, the market likely bottomed out around October. And so if that holds, that is a big deal. You know, of course, you know, everyone knows it's really all about the spring leasing season that matters a lot more in these winter months. So building that momentum through March and through April and beyond, that's much more critical. But still, this is a positive trend nonetheless. We're seeing that in the private sector data these last few months. And now the REITs are sharing the same. All right, takeaway number two. Now, despite that improvement, rent expectations for 2026 are muted, with hope for acceleration as 2026 progresses. And this was a theme we heard at NMHC as well as the recalls, which is some hope that the second half of the year looks better than the first half of the year. But I will tell you, I was. I don't say I was surprised, but I definitely was. I definitely thought it was interesting that the consensus view on rents for 2026 is that they would bring gradual improvement, excuse me, but not enough improvement or not fast enough to really impact rent rolls enough to generate real revenue growth in 2026. And that's partly due to the macroeconomic uncertainty as well as continued challenges leasing up that record wave of supply. So we don't have a lot of new deliveries in 2026, but we still have a lot of stuff that completed in 20 that hasn't yet stabilized, particularly in the Sunbelt, in the mountain markets, and even some pockets on the coast as well. So the blended rent and revenue expectations generally, you know, they're pretty similar to 2025. They are not much more bullish. I think most of them, Even the coastal REITs, where there's less supply, they still expect another year where expense growth could outpace revenue growth. And that's even with more normalized, muted expense growth, by the way. So it was implied that the growth could improve as the year goes on. We could see a set the stage for a stronger 2027. Clay holder at MAA, he said this. He said, we expect supply levels to continue to impact new lease pricing, particularly in the first half of the year, but believe the impact will increasingly improve over the course of the year as the effect from new supply continues to decline. At Avalon Bay, Sean Breslin said, we're expecting year over year revenue growth in the second half of the year to exceed what, what we produced in the first half. And at Camden, Alex Jesset said we expect market rent growth of approximately 2% for our portfolio over the course of the year, with most of that growth occurring in the second half of the year. And then some other REITs, by the way, Essex, UDR, they're a bit more balanced between first half and second half. But UDR did note specifically that the Sun Belt may see better numbers in the second half and the first half just because there'll be less supply to wrestle with at that point. All right, takeaway number three, uncertainty cast a cloud on the 2026 demand and rent outlook. All right, so I've talked about this a lot. Uncertainty has been a big theme of these calls and of course, industry overall throughout 2025. Now here we are in the first part of 2026 and you can tell from the tone of these calls that the REIT executives, they still worry about the impact that uncertainty could have on the on tier here in 2026. And that's contributing to, to those rather tepid rent expectations for at least the near term. Camden's Rick Campo, he said the operating environment last year was uncertain. Every sign suggests the first half of 2026 will be marked by the same cautious tone as last year. At Essex, Angela Kleeman said the uncertainty has contributed to a measured hiring environment which has tempered near term acceleration in demand. And Mark Perel at Equity Residential said the uncertainty has spread in even to lower coastal, lower supplied coastal markets. It's pulled down performance everywhere other than San Francisco and New York. And he said EQR believes, and this is a direct quote, heightened policy and geographic uncertainty took a toll on consumer and employer confidence, causing an abrupt slowdown in job and rent growth in the second and third quarters. Of course, you know, that also means lower turnover, particularly for those who might have otherwise left to buy a house. And EQR said that move out to home purchase had a record low in 2025 of 7.4%. And of course, that's been a theme across the industry is lower move outs to purchase. But I want to remind everybody that just because you're not buying a house doesn't mean you can't move to another apartment or single family rental home because obviously you got plenty of options right now. So. But lower move outs to home purchase still a notable factor. Now, all this uncertainty obviously creates a wider range of possibilities for how 2026 plays out. And I heard multiple REITs note that if this cloud of uncertainty holds and the economy weakens, that's A downside scenario, and obviously the upside could be some restored sense of normalcy. Doesn't have to be big growth, especially as supply comes back, but just some degree of more, you know, of less uncertainty and, and a little more sustainable growth would, would, would be a positive signal. All right, takeaway number four. Construction costs are going down, but development remains tough to pencil out. All right, so first, some context here. So a year or so ago I was talking about this in the podcast. The REITs were boasting about their lower cost of capital and that being an advantage to help them build when others cannot. But that advantage has eroded as their stock prices have been trading at bigger discounts and net asset value, and that shifting some capital back into stock buybacks instead. And we'll talk about that a little more later. But the tone, because of all that, in part because of that and other factors, the tone around new development has kind of soured a bit. But it's not because of construction costs. You know, the big theme I heard from everybody's looking at development is that construction costs are down anywhere from the low to mid single digits. And that drop seemed to be maybe even a bit more than what the REITs had said even a quarter ago. So that's a positive trend. But in particular, by the way, given all the uncertainty around tariffs, I think there's much more clarity across the industry now that costs are coming down and obviously increased labor availability as more projects complete than start. That's a big part of that. But even with that, that tailwind, everyone still says starts are super tough to make work due to high land costs and soft rents, which is the same we hear in the private side as well. So Avalon Bay, they've been the most active REIT for apartment development these past couple of years. But even Avalon Bay said they're going to pull back about 50% on starts here in 2026. They still have seven projects planned to start this year. But it's a pullback and they're really trying. They said they're focused on fewer projects with better yields. Oh, and by the way, one other thing I want to share. Avalon Bay had an interesting kind of anecdote here. They said they're building larger format units or they're building, I should say more kind of large format units, larger units intended to meet changing demographics as well as renters who want space to work from home. So that was interesting. Mea they've been other one really focused on development of late. They said they expect to start five to seven new projects in 2026 with the goal being that these projects complete during a much more favorable operating environment than we have right now. EQR they said that, they said, they said they plan to start two projects both in Atlanta. Camden said they might do a couple of stars, but the math is tough. Alex just said at Camden said, quote, we're seeing anywhere from 5% to 8% reduction in costs. But clearly developments are still hard to pencil. We look at rental rates obviously the way we sort of think about things, we try not to look at trended too much. We try to look at what everything looks like on an untrended basis. And we're seeing a sort of align with, call it five, five and a half percent on an untrended basis, which can get you up to sort of 6% on a trended basis. All right, so what's he saying there? What he's saying is that these new development deals, they only look attractive once you're baking in some kind of assumed growth between and rents between now and the time that property leases up. So a lot of times, you know, developers don't like to do that. Essex, they said they have two land sites they like, they'd like to build on at some point, but they won't be 2026 starts. Ryland Burns at Essex of the Masses doesn't work yet. He said, quote, you really need to see land sales take a reduction in their expectation on land prices to make the numbers work today and or you're going to need to see 10 plus percent rent growth for some of these deals to make economic sense. So there you go. All right, takeaway number five. San Francisco, New York City are still strong, but it's a mixed story in other coastal markets. All right, so I've talked about this a lot. You know, I, I'm going to talk about the coast here and I'll talk about the Sunbelt and mountain markets in a moment. And I made this point a lot is, I don't really like to overgeneralize. You know, here's Sunbelt versus coastal markets. I think there's a lot of nuance within both regions, especially right now. But one thing's really clear. San Francisco in New York are, are hot. And everyone's saying the same thing. These, these are, these markets have been hot through 2025 and they expect to be, to remain hot in 2026. They're the Bells, the ball for sure right now. And that's true for fundamentals and, and to some degree capital as well. Here's, I think one of the really interesting anecdote or not even an anecdote, a sales comp. Avalon Bay they said they sold a deal in San Francisco, the city for a 5 at a 5.1% cap rate. Now on the surface I first saw that I thought, you know, that sounds about right, no big deal. But Avalon Bay said this particular property is 50 plus years old. It has heavy capex needs meaning it's probably a lot of, you know, deferred maintenance and repair where it needs to be done and it's rent controlled and yet still traded at a 5.1 cap now. So that's pretty wild. Now San Francisco is clearly hot again. You know, tech jobs, back to the office, AI plus very low supply, very, very little has started over the last five plus years since COVID and obviously San Francisco experienced a long impact from COVID But anyway, elsewhere though, you know, while San Francisco is very, very hot as well as the San Jose Silicon Valley, it's we're still hearing softer stories in other coastal markets, D.C. boston, Seattle, Southern California but the specifics really varied. By reit for example, some parts of suburban Seattle seem to be holding up better than downtown and in Southern California. You know I've talked about this a lot you it's, it seems to be everyone's every reads kind of punching bag for these last five plus years. Just a tough environment in pretty much every way. But for what's worth, Essex did say they actually saw a strong occupancy bump in Q4 and in LA. Not quite back to 95% yet, but trending that way overall. Of course for LA the tone was still lukewarm at best. Mark Perella EQR I said he has quote continuing anxiety over Los Angeles with which lacks both economic drivers and quality of life drivers but will remain hopeful. Mark said they sold a property in downtown la. That quote partly was a sale because of those regulatory conditions in the market that are really hard. He also said for any acquisition or development deal in California, this is pretty interesting. For any deal in California, EQR is now underwriting higher costs associated with litigation risk and regulatory risk. So and, and plus on top of all this I'm sure everyone's by now heard about Camden. They have announced they're they're going to sell their entire California portfolio which for them is really to Southern California and, and, and they're going to use the proceeds to reinvest in the Sun Belt as well as buying back some stock. And we'll talk to Yana Gallen of Bank America later. In today's program about that news. But Rick Campo, the CEO of Camden, he did address this on the call and he gave three big reasons. Number one, Camden wants to invest in the Sunbelt ahead of an expected reacceleration in rents, the big rebound they expect to see. Number two, Camden wants to capitalize on the buyer demand for California right now as the market's been stronger. And number three, Camden wants to buy back stock at favorable trade. At a favorable trade. So of course not specifically spoken, but I'm assuming still applies as well is the operational challenges that Camden faced in, in Southern California and LA in particular. So Camden said they're expecting one and a half to $2 billion for that portfolio in hopes to close around mid year. All right, so what about the Sun Belt? Well, it takes us to number six, the Sun Belt remains soft, but signs of momentum are emerging, particularly in Atlanta and Dallas. All right, so I've got some good news for those investors and operators who've been waiting for more good news in the Sun Belt. And that is we continue to see some green shoots. And I've been talking about this for a few months now, but I think there's maybe incrementally it's not, we're not, we still don't have a green field yet. Don't get me wrong, it's not a fully green field, but I think there's more and more green shoots popping up again on the whole Sunbelt still underperforming on rents, but, but it's, I think at this point it's more about, it's, it's, the underperformance is still there, but it's about momentum. That momentum is shifting. And I think this year we can see just partly because of where we're starting from, bigger gains in momentum, continued bearings, momentum across the Sunbelt than other parts of the country this year. UDR Michael Lacey at UDR said, I've seen a little bit more of an inflection in the Sunbelt over the last couple of months. We are starting to see a little bit more positive momentum in places like Dallas. Positive blends occupancy back in that 96.5% range. That's been a positive surprise to start the year. Of course, we say positive blends. That means positive rents when you combine new leases and renewal leases. Maa, they called out improvement in both Atlanta and Dallas. Those are MAA's two largest markets. They've got a big presence in both. Camden said they're expecting improving numbers for Atlanta and Dallas as well. They also mentioned some others. Denver, Nashville, South Florida are markets they think will do relatively well in 2026. And like others, they're still seeing Austin as the big laggard. Just so much supply still to work through there. But Camden also made the point there may be a little more, you know, I think a lot of groups had hinted at this and they were a little more blunt, not fully blunt, but a little more outspoken about it, that is that once the supply drops off and as it is starting to, if the economy is in decent shape, the Canada made the point that these markets could pick up and rebound pretty briskly. As supply drops off, occupancy recovers and we start to see some concession burn off. You know, if we go from two months to one month, that's in concessions, that's a 8% gain for a property. So we'll see just how quickly that plays out. But again, that was a theme that Camden and others were hinting at. All right, that takes us to our seventh and final takeaway from the Q4 2025 REIT earnings calls. Huge discount to net asset value and that's leading to more stock buybacks. So we'll talk to Yana Gallen today about this topic. So I'm just going to briefly touch upon this here. I mentioned this last quarter as well. REIT stock prices are at levels well below their actual net asset value in the private market. You know, that makes buybacks more appealing. And one of the things Yana will mention later is, you know, we're seeing REIT quality trades that are now in the, you know, the fours to the low fives and the implied value. The implied cap rate from stock prices today puts most of these REITs somewhere around 6. So that's a big gap. Now here's what Mark Perel at EQR said. He said, quote, the best capital allocation opportunity we see now is to sell properties that we see as having lower forward return profiles and using the sales proceeds to buy back our stock. Now, other REITs are doing the same, but not every REIT sees it the same way. But again, we'll get Yana's take on that later and, and, and, and, and particularly see if in her mind if that's actually moving the needle. So that wraps up our seven key takeaways from the apartment REITs earnings calls. Much more coming, coming over my newsletter, which again you can find free@jparsons.com we'll do a lot more commentary there. More, more quotes and details and whatnot. And I'll add a few takeaways as well. And again, we'll be adding additional color from the other apartment rates, the smaller ones including IRT, BSR, NextPoint, Center Space, etc. And again, those earnings calls are a little bit later. And then again, I may mention a few highlights in next week's podcast as well. If anything big jumps up from those calls. And then again, SFR REITs, our takeaways on those. We'll do that in a couple of weeks. So with that, it's time for some rental housing trivia. All right, today's trivia is presented by Authentic. If you've got a property that's underperforming and you can't quite figure out why, check out their multifamily leasing and marketing audit. They'll dig into your pipeline leasing funnel and comps and tell you exactly where things are breaking down, plus strategy and how to fix it. Listeners of the pod get 50% off. So head to authenticff.com click on the banner to learn more and claim the offer. All right, so today's trivia, it's a little game called which One Does Not Belong? Okay, the question is, which REIT was not acquired by MAA or by a company that was later acquired by maa? So which is not part of the MAA family tree? I'm going to give you five choices. You got to pick which one does not belong? Which ones never became part of maa? Was it Colonial Properties, Columbus Realty, Cornerstone Realty, Post Properties, or Summit Properties? All right, so give that some thought and we'll answer that in a bit. But next it's in the news. All right, first thing I want to talk about. On Tuesday, the House Committee on Financial Services convened a hearing entitled Priced out of the American Dream, Understanding the policies behind Rising Costs of Housing and borrowing. And the memo for this hearing noted related legislation. And that list of proposed legislation included the bans on institutional investors buying homes and renting them out to families. And this of course, has obviously become a big priority for the White House. So I tuned on to the tuned into the hearing online and listened to all three hours of it. And let me tell you this, I kept looking and listening and trying to wait for talk about singing flight rentals. But there ended up being almost no discussion at all about SFR or Institutional Investors Committee members on both sides of the aisle. They were talking a lot more about things like access to mortgages, zoning, the need to potentially unwind some of the Dodd Frank legislation that made it harder for community banks to lend to local home builders, or even for mortgages for that matter, as well as just broader affordability challenges facing the American, American consumer. So again, I kept waiting for conversation on institutional sfr, but just didn't really come up. The most notable commentary on Singapore rentals came from Congressman Josh Gottheimer, a Democrat from New Jersey, who noted, correctly, the important role of single family rentals and housing families who cannot afford to buy a house. And I've talked about that a lot in this podcast, of course, as well as how those rentals helped diversify neighborhoods with people who otherwise couldn't afford to live there. So I don't really know what to make about the lack of discussion on this topic. But at least for the Financial Services Committee, which is a key committee for this potential legislation, it sure didn't feel like Congress's top priority. But again, we'll see where things go. You never know. You can't. It's hard to predict the winds of politics in D.C. and I'm certainly not fluid enough in D.C. politics to give you an educated view. But again, very surprised here. Very little discussion of that during that three hour hearing. All right, next headline that's going to tie directly to this one here from the hearing I told you about is from the Wall Street Journal, Proposed ban on Investors in the Housing Market hits a wall in Congress. The White House is pressuring GOP in Congress to add an investor ban in existing housing bills, but lawmakers have pushed back. And the article goes on to say the White House is at loggerheads with Congress over one of President Trump's signature housing proposals, a ban on Wall street investors buying single family homes. Trump. Trump officials pressured congressional applicants in recent weeks to include an investor ban as an amendment in either of the major housing bills currently winding through the House and Senate. But lawmakers on both chambers have resisted adding the investor ban, which traditional free market advocates, Wall street executives and home builders generally oppose. Any such amendment could derail the bipartisan movement behind both housing packages that have been in the works for months. The House overwhelmingly voted in favor of the bill on Monday evening, passing it by a 390 to 9 vote. The Senate approved similar legislation last fall. The two chambers will look to reconcile their respective bills in the months ahead. All right, so we'll see how this plays out. I was a little surprised by this headline in a positive way. So, you know, hopefully, you know, it's a good sign that we see some support in Congress for common sense and data and facts and research and reason over these boogeyman narratives but again, we'll see how this plays out. Certainly hope, certainly hope to see the facts win. And speaking of that legislation, the legislation has referenced that was the 20 the Housing for the 21st Century Act. So a little bit more on that. This is from Biz Now. Congress advanced his landmark by partisan bill to spur housing development. You may have seen this headline. There's a lot of things to it's not like it's not like there's one kind of silver bullet. It's more of a collection of good of smaller but good ideas. The bills now article notes the bill includes a series of supply focused steps such as removing environmental reviews that delay new construction and creating national guidelines for localities to reform their zoning. The bill has significant overlap with the reviewing I'm sorry renewing opportunity in the American Dream to Housing act that the Senate passed in October. Again, the two will be the House and Senate are going to have to negotiate over the details of that of combined legislation and getting it to the White House for review and hopefully a signature. So anyway, great to see good package of pro supply policies here and a true bipartisan win which of course is all too rare these days. All right, one more headline for you and this one's taking us back into apartment REIT World comes from Reuters and it's an exclusive. They say apartment owner Varys Residential being pushed to sell itself. It says ERAS Asset Management, which owns nearly 5% of Varys Residential, urged the Jersey City, New Jersey headquartered company to begin a formal review of strategic alternatives and to publicly announce and fully market the process. All right. So by the way, Varys Residential, if you don't know, smaller REIT with luxury apartments in the New York, New Jersey area as well as in the Boston area. So again, when we ever hear this term strategic alternatives, you know that that's, that's not so kind of hidden code speak for pursuing a sale and exit whether they're selling the company or just selling off all the assets. And so that news, which by the way, Varis has not as of recording of this, said they're going to do this. But the pressure has obviously made the headlines and I'm sure the companies that are pushing this probably eagerly leaked this out to create some pressure, I would assume. I don't know that for a fact. I'm just guessing. I probably shouldn't speculate. But you know, I'm always bummed to see these kind of headlines just because we've had a number of other take privates of late. I've covered that in this podcast I'm sure you've all seen those headlines, most recently ELM Communities being unwound, selling off the portfolio center space. Also reportedly exploring strategic alternatives, AIMCO 2 of what's left of it anyway and obviously a bunch of others have been acquired over the years, so I hate to see it. I hope this trend somehow reverses at some point. I love having public traded companies with the transparency provide to the market every quarter we can talk about here. So again, we'll see where this one goes with Varys. All right, let's get back to today's rental housing trivia. Which REIT was not acquired by MAA or by a company later acquired by maa? I give you five choices. Which one does not belong? Was it Colonial Columbus Realty, Cornerstone, Post Properties or Summit Properties? And drumroll please. The correct answer was Summit. It was not one of the companies acquired by MAA. Summit was actually acquired by Camden in 2005 and a $1.1 billion transaction for MAA. Though of those of those deals, the big one was obviously Post properties. That was 2016, around a $4 billion deal. And by the way, Post had previously acquired Columbus Realty Trust, which anybody who's familiar with the Dallas market, you know that name. Columbus Realty was the pioneer company that built a lot of the early apartments in Uptown Dallas and they are why MAA now has a huge presence in Uptown. All right, next up, it's time for today's interview sponsored by funnel, the AI and CRM software trusted by for the six major REITs and many more leading operators like BH and Cortland. To learn how Funnel can help your properties centralize operations and automate everyday tasks, visit funnelle leasing.com and one quick heads up, registration for Funnels forum event is open. It's more than 50% sold out. I'll be speaking at the forum event this year. It's it's one of the only operator only events with conversations on what's happening and what's changing in multifamily talk about AI centralization, human side of operations, which by the way those were themes on the I didn't talk about this in the Today's call, but today's podcast but I'll mention this in the newsletter. A lot of talk about AI among the REITs and of course across the industry as well. But anyway, Forum will be March 23rd 26th in Scottsdale at a five star resort. So check it out at funnelleleasing.com forum and hope to see you there. Okay, so our guest today is A REIT analyst and a director at bank of America securities, Yana Gallen. She's a veteran of the residential REIT market and a staple on all these earnings calls that we just been walking through. Yana will give her take on things like the stock buybacks and do they really work as REITs? Hope they will. And of course on the 2026 outlook and much, much more. So let's dive in. All right, welcome to the interview portion of today's podcast and I am honored to welcome in Yana Gallen from Bank of America securities. So Yana, thank you so much for being here today.
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B
Thanks so much, Jay. I'm a huge fan of the podcast. So very exciting to be here with you.
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A
Well, that's the honor's all mine. So before we get into all the, the fun stuff, tell us some of your story. How did you get into the, to the, to the residential REIT research business?
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B
So I kind of fell into REITs. I, after business school wanted to pursue a career in equity research. And you know, you tend to get hired into a department and interview wherever there are openings and was lucky to land a spot on the REIT team. This is way back in 2009. I started out working for a senior analyst, supporting him on office and industrial REITs. Then I started to be able to kind of carve out my own lead coverage for the sectors that at the time no one wanted to cover. So started covering self storage, healthcare, data centers, then was able to get multifamily, which was exciting because that was one of the main REIT sectors and did that for about seven years, then went over. I was very fortunate, you know, I was curious to try the investing side and was very fortunate to get an offer at one of our clients. So went over to a pension fund and there looked at both public and private real estate for almost six years and then went to a long only focused on listed REITs for about three. And then there was the opportunity to come back to bank of America and I thought, you know, now that I've, you know, tried both sides, I could, you know, bring that something extra to the research and hopefully help our clients that way.
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A
Great. Yeah, that gives you a depth of experience. That's fantastic. Well, and coming back to this world, obviously you get some crazy weeks. Like last week, week in a two day period, you had earnings calls and earnings releases for five major apartment rates. We had eqr, Camden, Essex, Avalon, Bay, maa. So first of all, I mean, for those of us who aren't like in the The REIT world day to day. Why do they pack these releases together so closely?
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B
You know, usually fourth quarter tends to be a little bit more spread out. You know, they have a little extra time to file their 10Ks rather than the quarterly EQs. So you'd think they'd spread out a little bit more, but maybe they think there's safety in numbers.
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A
Well, thank you to UDR for giving us a few more days. Right, so then, related question, take us behind the scenes a little bit. What's your process look like for a crazy couple of days like that? When you're going through all these financials, the filings, the calls, writing your reports, I'm sure you're fielding questions from your clients as well. So what's a, what's a few days like that look like for you?
- [35:20]
B
Usually, you know, earnings will hit a little bit after the market close, a little after four. And we quickly scan the press releases, the supplementals. Now, a lot of the REITs also put up presentations that they'll use through their earnings calls. So, you know, we quickly scan those. We do get some incoming questions from investors and then, you know, we try to follow up with some of the management teams or investor relations that evening. Then we kind of go through a second time and start to kind of in more detail, think about and prepare questions for the earnings calls. And then, you know, there we're really trying to just kind of bigger picture. This is going to either take our numbers up or down, you know, what they reported. Then we'll go through, you know, the days after, through our models, update the models, and it may even take a third time coming back to management to try to answer any questions we have about certain line items, you know, how to think about things for the next year.
- [36:22]
A
Well, hopefully get a, get a little bit of sleep those couple days, that was a lot to take care of in a short period of time. So one of the big themes, at least so far in the multifamily re earnings call season has been buybacks, stock buybacks. What do you make of the step up and buybacks? And do you think it's sending the signal that the REITs want to send, which is try to inspire confidence among investors that their businesses are undervalued?
- [36:51]
B
Yeah, yeah, you know, it's definitely been a major theme. It kind of started in the third quarter where a lot of the management teams kind of announced that they're planning, you know, the board is going to authorize share repurchase programs, you know, that obviously REITs want to grow. They have really done a great job with their balance sheets to kind of set themselves up to be able to be more acquisitive and opportunistic. But unfortunately, with their equity cost of capital and then a very competitive private market, they haven't been able to acquire. And so looking at where their implied cap rate, their stocks are trading, you know, they felt that that would be the more prudent use of capital. And then in fourth quarter, we really saw them, you know, follow up on that. And, you know, Avalon, EQR and Camden had been very active buying back shares. I'd say MAA and Essex a little less. So, you know, I think in general, investors prefer to see the management teams focus on operations and running the companies and not necessarily kind of timing the market with their stocks. But I think when these big discounts present themselves, it starts to make sense. I know it's also very challenging from the REIT management team's perspective because they've built these fantastic platforms, they've invested a lot in technology, and they're really able to kind of add more assets on without too much incremental expense. And so, you know, they'd rather grow than shrink.
- [38:32]
A
Absolutely. And it does feel like I'm wrong, but it felt like from maybe where we were a year ago versus now, there was. They're almost bragging about the low cost of capital and the willingness to, hey, we want to buy and build others or not. And they've kind of pulled back from that. So when. I'm just curious, when you talk to your clients, the investors of REITs, like, you know, how do they think of it in terms of where to deploy that capital? Is it. Is there a preference in reinvesting in the portfolio versus these stock buyback programs?
- [39:05]
B
Yeah, I mean, I think, you know, historically, I don't think we've seen buybacks work as much to kind of, you know, get the stocks up again. But there was, I would say, kind of summer 2025. Sun Communities did a very large buyback program, and it definitely helped the share price. You know, I do think that investors don't want to see REITs buying assets that are going to be, you know, pardon me, they'll be ffo dilutive in year one. They definitely want to see accretion in that first year. And that's been the real challenge that, you know, with the private market, you know, REITs also use much less leverage. So it's been more challenging to make acquisitions, pencil in year one. But I think, you know, some level of Acquisitions and development and redevelopment as well as buybacks. You know, it all makes sense because you want the REITs to keep their portfolios kind of current, have the average age of their assets, you know, a little, you know, you want a little bit keep an eye on that and not have a, you know, age your portfolio to the point where, you know, Capex just tends to increase and increase over time.
- [40:22]
A
Right to your point. You know, for those listening, maybe not fully tracking all the REITs like the. A lot of them like to recycle capital, of course, as you're alluding to selling older assets in the newer ones. So that's obviously important for them to continue to some degree in building as well. So, Yana, what's the. Do you have a sense, I don't know if you have this right in front of you, maybe stop your head. You know, what's the average discount to NAV right now? Or is there a range? And why has it gotten as big as it has, especially given what we're seeing is some pretty good resiliency of cap rates in the private market for REIT quality apartments.
- [40:56]
B
Yeah, yeah. You know, I'm pulling up my comp sheet so I can give you some numbers around it. But, you know, I would say that why did we get so far apart from private market? You know, REITs are equities and investors want to see growth. And unfortunately, when we look at kind of the guidance ranges for 20, 26, there really isn't too much growth there this year. And so, you know, at the same time, REITs are also a collection of assets. And these assets have a very large and liquid private market. So I would say when you look at it on multiples, the apartment REITs are trading at about 15 times their forward FFO multiple. Historically, that's been closer to 19 to 20 times. And then on implied cap rates, I have REITs kind of in the low sixes, kind of ranging from six to mid sixes. And, you know, we see in the private market and the REITs have talked about on the earnings calls, they're looking at portfolios being marketed in the fives. And so that's been, you know, a big challenge.
- [42:04]
A
Yeah. And even high fours in some cases. So, yeah, it's definitely a challenge. And for those of us who don't really track the broader REIT world, how do those discounts to NAV for multifamily or even for sfr, how does that compare to the other REIT sectors? Office, retail, healthcare, et cetera? Just broadly. Yeah.
- [42:22]
B
So I would Say, you know, for the apartment guys, they're probably trading at kind of above a 20% discount. SFR, I have even higher between 25 and 30% discounts. Then manufactured housing is a little bit closer, kind of 10 to 15% discount. I think, you know, looking at the team's valuations, I kind of have industrial malls and retail kind of, you know, less than a 10% discount, storage a little bit more of a 10 to 15% discount. And then office is probably over 25% discount as well. And that kind of, you know, tells me people are pretty nervous about job growth when you're looking at the office and the apartment REITs trading at such big discounts.
- [43:15]
A
Yeah, that makes sense. And obviously office has been challenged for a while, and the job story makes sense. But is a lot of this also for apartments and SFR just related to the supply story for the time being of just, you know, suppressed rent growth that we've seen these last few years for, from build to rent and apartment construction, etc.
- [43:33]
B
Yeah, yeah, I think, you know, I mean, it's been really weighing on it. We've had, you know, particularly for the Sunbelt names, you know, not much growth in 25. There was hope for kind of a 26 recovery, but, you know, Maa kind of said on the new lease side, they may stay negative all of 2026. The bright spot has really been renewals have been super strong and steady across both the coasts and the Sun Belt. And so I think that that is definitely, you know, that was good to see that people are being able to maintain their ability, that the REITs are able to maintain their ability on the renewal side. I also was encouraged to see occupancies are still really high for the REITs. And so as we approach kind of the spring leasing season, if they're at these occupancy levels, I think that gives them a little bit more confidence to push a little bit more on reit. But I think that the kind of Sun Belt recovery was hoped for in 25. Pushed out to 26, now getting pushed out to 27, potentially in aggregate. But, you know, some markets may get there sooner. And so I think that's what we're looking for is kind of green shoots in some markets. Like, you know, for example, in Atlanta, it sounds like it's kind of made its way through some of this absorption of supply, you know, a little bit faster, and then some markets will lag. Like, I think the expectation is Austin could stay negative in 27 as well.
- [45:02]
A
Yeah, absolutely. And yeah, it's interesting to see positive stories, negative stories, both in the coast and in the Sun Belt right now. And, you know, that makes me just before we talk about some of the individual markets and regions, I want to ask you, you've alluded to the guidance for 2026. From the rates we've seen so far. It's. I would describe again, correct me if I'm wrong, because you're much more in the details than me, but it seems to be that, hey, it's getting better, we expect things to get better, but it's, we're not expecting, you know, don't basically, don't get your hopes up too much yet for 2026. It, it's almost like I, I read it as 2026 is really setting the stage for, for 2027. So is, is that a fair assessment? And if so, was that a surprise that it wasn't more bullish?
- [45:46]
B
Yeah, I think that's absolutely correct. You know, I heard kind of the same messaging coming out of the calls. I think that, you know, 26 is going to look like 25 until we get a little bit better visibility around, you know, jobs and what the spring leasing season looks like, what hiring looks like for the May graduates. I think that was a big disappointment in 2025, you know, particularly at that age cohort, which traditionally tends to be more of the apartment renters, and they just didn't have a very good job market when they graduated. A lot of the guidance also kind of not that they were calling for greater demand in the second half of the year, but that definitely the supply outlook would improve the second half of the year. And I think, you know, that that's, that's the expectation. But, you know, it's going to take some time to kind of prove out. If they're correct in that, then that is a good setup for 2027.
- [46:45]
A
Absolutely. So let's talk about some of the regions, and I want to start with what's unfortunately been kind of the punching bag for all the REITs of late. Southern California, Los Angeles in particular, you know, the various challenges. Camden, obviously, as you know, recently announced that they're going to be exiting the region. What are your thoughts on the reads on Southern California right now, and do you think there's any chance we'll see other REITs pull back a bit, maybe not fully exit, maybe pull back a little bit in coming months and years?
- [47:18]
B
You know, I would say, like, I was actually out in Los Angeles last month doing some touring, and there's, there's definitely headwinds out there with consolidation of Hollywood. And unfortunately the rebuilding post the fires is taking, you know, it's much slower than anyone would have hoped. But at the same time it was 75 degrees and beautiful and definitely can see why people want to live there. Yeah, and there are some near term catalysts. You know, they have the World cup, they have the Olympics. There's also some important elections in LA and the state of California. And so those could kind of be positive catalysts for the regions. You know, I kind of feel like the way we're talking about LA now we were talking about San Francisco coming out of COVID and now it's the best rent growth market. And so I think, you know, for Camden, it's a little bit more kind of strategic. They'd been talking about this for a while. They're very excited about kind of the growth that they expect in the sunbelt markets in 27, 28 and think those will, you know, they want to tilt the portfolio to that growth. And then also I think, you know, it's been tough operating there and so it makes sense. I think also the pricing they gave of, you know, on the earnings call, they're expecting between one and a half and two billion for this portfolio. You know, I think that if they achieve the high end, that's going to be a really nice cap rate print.
- [48:47]
A
Oh, absolutely. And I think too it helps them as they're not just in LA proper and it does seem to be the differences between, you know, kind of where you are in Southern California, but obviously a lot of capital that wants to be in the region as, as, as Camden indicated. But yeah, that's a good point. Maybe eventually it's not the, it's more the, the San Francisco story. So in fact, let me just jump to that for a moment. You know, obviously we've seen some real strength in San Francisco as well. Even like, you know, it's interesting to me, it's like, even with the coast or even the Sunbelt, like there's strength and weaknesses in both of these groups. And obviously the New York region as well as San Francisco, the Bay Area have been really strong. Is the expectation among your clients just kind of broader REIT investors that those markets will remain strong performers this year?
- [49:34]
B
Yeah, I think so. I mean there's always things changing and so we're watching, you know, I think Northern California was a big, big beneficiary of kind of one, the tech hiring, you know, all the VC capital going towards AI investment and startups and then there's also still they're getting a little bit of that return to office demand where you know, companies are now more enforcing presence in the office. Yeah, I think in New York we're pretty much all in the office about four to five days a week. So that's, it's been a steady outperformer, great market. I think what we're watching in New York is there's been some very interesting office to resi conversions. And so we're curious kind of how the market reacts to some of these submarkets that are going to have very large deliveries, which is very unusual for New York, kind of come all at once because these are very large projects. They're primarily kind of like in midtown east and probably the financial district. So that'll be something to watch this year. And then I would also say that, you know, the New York City mayor, he ran on kind of this promise to freeze rents for rent stabilized units. And so it's a very, you know, the REITs really don't have much exposure. It's very small for them. But how does the market react to that is another thing to watch. But at the same time, New York is tons of demand, also benefiting from tech job growth. It's a really strong market and very diversified and another place where people want to live.
- [51:16]
A
Oh, absolutely. And I think New York City is a. Thank Jamie Dimon for making sure everybody's in the office of Manhattan in particular. But no, it's a good point on Mayor Mamdani as well. And his focus has obviously been the rent stabilized market. And I think think, you know, the tone has maybe frozen some capital more broadly. But it does seem like, you know, there could be a, that that the non rent stabilized maybe more of a, you know, more. I mean we'll see but seems to be a safer segment. And then you know, Boston, I think it'll be interesting staying in that region of the country because the, the rent control ballot measure that could be in Massachusetts in November and obviously that would be significantly impact everybody, public and private. So we'll see how that plays out. But let's talk about the Sunbelt Yana and obviously at this point I think every major REIT aside from Essex now has a presence in the Sun Belt. But it's been a rough few years. All the supply. We've sort of alluded to this in our conversation, but it seems like the tone has been gradually improving. We hear the term green shoots a lot and I think that's a fair terminology. And some people sometimes I'll talk to people and they get a little cynical. I'll remind them, hey, we're doing green shoots, not green fields. Like, they're very different things here. But my question for you is, do you think 2026 could be an inflection point for the Sun Belt? And, and if so, like, what impact do you think that's going to have on, on the REITs?
- [52:40]
B
Yeah, you know, I think 2026 may be a little bit too early. But you know, the, the market is forward looking and I think that, you know, if we're able to see some of this kind of lower concession usage, you know, just some markets, it's been very excessive and seeing, you know, just removing a couple of weeks will make a big impact to kind of where rents could be as so the REITs don't have to compete head to head with some of the lease up properties. I think, you know, the job growth is there and absorption is happening. So that's definitely a positive. But I think we'll be watching kind of concessions as the lead up to what happens with those new lease rates. And then at the same time we want to kind of make sure that renewals kind of stay sticky in this range. And so, you know, we'll keep an eye on jobless claims. You know, we're always trying to talk to different market participants and learn kind of what, what's incrementally changed. You know, do you, you know, are you seeing an uptick in bad debt? Are you seeing any change in reasons for move outs? Are you seeing more doubling up or are you seeing people wanting their space? But I think in general something we're seeing is that REIT portfolios, the average age is going up a little bit. And so we're also looking at what's going on with mortgage rates and potential to unlock this demand to move out to buy. Though we also believe, you know, these, the REITs do a tremendous job of keeping their residents really happy and creating a wonderful kind of environment where you have, definitely have renters by choice who kind of like the convenience and the ease and the social aspects in the community.
- [54:29]
A
Yeah, yeah. All very well said. And I think that it seems to be more and more the story of 26 setting the stage for 27. Maybe people initially thought 25 would have 26, but it seems to be going that direction for a while. And you want to have one more question, if I could, before we wrap things up? As we're talking about kind of different sectors, I'm curious, I'm sure you're getting a lot of questions your clients about the SFR side given the executive order. Just high level. What are you telling your clients about the SFR REITs and their outlook right now? Specific or from the impact of this potential the executive order and potential band on or at least pull back on institutional investors buying single family homes.
- [55:12]
B
Yeah, yeah. So we got a few data points but we're obviously, you know, awaiting some more. I think we're going to hear what they qualify as a institutional, you know, landlord and whether it's over 100 homes, over a thousand homes. You know, we'll wait to see how that plays out. I definitely think, you know we talked about the discounts for the apartment REITs, but SFR on kind of a FFO basis forward FFO. I have them trading at 14 and a half times and they used to trade at a premium to apartments at over 20 times.
- [55:46]
A
Wow.
- [55:48]
B
And I think that, you know, the administration is really trying to encourage for sale housing and it's creating a lot of headline risk for the SFR names.
- [56:01]
A
Absolutely. That's for sure. Well, Iyanna, thank you so much for your time. I know it's a busy time of the, of the, of the quarter for you, so I appreciate you carving out some time to talk with us and hope the rest of these earnings call seasons goes well for you.
- [56:14]
B
Thanks so much Jay. This was really fun. Appreciate it.
- [56:17]
A
Thank. You. Foreign. That's a wrap on episode number 71. A big thank you to Yana for being our guest today. Thank you to jpi, Madera, Funnel, Mason, Joseph and Authentic. Thank you to all of you for spending part of your day with us. We'll see you next time.