AvalonBay’s Size Advantage
When capital becomes more selective, a large REIT with a stable balance sheet is at an advantage.
AvalonBay Communities has a history of steady development and this current cycle is no different. What is different, though, is the advantages the REIT has in a market where capital has become more expensive and very selective: namely a strong balance sheet and access to capital. Simply put, it has an advantage in access and the cost of capital compared to other firms and while its own capital is also more expensive its incremental competitive advantage increases more in a more challenging environment.
“We leverage that advantage by continuing to work on projects through down cycles and matching funds for all development,” Scott H. Fishbone, vice president of development for AvalonBay Communities, tells GlobeSt.com. In other words, its current development is being funded with capital at yesterday’s pricing.
Fishbone will be a participant in GlobeSt.com’s multifamily event being held in New York City next week.
In another sign of the times, the REIT is investigating troubled or distress deals or projects that may have stalled because the finances no longer work at current interest rates. An example might be a transaction that is still on the drawing board with approvals but the developer is looking for an exit because a traditional construction loan is too expensive.
Meanwhile, the apartment REIT is navigating the changed fundamentals in the space, such a historic level of supply in the market and a slower pace of growth for rents.
“There has certainly been higher supply in certain markets, but New Jersey, Boston, and other parts of the northeast that represent AvalonBay’s established markets have held up quite well,” Fishbone says. “There is traditionally a higher barrier to entry in these markets, and it takes longer to bring supply online, but they tend to hold up better in down markets.”
Generally, he concludes, there is an undersupply of housing in the US, even though there is oversupply in certain pockets.
Multifamily Spring:
Multifamily Spring is coming to New York City this April 18. This year’s program will bring together the industry’s most influential and knowledgeable real estate executives from the multifamily sector for 5 hours of face-to-face networking and over 5.5 hours of can’t miss sessions. Learn more or register here.