So it really depends on where you are. If you move to the Denver market, it’s really a story of urban versus suburban, as I think Ben referred to earlier. If you’re in the urban submarkets where we have one operating asset, concessions are much more [indiscernible] as compared to the suburbs where we have most of our assets. And then in terms of our other expansion regions. In Charlotte, it’s a similar story as Denver. We have some assets in the South end. Concessions are more pronounced there, average closer to 0.5 month for probably 50%, 60% of the leases versus you move to sort of the northern suburbs, it’s quite a bit less. And then in Florida. Florida is a little more of an effective rent kind of market where people tend to price based on absolute rent and as many concessions for existing assets.
Lease-up assets are different but existing assets, it tends to be a little more of a what am I writing a check for. And so they’re most concerned about the lease rent than the concession. So that’s a little bit more volatile, but we haven’t seen a huge amount of concession volume. Again, I think that’s more representative of the sort of market behavior than it is to our pricing dynamics.
Operator: Our next question comes from Haendel St. Juste with Mizuho Securities. We’ll move on to our next question. Our next question comes from Michael Goldsmith with UBS.
Unidentified Analyst: This is on with Michael. Looking back, there have been periodic supply cycles in the South. So clearly, we’re seeing supply starting to slow heading into ’26. But as rents recover, how fast can development start to pick back up in the Sunbelt? And is that concerning to you as you look to increase your exposure there?
Matthew Birenbaum: Yes. Amy, it’s Matt. It is certainly true that there’s less barriers. There’s less regulatory barriers to entry in the Southern markets. And so supply is able to respond to demand much more quickly. And some of the supply kind of excesses you’re seeing now are — were a relatively quick market response to tremendous demand a couple of years ago that really started with COVID in some of those Southern or Sunbelt markets. So it is, I’d say, a shorter cycle, a more attenuated cycle. Demand comes, supply can respond quickly. But having said that, there is a lot of demand there. And the interplay between those 2 factors into our view on kind of our long-term portfolio allocation and trying to get to 25% there. The other thing I would say is submarkets matter a lot.
And there are — even within some of these geographies and particularly the expansion markets that we selected, there are submarkets that do have some meaningful supply barriers. And those are certainly the submarkets that are more attractive to us, both for acquisitions — and we’re pretty good at unlocking those constraints on the development side. So you’ll see that inform our portfolio strategy within each region.
Benjamin Schall: Yes. I’ll add to that. And as we’re thinking about the opportunity set in the Sunbelt, we’ve got in the near term, the ability to buy below replacement cost and be at a good basis and find that attractive from a long-term hold perspective. We are increasingly also focused on bringing our strategic capabilities and particularly our operating model initiatives. It’s been driving a lot on growth for our existing assets, but we’re increasingly bringing that to new assets that we bring into the fold. And as we get more and more density in the Sunbelt and our expansion markets, we expect that flywheel to accelerate. There is the land side and the opportunity with less competition in these markets to be finding attractive land structured appropriately, some of which will make sense to start more immediately and some of which could position us longer term to generate value.
And then kind of a fourth driver of value for us is in a world where capital is less abundant, our ability to provide capital to other developers. And we’ve used that as a tool for growth in our expansion regions. And for sure, in today’s environment are seeing a better quality sponsor, better quality real estate, better return profile there. So it’s that combination of opportunities that we’ll tap into to drive our longer-term expansion of those markets.
Unidentified Analyst: Great. And then just a quick follow-up on that. What are you seeing in terms of land cost currently?
Matthew Birenbaum: Land costs?
Unidentified Analyst: Right. To acquire land, if you were going to buy.
Matthew Birenbaum: Yes. So it varies, obviously, a lot by region. In some regions, we have seen, particularly in some of our [indiscernible] regions, we have seen land prices come down significantly for motivated sellers. There’s plenty of sellers kind of like the assets we’re talking about, who are not particularly — there’s no time sensitivity, and they’re holding out. But one of the deals we actually highlighted at our Investor Day was the deal in suburban Boston in Quincy. That’s the deal we’re looking to start in Q2 in suburban Boston, where that land — we were able to buy that land at probably 40% less than where it had been under contract before, say, in ’21 or ’22. So we are seeing that to some extent. In the expansion regions, land pricing has probably come off a little bit in Florida, where it had gotten incredibly aggressive.
But we haven’t necessarily seen significant moves down in land costs. Partially, I would say that’s because in many of the expansion regions, the land is a much smaller percentage of the total deal cap than it is, say, in California or New York, where land might be 30%, 40% of your total deal cap. It moves a lot. It’s very high beta. If you’re doing a garden deal in Charlotte, land might only be 10% of your total deal cap. So it’s not going to move the needle as much, and it’s not going to be as sensitive really in either direction. So it’s been — land prices tend to be sticky in general. They’ve probably been stickier in those markets where, obviously, they were cheaper to begin with.
Operator: Our next question comes from Alex Goldfarb with Piper Sandler.
Alexander Goldfarb: So two questions here. First, just going to New York with the recent rent law updates. The office to resi conversions actually looks to be quite lucrative, not expecting you guys to take down an office building. But for your development capital program, does this represent a new opportunity for you, given that there’s sort of a 2-year shot clock where the landlords have to apply for permits? So it seems like a lot of existing office landlords who may be contemplating this have a short window to act, and your capital may be attractive to them.
Matthew Birenbaum: Alex, it’s Matt. I would say no. Our developer funding program is really focused on expanding our growth in our expansion regions. So we’re not looking to grow our capital investment in New York.
Alexander Goldfarb: Okay. And then the second question is your overall outlook just was impressive, certainly ahead of expectations that you guys provided a few months ago. There’s a broader debate out there about soft landing, hard landing, what’s going to happen to the economy. But none of the comments that you guys spoke about suggest that there’s any sort of weakness out there. I mean across all the markets, it seems like things are healthy. Is that a fair takeaway? Or are there — is there anything that you feel from the different markets are seeing that would give caution towards later this year or what all the different regions are seeing suggest actually almost an improving environment?
Sean Breslin: Yes, Alex, this is Sean. I think the broad brush is relatively consistent of what you stated. But certainly, real estate is a local business here. And there are submarkets that are challenged for either demand or supply reasons or both. As I mentioned a little bit in my prepared remarks, while the Mid-Atlantic is generally doing pretty well, that is driven by our suburban portfolio. The District of Columbia is quite soft for both demand and supply reasons. The same thing could be said about urban Seattle, downtown L.A. We have one asset there as an example. So I would say, broadly speaking, what you’re indicating is correct. For the portfolio, we have coastal, suburban, primary customer base healthy. But obviously, there are exceptions .
And I would point to really some of these urban submarkets with plentiful supply, some still quality of life conditions that are challenging as a little more choppy. And then there are certain markets, still some of the Bay Area where there are signs of some job growth, but then there are still signs of layoffs here and there that you’re hearing about in the media. So I wouldn’t say everything is rosy, but the broad brush is it looks pretty good right now.
Benjamin Schall: Alex, I’ll just add briefly. We’ve highlighted the improved job picture, right, given the change in expectations from the beginning of the year. But there are crosswinds, Sean touched on a couple. And I would highlight the inflationary impacts on our consumer and their wallet. I mean those are very much there and true when you think about car loans, I’m coming up for renewal, when you think about the beginning of student loan repayment. So the outlook has improved, but I would still describe it generally as sort of our consumer facing a series of crosswinds.
Operator: And our next question comes from Anthony Dowling with Barclays.
Anthony Powell: Anthony Powell here. Just a question on the bad debt improvement you saw in the quarter. What drove that improvement? Was it the core kind of improving their process, getting quicker, resi coming back in current? Maybe more detail would be great there.
Sean Breslin: Sure, Anthony, it’s Sean. Sort of a combination of all those factors that you just laid out. And what I’d point to geographically, which might be a little bit of a surprise for people is most of the improvement was actually not in places like L.A., which have been sort of the poster child for this. But we saw very good improvement in the broader sort of New York metro area. Underlying bad debt in Q4 in that region was 3.1%. In Q1, it declined to 2.4%. Boston was 120 basis points in Q4, a decline of 60 basis points. It was about 20 basis points of improvement in Seattle. So for all the reasons you mentioned, some [indiscernible] up on payments as well as the skip and evict process, sort of a combination of all those factors driving the improvement.
Anthony Powell: Maybe going back to the New York law that was just passed. I guess you don’t want to increase more capital to New York. Was that a comment on the office ready or just a broader comment? I wanted to see if you can maybe just close your views on both the rental provisions and also the development provisions in the ?
Matthew Birenbaum: Yes. I mean — this is Matt. It was really just a broader comment. When you look at our portfolio allocation, our portfolio allocation to the New York Metro area, I think, is roughly 20% today. It has been — and we’ve been on a journey to reduce that over time. That’s one of the regions we’re rotating capital out of as we redeploy capital into our expansion regions. So first and foremost, we’re just overweight that region relative to our long-term goal. And then there are — when you talk about New York specifically, more of our investment in the New York region is going to New Jersey these days. We’re finding very strong development yields, pretty good operating performance. And there is a regulatory overlay there, which it can be challenging, but it is not as challenging as New York State and New York City, and that does factor into our long-term view as well.
Operator: And our next question comes from Linda Tsai with Jefferies.
Linda Tsai: In terms of the 7% moving out to buy a house, along those lines, wondering if you’ve seen any demographic shifts in the composition of your residents over the past year or so?
Sean Breslin: Yes. Linda, it’s Sean. I wouldn’t say anything terribly significant. The only thing that I could point to a little bit is as you might imagine, as winter, COVID, the , the volume of across the portfolio has certainly declined. It has kind of come back up to some more normal levels, roughly, I would say. That would be the only data point that I really could point to for you.
Linda Tsai: And then on the better job growth being concentrated in lower-income residents. Is there any kind of read through for AvalonBay in terms of resident demand?
Sean Breslin: Yes, Sean, again. Not at this point that we’ve seen, other than certainly our lower price point assets in some of the markets, particularly on the West Coast, where we have a greater share of those assets are performing quite well. I think to Ben’s point, there certainly are consumers that are feeling a little bit of pinch from what’s happened with inflation, student loans, car leases expire, et cetera, et cetera. And so certainly, those lower price point assets are performing quite well, in many cases, better than some of the higher price point assets in some of those submarkets. So it’s really a market-by-market question. But overall, we have healthy demand and in some cases, maybe for the reasons you just described, maybe even stronger demand for some of the lower price points.
