And in today’s environment there’s, been opportunities in both. There are certain markets and certain projects that we’ve been able to structure for new development where we’re able to obtain sufficient spreads and there are other markets and you saw this in some of our acquisition activity over the last quarter to, as an example in Dallas where we’re able to buy assets below replacement cost and start to build the portfolio in those markets. So it’s a multifaceted approach. We’re fortunate in that we have multiple levels to grow overtime. And as we’ve emphasized what’s on us as a team to make sure that we continue to stay flexible in that approach and change our approaches depending on what’s happening in the market environment as well as what’s happening with our cost of capital.
Austin Wurschmidt: Thank you.
Operator: Our next question comes from John Kim with BMO Capital Markets. Please proceed with your question.
John Kim: Thank you. I wanted to ask on leasing trends in some of your markets, specifically Northern California which looks like the lease growth rates kind of nosedived in September and October. And that diverged from Seattle which is a similar market in terms of tech job growth where you saw an improvement. But can you just discuss the demand picture? And why there was such a difference in performance in those two markets?
Sean Breslin: Yeah. John its Sean. Good question. There’s, a couple of different answers to that. So, first, as it relates to what you saw in Seattle which also occurred by the way in the Mid-Atlantic and Denver is that we’re starting to get into a period particularly as we get further into the fourth quarter here where the comps are easier on a year-over-year basis. And that’s a reflection of the step-up that you saw in rent change in those three regions in a more meaningful way particularly in Seattle as you may have noticed. Whereas in Northern California most concentrated in San Francisco, I would say, which is only 30% of our current portfolio. Things did soften more so particularly as we got to sort of mid-September into October and that’s what’s reflected in the rent change, you saw as it continue to tick down through the quarter and then more meaningfully into October.
And I think there’s a couple of things there. One is San Francisco just to pick on it since everyone seems to like to lately it’s — there’s a number of different headwinds there as I think we’re all well aware of probably not the best time of the year to be seeing some elevated demand there. It’s just not the case. And there’s not really a great reason for people to be coming back to the office at this point still. So fundamentals have remained weak and they did get weaker as we moved through the quarter into October. So trying to know exactly what’s underneath that other than weaker demand overall. It’s hard to be precise, but I’d say, we did not see the same level of weakness in Seattle and you combine that with the year-over-year comp in Seattle and that’s why you saw the uptick there.
So Seattle is still not strong. But on a relative basis compared to last year for example there was a lot of short-term leasing activity throughout the year and then burned off in the third quarter. Put more pressure on rates at the end of Q3 and Q4. We didn’t have a lot of that short-term demand in 2023, and therefore, the year-over-year compensation is easier. So not to get too far into the weeds, but that’s some insight into what you saw in a place like Seattle as compared to Northern Cal.
John Kim: That’s very helpful. My second question is on bad debt, which you discussed has improved this year and is likely to be a tailwind in 2024 earnings. My question is how much of an improvement can you see from the 2.1% pre-resident relief funds that you got this quarter? And in particular Southeast Florida was surprisingly your worst-performing market in bad debt. And I was wondering if you could provide some commentary on that.
Sean Breslin : Sure. So on the first question as it relates to bad debt, so 2023 if you look at the beginning of the year to sort of where we’re trending today just sort of rough justice there’s about 100-basis-point improvement in underlying bad debt roughly 3% down to sort of trending around 2% today. We’ve seen improvement across almost all regions Florida kind of being the outlier as you noted. But I think what we’ve seen in 2023, there was meaningful improvement in a market like Southern California, which started the year at roughly 6% and now we’re below 3%. As compared to some other regions has certainly improved, but it improved at a more modest rate. So as we look forward to 2024, I think the expectation for continued improvement is there, but it may be at a slightly lower rate than what we experienced in 2023 given the meaningful improvement that we experienced in Southern California.
And now we’re down to some regions like New York as an example where things are moving a little more slowly. So the pace of improvement throughout 2024 may be slightly lower than what we experienced throughout 2023 if that makes sense. But the other thing to keep in mind is that we will have some meaningful improvement but it will be partially offset by the loss of rent relief that’s going to be call it, roughly $7 million that we’re not expecting to recognize in 2024 that we did recognize in 2023. So these are some of the building blocks as it relates to bad debt that hopefully are helpful. As it relates to Florida specifically, what I would tell you is where we’ve seen elevated bad debt, and frankly, it’s been beyond our expectations. It’s really been in Miami and Fort Lauderdale, the West Palm Beach market has held up kind of where we would have expected it would have been, but it has been elevated in the other two markets beyond what our expectation was.
John Kim: Great. Thank you.
Ben Schall: Yeah.
Operator: Our next question comes from Adam Kramer with Morgan Stanley. Please proceed with your question.
