Sean Breslin: Yeah, Rich, this is Sean. But why don’t we kind of parse the conversation into our portfolio versus the Sunbelt more broadly? What I indicated for our expansion regions in January is that blended rent change is essentially flat. If you were to parse that between move-ins and renewals, what you would see is that new move-ins are negative in the expansion regions down about 150 basis points as compared to kind of low to mid 3% sort of renewals. What I would tell you is that’s primarily driven by some assets that we own in Charlotte in the South End, there are three assets that we acquired in that market a couple of years ago at a time where we loved the environment, great long-term neighbourhood, but we knew there was a fair amount of supply coming, sort of underwrote it that way.
We’re seeing the impact of that supply currently, as opposed to, say, Denver, where most of the pain and suffering is in the sort of urban core, much more significant pain and suffering given the volume of supply as compared to our broadly distributed portfolio across the suburban markets. So our portfolio, you kind of really, not a lot of assets. You really have to look region by region to understand it. What I would say more broadly about the Sunbelt, though, is certainly when you think about negative rent change playing through and what it does to revenue and NOI, the first thing that typically happens when you get into a much more competitive environment is people are starting to have weaker occupancy. We saw that happen in 2023 in terms of the leg down in occupancy, both in our established regions in the Sunbelt, but much more significant in the Sunbelt.
That starts translating to much heavier discounting in terms of where people are marking their rents to try and occupy those units because some rent’s better than none. That’s what we’ve started to see in the last few months here and we’d expect that to continue as you roll through 2024 as those leases expire. So the most significant impact on both revenue and NOI would likely be, all else being equal, 2025 as you roll all those leases through the rent roll to that lower market rent. That’s probably when you’re going to see the most pronounced impact would be our view.
Operator: Thank you. Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Alexander Goldfarb: Hey, good afternoon. Two questions. First, maybe just continuing on with Rich’s line of questioning, as you guys look to the Sunbelt, it looks like most of your product, I think, is more suburban. So is that is basically as you assess opportunities in the expansion markets, are you really just looking only at suburban or are you looking at urban and what I mean by that is it seems that a number of the urban markets in the Sunbelt have the same issues that we have in the urban coastal cities, meaning people don’t necessarily need to live right next to the office or there may be life quality issues, etcetera. Whereas in the suburbs, it seems more fit for Avalon’s development model and also closer to recreation and sort of a quote unquote, easier lifestyle, if you will. So just sort of curious how you’re shaping out your Sunbelt strategy of urban versus suburban.
Matt Birenbaum: Sure. Hey, Alex, it’s Matt. I would generally tend to agree with you that we are very focused on suburban submarkets. We’re focused on our acquisition efforts on suburban submarkets, which have less supply and/or product that is not priced at the very top of the market, because that’s a price point we can’t really access through new development, but we can access through acquisitions and also, we’re also focused on garden product because it’s simpler to operate and these are markets with higher property taxes and therefore lower operating margins and one thing that kind of helps counteract that a little bit is garden product, where at least you don’t have some of the same operating cost overhang that you would have in, say, high rise assets.
So we are we are tending to favor suburban submarkets and I think when you look at the portfolios we’ve got so far in the expansion regions, they are actually outperforming those markets as a whole because of the assets that we own in the submarkets that we owned and Sean mentioned maybe one of the bigger exceptions, which is the south end of Charlotte, but that’s — those are almost the only urban assets we’ve got so far that we’ve bought so far in the expansion regions.
Alexander Goldfarb: Okay, and the second question is in the fourth quarter, it looks like you guys wrote off four development deals for $9 million in aggregate, but nothing changed in the pipeline that is the projects that are underway. So maybe just a little bit more color on it sounds like these deals were really in their infancy, but just maybe some color around what caused you to scotch these deals and where they may have been located.
Ben Schall: Yeah, sure, Alex. We did have elevated write offs in ’23 in general, and I think that’s just a reflection of the fact that we have been as we’ve been talking about adapting our pipeline to reflect the changes in the economic realities, as asset values have dropped and cap rates have increased. So we’re generally very focused on risk management. We keep a close eye on capitalized pursuit costs in every one of our deals. And our risk management has actually been one of the keys to us being able to develop profitably across multiple cycles over, really our 30-year history as a public company, 35-year. The write-offs this past quarter, actually, there was one project in Denver actually was an Urban Denver kind of getting back to your first point.
The other one was a public private deal in California, and we’ve had a number of those where, the economics have just changed sufficiently that we didn’t necessarily see a path to in many cases, we are able to recut the deal and get a path to a revised deal that does make sense. In those particular cases, that wasn’t the case. So we had to let those go, but I would also just taken a big step back here that if you look at our total book of development rights, we currently have land on the balance sheet of $199 million and we have another $67 million in capitalized pursuit costs. So that’s $265 million in total and we’re controlling opportunity to build about 11,000 units with that investment, which is pretty strong leverage on that pursuit capital and I think, compares favorably to a lot of other both public and private players in the space.
So it’s that’s kind of where it sits today and I’d say that we’ve gotten through a lot of the deals that were underwater and when we look at our pipeline going forward, we feel pretty good about it.
