Alexander Goldfarb: Okay. Second question is Avalon, as you guys saw was released from the RealPage, I don’t know what you guys can add from your standpoint, but do you see that you guys may also be released from this class action litigation?
Ric Campo: We’re not going to comment on class action litigation on this call. Thanks.
Alexander Goldfarb: Okay. Thank you.
Operator: Our next question will come from Josh Dennerlein with Bank of America. You may now go ahead.
Josh Dennerlein: Yes. Hey guys, thanks for the time. Just wanted to clarify, I think a comment after Austin’s question on new lease growth in the second half of year. I think you said month-over-month seasonality things might turn negative, but what about on a year-over-year basis for new lease growth in 4Q?
Ric Campo: No.
Josh Dennerlein: You still assuming positive? Okay.
Ric Campo: That is correct, yes.
Josh Dennerlein: Okay. All right. Perfect. Thanks, guys.
Ric Campo: Thanks.
Operator: Our next question will come from Brad Heffern with RBC. You may now go ahead.
Brad Heffern: Hey, thanks. Good morning, everybody. I just wanted to dig into the occupancy commentary a little bit more. Have you had a shift in pricing strategy to more of an occupancy focus and that’s what’s driving the recent uptick to 96%? Or is there something else that’s driving it?
Ric Campo: So yes, we – when we had the situation that I described earlier, which is you have this elevated level of short notice move outs, we absolutely when we – it’s more than double what it should be historically. And we saw that beginning to impact our occupancy numbers in several of our markets in the sort of the May, June timeframe. And we adjusted marketing spend and then we also adjusted pricing to make sure that we maintained our occupancy through this period of time where it’s elevated. I think the good news is that we’re probably pretty far along with the exception of maybe as Alex said, maybe in California possibly a little bit in Atlanta. We’re probably pretty far along in the process of getting rid of that, that cohort of people who’ve been living with us, not paying rent, facing an eviction, and then just leaving of their own volition.
There’s a finite number of them. I mean, they moved in, they’ve – many of them been there not paying rent for a couple of years. The gig is up, the time – the clock is running and eventually they will either be evicted or they’ll move out just prior to that. So there’s a finite group. It’s an elevated concern right now. It’s probably got another quarter or so of kind of grinding through that process at the end of which things should return to normal in terms of the cadence of getting note – proper notices being able to backfill pre-lease, et cetera. So I think we’re getting closer to the end of that. We’re just not there yet.
Brad Heffern: Okay. Got it. And then on the development side, can you talk about where construction costs have trended and if the math on a new start today is pinpoint out better than it has over the past couple quarters?
Ric Campo: So construction cost has definitely flattened, but has not gone down. And so in terms of – and when you look at land costs, landholders are probably if you’re really motivated land costs are down 20%, 30% probably. But there’s not a lot of motivated land sellers and a 30% decline in land costs with a construction cost that is – that has stayed flat but not gone up still is very, very hard to pencil. When you think about rental rates and sort of occupancy rates system-wide are not going up as much as they were. So you still have a very, very difficult time penciling development yields today. Hence the significant drop in starts in the June number relative to the June number last year almost third. And we think that that fundamentally because of this dynamic, you’re – and it is not just the lack of availability of funds because if you – if we – if developers could show that they can make a seven plus cash on cash return on a new development I think lenders would probably fund it.
But the problem is that if you’re dealing with the current environment, it’s especially with interest rate costs going up as much as they have, that’s a pretty big part of the construction overall project cost. It just doesn’t pencil. And so we have not seen any kind of relief in the construction costs. And I really don’t think you will. I mean, you have a – when you think about just the even though construction is going down in the multi-family space, you still have a lot of contractors that are building out what’s under construction. And that takes 12 months to 18 months. And those folks are really busy now. What will be really interesting to see is that if this continues the way you think, it may continue you should see some pretty interesting cost numbers in 2025, 2026.
Because when contractors start looking out into the future and they don’t see a pipeline. They’re going to have to be more competitive and start tightening their margins and thinking about how they have to compete to get the next job in 2025, 2026. So we could see some cost reductions next year towards the end of the year. But right now, the pipeline’s full and contractors are still printing money.
Brad Heffern: Thank you.
