Alexander Brackenridge: Steve, it’s Alex. So, it seemed like over the summer, things were settling down to, say, 5.25%, maybe even a 5.5% cap. The last 60 days have changed that a lot. With the spike in the tenure, it’s really uncertain what the market is doing right now. So, you hear about transactions closing, but those reflect pricing from the summer, not from right now. So, we’re all feeling it out. So, there are properties — limited number of properties on the market. No one knows exactly what cap rate reflects what the seller is willing to give up and what a buyer thinks is appropriate returns. So, it’s definitely upward pressure on cap rates. We’re pricing things all the time. As we’ve talked about on past calls, we look hard at replacement costs, and there might be compelling activity.
And we just think there’s going to be more and more pressure to sell over time where people are going to have to accept a new reality, particularly in these high supply markets, particularly people have exposure to caps or debt that’s maturing and that there’ll be more activity as the market kind of settles down over the next six months to nine months or so.
Steve Sakwa : Great. Thanks. That’s it for me.
Operator: We’ll go next to Eric Wolfe with Citi.
Eric Wolfe: Thanks. On your bad debt, if the court process had been as quick as you thought, I guess how much more would have bad debt been down from the current 1.27%? And once you’re through with the bulk of evictions and court proceedings, where would that take a bad debt?
Robert Garechana: Yes. Eric, it’s Bob. So, had it kind of progressed as fast as what we would have thought instead of having, call it, a 1.27% in the third quarter, we probably would have been about 10 basis points ahead of that and would have trended closer? So, the trajectory that we were hopeful that we were going to get to. And what we’re just seeing, as Mark mentioned and Michael also mentioned in their prepared remarks is that it’s just taking longer, right? And so, as the residents are staying longer with us as they go through the process, we’re incurring more bad debt overall. We do have excellent transparency and excellent visibility into who’s where in the cycle. So, who’s where in terms of where they are in court cases, who’s awaiting lockouts and all of that stuff, but we don’t have great visibility into when exactly those proceedings are going to occur.
As Michael mentioned in his prepared remarks, going forward, we do expect that at some point, this will accelerate because the backlog from the pandemic era will be worked through, and that we, at some point, will be able to get back to that 50 basis points, particularly given the fact that the credit quality of our customer hasn’t changed, but it’s harder to swag where we’re going to end up on a full year basis.
Mark Parrell: And Eric, it’s Mark. Just to add to that. We certainly hope 50 basis points is where we end up. But I would say that the fact that in some of these markets, the process has been maybe more permanently elongated because of either right to counsel and funded rights to counsel in some of our markets and just general, more bureaucratic effort required to get through it, you may have folks, and that’s what Michael was alluding to in his remarks, we aren’t seeing more delinquency with our new residents. We’re seeing what I’ll call the normal amount. But usually, they’d be out in a month or two. And now it’s just taking longer, and that means they’re going to hit our bad debt reserve. They’re still leaving. But I just think again, we feel like the credit quality has not changed from all we can see, but the underlying bureaucratic process and regulatory environment has and it may be that we end up pointing to something modestly higher than 50 basis points going forward, again, not because the customer changed but more because the process did.
Eric Wolfe: Got it. That’s helpful. And I guess that sort of brings up how much more would be just with the new normal of a bureaucratic process like that make it 50 and 70. But I guess my other question was really just on the loss to lease at this point in the year, sort of how you think that informs blended rent growth next year. Because I assume the loss lease will probably just go lower, maybe be like zero by the end of the year. You included it in the presentation, but wasn’t sure how to translate that sort of 0.8% loss to lease in the October to some type of rent growth in 2024.
Michael Manelis : Eric, this is Michael. So yes, the 80 basis points that we included in the management presentation, the snapshot as of October 15, and we’re just giving you the historical context. So that number will kind of decelerate a little bit as you get towards the end of the year. But there’s nothing that suggests that right now, we don’t expect our loss to lease to be in a relatively normal place to start the year. In terms of how you fold that into the blended assumptions for next year, I’m going to kind of stay away from giving any specific guidance on ’24. I think what I would look at is the hardest part of the piece right now is for us is that intraperiod growth rate. What are you going to layer in by market? And we’re in the very early stages of this budget process that includes both a top-down and bottom-up approach.
But I could tell you that we do expect like Seattle and the expansion markets to be pressured from new supply. We continue to see and expect the strength in the East Coast markets, and we’ll model some solid growth in Southern California, driven in part by the improvements in delinquency that we just talked about. San Francisco has potential, but I think you could tell from the prepared remarks, we’re going to need to see a few consecutive quarters of improving fundamentals like before we adjust the somewhat muted current expectations for next year. But if you really put all those factors together, you look at where that embedded range is, you think about loss to lease being in a relatively normal. You hold in the intra-period comments that I just gave you, it really does still put you in a place where we expect to see solid growth next year.
Eric Wolfe: Okay, great. Thank you.
Operator: We’ll go next to John Pawlowski with Green Street.
John Pawlowski : First question is on the transaction market. It feels like private market pricing, particularly in the Sunbelt has been very slow to adjust the reality of higher rates, but also declines in market rent. So curious in recent quarters, have you considered setting a complete pause on these one-off acquisitions in the Sunbelt? Or are you considering that going forward until more distress flows through the private market?
Mark Parrell: John, it’s Mark. I’ll start with that. I mean we have been matched funding that. So, this year, it was a pretty modest year for us, $350-odd million of buys and sells. And frankly, we have paused our acquisition activity. The deals you saw closed, they priced really in the early second quarter, and one of them went through a long assumption — loan assumption process and the other one had a lease-up and an elongated close process. So, we really aren’t buying anything right now. What you see out there in the release is really that tail activity. We may expose a few more assets for sale. We’re always doing that, trying to figure out where that market is. And continue to execute on the strategy of moving the capital around. But before we commit to your point to buy assets at this price, we’re going to sort of let market settle out a bit or look for an opportunity to just obviously very good.
John Pawlowski : Okay. Makes sense. Last question is on New Jersey rent control. So obviously, there’s some media rumors out there about a few assets being subject to control. And so, hoping you can give us a range of potential financial impacts on these assets? And then is there additional risk working in New Jersey port your broader Jersey portfolio that we may hear about in the coming months or years?
Mark Parrell: Yes. Thanks, John. So, I’ll give a little color on that. I’m not going to be able to be terribly specific because it is pending litigation and giving you a range is something I’m just not able to do. But we are the only ones facing these sorts of issues, both public and private competitors of ours in Northern New Jersey have these litigation concerns. In our case, the particular matter you’re talking about in Jersey City, there was a ruling in our favor actually a year ago that these properties, these two towers were exempt from rent control by an administrative entity that administers these rent rules. The decision that was announced a couple of weeks ago was by a politically appointed Board that overruled the bureau’s original decision here and we completely disagree with that.
