And we’re going to go and litigate that in the courts and have our say there and try not to talk about it too much in the press, except to say, again, we think whether it’s in Northern New Jersey or elsewhere in the portfolio, we follow the rules of the road. We feel like we comply with, whether it’s rental control rules or notice rules or whatever they may be in all these markets, those rules are complex. They’re ever-changing. We’ve got a great legal team, a great operations team that follows up on all that. So, I don’t have any sense of an overhanging doom, but I think this is another sign of just political pressure that’s manifesting itself in litigation in some of these markets rather than in just going through the process of trying to influence your public officials to change the rental rules.
Operator: We’ll go next to Alexander Goldfarb with Piper Sandler.
Alexander Goldfarb : And Mark, maybe just continuing that theme on the Jersey City. You and I have chatted before on the risks of tax-exempt deals and deals that have incentives that years or decades later could come back to bite. So, in thinking about this, do you still see the appetite for EQR to pursue deals, especially in politically charged municipalities, deals that have tax incentives as worth the longer-term risk? Or what’s going on here is your view is, hey, when we underwrite these deals, even if we shave off a few points for the risk — for the political risk, going after these tax incentive deals are still economically worth it.
Mark Parrell: Yes. Thanks for the question, Alex. I go up a level and say political risk. So, when you look at these markets, it’s more about us managing political risk in these markets and our feelings about regulatory matters. In New Jersey, I think, is a market. We are rational capital allocators that is probably disqualified itself from material additional investment by us in terms of development or new asset acquisitions because some of these regulatory things are coming out of left field. They’re really not the result of incentives, these particular ones, incentives on construction. What was done is these were placed in a state where for a number of years, they were exempt from local existing rent control rules. And that’s what this whole discussion is about.
It’s not about sort of a 421-A type question, just to be clear, but I get your point. For example, in Atlanta, almost everything built there has a tax incentive. That tax incentive is really well understood. We priced it in there at the beginning. We understand the cap rate and we understand what happens at the end of the deal in terms of the incentive going away 10 years in or whatnot. So I guess it’s more of an indicator of these different lawsuits of political risk and places that I think for us and for others, will be less attractive to allocate development capital or acquisition capital and places like Atlanta where you feel more comfortable with political risk, and it’s just really an underwriting exercise to price the tax benefit in the deal that the city did with good reason to try and encourage affordable housing in that market or at least buildings that have affordable components.
Alexander Goldfarb : And then the second question, by the way, Mark, just speaking of political risk, obviously, rents being down shoots a hole in the whole yield star litigation argument. So, I guess, yes, there is a positive at our third quarter earnings but thinking about Seattle and San Francisco, those are two markets where the downtowns continue to suffer and have issues recovering. By contrast, the issues in the Sunbelt are really, there’s a lot of supply this year, into next, and then that supply goes away. So, as you think longer term, it almost seems like the resolution of Seattle and San Francisco, to your point, is political, and it’s unknown for the recovery, whereas the Sunbelt is known because you can see the product delivering and that there’s nothing behind it.
So again, think about EQR and capital allocation, are you guys still comfortable in the belief that Seattle and San Fran downtowns will recover? Or at what point do you sort of throw up your hands and go, the traditional recovery isn’t there, we have to think differently this time.
Mark Parrell: Yes. Thanks. Great question. So, I’m going to start by saying the Sunbelt definitely will have a lot less supply in three years, but it doesn’t mean there will never be more supply again. I mean it’s proven every bit of the cycle, that happens again. So, I want to speak to San Francisco, and it’s merit Seattle real quick and then sum it up here. But we’ve got to have a little longer-term perspective for us because we’re long-term investors in these markets. So, a little background on San Francisco. I know you’ve been around the real estate world a long time. This is probably the best-performing large market in terms of rent growth in the country over long periods of time. It’s got the high housing costs we want, it’s got these big barriers to supply.
It’s got often explosive high wage job growth. And it’s historically been a super desirable place for our resident demographic to live, but lately, I admit a little less so. Prop 13 also helps us limit those real estate tax increases, and that’s our biggest expense. So, there’s — the framing in that market is very good. But it is a volatile market. And that’s part of why we’ve been saying since 2018, we wanted to lower exposure. But you get paid for the volatility. So, for example, post-GFC, EQR same-store revenues in San Francisco, they were down over 2% each year for two years in a row. So, we got hammered a little bit there. But for the next five years, on average, our same-store revenue was up 9% a year. I think our shareholders got paid back for taking that risk and volatility.
I think the conditions in the job market in San Francisco can improve pretty rapidly. It certainly — along with Redmond, Washington, the center of the artificial intelligence employment boom that we hope is coming but I will fully concede there’s an elongated recovery going out in San Francisco. And this management team is responsible. If it’s responsible for anything, it’s responsible for being optimistic. And some of the things we saw in the middle of the year in that market made us feel like that recovery was coming right now. We still have faith that will come. But in terms of capital allocation, we’re going to lighten the load downtown. We’ve said that. We have been selling in that market. We even sold this quarter so far, an asset in San Francisco, but we like that exposure to the tech industry there.
We still think it’s the tech capital of the world. And the argument on Seattle is not a lot different. I mean it has been a strong performer over time. Again, when we look back on that market, we were down, gosh, 4% on average for two years in 2009 and 2010 after the GFC. And then we’re up 6% or more for five years after that. So again, you get paid for your volatility. Seattle is a place where our balance is a little off where we have been saying and we have been moving assets and capital out of downtown and into the suburbs and you’ll see us continue to do that but we like that market. So, I believe — I think the management team and the Board believes in those markets. I think we are a little overexposed to San Francisco. We’ve been forward about that.
A little exposed to the downtown areas. But longer term, we think that’s where this demographic of high-wage earners who aren’t going to lose their jobs because AI aren’t going to lose their jobs because automation are going to get the biggest pay increases, can handle all this inflation risk. That’s what we think these people are, so that’s where we’re headed with our capital. But I’m as impatient as you are to see those markets improve.
