Barb Pak: We still have our investment in the asset. But because our — the loan and our investment matures in October of this year, and because we don’t feel we’ll fully realize our valuation by the end of the term of our maturity of our loan, we impaired the asset, which is consistent with GAAP accounting rules. We do believe in the asset long term and the market long term, we’re obviously in a very depressed market in Oakland. And but it’s going to take time for that market to recover. We need to see supply abate, which we will start to happen in 2025 and really into 2026. And that should bring — bring rents up. And so that will help our investment long term. The sponsor continues to fund equity shortfalls and is actively putting money into the project, and we are working actively with them on the refi that will be coming up here in the fall.
John Kim: What is the likelihood you put more capital into the project or take ownership of the asset?
Barbara Pak: I think that will be determined as we work through the refinance and based on the sponsor’s response to the refinance. So it’s a little too early and premature to talk about that. We’ll know more as we work through that this summer.
John Kim: Okay. Great. Thank you.
Operator: Our next question is from Michael Goldsmith with UBS. Please proceed with your question.
Michael Goldsmith: Good afternoon. Thanks a lot for taking my question. How is demand trending in your markets? And if you can quantify that in any way, like the number of property tours that would be helpful. Again, a market like Seattle does increase supply in the urban core combined with return to office, draw residents away from the more suburban Essex properties?
Jessica Anderson: Hi, Michael, this is Jessica. I can provide you some basics, I guess, as far as how leasing fundamentals are going in our markets. And it’s really trending as expected in all of our markets. Right now, when we’re looking at things like lead volume is steadily increasing, which is what we would expect this time of year, and then also leasing activity overall is stable. As far as quantifying it goes, I mean, we really see that increase in demand that we would expect, of course, correlates to whatever sequential rent growth that we see. And we pointed that out earlier, we saw good growth in both NorCal and Seattle. And that’s something that is in part due to concession burn off. Those are our most seasonal markets. So we do expect them to grow more substantially on a sequential basis. But overall, they’re performing as expected, in line with what we would expect at the time of the year.
Michael Goldsmith: Got it. Thanks for that. And my follow-up question is, is on rent control. Have you seen any change in the rent control environment in your markets? And then given that it’s an election year, does that — does that create a little bit more noise than a traditional year? Thanks.
Angela Kleiman: Hey, Michael, in an environment where we’re looking at 1.25% market rent growth, we certainly don’t expect an elevated concern when it comes to the rent control conversation. Now there is, I think many of you are aware that there is a proposition out there to repeal Costa-Hawkins again, sponsored by Michael Weinstein, the Head of the AIDS Foundation. And we, of course, participate in the housing coalition that supports responsible legislation and we do not view that this proposal to repeal the Costa-Hawkins Housing Act will have traction because it’s — this is the third time that this proposal has come up. And in the past two times, it was overwhelmingly defeated, only one out of 58 counties voted in favor of repealing Costa-Hawkins and they — and that was by a narrow margin.
And it lacks the governance and general political support, it is viewed as an antigrowth proposal that will deter housing production when we already have a housing shortage. And so that — but that is one that we are watching carefully. But beyond that, that’s a normal operating environment for us from a legislative perspective.
Michael Goldsmith: Thank you very much. Good luck in 2024.
Angela Kleiman: Thank you.
Operator: Our next question is from Rich Anderson with Wedbush. Please proceed you’re your question.
Rich Anderson: Hey, good morning, everyone. So Barb, you said one of the swing factors for you is getting back delinquent units and perhaps into a downtime in the rental market and not knowing what that opportunity would present itself. But I imagine, it would be either zero or something more. And it’s just a matter of when that something more hits. Is that it? Because obviously, the delinquent unit wasn’t paying rent. I just want to make sure I understand that logically what you’re saying there.
Barb Pak: Yes. So yes, and we can take the example of what happened in September, October. We got back hundreds of units or occupancy. So our delinquency dropped about 50 basis points, but our occupancy also dropped commensurately. And then when we backfilled, we gave back a little bit on the rent growth. And so there was a small impact to the bottom line, but it didn’t all fall to the bottom line. Long-term, it’s beneficial for us. But there is a temporary headwind, especially if you get the units back in a low demand period because then you have to give concessions to backfill — to backfill those units. If we get the units back during peak leasing season, and we have a strong leasing season, there will be less impact to occupancy and rent growth.
Rich Anderson: Why would there be an impact negatively, if they weren’t paying rent, who cares what the occupancy was if there were zero rent coming in any way? I’m just curious, I’m not sure I understand why there would be a negative number in that scenario. It would either zero or something more. Yes.
Angela Kleiman: Hey, Rich. Yes. So I think from your question — from your perspective, the absolute number is right now, we’re going from zero to something. So you can’t be below zero. But keep in mind, the way Barb has outlined the guidance, we are assuming an improvement in delinquency, which means we will need to get — we do need to convert some of those zeros into a positive number, just to be at midpoint. Does that help?
Rich Anderson: Yes. Okay. Perfect. That’s what I am looking for. Yep. Thank you. And then — so where there are problems in the bank industry and as it touches multifamily, it’s in the rent-regulated area, and we’ve seen that in New York Community and Signature portfolios and so on, rent regulated can — is California can be described with that phrase, I assume. I’m curious to what degree you’re seeing anything popping up? And if this was covered earlier, I apologize. But is there — are you in a position to jump on opportunities? Is there a pipeline building of sort of these sort of distressed situations, maturities coming. Anything like that, that is interesting to you? Or is it not really sort of apparently happening at this point as an external growth opportunity for Essex? Thanks.
Rylan Burns: Hi, Rich. I’ll echo what many of our peers have said is we’re not currently seeing much distressed selling at all in our markets given the amount of debt coming due in the next couple of years, we anticipate there should be some opportunities, but as of yet, we have yet to really see any force selling. So we are keeping our eyes open and looking for opportunities, but nothing as of yet.
Rich Anderson: Okay. Thanks so much.
Operator: Our next question is from Linda Tsai with Jefferies. Please proceed with your question.
Linda Tsai : Hi. In terms of the $134 million in receivables, are there different ways to tip away at that, like get debt collectors involved? Or just anything operationally you can do to get your money back faster?
Barb Pak : Yes, Linda, we are — this is Barb. We are pursuing every avenue to try to collect on that money, whether it be taken to small claims court, we’ve being their credit — and like we are collecting a little bit here and there, but it depends on when they need their credit. And when they need their credit, then they tend to come back and pay, but if they don’t need their credit for a long time, then it can sit out there. But every avenue we can pursue, we are pursuing to try to collect on that money.
