Operator: The next question comes from Alan Peterson with Green Street.
Alan Peterson: Charles, I was just wondering, what markets are you seeing the most concession usage across the portfolio today? And what’s the average concession being offered? As you kind of stare out to the end of the year, are you anticipating needing to dial up concessions to build back occupancy into year-end?
Charles Young: Yes. So we ran no concessions through Q3. But as we’re looking at the landscape now, and to your point, thinking about occupancy and trying to go into 2024 on a solid footing, we’re looking to go selectively while the market is still kind of pumping. We feel the demand is here. But things slow down typically on the holidays. And so I would expect that we’ll run some select concessions in markets that have been a little softer. As I look around Vegas, I’ve talked about this before, it softened a little bit. We’re seeing a little bit of softness in Phoenix lately. Those two markets sometimes run similarly. But a lot of it will be around thinking about homes that may be on the market a little longer. And so we’ll try to move that product.
So it’s a balance. And it’s really, just to your point, around trying to make sure that we are in good footing going into the start of the year. At 96.9% occupancy, I expect October to kind of be at that same level, plus/minus, and then will rise from here. That’s what typically happens in the seasonality. And we want to push to get that back over 97% as fast as we can. And that’s how we’ll use concessions as need be.
Operator: The next question comes from Tyler Batory with Oppenheimer.
Tyler Batory: A follow-up question on your builder relationships. Can you remind us what your underwriting for cap rates in that channel? And then when you look at some of the homes that you’ve taken down already, especially from Pulte, with that relationship, can you talk a little bit about lease-up trends, maybe you’re getting better unit economics on those assets and comparable homes?
Dallas Tanner: Yes. On your latter point, and while we don’t have any specifics we’re releasing, I’d just tell you that we are — we’ve generally really outperformed underwritten rents on the communities as we’ve taken them in. I think Scott shared that on some of our Investor Days and things that he’s held out at some of the different communities as they’ve onboarded. And I just mentioned before, it sort of feels like the market today needs to be somewhere in the 6s to have it really want to make sense as you start to measure absorption risk and new construction pricing and the like. But to be fair, that shift mix can vary by market-to-market. And we’re total return investors at the end of the day. So we’re looking for, one part, asset appreciation going-in basis on cost or how we think about replacement costs in a way that feels like measured risk.
And then we need to have convictions around where we see demographic trends going because we believe that’s ultimately a proxy for where rents go. And I think as you look at our business, the one thing that we have fundamentally more and more conviction around, the customer today with us this quarter is staying almost 36 years as you average that across the portfolio. That is a much stronger — did I say 36 years? 36 months, excuse me. I wish it was 36 years. But 36 months is meaningful. As Jon talked about turnover and the costs that are associated with it. And as you look at our business in that demographic window, the average customer between 38 and 39 years old, we have a massive pipeline of customers potentially coming into our business.
And many of them want to live in a new community with brand-new schools. And that to us is a winning value proposition for our business.
Operator: The next question comes from Jesse Lederman with Zelman & Associates.
Jesse Lederman: Are you hearing or seeing any impacts from rising apartment availability across any of your markets that might be keeping renters in the multifamily asset class for longer than they otherwise would be, recognizing that the new multifamily supply is largely catered toward luxury products and any concessions offered by apartment operators might make the value proposition for apartments versus single-family rentals more attractive?
Charles Young: Yes, it’s a good question. I think I’d start with the majority of our renters come from single family. So there’s not a lot of overlap. It’s somewhere around — the number that are coming from historically that have been coming from multifamily is 10% or less. And so it will vary market-by-market in terms of the size of the market. But generally, we’ll not see that have a direct impact on us and — but we’ll pay attention to it. I think a couple of years ago, we felt it a bit in South Florida, when there was a bunch of condo product out there. And so I think again, each market will have its own nuances. But given that most of our folks are families, pets, looking for school districts, having a backyard and having extra space for a Zoom call, all of these things drive people that are looking for single-family homes, as Dallas said, moving their kids for the good schools.
That’s the driver. And so the multifamily isn’t a direct competitor most of the time. And that’s not in all the cases. But generally, we’re looking at kind of the mom-and-pops that are out there that are offering homes. And that’s been our main competitor throughout. And what we know is, given our marketing kind of platform and universe, we do well against that, given our professional ProCare service and all that we provide.
Operator: The next question comes from Brad Heffern with RBC Capital Markets.
Bradley Heffern: Jon, I was wondering if you could give the size of the true-up for the under-accrued property taxes that fell into the fourth quarter. I think the implied growth guidance for the fourth quarter is roughly 6.5% for OpEx. Just wondering what that figure would have been without the out-of-period taxes.
Jonathan Olsen: Well, I think — for the fourth quarter, I think the reasonable expectation is that year-over-year Q4 property taxes will be up between 6.5% and maybe 7.25%. I think that’s the right way to think about it.
Operator: The next question comes from Anthony Paolone with JPMorgan.
Anthony Paolone: I guess, along the same lines, if — given what’s happened on the property tax side and just insurance this year, if we’re thinking about the full year impact and starting to think about ’24, can you maybe just help us with any brackets? Like are there enough levers to even bring expenses down into a more normalized growth range next year? Or does the full year impact really just keep these up such that your OpEx is going to run high again for another year?
Jonathan Olsen: Thanks for the question, Tony. As I said, we’re not in a position where we’re going to start talking about ’24 yet. I think we are going to evaluate everything in totality. I think when we are prepared to talk about 2024 in February, we will give you a sense for what our expectations are around both of those line items. Because look, we certainly understand that we have seen outsized growth in both of those over the last few years. And I think as we take a step back and think about where we are, we are in the midst of a return to “normalcy.” I think there have been a lot of factors in our business and other businesses that have had some temporary structural impacts that are going to take some time to resolve. How long that is, I think, remains to be seen. And we’ll be happy to chat about that a little bit more when we release our ’24 guidance.
