Brad Hill : This is Brad. A couple of comments. On the development side, yes, we do have 3 to 4 starts that we expect this year. 2 in the first half. One of those is in Charlotte. The other one is in the Phoenix Chandler submarket of Phoenix. We’ve got 2 other ones that we’re working on. One is a Phase II in Denver. The other 1 is a Phase II in Atlanta. And in terms of the yields we’re seeing there, we are pushing those at the moment to — we’re repricing all of those trying to get the construction cost down to really get to a yield, call it, mid-6s. That’s really what our goal is. We have had some success on the project in Charlotte, we’ve been able to get between 5% and 6% reduction in the construction costs, which really helps support our ability to get that yield.
So we feel really good about where we are with those developments. And then the 2 that are late in the year are Phase 2 projects. So we’re hopeful that the yields there continue to increase as we get further construction costs out of those as well. And I’m sorry, the second part of your question, Nick?
Dan Tricarico : The Windmill Hill in Austin in 4Q, how is that — go ahead.
Brad Hill : Yes, that asset performed extremely well for us. The average rents that we achieved on that asset were almost 24% higher than what we expected. So from a yield perspective, significantly outperformed what we expected. And part of that was you mentioned it’s a suburban asset in Austin. Great execution on the property had 2 adjacent lease-ups going on at the same time as it, but we were very patient in how we leased that asset up. We didn’t have to offer concessions to meet the market and really perform extremely well there. So I think given the execution on the construction side as well as the leasing side, we did not have to compete quite as much head-to-head with some of the competition that was in that market, and we’ve got pretty good results there.
Operator: And we’ll take our next question from Eric Wolfe with Citi.
Eric Wolfe : So I understand your point on comps getting easier through the year, especially in the fourth quarter. But if the largest amount of supply is delivering in the middle of this year, it takes like a year to lease up. I guess why your brands start recovering sort of later this year before the developments are fully leased? Isn’t there typically like a compounding effect of the supply?
Tim Argo: Well, I think one is the — while we’re talking about comp later starts peaked in the middle of 2022, it has been pretty steady. So I think we’ve seen a relatively steady level of supply being delivered over the last several quarters. And then we have the steady level of demand as well. I mean we have seen absorption keep up pretty well, even though supply compounded, as you said, certainly certain markets are a little bit different. But the other thing is middle of the year obviously is the strongest demand component. And so I think the timing of that with the timing of most of our traffic and most of the demand coming in is what we believe keep it from — we talked about we think new lease pricing has kind of bottomed helps keep it from getting worse than where it is now, just sort of that normal seasonality and all the different demand factors that we’ve talked about.
And then you’ll have a few months after the middle after its peak where there’s still pressure, but we typically see it start to drop a few months after the final deliveries, which what gives us some confidence in the back half of the year that we start to see some improvement.
Eric Bolton : And as Tim mentioned, I mean, we also — I mean, we assume that new lease pricing moderates in the fourth quarter, and that’s also what’s important to remember, that’s also why we stagger our lease expirations the way we do such that we’re repricing a smaller percent of leases of the portfolio in that holiday period of November and December. So I understand the point that you’re making, but we feel like that we’ve accounted for that both in terms of our new lease-over-lease pricing performance expectations, seasonal patterns, if you will, but also just the way we manage lease expirations over the course of the year. So we think that we’ve got it dialed in appropriately. And we do think that as we get into again, it varies by market so much.
So it’s hard to make any real conclusive broad observations as it relates to the point that you’re making. But we do think that there are certain markets for sure that we begin to see the supply pressures meaningfully moderate in terms of new coming in late in the year, and that begins to establish some early signs of recovery in that new lease pricing performance as we head into 2025.
Tim Argo: I think one more point I’ll add just back to the kind of the middle of the year. I mean, we’re still dialing in somewhere in the negative 2.5% range during that strongest period of 2024 for new lease pricing. So we certainly don’t see getting positives yet. But I think with the demand components that it will be a little bit better than what we’re seeing right now.
Eric Wolfe : And then just maybe a quick clarification on the earn in. Does that include your sort of loss or gain to lease a real-time changes in market rents? Or is it based purely off the leases signed up at one point in time? Just trying to understand if like real-time movings and market rents ends up impacting that earnings such that it’s always going to end up being low end at the year-end.
Tim Argo: Yes. Well, for the earning like I said, it’s basically just saying all the leases that were in place at the end of 2023, so call it all the December leases just held steady for all ’24 that’s earned in. I mean, loss to lease, how we think about that, if you look at all of the leases that went effective in January compared to our in place, it’s about a negative 1% loss lease looking at it that way. But we are dialing it in as we said, positive 1% blended for the course of 2022.
Operator: And we’ll take our next question from the line of Rich Anderson with Wedbush.
Richard Anderson: So what do you make of this January effect that’s happening? Like you guys have seen this sort of recovery in January. Some of your peers, many of your peers have seen the same thing. It’s still freak and cold outside. Why do you think January is recovering the way it is for you and others at this point?
Eric Bolton : Two reasons. One, you don’t have the holidays in January. I think nobody likes to move during Christmas and or thanksgiving. I think holiday effect is real. And I think it weighs on people’s interest in moving. Secondly, I think that there are — and we have seen some evidence to suggest that some developers were facing kind of a calendar year-end pressure point. And I think that we — as we started to see in the early part of the fourth quarter as we were approaching year-end, developer lease-up practices were getting increasingly aggressive, as we’re headed towards the holidays. And I think a calendar year-end and so I just think that developer practices got a little bit more aggressive in the holidays and approaching the year-end.
I think that to some degree, there was some moderation on that and certainly, absent the holidays, even though it is cold and so forth. I think people’s capacity to deal with the hassle of moving just improves a little bit better once you get past the holidays and therefore, traffic picked up.
Richard Anderson: Do you think this holiday factor moderates in February, and it’s still sort of a seasonally slow period of time through the January pickup and then you kind of get back to normal course sequential business. Is that fair?
Tim Argo: Yes, I think that’s a good reason.
Richard Anderson: And then second question is someone asked about how much you’d lever up and I appreciate that color. And I know you’re sort of waiting for transaction market to be sort of more attractive to you to execute with still low cap rates. But you have sort of development opportunity sitting, I don’t remember what the number was, but you got a lot that you can do right now. Why wouldn’t you, if you’re going to deliver into 2026, which is likely to be a very good year to deliver, why not really accelerate development right now and have that be a part of the — a bigger part of the external growth story. You seem to be slowing it down more than speeding it up at this point. So, just curious on that.
Brad Hill : Rich, this is Brad. Well, you’re right, we do have a pretty big pipeline of projects that are ready that we could execute on. And really, it’s just a matter of working the costs on those projects right now. I mean, as I mentioned, we are seeing early signs of coming down. On the project in Charlotte, call it, 5% to 6%. We do think we’ll continue to see costs come down as we get later into this year. So while we do expect to start 3 or 4 projects this year, we have another 4 to 5 that are approved, were plans are nearly ready. And if costs came in, we could certainly pull the trigger on those. So we have the optionality to be able to do that. But we think it’s prudent to be sure that the costs are in line. We do also agree with you that these line up very, very well from a delivery perspective into 2026.
The other area where we are seeing opportunity that I think could yield itself more immediately, is in our prepurchase area. So we are talking with developers on a number of opportunities where projects are approved, entitled, plans are complete and in some instances, GMPs are already in place. But given some of the other liquidity constraints out there that I was talking about earlier, and pressures in other sectors, the equity or even the debt has pulled out of the project. So we are evaluating projects in that way. And so if we can find well-located opportunities with good partners that meet our return requirements, we’ll definitely lean into that area a little bit more.
Operator: And we’ll take our next question from the line of Alexander Goldfarb with Piper Sandler.
