DTLA supply flood should not impact other LA submarkets: AvalonBay COO

The flood of new rental inventory coming to the Downtown Los Angeles market is not putting downward pressure on rents in other L.A. submarkets, according to a high-ranking executive at AvalonBay Communities.

“You do have to be careful about which submarkets you’re in, but if you look at it, the region is pretty supply-constrained,” said Sean Breslin, Avalon’s COO, speaking during a second quarter earnings call this week. “In terms of any indirect effect [from DTLA] on the rest of the portfolio from that supply, we have not seen that.”

Breslin’s comments came in response to a question from analyst Drew Babin of Robert W. Baird & Co., who inquired about the potential for a spillover effect from DTLA, where rental inventory is slated to grow dramatically over the next 12 months.

More than 1,500 new units were delivered in the past year, and more than 6,000 are currently under construction, according to a recent report by CoStar Market Analytics.

The Virginia-based residential real estate investment trust has one property in the DTLA submarket, a 280-unit apartment complex known as Ava Little Tokyo. The company is also in the midst of constructing a 370-unit residential project at 7300 Santa Monica Boulevard in West Hollywood known as Movietown Plaza.

Breslin admitted that the supply fundamentals in the L.A. area are about to change dramatically.

“If you look at the supply that’s coming on line, for the most part, we do expect continued elevated deliveries in Downtown L.A.,” he said. “It’s like 14 percent, 15 percent this year and it stays at that level through 2017.”

He continued: “The other couple of pockets that you’re seeing supply in L.A. is really Marina del Rey. In particular, there’s one large development there at Playa Vista that’s delivering right now.”

The latter is likely a reference to AMLI Residential’s plan to build a huge development with 585 units at Via Marina and Panay Way.

But executives at Avalon do not seem concerned about the uptick in supply, at least for now.

“One thing to keep in mind for Southern California is we’re still talking about deliveries that are low 1 percent range of inventory overall,” he said.

The REIT pulled back on its full-year forecast for revenue growth by 0.4 percentage points for communities open a year or more across the country. That was also driven largely by a slowdown in New York, where it quadrupled the amount of concessions it offered to tenants.