AvalonBay Communities echoed the concerns of fellow rental housing developers when discussing a New York City residential market that “has been impacted by new supply” on its first-quarter earnings call Thursday. But the company also discussed its latest project in New York – a 1,100-unit project on the Upper East Side that will be built through a partnership with the city.
While noting “plenty of demand” for housing in New York spurred by positive economic conditions like strong job growth, AvalonBay COO Sean Breslin said the city’s rental market is performing “a little bit behind” the real estate investment trust’s initial expectations.
“We do think it is a supply issue,” Breslin said of the softening rental market conditions, mirroring concerns voiced this week by fellow residential REITs UDR Inc. and Equity Residential about a coming glut of inventory in the Manhattan market, in particular.
Breslin noted the demand that exists in the city’s residential market “may not look the same as it did last cycle,” with the “high-paying” financial services sector that has traditionally driven the city’s economy giving way to “more diversity” in the city’s workforce – via the growing tech, media and creative sectors — “than what we’ve seen in the past.”
Virginia-based AvalonBay also discussed its planned mixed-use rental development on East 96th Street on the Upper East Side, which will be built on land ground-leased from the city. In addition to 1,100 units of rental housing and 20,000 square feet of retail, the company will build two new public school buildings financed by the city via tax-exempt bonds.
The city selected AvalonBay as the site’s developer, despite having possibly received higher offers, because it recognized “that we can deliver on our promises,” CIO Matt Birenbaum said. He added that the REIT’s status as an “integrated” developer, rather than “a private developer who’s going to have a separate equity partner” and contractor, made it an attractive bidder.
Birenbaum described the full-block site between First and Second avenues as a “pretty exciting location” that would benefit from the construction of the infamously delayed “Second Avenue subway line,” and said that the project’s timescale, given the required city approvals, mean that it likely won’t start until “early into the next cycle.”
CEO Tim Naughton also discussed AvalonBay’s planned 33-story residential and retail development at the former site of the American Bible Society’s headquarters, near Columbus Circle. Naughton said the company has begun preliminary work on the property and anticipates starting construction “sometime this year,” likely toward the end of the third quarter.
Naughton mentioned that AvalonBay is currently “evaluating different strategies” for the 300,000-square-foot project at 1865 Broadway, which it acquired from the American Bible Society for $300 million last year. That could include “bringing in a retail partner” for its expansive retail component, he said, citing interest “despite some softness on the condo side.”
“We’re spending time nailing down performance obligations for both sides” under such a joint venture, the CEO said, noting that the numbers “ultimately got to work for there to be a deal.” Naughton added that AvalonBay likely wouldn’t finalize such a partnership until the firm is “almost ready to start the building.”