AvalonBay Reports Steady Q1 Earnings But Gears Up for Higher Development Costs

AvalonBay Communities went into the new year relatively strong, but predicted a slight uptick in development costs going forward as the industry faces potential impacts from the latest tariffs that could cause developers to drop some projects.

During the first quarter of 2025, the Arlington, Va.-based real estate investment trust (REIT) reported core funds from operations (FFO) of $2.83 per share, a 4.8 percent increase from one year ago, according to the company’s first-quarter earnings report released Thursday.

By the end of the first quarter, AvalonBay had 19 development communities under construction, which are expected to contain a total of 6,595 homes and 69,000 square feet of commercial space, the report said.

However, all of that construction activity could soon be a bit more expensive, as AvalonBay expects tariffs implemented by the Trump administration to drive up the costs of construction materials.

During a Thursday earnings call, Matthew Birenbaum, AvalonBay’s chief investment officer, said the cost of materials currently represents 20 percent of the company’s total project costs.

Birenbaum said during the call that “with the mix of domestic and imported materials in our projects,” the most recent tariffs might increase the company’s total hard costs — which include raw materials, labor, subcontractor profit and supervision costs — by about 5 percent.

That cost increase could drive a roughly 3 to 4 percent increase in the company’s total overall basis and could be “enough to tip some projects to being infeasible,” Birenbaum said. However, he said those “potential headwinds are more than offset by a larger macro backdrop of declining start activity,” and the company has seen “strong subcontractor availability” recently.

The company started construction of two apartment communities during the first quarter — one called Avalon Parker in Parker, Colo., and the other called Avalon North Palm Beach in Lake Park, Fla., according to the report.

Those communities are set to have a combined 591 apartments and 10,000 square feet of commercial space, with an estimated total capital cost at completion of $240 million.

As for acquisitions, the REIT acquired eight apartment communities in its Texas expansion region for $620 million during the first quarter, including two in Austin, with a total of 857 homes, and six in the Dallas-Fort Worth area, with a total of 1,844 homes, according to the report.

AvalonBay also saw “expected” levels of new leasing and renewals in its metro areas, including Washington, D.C., San Francisco and Seattle. Those two West Coast cities have seen a “healthy performance” recently due to strong job growth and return-to-office mandates, Sean Breslin, the company’s chief operating officer, said during the earnings call.

Its numbers in the Los Angeles market, however, faltered a bit due to L.A.’s weak job growth and “uncertainty” related to tariffs and their possible effects at the region’s ports.

“We’re monitoring things closely,” Breslin said during the call. “Employment growth has been weak across L.A., mainly due to the entertainment industry. There’s probably also a little bit of uncertainty related to tariffs and impact on the ports in L.A. in terms of economic activity.”

Going into next year, the AvalonBay team said they expect to grow from 2,600 actual and projected apartment homes in 2024 to 2,800 in 2026, following a drop to 2,300 homes in 2025, the report said.

Isabelle Durso can be reached at idurso@commercialobserver.com.