Apartment Giant AvalonBay Blames Dicier Job Market, Economy for So-So Q3

One of the nation’s largest apartment owners blamed its tepid third-quarter financial performance on a lackluster economy, including federal job cuts and weaker consumer spending. 

“Apartment demand has been softer than anticipated this year,” AvalonBay Communities CEO Benjamin Schall said on a Thursday earnings call, “which we attribute to the reduced job growth backdrop with related factors such as higher macroeconomic uncertainty, lower consumer confidence, and a reduction in federal government hiring and funding.”

Figures released Wednesday and cited by AvalonBay executives on the call showed that the multifamily giant missed analysts’ estimates in a key measure for real estate investment trusts. The REIT’s core funds from operations (FFO) clocked in at $2.75 per share. That was off slightly from analysts’ estimated $2.80 a share. FFO was also off 0.4 percent from a year ago. 

Executives cited lower revenue as well as costs from repairs and insurance as the culprits for the lower-than-expected third-quarter FFO.

It wasn’t all gloomy for AvalonBay, which the National Multifamily Housing Council ranked as the nation’s sixth-largest apartment owner this year with more than 84,000 units. 

For one thing, its revenue from its existing portfolio increased 2.3 percent in the third quarter to nearly $685.4 million. Its net operating income for the same portfolio was up 1.1 percent quarterly to more than $461 million. Schall also said AvalonBay has around $3 billion in liquidity it can deploy. 

And the REIT is leaning into new development that it predicts will pay off in the long term. During the third quarter, AvalonBay finished building Avalon Annapolis, a 508-unit complex in the Maryland city that cost $195 million. It also started construction on two other projects: Avalon Southpoint in Durham, N.C., and Avalon Mission Valley in San Diego. The pair cost $434 million to develop and include 1,015 apartments total, according to the company. 

Meanwhile, the company continued to buy and sell apartment complexes nationwide. That included selling four Washington, D.C., complexes as well as one apiece in Redmond, Wash., and in Brooklyn for total proceeds  of nearly $585.1 million, resulting in what Avalon Bay said was a net gain of $180.5 million. The company, also in the third quarter, bought three complexes with 584 units total in Redmond, Charlotte, and Coconut Creek, Fla., spending roughly $187 million.

Executives said on the call that locations such as these — often suburban markets on the coasts — will buoy AvalonBay coming out of 2025. That’s especially true as supply pipelines of new multifamily projects thin, they said. 

“With a more uncertain demand backdrop,” Schall said, “we believe that those markets and submarkets with lower levels of new supply will continue to be the relative winners.”

Tom Acitelli can be reached at tacitelli@commercialobserver.com.