AvalonBay's 18th community, AVA Little Tokoyo, is located in Los Angeles and combines local L.A. vibes with a taste of Asian culture.
AvalonBay's 18th community, AVA Little Tokoyo, is located in Los Angeles and combines local L.A. vibes with a taste of Asian culture.
AvalonBay has a $3 billion development pipeline, the largest of the public apartment REITs, with 26 properties 8,524 units, according to Stifel Nicolaus. And right now, the company’s amenity-rich, Gen Y-targeted AVA brand is about one-quarter of that pipeline and about 7% of the company’s current portfolio by value. 

The line has had some big success, like the company’s award-winning AVA High Line in the Special West Chelsea District of Manhattan. And, on the company’s fourth quarter earnings call transcribed by SeekingAlpha, CEO Tim Naughton pointed to AVA 55 Ninth Street in Washington D.C., which is now worth $200 million—twice the basis. 

As more AVA developments are completed, the brand will be about 10% to 11% of the company’s total portfolio going forward, according to Matthew H. Birenbaum, Avalon’s chief investment officer, in comments from the company’s fourth quarter earnings call.

But with urban land values rising so high that construction in the suburbs looks a lot more attractive, Birenbaum said it will be hard to continue making AVA a larger percentage of the REIT’s pipeline. Instead, Birenbaum said the company will have to be opportunistic—going market-by-market to find opportunities.

“They do tend to be more urban product,” Birenbaum said on the call. “And so I wouldn't expect their share of the development rights pipeline to necessarily grow dramatically from here because what we're seeing as we get more mid-cycle is that we are generally shifting our focus a little bit more to suburban assets and—because the economics are getting tougher in the urban areas. That's where you seeing a lot more of the supply.”

Part of the problem is land prices. “Land prices have probably run up more aggressively in the urban submarkets than the suburban submarkets,” Birenbaum said. “So it's driven more by the opportunity set. And the ones you're seeing now, like AVA 55 Ninth, those were started early cycle in submarkets that have seen a lot of rent growth ... ”


But, make no mistake, AVA is still a brand the company wants to grow over time. “We love the brand,” Birenbaum said. “We'd love to grow it more. But I think it's unlikely that it's going to become a materially bigger part of our development pipeline in the next year or two than it has been.”