AvalonBay Communities Inc. expects to lose out on about $2 million in revenue in the second half of 2019 as a result of new rent regulations and tenant protections in New York and Los Angeles.
Executives said in an earnings conference call that New York's new rent laws will cost the company $1.05 million in revenue in the second half, with most of the shortfall coming from lost fees and some coming from the company's assumptions about unit turnover.
AvalonBay expects to lose another $1 million in revenue in Southern California, mainly in the Los Angeles area, because of new regulations on short-term leases. In total, the combined costs to the company of the new regulations amount to approximately 22 basis points of lost revenue growth, Chief Operating Officer Sean Breslin said.
AvalonBay and Equity Residential are the publicly traded real estate investment trusts with the greatest exposure to rent-stabilized apartments in New York, largely through the 421-a and Affordable New York programs, which grant developers tax exemptions in exchange for building temporarily rent-regulated units.
Equity Residential executives said a day before AvalonBay's call that they expect a short-term revenue hit from the new laws, which Gov. Andrew Cuomo signed in June, but believe that their portfolio could benefit from the changes over time. Executives at UDR Inc., another owner of stabilized apartments, said the changes should be "relatively immaterial" to their portfolio.
For their part, AvalonBay executives said they have not finished assessing the future effects of the laws and are waiting to see how the changes affect market rents, tenant turnover, landlord operating expenses and other factors.
The company owns four assets, with a total of about 2,100 market-rate rent-stabilized units, that have another 10 years left subject to rent restrictions, Breslin said. Over time, the new laws will affect those units by limiting AvalonBay's ability to raise rents under certain circumstances, including tenants moving out.