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New York, San Francisco apartment markets will struggle in '17, UDR execs say

Apartment properties in San Francisco, New York and some smaller markets will continue to struggle in 2017 as newly constructed competitors continue to open, UDR Inc. executives said in an earnings conference call.

While the company has an "optimistic long-term outlook on apartment fundamentals, the two cities, which represent the third- and fourth-largest slices of its portfolio, face ongoing challenges from new supply, President and CEO Tom Toomey said.

The company is "in an excellent position to remain patient" on new property purchases, he added. While UDR will look for growth opportunities that meet its goals based on conservative underwriting, he said: "Ultimately we are willing to say no to deals if they do not pencil, and simply focus on operating our real estate."

UDR expects new construction in San Francisco to peak in the first half of 2017, "potentially setting us up for a better 2018," COO Jerry Davis said.

Company leaders said there are faint reasons for optimism in the two markets. In San Francisco, where the company's rate growth on new leases was -5.8% in the 2016 fourth quarter, growth on new leases improved to -3.2% in January. In New York, rate growth on new leases improved to 0.9% in January, compared to -2.7% in the 2016 fourth quarter.