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Equity Residential scrambles to attract New York tenants, execs say

Apartment landlords are giving away months of free rent to attract tenants in supply-swamped New York City, and Equity Residential is among them, having budgeted for "significant concessions" in the market, executives said.

Within the company's portfolio, New York is the market with "the highest potential for volatility to the downside, with an increased amount of high-end units being delivered into an environment where job growth is relatively mediocre," COO David Santee said in an earnings conference call. In particular, he said, the financial services industry is shrinking, and technology job expansion has stalled.

New York is "probably one of the most undisciplined markets" for landlord concessions, Santee said, adding that there are reports of "some crazy stuff like three and four months free on 12-month leases." As a result, executives said, the market could underperform even the company's cautious expectations.

Equity Residential expects a 1.5% decline in revenues in the market for the full year, and the city's performance will hurt the company's earnings, Santee said. In the worst case, he added, revenue in the area could fall as much as 3%.

Equity Residential is assuming that it will make "substantial" concessions to new tenants moving into its buildings in New York, with $4 million budgeted for concessions, Santee said. The company has budgeted to offer gift cards to prospective renters, but will use them as a last resort, behind rental rate cuts and other concessions, he added.

The news was relatively good, if uninspiring, in San Francisco, the other major market that plagued Equity Residential through much of 2016. That market "is best described as stable, with minimal pricing power on new leases as a result of tech stagnation and new supply," Santee said.