Good morning, ladies and gentlemen, and welcome to the AvalonBay Communities fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Following remarks by the company, we will conduct a question-and-answer session. You may enter the question-and-answer queue at any time during this call by pressing star one. If your question has been answered or you wish to remove yourself from the queue, press star two. If you're using a speakerphone, please lift the handset before asking your question, and we ask that you refrain from typing and have your cell phones turned off during the question-and-answer session. Your host for today's conference call is Mr. Jason Reilley, Vice President of Investor Relations. Mr. Reilley, you may begin your conference.
Thank you, Anita, and welcome to AvalonBay Communities fourth quarter 2021 earnings conference call. Before we begin, please note that forward-looking statements may be made during this discussion. There are a variety of risks and uncertainties associated with forward-looking statements, and actual results may differ materially. There is a discussion of these risks and uncertainties in yesterday afternoon's press release, as well as in the company's Form 10-K and Form 10-Q filed with the SEC. As usual, this press release does include an attachment with definitions and reconciliations of non-GAAP financial measures and other terms which may be used in today's discussion. The attachment is also available on our website at www.avalonbay.com/earnings, and we encourage you to refer to this information during the review of our operating results and financial performance.
With that, I'll turn the call over to Ben Schall, CEO and President of AvalonBay Communities. Ben.
Thank you, Jason, and thank you to everyone for joining us on the call today and for your engagement. Kevin, Matt, Sean, and I will provide some initial commentary, and then we will open the session up for questions. I want to start by thanking the AVB associate base, 3,000 strong, for all their contributions throughout 2021. Thanks to your commitment, we produced strong business results and embarked on our next phase of growth by ramping up our development and investment activity, all while navigating the challenges presented by the pandemic. Thank you especially to everyone working on site at our communities and construction projects and to our human resource teams for all you do to support each other, serve prospects and residents, and build for our future.
Turning to the presentation, slide four provides a summary of our success and strong finish to 2021. On the operating side in the fourth quarter, we delivered a 12.4 increase in Core FFO and a 4.7 increase in same-store revenue. On a cash basis, same-store revenue increased 8.3%. This momentum continues in the new year as we build on our strong operating foundation with healthy occupancy levels, low resident turnover, and strong embedded revenue growth. We also successfully ramped our investment activity in 2021 with almost $2 billion of new development starts and acquisitions, and with the bulk of this capital funded by dispositions and incremental debt financing at an historically low cost of capital.
In an otherwise low-yielding environment, our development capabilities allow us to generate significant value and meaningful incremental NOI growth on top of the internal growth generated by our operating portfolio. As shown on slide five, we completed $1.1 billion of projects in 2021 with an expected $65 million of new NOI upon stabilization. At a development yield of 6% and with a 230 basis points spread to an estimated market cap rate of 3.7%, these communities have created $650 million in value. That's a very robust 60% value creation margin.
As Matt will describe further, we expect to start an additional $1 billion-$1.25 billion of development projects this year at projected yields of 5.5%-6%, and we control a growing development rights pipeline which will set the stage for continued accretion and value creation from our development platform for many years to come. As we continue to invest and grow, we're also optimizing the earnings growth and long-term value of our existing portfolio. A large component of this optimization is the selling of older assets with slower growth profiles and redeploying that capital into our expansion markets.
During 2021, as highlighted on slide six, this led to our acquisition of $725 million of assets with an average age of three years at a 3.8% cap rate and the disposition of $865 million of assets with an average age of 26 years at a 3.7% cap rate. The bulk of our acquisitions were, and will continue to be in our expansion markets, which over time across Southeast Florida, Denver, Austin, Dallas, Charlotte, and Raleigh-Durham, we see as having the potential to grow to become 20%-25% of our portfolio through a combination of development and acquisitions. These expansion markets share many of the same characteristics as our established markets, including concentrations of knowledge-based workers and strong housing fundamentals. They also provide portfolio diversification and increased exposure to longer-term population shifts.
Still, most of our portfolio and new development capital in the long term will be in our established markets, where we have a high-quality portfolio of assets situated in regions that we believe will continue to thrive as vibrant centers of innovation, education, technology, and with strong job and income profiles, and in regions where we continue to leverage our long tenure with some of the strongest operating and development teams in the multifamily industry. Turning to slide seven. We continue to make significant investments in technology and innovation as we evolve our operating platform in order to provide enhanced value to prospects and residents while achieving operating efficiencies and driving new sources of revenue.
We've generated approximately $10 million of incremental NOI from our initiatives already deployed. We are about one third of the way to delivering our target of 200 basis points of margin improvement or $40 million-$50 million of NOI to the bottom line. Finally, I want to emphasize our continual investment in our people and our leadership at ESG. Starting with ESG, our goal is to keep AvalonBay on the forefront as a leader in sustainability and corporate responsibility in an area of increasing importance for our residents, associates, and investors. As an output of this corporate leadership, we have been recognized by various entities as ESG leaders, as shown on slide eight, including the Nareit Leader in the Light award as the top-ranked multifamily REIT for ESG leadership. Most importantly, we continue to invest in our people and our culture.
AvalonBay is an amazing place because of its people, and we're extremely focused on fostering an inclusive and diverse culture that attracts, retains, and provides growth opportunities to our people. We're excited for the year ahead, are fortunate to have a deeply dedicated team of associates, and we enter the year with our foot forward and in growth mode. With that, I'll turn it to Sean to talk further about our operating results and tailwinds heading into 2022.
All right. Thanks, Ben. I thought I'd share a few slides on recent portfolio rent trends, both overall and across different markets and sub-markets. Starting on slide nine, 2021 was a pretty unique year. In the first half of the year, we experienced not only a significant recovery in our business, but the average move-in rent grew fast enough to exceed pre-COVID peak rent levels by midyear. In the second half of the year, the combination of lower turnover, which was down 20% year-over-year, 11% below pre-COVID levels and the lowest we've seen in 10 years, along with healthy demand, resulted in rents defying seasonal norms by growing into September and then flattening through year-end. Historically, we'd see rental rates peak in July and August and then decline in the low single-digit % range through year-end, as represented by the dashed line for 2019.
For the calendar year of 2021, the portfolio average move-in rent grew by 23% and at year-end exceeded 2019 levels by about 9%. Moving to slide 10. Improved performance has been broad-based, with every region experiencing a significant increase in average move-in rent over the past year. The average move-in rent in New England increased by 30% during 2021, the highest of our established regions. It ended the year about 10% above pre-COVID levels. Improved performance in Boston has been supported by healthy job growth across various industries, most notably biotech, and reduced apartment deliveries in both urban and suburban sub-markets. In addition, for a region that's typically more seasonal, given the weather patterns, it's quite unusual to see rents flatten out in the last quarter of the year versus decline. That's a sign of a pretty strong market.
In Southern California, the average move-in rent grew by 23% during 2021, and at year-end was 21% above 2019 levels, the highest of our established regions. Performance has been supported by solid job growth, particularly in the content-producing sector of the economy in L.A., the lowest level of new multifamily supply of any of our regions at 1.1% of stock, and a very tight single-family market. At the other end of the spectrum, Northern California continued to lag the portfolio due to major tech employers delaying their return to the office, impacting the reopening of other businesses and the general quality of life in the region. While the average move-in rent increased by 15% during 2021, at year-end, it was still roughly 7% below pre-COVID levels.
While the region has lagged in the recovery, we could see a very meaningful increase in move-in rents in 2022, when a greater percentage of the workforce, particularly the tech segments that have experienced very robust wage increases the past couple of years, is called back to the office. The Mid-Atlantic, New York, New Jersey, and Pacific Northwest regions all delivered a 20%-25% increase in average move-in rents during 2021. The Mid-Atlantic entered the year with rents that were about 5% above 2019 levels, while the Pacific Northwest and New York, New Jersey regions were trending at roughly 10% ahead of 2019 levels. Turning to slide 11 to address suburban and urban performance trends.
The average move-in rent for our suburban portfolio increased by roughly 20% during 2021 and was approximately 13% above 2019 levels at year-end. In our urban portfolio, while the average move-in rent increased almost 30% during 2021, it was essentially at 2019 levels by the end of the year. Urban markets with rents still below 2019 levels include San Francisco at about 17% and Washington, D.C., at roughly 3%. In contrast, rents in New York City are currently about 4% above 2019 levels.
With office utilization rates in the high teens% in the San Francisco metro area and low- to mid-20% range in both New York City and Washington, D.C., we should continue to see a meaningful improvement in demand in our urban sub-markets as a greater percentage of the workforce is called back to the office. We've seen increasing signs of that demand returning. In Q4, our urban portfolio experienced about a 30% increase in the share of move-ins from more than 150 miles away as compared to pre-COVID norms. In markets like New York City and San Francisco, the share of move-ins from greater than 150 miles away increased by roughly 50% compared to historical norms. Similar long-distance move-ins are occurring in our suburban portfolio as well, but the increased share is more like in the 20% range.
Finally, moving to slide 12. The improvement of rent levels has translated into strong like-term effective rent change. We averaged 11% rent change in Q4 2021. With October and November in the high 10% range, followed by December at roughly 11.5%. The positive momentum continued into January with rent change of roughly 12.5%. Importantly, we experienced a meaningful increase of rent change across six of our eight regions in January. Overall, we're starting the year from a position of strength. January occupancy averaged 96.4%. Asking rents have increased 1.5% since the first of the year. We're seeing early signs of continued low turnover in an environment with very healthy rent increases. For that operating summary, I'll turn it to Kevin to address our full outlook for 2022. Kevin.
Thanks, Sean. Turning to 2022, apartment fundamentals in our established markets remain highly attractive. On slide 13, we show just how strong they are by providing data on some key trends, including strong job and wage growth for the professional services sector, which includes our target renters. The opportunity for further gains in office utilization from today's low levels. Rising single-family home prices which support rental demand, and a relatively stable outlook for new apartment deliveries in our markets. On slide 14, we provide our financial outlook for 2022. For the year, we expect robust growth from both our same-store portfolio and from stabilizing development to drive nearly 16% growth in Core FFO per share at the midpoint of our guidance of $9.55.
In our same-store residential portfolio, we expect a continued rebound from the pandemic in our urban markets and continued economic momentum across our entire portfolio. Using the midpoint of guidance, we project same-store residential revenue will increase by 8.25% based on growth in our urban portfolio in the low 10% range and growth in our suburban portfolio in the low-to-mid 7% range. We project same-store residential operating expenses will increase by 4.75%, primarily due to cost pressure in a couple of categories, initiatives being deployed, and some one-time benefits in 2021 that are not present in 2022. As for cost pressure, we're experiencing this primarily in two areas. First, in utilities as a result of very favorable supply contracts for commodities that expired late last year.
Second, in property taxes resulting from successful appeals in the prior year period and the expiration of certain PILOT programs in New York, which will burn off over the next few years, but at the same time allow us to exit rent stabilization and achieve full market rents on most of those communities over time. Among our various initiatives, we started to deploy our bulk internet and smart access offering, which will create a year-over-year expense headwind of about 50 basis points in 2022, but as part of a strategy to deliver a net profit of more than $30 million when this is stabilized over the next few years. Lastly, we realized some one-time benefits in 2021, including a payroll tax credit in Q4 that are creating about a 30 basis point headwind to OpEx growth in 2022.
As a result, we expect same-store residential net operating income will increase by 10% in 2022. For development, we expect to continue to generate earnings and NAV growth from stabilizing developments and to continue investing heavily in this differentiated capability, as you can see here on this slide. For our capital plan, we project external capital sources of about $900 million from asset sales, partial sale activity, and capital markets activity. For our capital uses, we expect to deploy about $1.2 billion towards development, redevelopment, and debt maturities in 2022. Finally, in our earnings release, we have also provided earnings guidance for Q1, for which at the midpoint, we project core FFO per share of $2.20 in the first quarter, or about $0.07 lower than in Q4.
This sequential earnings decline is driven by several items, including OpEx increases in utilities, property taxes, and payroll, including the previously mentioned payroll tax credit in Q4, overhead increases due to compensation adjustments and strategic initiatives, and NOI decreases from net disposition activity in Q4. On slide 15, we illustrate the components of our expected 15.6% growth in Core FFO per share. Most of our growth, specifically $1.02 per share, is expected to come from NOI growth in our same-store and redevelopment portfolios. About a third of our earnings growth, or $0.44 per share, is due to NOI from investment activity, which in turn is primarily from development. Mostly offsetting these sources of growth is a combined increase of about $0.17 per share from capital markets activity and increases in overhead.
On slide 16, we show the key components driving our expected 8.25% overall increase in same-store residential revenue, including our expectation for a strong increase in lease rates, a favorable impact from a lower level of amortized and newly granted concessions, an increase in other rental revenue, and a modest improvement in underlying uncollectible lease revenue, which we expect will remain elevated in the first half of 2022 before slowly improving in the second half of the year. However, we are assuming a year-over-year reduction of about $18 million in recognized rent relief collections from the Emergency Rental Assistance Program, which results in about a 90 basis point headwind to our projected full-year residential revenue growth rate. Moving to same-store residential revenue trends across our markets on slide 17.
Our expansion markets of Denver and Southeast Florida are expected to lead the portfolio revenue growth in 2022, followed by the Pacific Northwest. For the reasons Sean mentioned earlier, we expect Northern California to trail the portfolio average. However, it's a region with a history of outsized down cycles followed by robust recoveries. We could be favorably surprised by actual performance in Northern California as we move through the year. With that, I'll turn it over to Matt to discuss our plans for future development activity.
All right. Great. Thanks, Kevin. On slide 18, you can see that we're continuing to ramp up our development activity in response to these favorable market conditions. We have been starting roughly $1.1 billion of new development per year most of the prior cycle before sharply curtailing new investment activity as COVID hit in 2020. We've been able to shift gears aggressively last year, getting back to an annual starts level of roughly $1.2 billion and expect similar volume this year. This development continues to be very profitable with current development underway underwritten to an initial stabilized yield of 6%. With cap rates in the mid-3s, this puts us on track to extend the tremendous value creation margin Ben mentioned on our 2021 completions.
In the pie charts on the right, you can also see how market performance and our portfolio allocation priorities are reflected in our recent starts activity, with 90% of the 2021 and 2022 starts in suburban locations and a broad geographic mix, including more than 20% in our expansion regions. As we accelerate our starts activity, our regional development teams have also been focused on backfilling the development rights pipeline to generate the next set of investment opportunities for 2023 and beyond. As shown on slide 19, we have future development sites under control across all of our regions and have seen a market increase in pipeline activity in the past few quarters.
The projects shown on the slide here represent $2.6 billion of future starts activity over the next two to three years and excludes some of our longer term densification opportunities at existing assets, which brings our total development rights pipeline to $3.3 billion at the end of 2021. We've been even more active so far this year with an additional $700 million approved by our investment committee just in January and more on the way, including our first development right in Austin, Texas. This activity puts us on track to exceed $4 billion in development rights by the end of the first quarter. With that, I'll turn it back to Ben.
Thanks, Matt. As you've heard on the call today, we're entering the new year from a position of strength on multiple fronts. To close, I want to emphasize five key themes that will guide us in 2022 as we seek to generate outsized value and earnings growth, and as we continue to differentiate ourselves as one of the leading real estate companies in the country. First, our decades-long track record as a leading developer with deep market knowledge and experience across a breadth of communities and apartment styles allows us to create value by tailoring each development to best fit the needs of a local area, as well as continuing to meet the evolving needs of residents. It also drives meaningful incremental earnings and NOI growth across cycles.
Second, as we grow, we are optimizing the earnings growth and value creation potential of the existing portfolio by pruning slower growth assets and diversifying into new markets, providing an expanded domain to create value through our development, operating, and strategic capabilities. Third, our operating model is set to deliver meaningful earnings growth by utilizing technology and investing in innovation to improve operating margins and to unlock additional revenue opportunities. Fourth, we will continue to lead on ESG, an area increasingly important to municipalities as we seek development approvals to residents as they make housing decisions and to our associates as we meet our mission of creating a better way to live. Lastly, at the center of all that we do, we'll continue to foster our evergreen culture and invest in our people.
We look forward to our engagement with shareholders and stakeholders on these themes and others during the year. With that, I'll turn it to the operator to facilitate questions.
Thank you. As a reminder, please press star one to ask a question. We'll take our first question from Nick Joseph with Citi.
Thank you. I appreciate all the color. I guess maybe starting on the portfolio optimization and the target of 20%-25% in the expansion markets. What's the expected timing of actually getting there?
Thanks, Nick. I would, you know, continue to look at our growth in Southeast of Florida and Denver as a good proxy. You know, we've been active in those markets over the last three to four years. We have a target for each of those markets of about 5%, and we're about halfway through. Increasingly, we've got, you know, our people on the ground there. Our development activity continues to source additional opportunities, and the hope is that we can accelerate from there in those two markets. When you look to our next set of expansion markets, I would expect them to move on a similar type of timeframe over the coming years.
Thanks. I guess another timing question. In terms of the 200 basis points on the margin expansion opportunity, I think you mentioned you're a third done. When would you expect that 200 basis points to be in the run rate?
Yeah. Nick, this is Sean. It is a multiyear process. It's gonna take us a few years to work through everything, but we're making steady progress. I'd say if you talked about over the next 36-48 months, it's in the ballpark to work through all of it.
Great. Thank you very much.
Thank you. We'll take our next question from Rich Hill with Morgan Stanley.
Hey. Good afternoon, guys. I'm sorry if I missed this, but could you confirm the lost lease in the portfolio as of January?
Yeah. Rich, it's Sean. It's trending at 12%.
Okay, great. Maybe just going back to some of the timing questions. If I heard correctly, it sounds like your leases are 23% higher than where they were this time last year, give or take. Your leasing spreads are really strong, but not at 23%. Does that mean that you're you know that you're not capturing all the lost lease and some will bleed into 2023, or how should we think about that?
Yeah. Just to clarify a couple things. The 23% represents the move-in values at the end of the year as compared to the beginning of the year, not all of the leases in the portfolio being up 23%, if that makes sense.
The loss-to-lease side of it.
Yeah.
Okay. Okay, good.
On the lost lease side, like I said, it's 12% today. As I think I mentioned on the last call, about a third of the portfolio at this point in time is constrained by various things, you know, the rent regulations in New York City. There's a couple of COVID overlay issues out there, et cetera. What's really achievable today, if you just marked everything in the market, is call it 8%. How will that manifest its way through the portfolio will be as leases expire throughout 2022, and we're able to move people to market. That's how things will slowly bleed in.
If you're trying to understand sort of the pace of revenue growth given that phenomenon, then we do expect revenue growth will accelerate as we move through the year because all those leases are being marked to market as they expire.
That's very helpful. Maybe just framing the debate here a little bit on your guidance range. Can you maybe give us a little bit of color as to, you know, what assumptions are driving to the high end versus the low end?
Yeah. I mean, there's a number of different factors that play into that that we could spend some time on. Obviously, Kevin talked about what we're seeing in terms of or what we expect in the way of bad debt trends being modestly positive, but then we have a drag from rent relief that he also pointed out. Those two variables could swing one way or another, and we're expecting an improvement in underlying bad debt in the second half of the year that could accelerate, which gives us a little extra juice. Rent relief could also accelerate, but could also go the other way. It's a pretty unpredictable factor. Obviously, you have the normal things that we talk about in terms of turnover, where it occurs. Is it in markets that are currently regulated that we can get people to market?
How fast does market rent growth as we move through the years? There's all those normal factors that we would expect in addition to the unusual factors in the current environment.
Okay. Got it. Any, just you didn't mention anything about development, and I appreciate the range that you gave for NOI contributions. Is there, you know, it was higher than what we were expecting, which is obviously a good thing. You know any things that you're looking for on development that would, you know, make you more bullish or bearish?
Hey, Rich. It's Matt. I mean, as it relates to the 2022 earnings, you know, that's more or less, you know, the die is cast at this point. There's not gonna be huge variations in that number because those are deals that are already under construction, and in many cases have already started leasing. So, the variability there would be around what is the actual lease-up pace and rate. Does it do a little better or a little worse than what we've projected. You know, the bigger place where it will start to move the needle more materially in the out years would relate to starts that might happen this year, so.
Got it. That's what I was looking for. Thank you, guys. That's it.
Thank you. We'll take our next question from Rich Hightower with Evercore.
Hey, good afternoon, guys. Just to follow up on that development question really quick. Just you know, it's a little bit of nitpicking, but I guess the midpoint of the starts forecast for 2022 is a little bit less than what occurred in 2021. Is there a reason for that? Is it timing? Is it something else that we're not aware of?
Yeah, no. Hey, Rich, it's Matt. It's just, you know, these deals are lumpy, and they, you know, one deal happens to start in December versus January or February. That can change the number kind of on any particular, you know, period of time you wanna take, rolling four quarters or calendar year. I would tend to look at it more kind of on a two-year basis, which is why that's the way we presented the slide. You know, you think about 2021, 2022 together, you know, $2.3 billion-$2.4 billion worth of starts. You know, and again, we're looking to accelerate that, and hopefully 2023 we do even more.
Okay, perfect. I appreciate the detail around the sort of the composition of the same store revenue outlook. Within that, I don't think it was mentioned, but what are you baking in for sort of your underlying market rent growth assumption within all that, sort of separately from just, you know, what's baked in already and so forth?
Yeah. It's reflected in the bar that Kevin identified on the slide, Rich. If you take a look at that includes it's basically the confluence of different pieces, the very first bar on the lease rates. It reflects sort of the embedded piece, how much of the lost lease you can capture, as well as the effective change you might see in rents as we move through the year. All of that is embedded in that number.
That's all in that first bar then, in other words?
Correct. That is correct. Yep.
Okay. Got it. Yeah. Okay. Perfect. Thank you.
You got it.
Thank you. We'll now take our next question from Austin Wurschmidt with KeyBank.
Great. Thanks, everybody. Sean, just curious, based on what you saw in urban markets in the fourth quarter, sort of bucking seasonal trends, do you expect this? You know, have you seen it continue? Do you think it can continue into 2022? What did you guys assume in your guidance? Did you assume that it's, you know, just more typical demand trends? I'm just any thoughts there would be appreciated.
In the urban markets specifically, you're talking about, Austin?
Yeah, correct. You referenced, I think, you know, 50% or so upside versus what you'd seen historically in New York and San Francisco. Then, you know, 30% increase, I think.
Oh, yeah. The share of move-ins. Yeah. You know, we started to see that occur in Q2. It certainly accelerated as we got into Q3 and Q4 in terms of the percentage of move-ins coming from more than 150 miles away. I suspect, and I haven't looked at the full data for January. It may have slowed a little bit just given Omicron.
Mm-hmm.
I think our belief is that we're gonna continue to see a steady improvement in places like New York City, D.C., San Francisco, as more people are brought back to the office. You know, we don't think office utilization is gonna go back to exactly where it was pre-pandemic. I don't think most people do. If you're in the high teens to low 20% range, so if it goes to 70% utilization, you know, it's still triple what it is today. Would you expect to see improvement across those markets as we move through the year, as well as some of these jobs in our suburban locations that have sort of the same thing going on? You know, we should be like at Tysons Corner here in Northern Virginia as an example.
We do expect healthy performance out of those markets, as we move through the year. You know, we've seen that begin, and the trend should continue. What's a little hard to tell is the exact pace, and that's why Kevin made the comment that, you know, Northern California is still expected to trail the portfolio average for revenue growth. You know, it is a market that could surprise to the upside, and we'll just have to wait and see.
Yeah. No, that was sort of my follow-up.
No, I mean, you know, in addition to... Sorry, Austin, I was just gonna add, you know, in addition to any comments that, you know, Sean, the drivers that Sean referenced, you also just have overall job growth, right? You look at the overall job growth relative to pre-COVID levels in our urban markets, and we continue to think that there's some pretty meaningful room to run there and will serve as a decent driver.
Yeah. That makes a lot of sense. You know, Sean, you had started to hit a little bit on my follow-up there. How did you go about, I guess, underwriting, you know, same store revenue growth for Northern California? You know, what pace did you assume, or, how should we think about, you know, what's currently, you know, underlying that range?
Yeah. I mean, the way I would think about it is kind of three pieces to give you a rough roadmap. First is obviously what's competitive, which is easy in terms of where leases are today in January compared to where, you know, basically on average for 2021. You've got the loss to lease component, which is easy to compute. You have what you expect in terms of market rent growth. The third piece is the one that's most uncertain. We can see where we're, you know, moving people in today in the last quarter, as an example. We can assume that as leases expire moving through the year, we should be able to achieve at least that level.
We have some modest growth built in beyond that, based on a slow pace in terms of the return to office. As Kevin mentioned earlier, you know, things could accelerate there. It's just hard to put your finger on it as to how much incremental demand will show up, when it will show up, and how much it will drive performance in 2022. For the most part, you need to see a meaningful increase in that demand and in market rents in the first half of the year for it to bleed through revenue in 2022. Once you get to the second half, not as many lease expirations, you know, et cetera, et cetera.
It should begin to converge versus other markets, most likely towards the back half of the year, given comps otherwise, and then this potential lift that you kind of spoke to, from, you know, demand coming into the market. Is that fair?
When you say converge, relative to what?
Either, you know, blended lease rates slowing, you know, in other markets due to more difficult comps, whereas Northern California has certainly, you know, lagged as you guys, you know, highlighted.
Oh. Yeah.
You know, it starts to accelerate either as others decelerate, you know, or it's catching up, I guess.
That's certainly a possibility. Yeah. That is a possibility. Yeah. One thing you have to realize is that the leases that were signed in the first half of 2021 still had, you know, fairly decent concessions. Rents were much lower than where they are. You're gonna see pretty good effective rent growth in that market in the first half of the year. The second half will be dictated by some of the factors that I mentioned as it relates to demand.
Certainly. No, very helpful. Thank you.
Yeah.
Thank you. We'll now take our next question from John Kim with BMO Capital Markets.
Good afternoon. Can you just clarify the relationship between move-in rents and your effective rent growth? Theoretically, if you had, or hypothetically, if move-in rents were 23% above for the remainder of the year, would your effective rent growth be 23% once it plays catch-up?
Not necessarily for some of the factors I mentioned earlier, John. I mean, you've got those are strictly move-in rents, which given turnover rates, just call it roughly 50%, you know, there's also renewals. There are, as I mentioned earlier when I was talking about loss to lease, there are constraints on renewals in a number of our markets. Some are normal, like the rent regs in New York.
Some are sort of this COVID overlay, but it impacts about a third of the portfolio. You can't effectively assume that you're gonna mark every one to current move-in rent values over the next 12 months as leases expire.
Is that move-in rent always gonna be higher than your effective rent growth? Yeah. I think part of it is timing, part of it is other frictional factors. I'm just wondering, do the move-in rents always appear higher than the effective rent growth that you achieve?
Yeah. I mean, you've got, there's a number of different factors that feed into it. I mean, you've got a lag. Again, move-in rents for as of moment in time, we're talking about December versus January being up 23%. That was for that batch of move-ins during that period of time. You got sort of the two endpoints. There's a lag in terms of, you know, what asking rents are, and then people move in. There's typically a lag there. You've got a lag because of renewals. In theory, to your original question, if there were no constraints and no lags, and you could mark 100% of the rent roll to market on February first, yeah, you would see a significant move in the average rent, lease rent for the portfolio.
Okay. That's helpful. A question on your development starts, which this year are predominantly or 90% suburban. Is this your view of where secular trends will continue, suburban versus urban? Or do you see urban development picking up after this year?
Hey, John, it's Matt. Yeah, I think last year was also our starts level was also certainly at least 80% suburban, if not 90%. I think it'll still be a while. For us, when I look at our development rights pipeline, I expect that our starts will continue to weigh pretty heavily suburban over the next couple of years. That is where we're seeing better economics, you know, in terms of, obviously, rents have recovered a lot more there as Sean's data showed. Also, you know, that tends to play to our strengths because the suburban submarkets are more supply-constrained. Actually, entitlements are more difficult to get there. You know, we like the risk-return profile there.
The market as a whole, I think, in our established regions, you probably will see far fewer urban starts, not just from us, but in general. In our expansion regions, there's a lot of urban start activity going on as well as suburban.
That's great color. Thank you.
Thank you. We'll now take our next question from Chandni Luthra with Goldman Sachs.
Hi, thank you for taking my question. I wanted to talk about that development pipeline and your development starts for 2022. If we kind of go back in the last cycle, you were averaging about $1.4 billion in development starts sort of, you know, through that, I think, 2014, 2015, 2016 period. How should we think about development starts with the pipeline that you have today? I mean, you know, looking out, will there be a big step function change as we think about the next couple of years?
It's Matt, Chandni, and I can take a shot at that. You know, I don't know if Kevin may want to weigh in as well or Ben. Yeah, I mean, last cycle, we did ramp it up coming out of the GFC, and then there were a couple of years there where we were running at that level you described. I think over the course of the six or seven years, it was more like $1.2 billion. We're a bigger enterprise now, and costs are up. You know, even on an apples-to-apples basis, to do that much volume in the current environment, that's probably more like $1.5 billion-$1.6 billion a year in starts.
If we can find those opportunities, and we're feeling pretty optimistic based on our current book of business and the pipeline that we're seeing, you know, we're certainly ready and prepared, and would look forward to the opportunity to be able to continue to grow it.
Yeah. I'd add, Chandni, the other part is, you know, the tie-in with our expansion markets, right? Part of that move provides an expanded opportunity set there. Early on, we're growing through a combination of acquisitions, funding of other developers and our own development. That pipeline will also start to accelerate. You look a couple of years out, yes, we expect the overall development pipeline to continue to grow in size.
Maybe the final point there, Chandni, is I think it's sort of about our ability to fund this development activity. It sort of is somewhat tied to what's going on in the core business, where we are in the cycle, what kind of EBITDA growth we have, and what do our capital options look like. You know, at the moment, you know, what we've been doing has been funding our external needs through a combination of newly issued debt and disposition activity. For this year, with respect to our capital needs of about $900 million, you know, our current plan, which of course can change, is that we're likely to fund that through primarily through the issuance of new debt and then modestly through some net disposition activity.
Of course, capital market conditions and our uses can change. You know, it kind of speaks to the notion of a couple things. Obviously, with our EBITDA rising very briskly here this year, we can utilize debt to help fund development, and it's an attractive source as it is, both in its own right and on a real basis when you think about inflation. We can do that by issuing debt because, you know, our EBITDA is rising quite a bit, and we can be leverage neutral in doing so.
In a typical year, and in most years, we can fund about $1 billion-$1.3 billion or so of development activity through a combination of, you know, and free cash flow, selling assets where we can retain the capital because of our gains capacity, and then leverage neutral issuance of debt. That's kind of in a normal environment, plus or minus what we can do. We can probably do a little bit more early in the cycle as same store NOI grows briskly as it is now.
Potentially at some point, you know, right now our equity is attractive as a source for funding development. Although at the moment, we find asset sales to be more attractive. If we're going to be doing an awful lot more than those, that kind of level of development funding, it does imply that we're gonna have some level of equity market access. That's another constraint to layer in, as you think of what's possible. The three constraints we traditionally think about is we're constrained by opportunity set. We're constrained by sort of organizational capacity, and then we're constrained by sort of what we have on the capital side. That was speaking sort of that third bucket right there.
That's great level of detail. Thank you for that. For my follow-up question, I know you gave out good detail on how should we think about the low end versus high end of guidance and what gets you to each side. Could you perhaps contextualize cadence through the year? How should we think about seasonality this year, given this concept was pretty much thrown out of the window in 2021?
Yeah, this is Sean. What I was indicating earlier, just based on leases that were written in early 2021, the first half of 2021, basically, you know, kind of being substantially below where things are today, that we do expect revenue growth to accelerate as we move through the year. You know, as you move those leases to market, certainly is a driving factor. As Kevin mentioned, when we get to the back half of the year, we expect bad debt to improve. That also leads to accelerating revenue growth as we move through the year. As it relates to seasonality, in the back half of the year, it's a little too early to tell.
We are expecting getting back to more like seasonal norms when we get in the back half of the year as compared to what we experienced in 2021. It may be very different, you know, by market depending on the sort of shape of effective rent growth as we move through the year, what demand comes back and when it comes back to some of these markets that we're talking about, where we're still expecting a more full return to the office, et cetera. I would say that we are expecting more like seasonal norms when we get to the back half of the year, but we'll probably know better as we get through, you know, say mid-year, what that might look like.
Very helpful. Thank you so much.
Sure.
Thank you. We'll now take our next question from John Pawlowski with Green Street.
Thank you for the time. Sean, just one quick one for you. The 11% same-store like-term effective rent change in fourth quarter, could you give us a sense of what it would have been had there been no regulatory curbs?
Yeah, it would have been higher. I can't give that to you off the top of my head, John, but, you know, I can certainly circle back, and let you know. What I would say is, what I mentioned earlier is about a third of the portfolio is currently constrained, and you would have seen better renewal growth. My guess is to provide a little bit of color, you know, move-ins were at 12.5%, and renewals were at 10%. You probably would have seen the renewal side look more like the move-in side, but still a little bit of a delta just because the lag between when renewal offers are made and when they're actually signed, you know, the lease is renewed, since you send that renewal offer 60-90 days in advance.
You would've seen, you know, maybe another 100 basis points on a blended basis if the 10 went to 12 and 50% turnover as an example, if you're looking at it in kind of theoretical terms.
Okay. Ben or Kevin, the $880 million earmarked for, from capital sales or asset sales and capital markets activity, if you peel that back, what's the kind of preliminary assumption, assuming your cost of capital stays where it is and the private market pricing stays where it is, what's the preliminary assumption for asset sales within that figure?
Yeah, John, let me start a little bit. The external funding need of $880 million is kind of what we really need to run the business if we're just sort of really kind of not focused on the trading activity. There'll be a fair bit of acquisition and dispositions just kind of on a trading basis through the investments group that Matt oversees. From the standpoint of raising external capital, our current plan, as I mentioned a moment ago, is funded largely through the issuance of newly issued debt. Just given where debt rates are today, although they're up from where they were three, four, six months ago, they're still quite attractive by almost any metric, and certainly attractive relative to our investment use, which in this case is development.
The $900 million or so is really to primarily fund the investment activity. That'll be mostly through debt, and we'll likely be able to do so on a leverage-neutral basis. We do expect to be a modest net seller of assets, and so those net disposition proceeds will be worked into a small component of that $900 million. Again, of course, as you point out, that's where we stand today. We think, you know, all of our main capital choices, unsecured debt, selling assets, and issuing equity are attractive, but when we rank order those, debt and asset sales are a lot more attractive than selling equity today.
Our plan at the moment contemplates, you know, asset sales and debt, but just given our rising EBITDA growth and our capacity to issue debt on a leverage-neutral basis and, you know, both on a nominal and then on a real basis where debt rates are today, our preference is probably for to use a little bit more debt here right now.
John, you know, just a little bit more color on kind of overall transaction activity, you know, acquisitions and dispositions. We are expecting, you know, both of those to be up somewhat relative to 2021.
Kevin, you know, used the term sort of trading capital, and that tends to, you know, continue to be our approach, which is the trading capital out of predominantly the Northeast and assets that have had pretty good runs up in value, tend to be older assets, lower IRR profiles, and then redeploying that capital into our expansion markets, to capture that growth and as part of our overall portfolio allocation objectives.
Okay, understood. Just one follow-up on the rank ordering of sources of capital. I know it's a very, very modest amount, but I still don't understand why there was any equity issued given where cap rates are right now, and to your point that just the private market pricing. How was that conversation in the fourth quarter to issue equity at these levels?
Yeah. I mean, this is maybe. I'll kind of hit on a few high points, and we can certainly talk about it afterwards because some of this gets a little bit nuanced and so forth. You know, starting at the top in terms of where we rank order, pricing, asset sales are kind of number one at more or less at the 100th percentile when, in times past, we've talked about our heat map and our way of sort of looking at spot pricing and, you know, on an absolute and then on a historical relative basis. So asset sales are probably number one. Debt issuance is kind of behind that into the low 90th percentile range. And then equity for us is probably more in that mid-80% range. So I think we'd agree with you probably on the rank order.
I think probably where we might differ is perhaps just given where I know how you're looking at things, maybe you have a slightly different view of a greater separation with respect to equity pricing versus some of the other choices. From our standpoint, you know, it's particularly in a dynamic environment like this, it's hard to be dogmatically focused mechanistically on NAV, although it's a dominant factor in our analysis, because NAV can move dynamically here. In terms of what we did, you know, philosophically, you know, it does make sense to infuse the balance sheet with equity issuance when we think it is attractively priced relative to development. Just because it helps preserve a higher basis set of assets, that in turn over time can help support our recycling strategy to continuously fund development.
That's one element of why, when it does make sense and we feel it's attractively priced, bringing in some equity does make sense. In terms of what we did in Q4, you know, we had a modest amount of ATM issuance in early October before our issuance window closed, and then a little bit more in a forward basis in late November, early December. The reason why, you know, we were looking to do a little bit there was just given where pricing was at the moment.
Market volatility, as you may recall, started to work back into the market, and we just chose to step back out of the market, given that dynamic as well as, you know, capital position, which, as you can see here in the $24 million of unrestricted cash on our balance sheet, was in an excellent position. Those are really the thoughts. You know, we've probably raised, what, about $2 billion last year and maybe about $30 million was equity. I think that gives you a sense of where we feel, you know, equity ranks in the mix. It's attractive, but nearly so as asset sales. That's kind of our general thoughts. I don't know if, Ben, there's anything else you'd want to add.
That's very helpful. Thank you for talking through that, Kevin.
Thank you. We'll now take our next question from Richard Anderson with SMBC.
Hey, thanks. Good afternoon. 10 years ago, you guys got the big multiple as the multifamily REITs and the Sun Belt players, you know, were several rungs below you. I know that has changed, and this question really is on your expansion market approach. You said that, you know, increasing number of people are moving into your urban areas from more than 150 miles away. If I'm a resident, I understand trying to avoid regulation, but if I'm a resident, I might wanna live in those regulated markets and protect myself to some degree. To what extent are you married to this 20%-25% range? If you start to see some systemic things going back in the other direction that support long-term urban over Sun Belt, would you yourself make a change yourself?
Yeah, Rich. It is a target, right? We put that out there to help drive internal activity and to drive our resource allocation, particularly on the people side. The other part I'd emphasize is, you know, this is. We're gonna move into these markets and diversify our markets over time, right? That is very much a part of our measured approach here, right? Acquiring our development activity in these new markets inherently paces our investment over a period of time. Yeah, we think if we look at overall portfolio optimization for some of the reasons that we talked about, diversification away from regulation, we think it makes sense to continue to move in this fashion.
With that said, our established markets, that's the bulk of our activity. We're strong believers in the trajectory of those markets going forward. They're gonna continue to get the bulk of our investment, both on the development side, and on the people side.
Okay. Fair enough. Then just a quick follow-up. You know, some strange labor markets in the present tense, inflation, interest rates and so on, but you're ramping up development. You know, you're making a commitment by doing so to out years, 2023 and 2024. Is that the way we should be thinking about it, that this is not just a 2022 story, but you are making a call also on a continuation of above average fundamental performance in out years? Is that a fair statement?
It is the direction we're moving. You know, we definitely continue to pivot into growth mode. You know, the build of our development pipeline, you know, a lot of that is options on land, right? A little bit to your first question, we will continue to be able to be flexible and adapt based on market conditions at that point in time. We are leaning in, and, you know, do wanna secure additional land rights given the economics that we're seeing today, and at least our forecast going out, you know, over the next year or so.
Okay, fair enough. Thanks.
Thank you. We'll now take our next question from Joshua Dennerlein with Bank of America.
Yeah. Hey, everyone. I just wanted to follow up on a comment you made earlier. You mentioned that it's harder to get building permits in the suburban markets versus urban. I'm just curious why that is, and if that's a new thing or it's always been historically like that.
Yeah, sure, Josh. This is Matt. Yeah, I was really referring to entitlements. That has been the case in our legacy or established regions for a long time. You know, and if you think about it comes back to politics, right? I mean, entitlements is a political decision, and many of the suburban jurisdictions you know, you take New York, for example, you know, we're in New York City, we're also in Long Island, New Jersey, Westchester County. The latter three, Long Island, New Jersey, Westchester County, they all have a bias against multi-family housing. The housing stock is primarily single-family. A lot of people are there because of the school systems, and they don't want more growth. They don't want more kids in the schools.
There's a backstory there as well, where the you know there's just a bias against renters. Contrast that with New York City, you know there are certainly neighborhoods where it's difficult to get entitlements, but a lot of what you can build in New York City, you can actually build by right. You don't need anybody's approval. You just go straight to building permit. You don't have to go through the planning commission. You don't have to go through the neighborhood advisory council and all those other things that we're so good at that take so long. You know generally. That's true in most of our markets. Maybe not in the city of San Francisco, but certainly in the Northeast, that's been the case and even on the West Coast.
If you look at the amount of supply in our established regions, urban versus suburban, the last, you know, decade, there's been a lot more as a percentage of supply in the urban submarkets. Some of that's because there's been demand there, and some of that's because it's easier to build there. We do think that is a structural feature of our kind of the way our political and regulatory framework exists. You know, that plays to our strengths and, you know, that's always been something that's been core to one of our strategic capabilities.
It really speaks to the benefits from the long-term investment that we're making in these development platforms, right? You know, long track record that our lead developers have. When the opportunities do surface for incremental rental housing in these markets, we tend to be one of those first calls, right? Given the relationships, given execution, given what we deliver in these markets. That's why you're continuing to see significant investment in development in these expansion markets at the types of spreads that we've referred to.
All right. That's great. I appreciate the time.
Thank you. We'll now take our next question from Alexander Goldfarb with Piper Sandler.
Hey, good afternoon, and thank you. Just a few questions here. Going back to Nick Joseph's question earlier on the call about the 200 basis points in margin and just yeah, thinking big picture across the company. How much of the margin savings just comes from the fact that, you know, the job market's tight, so, you know, the ability to backfill positions is tougher, so you may be running with fewer. You know, let's say you're running with more open positions, meaning fewer, you know, positions filled than you'd otherwise like. Just sort of curious.
Yeah. Alex, this is Sean. The vacancy on payroll, if you wanna think of it that way, has nothing to do with the margin expansion. There will always be vacancy on payroll regardless, just because you're never really 100% occupied, if you wanna think about it from that perspective, from a payroll standpoint. There will always be some constant vacancy. The margin improvement is directly as a result of initiatives that are associated with various activities.
Okay. What you're saying is right now in this current labor market, you haven't seen any, you know, versus your historical payroll gap, you haven't seen that grow, that you're saving more, you know, G&A/property management, whatever expense. It's that gap's been pretty normal despite the tight labor?
No, I think what I'm trying to separate payroll vacancy from initiative benefit, I think was your question. There has been some incremental vacancy, both in 2021 and where we sit today that is independent of specific digital initiatives or other initiatives that will shape the nature of our operating model going forward that will deliver the 200 basis point of margin improvement.
Okay. That's helpful. The second question is, as you guys underwrite your next set of projects, how are you looking at rent growth versus, you know, construction costs, timing delays and all that fun stuff? Is your view that rent growth will continue to outpace your costs, such that development yields should hold or maybe improve? Or are you expecting, you know, some pressure on yields?
Hey, Alex, it's Matt. We generally tend to underwrite everything on a current basis. Whether it's a deal that we're signing up now that's not gonna start for two years or it's the class three budget and we're about to start it. We look at today's rents, today's expenses, today's hard costs, and we come up with kind of a spot yield. We generally don't trend, which, you know, generally is one reason why when our developments stabilize, they tend to beat the pro forma. You know, our current deals are running, I think 30 or 40 basis points ahead of the initial underwriting, and that's not uncommon, for us. Generally, that served us well.
What I would say is that, right now, like if I compare deals to six or nine or twelve months ago, the rent increases, at which you get some operating leverage, meaning the NOI increase is higher than the rent increase, that has covered the increase in hard costs so far. You know, the yields are still in the high 5s on the new business we're underwriting, which is probably where they were a year ago. There is some risk that at some point, you know, hard costs tend to lag, and so they may increase more quickly than rents or NOIs in the out years. There's also tremendous room in the margin. Right now, the development deal, you know, the margins Ben was talking about, the spread is massive.
Even if that comes in some, it's still gonna be very profitable business.
Okay. Thank you.
Thank you. Once again, if you would like to ask a question, please press star one. We'll now take our next question from Haendel St. Juste with Mizuho.
Yes, good afternoon. A couple quick ones for me. If I could start first on bad debt, just going back to that topic. I think I heard you correctly, you're not including any improvement in bad debt this year for your baseline outlook. I guess I'm curious what's the thinking there? It seems a bit conservative. Some of your peers have started to reflect this in their baseline outlooks. Then proportionally, what % of that is California, more specifically Northern California-based? Thanks.
Yeah, Haendel. As it relates to bad debt, we are expecting an improvement in what, you know, you might refer to as sort of the underlying bad debt rate, excluding any benefit from rent relief. It's roughly about a 40 basis point improvement is what we're expecting for 2022 relative to 2021. It is timing. The timing is not even at all through the year. We basically expect the first half of the year to look a lot like, you know, the back end of 2021. Then, deceleration in bad debt as we move through the third and fourth quarter of this year. So that's how I would think about it. As it relates to composition across the markets, in California in particular, the heavy place for bad debt really is L.A.
There is bad debt in Northern California. It's not nearly as bad as L.A. We can certainly get you the numbers specifically for Northern California, but it won't be as much of an outlier as it is in Los Angeles.
Okay. I'll follow up with you guys on that, actually both sets of numbers. A couple quick ones on development. I guess I'm curious how much of the development costs for this year, in terms of what's underway and what you'll be starting, what proportion of those costs are locked in? On the development NOI contribution you outlined for this year, I think I heard you right, and I think I understand that your current outlook for that is based on the current market rents. It does not have any reflection of market rate growth or any trending. It's based on today's market rents.
Sure. Yeah, this is Matt. I can take a shot at those as it relates to what percentage of our costs are locked in. On the deals that have already started, the 21 starts, when we start a project, we have what we call a class three budget. At that point, we're pretty well locked in. We don't necessarily have all of the subcontractor contracts committed yet, but we have a very high percentage of them, anywhere between 60%-70%. I would say we're pretty well covered there. If you look historically, you know, we have a very good track record of delivering our projects, you know, on time and on budget within a point or two.
The risk is probably more on the jobs that haven't started yet, the jobs that we're planning to start in 2022. The soft costs are pretty nailed down. The land cost is defined. The exposure there is further increases in hard costs between now and when we can get those deals permitted and bought out and how that increase might be different than what might happen to NOIs. You know, we have a little bit of exposure there, but I would have said the same thing six months ago. As I said, even you know, even through the last two, three quarters, the yields have more or less held up.
You know, in general, those deals, the deals we're looking to start this year, the underwritten yields today on the untrended numbers are in the high 5s, 5%-7%, 5%-8%. We certainly hope they stay there. Even if they do get some cost pressure and they wind up 5.5%, that's still very strong value creation. As it relates to the NOI on the for 2022 on the lease-up deals, that is based on today's rents. The lease-up budgets that were prepared are deal-by-deal specific. I think Sean has a little more color on that. Yeah. One thing I would add on that is, most of the deals that are delivering the NOI this year have been mark-to-market, but there are three deals that are expected to start delivering in 2022 and go into lease-up.
Those three deals, the rents have not yet been mark-to-market, so given the environment, there should be a little bit of inflation associated with those three assets when they begin to deliver.
No, very helpful. Thanks. One last one. Just thinking about your development in your expansion markets. I think you mentioned 20% of this year's starts will be in those markets. I guess, how do we think about that longer term? What proportion of your annual starts or spend could come from those markets? Any discernible difference in the underwritten yields between your expansion versus established markets. Thanks.
Yes, Matt. I mean, we'll see over time. You know, certainly if our goal is that those markets are gonna be 20%-25% of our overall portfolio, we would look for it to be at least that much of our development pipeline, but it's gonna take some time. You know, that is an activity that benefits from the local presence, from the knowledge, from the flywheel, if you will. I'm not sure that it's gonna be materially different over the next year or two. The one exception to that would be, as Ben was talking about this program, in addition to doing our own development, we are looking to provide capital and fund other developers, with deals that they might have where they're ready to go and are looking for capital.
We have one deal that we're gonna start this year in North Carolina that fits that description. One of our deals in Florida under construction fits that description. Those deals will probably be a little less profitable because we do have local sponsors. They're a little bit lower risk, a little bit lower yield. They're kind of halfway between a development and an acquisition, is the way we tend to think about it. You know, we may see some of that pick up.
Got it. Very helpful. Thank you for the time. Appreciate the thoughts.
Thank you. We'll now take our next question from Nick Joseph, Citi.
Hey, it's Michael Bilerman here with Nick. Ben, you know, over Avalon's time in terms of market expansions and growing, you know, and I take it that you've always pursued a very measured approach. There's always been some times a transaction that speeds up the process, either through swaps with other REITs or potential transactions with private partners, either on a buy or a sell side. Given all the activity that's happening in the multifamily market, is there an opportunity today where some of this transformation could be accelerated?
Yeah. Thanks, Michael. Yeah, it's a possibility, but I wouldn't describe it as a priority right now. Yeah, I think we do look at some of the portfolios that are out there. They tend to be more geographically dispersed. You know, given our focus on our core set of expansion markets, and really it's an approach based on, for us to create value, right, we want to be able to leverage our full operating teams and our development teams to create that value. We stay pretty narrow from a geographic perspective. There could be a portfolio that, you know, fits enough of the kind of strike zone for us that we would look at. That'll stay on our radar.
I expect more of our activity to be similar to what you've seen in 2021 with some expanded growth going into this year and following years.
I guess where in your mind today, would you be more leaning towards likely accelerating dispositions or conversely, you know, trying to find and maybe taking down more deals before you sell? Right. I'm just curious sort of where you're finding the most demand, because I would imagine, even though some of these portfolios are geographically dispersed, given the relationships you have with third-party capital sources, you may be able to do something unique, you know, there as well. I just didn't know where the bias was today, whether you want to hit the bid on the sale or whether you want to be aggressive on the buy.
Yeah, there is a matching component of it. I would say, you know, given the run-ups that we've seen, you know, in our existing markets and also, you know, seeing the run-ups in some of the markets that we're growing in, we're comfortable at this point in sort of the trade capital arena, right, with sort of matching a level of disposition activity and redeploying that capital in expansion markets for incremental growth, right? You know, as you're referring to it, you know, would mean tapping into additional disposition activity or potentially tapping into incremental equity. Right now, we sort of look out on it. I think we're gonna continue to, you know, progress in a fairly measured way.
And then-
The last piece to emphasize, I mean, from an overall total investment perspective, right, we're continuing to invest significantly, you know, $2 billion plus this year.
Yeah.
A good portion of that's going into our established markets around these development opportunities. As we look at from a risk-return perspective, right, leveraging our existing teams and being able to unlock the next rounds of the 200-250 basis point spread, that remains very high on our list in terms of attractiveness.
Right. When you think about all the land that you control, either through contract or on the balance sheet, then you have a long runway to continue that growth in your established markets with very attractive returns. That wasn't a question, that was a comment. I had another, just one question for you, Ben. Now that you've sort of been in this seat for the last year at Avalon, you know, being in a pure multifamily platform, has your mind changed at all about sort of how you view mixed use in terms of ownership at Avalon? Just drawing on your previous experiences, I'm just wondering how that has evolved in your thinking, for Avalon in terms of its ownership of other pieces or maybe getting involved in more complex projects. Just sort of walk me through your mindset today on that.
Yeah. Good question. It continues to be, you know, I think the conversion of retail land, as well as suburban office land, continues to be an attractive source of land inventory for us. As we're building up our pipeline, that's a decent amount of it. I'd say today, actually, probably a little bit more of it is the defunct suburban office product, that we can control, a little simpler on the execution, smaller sites. We're finding some good opportunities there, particularly in our established markets. A little bit more broadly, I mean, AvalonBay, you know, of the peers, has been the most successful in partnering with others. When it works, it really works well.
We opened a project recently in Woburn, Mass., which isn't even sort of the broadest of mixed use environments, but part of the attractiveness there is the ability for our residents to walk out their door and have access to the grocery store and restaurants. When we can find those opportunities with the right partners, it is something that, you know, we'll continue to lean into.
Great. I appreciate it. See you down in Florida.
Sounds good. See you soon.
It appears that I have no further questions at this time. I'd like to turn the conference back to Mr. Ben Schall for any additional or closing remarks.
All right. Thank you, and thank you to everyone for joining today. We look forward to engaging further with you over the coming months.
This concludes today's call. Thank you for your participation. You may now disconnect.