Equity Residential (EQR) Q4 2022 Earnings Call Transcript

Equity Residential (NYSE:EQR) Q4 2022 Results Conference Call February 10, 2023 11:00 AM ET

Company Participants

Marty McKenna – IR

Mark Parrell – President and CEO

Michael Manelis – COO

Bob Garechana – CFO

Alec Brackenridge – CIO

Conference Call Participants

Nick Joseph – Citi

John Pawlowski – Green Street

Chandni Luthra – Goldman Sachs

Steve Sakwa – Evercore ISI

John Kim – BMO Capital Markets

Adam Kramer – Morgan Stanley

Haendel St. Juste – Mizuho

Jeff Spector – Bank of America

Nick Yulico – Scotiabank

Alexander Goldfarb – Piper Sandler

Ami Probandt – UBS

Operator

Good day, and welcome to the Equity Residential Fourth Quarter 2022 Earnings Conference Call and Webcast. Today’s call is being recorded.

At this time, I’d like to turn the conference over to Mr. Marty McKenna. Please go ahead, sir.

Marty McKenna

Good morning, and thanks for joining us to discuss Equity Residential’s fourth quarter 2022 results.

Our featured speakers today are Mark Parrell, our President and CEO; and Michael Manelis, our Chief Operating Officer; and Bob Garechana, our Chief Financial Officer. Alec Brackenridge, our Chief Investment Officer is here with us as well for the Q&A.

Our earnings release is posted in the Investors section of equityapartments.com. Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. The Company assumes no obligation to update or supplement these statements that become untrue, because of subsequent events.

Now, I will turn the call over to Mark Parrell.

Mark Parrell

Thanks Marty. Good morning and thank you all for joining us today to discuss our fourth quarter and full year results and our outlook for 2023.

2022 was a terrific year for Equity Residential. We finished the year, as we expected, producing same-store revenue growth of 10.6%. We continued to see good demand during the fourth quarter, but certainly saw a return of seasonality to the business. Our strong 2022 same-store revenue growth combined with modest expense growth of 3.6% resulted in same-store net operating income growth for the full year of 14.1%. With continuing positive financial leverage, this led to a 17.7% increase in year-over-year normalized FFO.

I want to take a moment, thank all my colleagues across Equity Residential for their hard work and dedication in delivering these terrific results. In a moment, Michael Manelis will take you through our 2022 highlights and how we expect 2023 to shape up on the revenue side; and Bob Garechana will comment on bad debt and review our 2022 expense results and 2023 expense expectations, as well as recent balance sheet activities and then we will take your questions.

We have provided guidance for same-store revenue growth at a midpoint of 5.25%, which would make 2023 another good year for Equity Residential and produce same-store revenue growth well above our long-term average. We do admit to finding 2023 harder to predict than usual. On the positive side, we go into the year, expecting a benefit from embedded growth of about 4.2% from leases written in 2022 and we also carry into the year and above average loss to lease, both of which will contribute to positive momentum for us, particularly in the first half of 2023.

We also feel good about the employability and earnings power of our affluent renter customer. There still appears to be plentiful employment opportunities for the highly skilled workers that formed the bulk of our residents as evidenced by last week’s blowout January employment and job openings reports. We saw big increases in employment in the professional and business services category, a smaller gain in financial activities and only a modest decline in information services, all big employment categories for our residents.

So far the announced layoffs at tech and some financial firms while certainly creating a negative environment have not manifested themselves much in the government’s reported numbers, or thus far in our internal numbers. We’ve only seen a handful of residents terminating leases early due to job loss. Possibly the impact is delayed due to severance and other factors. But it is at least equally possible that the workers in these categories are being quickly reabsorbed into the job market. Our renter demographic has proven resilient in the past, and we expect them to continue to be highly employable.

As to renter incomes, according to the Atlanta Fed wage tracker, college graduates wages accelerated in the fourth quarter, outpacing wage gains achieved by hourly workers despite the higher base.

Looking at competition from home ownership and new apartment supply in 2023, we also generally see a favorable picture. Homeownership costs and down-payment requirements remain high in our markets, especially relative to rents, making our product to better value. According to the National Association of Realtors, for their affordability index to return to pre-COVID levels, one of three things will need to occur: The 30-year mortgage rate will need to decline to 2.6%; home prices to fall by 1/3, our family incomes to increase by 50%. This is all very consistent with our internal data, which shows the percentage of residents leaving us to purchase a home fell to 9.4% in the fourth quarter from 15.8% a year ago. On the apartment supply side, we expect 2023 national new supply to run at record levels. But we generally feel good about the direct level of competition that we will face given our market mix and importantly, the location of supply within markets relative to our properties.

The Sunbelt markets, including the Dallas Fort Worth, Austin and Atlanta markets, in which we are increasingly investing and Denver, will see higher relative supply numbers in our coastal established markets and likely more impact, especially if that’s coupled with a job slowdown. In terms of supply in our coastal established markets, where we still have 95% of our properties. Our internal research indicates that new apartments delivered near to our properties create significantly more short-term pressure on our results.

As we look at 2023’s expected deliveries through that lens, new supply within close proximity to our properties in our coastal established markets is actually forecasted to be below pre-pandemic levels with only the Washington D.C. and Orange County market screening as delivering above average supply close to our properties relative to these pre-pandemic supply averages. And over the next decade, the significant net deficit of housing across the country sets us up for good long-term demand.

We do, however, fully acknowledge that despite what was good GDP growth in the fourth quarter and full year and continuing strong employment reports, the Federal Reserve’s rate actions are likely to pressure job growth and economic growth as 2023 progresses. We took this into account in our guidance by assuming a lower rate of rental rate growth during 2023 than usual and a decline in occupancy. But whether there is or isn’t a technical recession is of considerably less importance to us than whether job growth substantially declines and if so when. A decline at the beginning of our spring leasing season will be considerably more impactful than a slowdown later in the year.

We also now expect that the elevated post-pandemic level of bad debt in some of our California markets does improve in ‘23 but at a slower rate than we previously hoped, as poor public policies encouraging delinquency continue. Bob will discuss all this in a moment.

In sum, we make no prediction about a recession but have assumed some impact to our 2023 results from a job slowdown and flawed government policy and evictions, while continuing to see sources of strength in our business in the form of modest forward competition from home purchases and new apartment supply, the high employment ability of our residents even if the job market deteriorates from its current lofty levels, and the positive forward momentum from our strong 2022 results.

On the transaction front, there was not much activity in 2022 for us. We only purchased one deal and we sold three others, two in New York City and one in Washington D.C. We did start a handful of new developments. These were mostly in our Toll joint venture structure. As we head into 2023, the transaction markets remain unsettled, but we see higher than usual supply in the Sunbelt and Denver markets in which we wish to expand as hopefully creating buying opportunities for us later in the year.

For now, our guidance does not assume any acquisition or disposition activity, but remain committed to our strategy of shifting capital out of California, New York and Washington D.C., and into our expansion markets of Denver, Dallas Fort Worth, Austin and Atlanta, as well as the suburbs and markets like Seattle and Boston, assuming appropriate opportunities present themselves.

And with that, I’ll turn the call over to Michael.

Michael Manelis

Thanks, Mark, and thanks to everybody for joining us today. This morning, I will review key takeaways from our fourth quarter 2022 performance, expectations for 2023 and provide some color on the markets before I turn it over to Bob to walk through our financial guidance.

2022 same-store revenue growth of 10.6% was the best in EQR’s history of nearly 30 years as a public company. Reported turnover for both the full year and the fourth quarter was the lowest in the Company’s history, reflecting great demand that produced high occupancy and significant pricing power.

In most of our markets, we had a supercharged spring leasing season with more robust pricing power that started earlier than usual in the year. Rents peaked in August, which is typical and then started to seasonally moderate, which is also typical. The seasonal moderation was a little more pronounced than we originally expected and likely due to a combination of rents reaching such a high peak, along with less pricing power than expected as we ended the year. Given current uncertainty about the economy, including increasing layoff announcements, this moderation isn’t surprising, though the January employment report that Mark just mentioned was very encouraging. Sitting here today, we have good occupancy with solid demand across our markets. Our dashboards and current leasing momentum continue to signal a normal spring.

Let me take a minute and walk through the building blocks of our guidance range of 4.5% to 6% revenue growth. This is an updated look to what we provided in our third quarter management presentation.

So first, we start with an embedded growth of 4.2% for 2023. This is slightly below the midpoint of the range we talked about in the third quarter of 4% to 5%, but mostly consistent with expectations and takes into account the additional concessions used in the fourth quarter. Next, we expect strong occupancy for 2023 at 96.2% which includes a continuation of low resident turnover but is 20 basis points lower than that of 2022. Finally, we’re assuming blended rates in 2023 will average approximately 4% for the full year. This assumption incorporates capturing our 1.5% loss to lease along with approximately 2.5% intraperiod growth in rates. This intraperiod growth assumes a positive impact from less overall pressure from competitive new supply and acknowledges some potential headwinds for a softening economy.

For your reference, in a normal non-recessionary year, we would expect intraperiod growth to be about 3% to 3.5% with us capturing about half of that gain in same-store revenue. The first half of 2023 will benefit from the momentum we had last year, while the back half of the year faces tougher comps and could feel the impact of the economy, as the year progresses. The contribution of this blended rate growth to revenue will be approximately half, as we capture it over the 2023 leasing season. Add all of that up and the implication is revenue growth over 6%, which would be exceptional after a remarkable 2022. The midpoint of our guidance range however is 5.25%, which is lower because we do not expect bad debt net to return to pre-pandemic levels in 2023, and it continues to work against us this year, due to a lack of expected government rental assistance and the extension of the eviction moratoriums in both LA and Alameda counties. Bob will go into more detail on bad debt net, including our assumption in his prepared remarks.

The outlook I just described is based on a belief that, while the economy may be slowing, our business continues to demonstrate a number of favorable drivers and resiliency. As we have often said in the past, we focus on our dashboards while also acknowledging the headlines. While keeping in mind that this is very early in the year, when we look at our dashboards today, the portfolio is demonstrating sequential improvement in both pricing trends and application volume, as we would expect, which by all indications is a typical pre-pandemic setup for the spring leasing season.

New York and Boston will be two of our top performers in 2023, after delivering strong results in 2022. In San Francisco and Seattle, we are seeing good demand and sequential improvement in pricing with slight reductions in both the quantity and value of concessions being offered since the beginning of the year. Even with this modest improvement, the overall level of concessions are still elevated, resulting in weaker-than-anticipated pricing power. San Francisco and Seattle have been slower to recover than the other markets, but both posted really good revenue growth in 2022. Both cities have been balancing a combination of quality of life issues in their downtown, which are getting better and a delayed return to the office from large tech employers.

In addition, there have been some layoff announcements from companies based in these two cities. These layoffs are a direct result of excessive hiring during the pandemic. This excess was spread across multiple markets and countries, not just Seattle and San Francisco. The remote nature of work in tech during the pandemic along with these hiring sprees, likely means that the layoffs are more geographically dispersed than in prior periods. Both of these cities remain hubs of the tech industry and share an entrepreneurial spirit that will continue to incubate the next big idea, be it AI or other innovations we find changing our lives a decade from now.

The midpoint of our guidance range assumes that these markets continue to improve modestly as we get into the spring leasing season but overall weakness persists, which is why our intraperiod growth assumptions for the company overall are somewhat lower than the typical 3% to 3.5% range. If San Francisco and Seattle get some traction this year, that could have a significant positive impact on our same-store revenue growth as could a more rapid improvement in bad debt net, leading us to the higher end of our range. Reaching the bottom end of our range would require either rate growth to slow much earlier in the year than expected or occupancy to dip to the mid-95% range for a sustained period of time.

And lastly, before I turn it over to Bob to discuss our guidance, I want to spend a minute on our focus on innovation. On the revenue side, we will continue to focus on other income items like Wi-Fi, parking and amenity rate optimization. We will also leverage data and analytics to create opportunities to expand our operating margin. We have been a sector leader in limiting same store expense growth, and this is attributable to our team’s willingness to embrace innovation and initiatives focused on centralized activities. We are driven to get the most out of the portfolio and continue to have great success in creating efficiencies in our sales and office functions. In 2023, we will complete the centralization of onsite activities such as application processing, and our move-out and collection process.

On the service side, we will continue to leverage our mobile platform to create more opportunities to share our resources across multiple properties. I want to give a shout out for our amazing teams across our platform for their continued dedication to the residents and focus on delivering these terrific operating results.

With that I will turn the call over to Bob.

Bob Garechana

Thanks, Michael. Let me start with bad debt, which should round out our thought process on same-store revenue guidance, followed up with a little commentary on same-store expenses, normalized FFO and the balance sheet.

As Michael mentioned, the midpoint of our same-store revenue guidance assumes a 90 basis-point reduction in revenue growth due to the impact of bad debt. As we mentioned during last quarter’s call, the biggest driver of this drag is the lack of rental relief payments in 2023 relative to 2022. Specifically, we received a little over $32 million in rent relief in 2022 that isn’t in the numbers in 2023. And while we ended last year with more residents paying their rent than when we started the year, a trend that we would expect to continue, our forecast doesn’t assume this will be significant enough to offset this lack of rental assistance.

Unfortunately, recent delays in lifting eviction moratoriums and slow processing within the courts led us to this more cautious forecast that reflects a more modest improvement coming later in the year than we had initially hoped for. We’re hopeful that this caution might be unwarranted, in which case we could achieve the top end of our guidance range. But for now, we still expect delinquency to return to pre-pandemic levels, but more likely in 2024 than in 2023.

Turning to expenses, I’m proud to report that in 2022, we once again continued to execute on our strategy of using technology and centralization to reduce exposure to labor pressures. Same-store payroll expense growth was negative for the second year in a row, and even when combining payroll with repairs and maintenance, a line item with significant labor exposure and product inflation, growth was below 3% for the second year in a row again. Combine that with low real estate taxes and we were able to deliver industry low expense growth. For 2023, the midpoint of our same-store expense guidance is 4.5%. This forecasted growth rate is about 100 basis points higher than what I just described for 2022 but well below both inflation and our revenue guidance, meaning we expect 2023 to be another year of operating margin expansion for the Company.

Of the four major categories of expenses, repairs and maintenance and utilities should grow at a pace slower than 2022, while real estate taxes and payroll should be faster. These latter two categories face challenging comparable periods given 2022’s remarkable performance in addition to the following drivers: For real estate taxes, we expect municipalities will recognize the great strong income performance for multifamily in 2022 and as a result take a more aggressive approach to assess values and rates. Total tax growth should be around 4%, up from 1% in 2022 with California continuing to benefit from Prop 13 at the low end of growth and expansion markets like Colorado, Texas and Georgia towards the higher end. These expansion markets are a small part of our same-store portfolio and the expected growth is consistent with what we underwrote on acquisition. For payroll, we expect 2023 growth to be around 3.5%, up from the decline of 2% that I just mentioned in 2022 and still well below typical wage inflation. We believe we can achieve this target through our continued discipline around staffing and optimization of our workflow.

Turning to normalized FFO, page 2 of the release provides a detailed reconciliation of our forecasted contributors to NFFO growth. Our midpoint of $3.75 per share includes a $0.01 of forecasted casualty losses from the California rainstorms that we mentioned in the release, and results in over 6% year-over-year NFFO growth, a very solid year for the Company.

Finally, some comments on our planned financing activity for 2023 and the balance sheet. We mentioned in the past that we have an $800 million secured debt pool coming due, most of which needs to be refinanced in the secured market later this year. The current rate on the pool is 4.21% and the maturity is in November. The pool is very financeable, given it is roughly 50% levered and covers debt service nearly 2 times. We have favorably hedged more than half the treasury risk on the financing and would expect to be able to refinance later in the year at a 5% rate or better, which is also incorporated in our guidance. After that, the Company has no maturities to speak of until June of 2025. We have low floating rate exposure, the lowest leverage in our history, significant debt capacity and ample liquidity supported by our recently recast revolver that will support our future capital allocation activities.

With that, I’ll turn it over to the operator for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We’ll take our first question from the line of Nick Joseph with Citi.

Nick Joseph

Thank you. You talked about the innovation impact and the benefits to potential margin expansion. Can you quantify the impact of those programs, both on same-store revenue and expenses in 2023?

Michael Manelis

Yes. Hey Nick, this is Michael. So first, I guess, I would say back in the November management presentation, we highlighted this whole technology evolution of our platform. That really has been focused on creating this mobility and efficiency in the operating model. And clearly, for the last couple of years, it’s been more expense-focused and that shows up in the numbers that we just talked about.

Specific to 2023, I think we’ve included just over $10 million in the guidance with still about two-thirds of that benefit on the expense front, and that’s spread out across a couple of various accounts in repair and maintenance, along with the payroll accounts. And the revenue impact is several million dollars in ‘23. But for us, it’s probably going to kick in more in the back half of the year and really start to show up in 2024 as a lot of these initiatives we have don’t get put into place until kind of the middle of the year.

We got a lot of different pilots going on right now with like short-term and common area rentals, the property wide Wi-Fi. We’ve got another 25,000 units being installed with the smart home. And again, most of this is going to contribute probably to the other income line. And I think you see about 20 or 30 basis-point growth in that number for 2023. And I’ll tell you, we’re excited about all of this stuff. We’re going to continue to kind of look at the way we’ve been doing this in the past, which is areas that are capital intensive. And the technology is like first gen. We’re — that signals to us that it’s okay to be a fast follower in that area, similar to like how we approach the smart home installations and for us, we just want to make sure that we’re going to get the appropriate return on this stuff.

So, I think right now, the foundation is almost in place. By the middle of the year, we’ll have kind of most of the operating platform where we need it to be to capture that benefit. And I think you should expect the $30 million to $35 million that we outlined in that presentation really to start shifting more towards that revenue front in ‘24 and ‘25. But at the end of the day, the reality is you’re never done with this pursuit of operational excellence, and it’s something that’s clearly wired into the DNA of our company.

Nick Joseph

Thank you. That’s very helpful. And then just maybe on supply, as you see new supply coming on, what’s the concessionary environment today for those lease-ups? And maybe you can touch on concessions on stabilized properties as well in the market, if there are some. And then, what are the expectations for the concessionary environment in ‘23 for that new supply coming on?

Michael Manelis

Yes. So again, for us, we’re very focused, right, on this proximity of the supply, when are the first units going to hit the market. And specific to the ‘23 deliveries, it’s pretty clear to us across our portfolio that we’re going to feel less overall direct pressure like from it. What we’ve been watching is in the fourth quarter, which is really a bad time to watch for concession change because you typically see concessions inch up but in many of the markets, you’re seeing that the new supply did absolutely grow their concessions compared to the third quarter and tend to be in that 6- to 8-week range.

What’s promising for us right now is that we did see, just like in the stabilized portfolio, starting the year in January, starting to see these concessions kind of fall back a little bit in the volume of the concessions that are being issued as well as the value of them. So for us right now, I’ll tell you that we’re still focused in San Francisco and Seattle is where we see the heaviest concentration of supply of concessions being used. And it’s about 25% of our applications in San Francisco are receiving about two weeks. And then in Seattle, we have about 40% of applications receiving one month. And if you put kind of all of that into the blender and you think about like 2023 and our expectations, right now in our portfolio, we kind of normalize concessions to the 2022 level, so we expect to continue to see some elevated concessions in the shoulder periods. And it’s hard to say what’s going to happen with the new supply across the market. It’s clearly something we’re going to be watching.

Bob Garechana

So Nick, just from a financial standpoint, like Michael mentioned, concessions are kind of flat, so no contribution to revenue growth or decline to revenue growth, ‘22 to ‘23.

Operator

[Operator Instructions] We’ll take our next question from the line of John Pawlowski with Green Street. Please go ahead, sir.

John Pawlowski

Alec, a question for you on the transaction market. I know things are pretty frozen right now. But from the trends you’re seeing in terms of buyer and seller behavior, which one or two of your markets do you think is mispriced right now in the private market, either cheap or expensive?

Alec Brackenridge

Hey John, yes, it’s Alec. It’s hard to say that any one is mispriced right now because there’s so little transaction activity. The activity that we have seen is typically, say, 1031 buyer who has to place money or maybe a seller who for whatever reason has to move a property. But that’s been really hard to — and few and far between. It’s very hard to pick market and say any one of them is more opportunistic than the other. I would say though that looking forward, markets that have a lot of supply coming are — typically it’s coming from merchant builders who are not capitalized to own the property in the long run. And so, I expect to see some opportunities there, new product coming from merchant builders that really want to move it.

And other areas of opportunity are — I’m sure you’ve read about the private REITs that have the redemption requests that they need to fulfill. Not all of that product is a great fit for us, but some of that might be an opportunity. And then, you have the guys who took on floating rate debt that have caps that are expiring. So, it’s been really slow, but I think that there’s going to be more opportunity in the next six to nine months and more capitulation probably coming from sellers than buyers given how the financing market has been pretty choppy.

John Pawlowski

Okay. That makes sense. Just a follow-up there. You mentioned the private REITs, merchant builders and then variable rate debt, those kind of sources of potential distress. How would you rank the level of distress or capitulation among those sources right now, 1 to 10, 10 being the worst, 1 being no problems at all?

Alec Brackenridge

Well, the merchant builders really just — it’s just not their game to do that, with rates being high — I don’t know how to put a number on that, to be honest with you. But I think that there will be some trades there. Obviously, some of the private REITs have found alternate sources of capital. So maybe they’re able to mitigate that a little bit. And clearly, these caps are probably the highest among the three. And because they’re so much higher than they — I think they’re 8 to 10x what they used to cost. So that clearly is an area that’s going to be very challenging.

Mark Parrell

Hey John, it’s Mark. Just to contribute to that, because it’s hard to number order it, like you said, but it’s easy to think about what it costs to wait. So that option a seller has is costly because SOFR, which is now the new index rate is 4.5%. So you figure — if you have a development loan, you’re 2.5 to 3.5 percentage points above that. So you’re somewhere at 7% to 8%, 8.5%, that’s expensive debt to be sitting around hoping for an improvement. Meantime, the preferential rate on your equity is likely something like 8% as well.

So I do think, as Alec said, unlike in the past, that option cost of waiting is more expensive for the seller than it’s typically been. And these caps — again, a lot of these caps were struck at 4% or 5%, they’re deeply in the money now. So I mean, clearly, the price of a cap that a lender would require you to get is going to be very expensive. So, I think those are significant pressures.

The private REITs are out there. We see product. And again, not all of it’s suited to us. They have other levers they can pull as well. But I think you’ll see more from them through the year as well. But we don’t see a panic sale market at all. We just expect people to sort of capitulate and just say it isn’t going all the way back to 3.5 cap rates in the next six months, so we’re going to go and sell at the market price, whether that’s high-4s, low-5s, medium-5s will — yet to be determined.

Operator

We’ll take our next question from the line of Chandni Luthra with Goldman Sachs. Please go ahead.

Chandni Luthra

Just talking about Seattle and San Francisco a little bit, you guys talked about quality of living as an issue. Are you seeing any dispersion across property types in those markets, downtown versus the rest? And then, are there any signs of slowdown beyond the central business district that you’re seeing in your numbers, in your databases at the moment?

Michael Manelis

Yes. Hi Chandni, this is Michael. So, I think in both of those areas, clearly, you saw more of the concession use in the fourth quarter concentrated into those urban cores of those markets. The demand is there across urban, suburban across all of the submarkets. It just got a little bit more price sensitivity to it. And clearly, I think the urban still has more pronounced price sensitivity than the suburban areas. And we haven’t really seen any change. Like in the demand profile coming in, we haven’t seen any shifts like going urban or suburban in those markets, the profile seems very similar to what we are typically used to kind of seeing in the market. And right now, I guess I would tell you, when we look at these January stats and we think about the sequential improvement that we’re seeing over kind of the December numbers, those urban markets are actually kind of growing at a pace a little bit faster than the suburban and probably because we’re pulling back on the concession, right?

So, when we think about that, you can see you pull back a couple of weeks on a concession, that’s like a 4% change in pricing right off the bat. So, no real signals yet to any significant change other than what we have felt, which is the urban cores, which by the way, do feel better from a quality of life. You could see the efforts that are being placed in both of these cities right now on it. You can feel the improvement there. But you still just have more pronounced price sensitivity in those urban areas.

Chandni Luthra

That’s very helpful. Thank you. And this one for my follow-up, I’m not sure if you guys look at it that way. I know you guys do a lot of bottom-up stuff. But as you think about different markets, what’s your overall job growth assumption? And then, what’s your sort of top market versus bottom market as you think about job growth forecast in there, how much delta are we looking at? Are you still in positive territory on the West Coast? Any color there would be appreciated. And I completely understand if that is not something that you guys look at that level of detail.

Mark Parrell

Yes. Hey Chandni, it’s Mark. We don’t look at job forecast — national job forecast, especially as particularly relevant to our numbers. We do focus a little more on the bottom up. We do spend time and we’ve done the regression analysis and a lot of the work to try and understand how different variables, job growth, like foremost and household income among them, impact our numbers in the near term. And so we do kind of gut check what comes out of the bottom-up process with our perspective from the top down, both in terms of numbers that your firm and others put out there as potential forecast.

But we don’t have a model that we would rely on that would spit out numbers. I think there’s just too many variables. We back tested lots of those models. And I’ll tell you, we don’t have confidence than that system being a better one than looking at it from the bottom up, feeling your market, understanding local drivers of employment, local supply and sort of thinking about your business that way, has proven to us to be much more reliable.

So, we feel really good, though, about job growth in our markets generally. I mean, the employment report last week was terrific. Our residents, as I said in my remarks, they found work when they’ve lost their positions. And it’s been a very small number of people, literally handfuls that have handed us their keys. So, this is — if this is a recession, it’s the best one we’ve ever been to. And it’s going pretty well for us so far. So, I don’t have anything to share with you in terms of top-down job forecast inputs.

Operator

And we’ll take our next question from the line of Steve Sakwa with Evercore ISI. Please go ahead.

Steve Sakwa

Mark, to stay on that question and your comments about sort of getting the keys back. Is it concentrated in any one market and are there other discussions where maybe people haven’t given you the keys back, but there’s conversations with managers and people are a bit more on edge about finding kind of work in the tech markets? Or just how would you handicap that?

Michael Manelis

Yes. So Steve, this is Michael. So I guess, I would say that we started this back in kind of the end of the third quarter or early fourth quarter, just really kind of tracking that like going deeper on reasons for move out, if people said job change, to understand it. And we are talking like less than a dozen. And when you say concentrated, I mean, it’s such a small number, but it really is spread only in the Seattle and San Francisco market. And I think the teams, if you went across the country would say we always have one or two that come in and say that they lost their job and they’re leaving, and that’s why. So we really haven’t seen anything. And clearly, there’s some conversations when you get into the renewals with some folks that they tell us that they’re changing jobs or that they lost their job. But in the concentrations of Seattle and San Francisco, it doesn’t feel like they’re overly concerned that they’re not going to be gainfully employed, quickly.

Mark Parrell

And Steve, it’s Mark. Just to supplement on that just a bit. Our transfers are low, too. So sometimes you’ll see people going down to a cheaper unit and things like that that can also be an indicator of stress. We don’t see that in any meaningful size. And we did a little research, I want to share. We asked our folks in markets like San Francisco, Seattle, New York. When a local firm announces a layoff, then tracking that either using the filings, and I believe you do something similar, using the various governmental filings or some of the layoffs, dot, whatever websites and what we’re seeing is just like these tech jobs and a lot of these financial jobs were spread over the whole country of late, these layoffs are spread over the whole country.

So generally, we’ve seen a Bay Area company or a Seattle company announced layoffs, 20% to 30% of those are in that home market and the rest are spread all over the country. So I think what you and I, right, recall from ‘01 where if you had a tech layoff in San Francisco, that person was definitively in San Francisco, I think it’s much more diffused now, and it’s just a different sort of employment picture than it was in the past.

Steve Sakwa

Great. Thanks for that color. And then, maybe just circling back on the transaction market for either you or for Alec. How have you guys changed your underwriting, whether it’d be IRRs or kind of growth? And kind of where do you think the market is today for both acquisitions and for you guys to start any new development projects?

Alec Brackenridge

Hey Steve, this is Alec. Yes. So, our cost of debt is somewhere around 5%. We would expect a cap rate to be close to that or above that. Longer-term, we’d look at an unleveraged IRR of about 8%. And that’s really hard to find in today’s market. There are a few opportunities here and there, but largely, sellers are still hanging on to a 4.5% to 4.75%, which is just hard to make the numbers work. And as I said before, I think there might be a little movement on that end.

Harder still is the development yield. And if you’re thinking that stabilized properties are pricing at around of 5, then development really should be around 6, and it’s hard to get to that number with costs continuing to escalate, not as fast as they had been,, whereas they used to be escalating at say, 1% a month, now probably closer to 0.5% a month, but they’re still going up and getting from a 5 to 6 is a pretty heavy lift. And most deals prior to the rate hikes were price — development deals pricing out to about 5% to 5.25%, and that was a nice spread when cap rates were below 4%. Obviously, that’s not the case anymore. So getting to a 6% is a heavy lift. And there’s just so much that can come out of the price of the land because land is typically, say, 10% to 15% of the entire deal. So it’s a heavy lift to get to there.

Operator

And we’ll take our next question from the line of John Kim with BMO Capital Markets. Please go ahead.

John Kim

On the subject of bad debt, given the resident relief funds are likely not going to be there as much this year. Can you just clarify what your bad debt was in 2022 on a gross basis versus where you think it is going to be this year? We calculate it at 2.3 going to 1.9, but I’m sure there’s other factors in there. So I just wanted to clarify that with you.

Bob Garechana

Hey John, it’s Bob. No, your math is actually pretty accurate. So page 13 kind of gives you a perspective. We were 1% net. When you add back the $32 million that is — and the math that you probably did to the bad debt, that does work out to, I would have said, 2.25% as a percentage of revenue. And then when you move forward based on the drag on same store, we get to like around 1.90, a little bit closer to 1.85 as a percentage of revenue on that. So you guys have got it triangulated correctly.

John Kim

Minor miracle. So, where do you see it going in ‘24? Are you saying it’s normalizing, where does it go back to normal levels? Can you remind us what that is?

Bob Garechana

Yes. So, normal would have been around 50 basis points, would have been kind of typical. And we still do think that that is given the quality of our resident base, et cetera, that that is the likely long-term outcome. And as I mentioned in my remarks, just to be fair, too, it is very difficult to forecast kind of the projection of how fast this improvement that we have seen even outside of rental relief will come. We’re hopeful that it’s faster than what we put in the numbers, and that could get us there quicker and closer to that 50 basis points faster than what are in the numbers, but you’re correct as to as to — it is not only a minor miracle, but it is great when math works. So your math works perfectly in that specific numbers.

John Kim

Just one quick follow-up. You said on the $800 million debt maturity this year that it needs to be refinanced in secured market. Can you just clarify on that comment? Is that because the pricing is better, or are there other factors?

Bob Garechana

No, it’s structural. It’s a structural kind of tax protection component. It’s a piece of debt that actually was financed related to the Archstone acquisition. So, there are certain partners that were in the old Archstone structure that had tax protection. So, we have obligations to maintain some secured debt, a portion of that in secured, and that’s why. As you think about the — so it has nothing to do with kind of anything about that structural piece. When you do look at kind of the secured debt markets relative to the unsecured, the unsecured has come in a little bit. So, it’s slightly more favorable than the secured, but they’re all pricing in that, call it, high-4s range, especially for really low levered product in the secured like we had — like we have in this pool. So it’s not a market decision choice. It’s more of a structural choice.

Operator

And we’ll take our next question from the line of Adam Kramer with Morgan Stanley. Please go ahead.

Adam Kramer

Hey guys. Yes. Thanks for taking the question. I appreciate it. Look, I just wanted to ask a little bit about kind of the January commentary. Maybe it’s the seasonality commentary in the release. Look, Mike, I think you kind of — you mentioned, right, maybe a little bit worse than seasonal in the fourth quarter. But at the same time, right, I think January, new lease I mean is strongest among the group, still kind of positive 140 basis points. So, maybe just kind of trying to tie or square these different things together, right, the occupancy loss, strong new lease and kind of the seasonality comments and try to kind of tie or blend all those things together in terms of kind of what’s happening right now with fundamentals.

Michael Manelis

Yes. Hey Adam, it’s Michael. So, I think what I would look to is one, the sequential comment I was referring to is December to January, not like when you’re looking into the release, the fourth quarter to January numbers. So, when you think about occupancy, our occupancy actually held flat, right? We were, I think, 95.8% in December; we’re 95.8% or 95.9% for January. And so, I look at that and say, as you think about returning to normal seasonality, it is very common for occupancy to trade down into that fourth quarter.

So what we saw is that pattern kind of emerge. And outside of some of the pricing pressure that I described, some of the additional concessions, the way that the rents moderated is very consistent with what you would expect. That being said, you turn the corner and you get into January, what we normally would see in January is right after that new year, you see sequential improvement every week in application volume and rents ticking up and we got a little bit of an accelerant, like I said, in the urban because we started pulling back concessions when we saw that inbound demand doing what you would expect it to do.

Now, what’s interesting is like the cold weather climates like Boston and New York, they kind of tend to stall in February. You get a little bit of a boost in Jan and then it stalls and then you hit March and then you’re kind of off to the races for the spring leasing season. So, I think my commentary was just pointing to you if I went back and looked at ‘18, ‘19, any of these years, the trends that we’re seeing today, and again, we’re five weeks into the year or something like that is very consistent with a normal year, which would tell us you would expect a normal spring leasing season.

Adam Kramer

Great. That’s super helpful. Thanks for all that color, Michael. Just maybe switching gears a little bit to development. If I’m not mistaken, I don’t think it was mentioned much in kind of the opening comments. I know it’s — obviously not kind of your biggest part of your business, but you probably do a little bit more development than some of your peers. I’m just wondering kind of what the thoughts are there? Are there going to be starts in ‘23 or is that kind of more on the back burner now kind of given some of the uncertainties in the environment?

Mark Parrell

Yes. Thanks for that question, Adam. We have a terrific development team, both the in-house team that started and built $400 million towers as well as much smaller projects. And then we’ve got the JV with Toll and others. So, we think development is a nice complement to our acquisitions, particularly in these expansion markets.

The instruction that Alec and I have sort of given both our outside partners as well as our internal teams is find things that you can work on for the next few months that we can start late this year and sometime next. Maybe the capital will be a little more reasonable, maybe the underwriting will be a little bit better, maybe the cost structure will make a little more sense. And so, let’s be thoughtful about starting a lot right now where you really feel like your opportunity is likely to be in the acquisition market. But we’d love to tactically start. We’ve got a few things already in the sort of inventory we’d like to do, but it’s just got to make sense. I mean, we’re just not going to plow ahead and put our shareholders’ money into a development deal if acquisition is a cheaper alternative or if just the costs and the risks involved are too significant.

So to answer your question about development, it’s very important to us. We don’t have any starts really in the budget for this year. But just like acquisitions, we don’t have any of those either. But we’re happy to do plenty of them. Bob commented on the balance sheet strength. I think the debt markets would support a big EQR issuance to fund either of those, if we thought that was a good idea. So, we’ll just keep watching it closely. And if there’s something that comes there on the development side, like I said, we got the internal team, we got the Toll folks, we’ve got others. I mean we can put that into gear. But we’re happy to have it at zero, too, if that’s the right decision for the shareholders.

Operator

And our next question comes from the line of Haendel St. Juste with Mizuho. Please go ahead.

Haendel St. Juste

Hey. I just want to follow up on that last question a bit first. So understanding that this early season pickup maybe in line with the historical trends as you mentioned. I guess, I’m more curious on your comments about expectations for normal spring leasing season and what that would imply near term for new lease rates. So maybe can you give some more color on how that normal trend has played out historically, what that could mean for new lease rates here into the spring season? Thanks.

Michael Manelis

Yes. Hey. This is Michael. So I think the way to think about the modeling of what a normal curve would look like is what we will see right now is new lease change will start to sequentially grow and typically will max out somewhere in that third quarter and then will seasonally moderate as you get to the year. For our assumption of this blended rate of 4, we basically are assuming about 2 — a little over like 2.25% in new lease change across the whole year but it is — it’s kind of like a bell curve. We’re going to work our way through the spring and keep building it and then we’re going to let it moderate.

When you think about renewals right now, on capturing some of the loss to lease, we have some pretty good numbers at a 6.9% achieved renewal increase in January. Our expectation, and I’ve got these quotes out for the next 90 days, we’re going to stay somewhere in this 5% to 6% range in this first half of the year. And then I would expect that number to moderate like it would normally do into like a 4% to 5% range in the back half of the year. So, on a full like likely guidance model that puts renewals somewhere just north of 5% and when you put those two together and you think about the retention factor, it winds up getting you to that blended rate of about 4%.

Haendel St. Juste

That’s really helpful. I appreciate that color. Maybe some color on your expectations between some of the stronger East Coast markets, New York, Boston, D.C., in contrast to some of the weaker West Coast, San Francisco, Seattle, curious how the spread between those two — or what do you thinking you’re expecting for the spread between those two regions this year? Thanks.

Michael Manelis

Yes. Well, maybe I’ll just kind of bucket the markets around. So I think I said in the prepared remarks, I mean, New York, we expect it to be our best performing market followed very closely by Boston and then really close by San Diego and Orange County as well. I’m going to put aside L.A. and San Francisco for a moment because of the bad debt implications. But if you really looked at all of our other markets, you could almost bucket them in this 4.5% to 5% kind of revenue growth range for 2023. And then you get into the San Francisco and L.A. that has the bad debt impact. Without it, both of those markets would be in this 4.5% to 5% range as well. But with it, San Francisco, right now, we’re forecasting around just under a 3.5% growth and L.A. is just north of a 1.5% growth.

Operator

And we’ll take our next question from the line of Jeff Spector with Bank of America. Please go ahead.

Jeff Spector

Just wanted to talk a little bit more, Mark, about your comments, and I totally understand the uncertainty on the macro, our econ team has once again pushed out its recession forecast for the second half of ‘23. So, I guess, just thinking about macro versus what your revenue management systems are telling you as the weeks go by, how will you be operating through the start of peak leasing into peak leasing and if things do look like — again, if it looks like it’s going to shift to the second half, how does that make a difference to how you’re approaching the peak leasing?

Mark Parrell

Hey Jeff, it’s Mark. I’m going to start. I’m going to turn it over to Michael. I mean, we’re lucky to have a very experienced team here and — both here in Chicago and then across the country, and a great system for feeling the markets. So, when we start seeing a market improve, when we start seeing a market deteriorate, we can react — or frankly, a submarket or an asset, we react in real time. We don’t wait for macroeconomic data. So, we’re certainly aware of what’s going on. We watch all those employment reports keenly. But I think we’re ahead of that. I think we feel that in our leasing in advance. Because again, if someone lost the job and they immediately got a new one, the government’s data may take some time to show that. The unemployment reports have been really good. So I guess I would say, as we go through the year, we’re going to depend on Michael and his team, and he can elaborate on that in a minute. I have a great revenue management process, great communication on site to sort of see what’s going on in real time and adjust in real time.

Michael Manelis

Yes. And I think, Jeff, the only thing I would add to that is clearly, you’re going to try to maximize rate and you’re going to see whether or not you’re getting that corresponding closing rate or the application volume that you need based on how many units you have to sell. And that’s typically what we’re looking at week in, week out, which is that ratio, and then we’re making decisions whether or not we’re leaning in on rate or kind of letting the rates soften a little bit and kind of position ourselves differently.

But, on top of just that feel that you have, we’re watching these demographic changes, the income ratios, I think Mark alluded to before, we’re hyper focused on transfer activity, are they moving up in size, down in size, what are they doing, roommate activity. And then, of course, we’re watching that new supply in these markets. And that concession volume that they’re issuing is a signal to us whether or not they’re getting the velocity they need because that absorption rate of that supply is going to tell us whether we’re going to feel more or less pressure from it.

Mark Parrell

Yes. Just to add one last thought. It’s Mark again. I mean, we do think about overarching themes. I mean, Michael has been running the business ever since the economy started to feel a little shakier, with a focus on occupancy and retention. He’s opened up some of his renewal ranges. So, we do — macroeconomics and what we feel in the general U.S. economy does inform some of these leans but we’re quick to learn from what’s going on on-site, and that’s more important to us than any set of numbers coming from anywhere else.

So I’ll also tell you in places like New York and Boston, we feel so good about the supply picture and heretofore the jobs picture that those markets are places where our lean will be more aggressive than a place where we might have more anxiety like downtown San Francisco or downtown Seattle. So, we do inform some of those decisions, Jeff, with the big picture. But again, we like to watch what’s going on property by property.

Jeff Spector

Thank you. That’s really helpful. So I guess, just to confirm then, as we think about the guidance and the upper half of the range, if this recession is pushed out to the second half, is that kind of the upper end of the guidance range scenario?

Mark Parrell

Again, where’s the recession and what part of the economy? And I guess, I’d say if we get through the bulk of the leasing season into July and August and the job numbers are still pretty good and unemployment claims are still pretty low, then I’m very much of the mindset that we’ll have a really good year. If you start to feel those numbers roll over in March, then the year for us and everybody else in the apartment industry is going to feel a little different.

Operator

And we’ll take our next question from the line of Nick Yulico with Scotiabank. Please go ahead.

Nick Yulico

Thanks. First question, maybe for you, Mark, is how you guys are thinking about potential for stock buybacks? I mean, you’re not — not as much acquisitions planned now, harder to pencil as you’ve talked about, you do have a fair amount of free cash flow after the dividend. So, — low leverage balance sheet. So I’m just trying to understand at some point the stock buybacks become compelling? Do you need asset sales to fund that, or did the balance sheet already set up in a way to handle stock buybacks?

Mark Parrell

Yes. Thanks for that question, Nick. I mean, we’ve had versions of this conversation before. The unique thing about a stock buyback versus some of the other investments we make is it has both a capital allocation and a capital structure impact. I mean, we don’t retain a whole heck of a lot of cash flow after CapEx because we’re a REIT, and we have to distribute all our income. So, we look at it, it’s either incurring a whole — I mean to make a meaningful impact on a company our size, you have to incur a meaningful amount of debt and go out there. And we can do that. We’ve got space for that right now. But you can only do that one time before you’ve affected your ratings, you’ve affected your multiple. We all learned in business school, riskier businesses with more debt, have less multiples, lower multiples.

So, the debt side is possible, but it has offsets and is risk. And I also tell you on your asset sales, I mean, Alec and his team have bought well over the years. We’ve done a lot of 1031s. So, there’s a lot of embedded gains. You might sell an asset for $100 million and have $75 million, $80 million of gain to deal with. And so, not a lot of cash flow there either after needed distributions.

So, I’ll tell you, Nick, when we see our stock price when it’s trading at such a material discount to NAV like it is now as, is a signal not to use the equity markets to fund growth. That’s what we see it as. And that’s very clear to us. But we do talk to the Board about buybacks periodically, and it’s not like sort of categorically off the table. But again, it’s more of a financial maneuver. And if you don’t do it in size, it’s not terribly meaningful. And the last comment is I’ve watched a lot of REITs buy back meaningful amounts of stock usually away from our sector. And it hasn’t proven to have turned out all that well. I think it’s better used as an indicator of when not to issue equity than it is to go whole hog on some giant share buyback.

Nick Yulico

Okay. I appreciate your thoughts there, Mark. Second question is just, I think — if I think about multifamily, your company, the whole sector right now, I think there’s, at some point, this worry that it’s not so much a 2023 issue relative to guidance. But at some point, if we have a recession over the next year or so, there’s going to be an impact, right? And it’s going to impact the rents and occupancy and revenue. And so, what I’m trying to figure out is, last two recessions were very unusual in terms of the impacts we had to multifamily. How are you guys thinking about — is there any way — this is a tough question, but is there any way to think about a downside impact to your company in what is a maybe more normalized recession and sort of an order of magnitude of — or how much rents could correct or how much revenue or NOI could correct?

Mark Parrell

Yes. I guess I’d just make a few comments on that. Obviously, my crystal ball is as blurry as yours. I mean, a lot of these other recent recessions, there were huge excesses in the economy or like the pandemic, just a panic, as you mentioned, that just made the whole thing very unusual. I don’t feel like we’re terribly out of whack. So, it feels to me like any recession that occurs, it will be more like a slowdown in jobs as opposed to some, we are putting out negative 400,000 jobs a month type numbers. So I feel like if 2024 comes around, the business will perform relatively well and certainly better than the last downturn or so. I also think you got to compare it to what else is going on in the economy. We’ve typically been a pretty good inflation hedge. We put materials in our book about that.

So, if you think you’re going to have a slowdown in the economy, and you’re going to continue to have some inflation, I mean typically, our business has been able to raise rents in excess of the inflation rate in our kind of business. And Michael and his team do a great job of managing expenses. So, I look at it and I think in a slow growth economy, maybe with a little bit of inflation, I think we can still do on a relative basis really well at our company because, again, we manage expenses well. I think the next recession, if there is one late this year or next is I do agree likely to be less about excesses and dramatic type downturns and a little more gradual. And I think our numbers will reflect that. But boy, it’s really hard to predict, and nobody knows for sure, right?

Operator

And we’ll take our next question from the line of Alexander Goldfarb with Piper Sandler. Please go ahead.

Alexander Goldfarb

Mark, definitely seems like between the bookies making bets on the Super Bowl, we could have the same bet here on whether or not this recession has been affected summer leasing. So certainly a topic we’re all watching. Two questions here. The first question is a lot of regulatory focus recently, the White House, obviously, on fee income, President mentioned it as far as hotels go in the State of the Union. But more importantly, apartments are under a lot of regulations already. So, as you guys think about your fee income that you charge, your new lease fees, the pet fees and all that stuff, as you guys look through all that, do you feel comfortable with where you are? And you’re like, look, we already abide by all the regulations, all the stuff is covered, or is there a concern that the regulators could push harder on some of these line items?

Mark Parrell

Well, I’m going to split that question up. If you’re asking whether we think we comply with the law right now, we think we do. We’ve done extensive reviews on that because we feel like you do, there’s more regulatory sensitivity. A lot of these rules, by the way, are very complex or very judgmental. They may say you can’t charge unfair fees and things like that that are harder for us to peg. But the legal team has worked really hard with operations to make sure what we’re doing right now makes a ton of sense.

Either Michael or Bob could talk about what percent of total revenues are the kinds of fees you’re talking about. I think it’s 3% in that neighborhood. So it’s meaningful, and it can grow faster than the remainder of the portfolio. But if we had to moderate it, we’ll deal with it. But again, things like pet fees, I mean, pets create real cost to the property. I mean the cleaning costs are much higher. So in some cases, these are profit and in some cases, these are just additional costs that will come into the system one way or another.

So on the regulatory front, we’re just going to have good conversations with all these regulators about all this stuff. A lot of this is not thoughtful and it’s going to discourage capital going into residential and isn’t going to help with the shortage of affordable housing. So, we’re going to push that line more and more and keep having that kind of conversation.

But on the fee side, it’s really that material to us, it’s just not a good idea. It’s another one of those sort of why shouldn’t the cost of someone’s pet be borne by the pet owner as opposed to borne by the entire complex, for example.

Alexander Goldfarb

Okay. No, makes sense. And then second question is, the recent L.A. good cause eviction, one of the items, if I read it correctly, was that basically a tenant cannot pay a month and be fine and not be deemed to be in arrears or anything. Is this the correct understanding? And if so, is that — does that mean that in L.A. county and hopefully — not hopefully, and unfortunately, if other markets adopt this, that bad debt could now seem to be the sort of elevated thing versus historic? Or is there a way for landlords to make sure that someone just isn’t getting a free month for no reason other than they can get a free month?

Mark Parrell

Yes. Thanks for that question. I don’t have that right in front of me. I did read the sort of general idea that there is a permissible amount of default — defaulted debt that a resident could have. But again, our rents on average approach $3,000, in that market a little bit lower, but they’re significant. So if it was a dollar limit — gosh, I thought, Alex, it was a dollar limit, not a month’s rent limit, but I’d have to look into that, we’d have to have another conversation.

But I think the theme here is the more you regulate things like this, the less capital that will go into the industry, to renovate properties or to create more housing. And it’s just a bad idea, and we’ve got a really good team that’s pushing this. And people hear us. When you talked about the administration, I mean, the Biden administration’s Build Back Better Act had some terrific stuff about zoning flexibility and encouraging at localities. The Governor of California and the Governor of New York have been pushing supply and more units being built and trying to work with the industry, both on the for sale and rental side. So I think there are people listening to us. It’s just we got to keep it up because a lot of the ideas you mentioned are just not constructive.

Operator

And we’ll take our next question from the line of Sam Cho [ph] with Credit Suisse.

Unidentified Analyst

Hi guys. I’m on for Tayo today. Thank you for keeping the cal going. So, I know — I think it was one of my former colleagues that asked about, I guess, the supply pressure. But can you remind us how you guys go about judging the threat from new competition and how that kind of — and how that factors into portfolio exposure? Because just from our end, it’s really hard to see that. So kind of understanding your qualitative or quantitative metrics to frame out how you guys judge that threat factor would be interesting to hear from our standpoint.

Alec Brackenridge

Hey Sam, it’s Alec. And yes, we do spend a lot of time looking at supply, and as Michael mentioned earlier, focusing on the proximity of the supply to our properties. And we find that’s where we’ve really gotten the pressure on our ability to grow rents. And it depends where we are. In Manhattan, proximate supply is a lot tighter than, say, in California. So we adjust for that. And what we’ve seen going from — and again, this is our property and proximity — our portfolio and proximity to our properties is in 2022, there was supply that was proximate to us like 110,000 units, and it’s going down quite a bit from there. And the average in the past was around — I’m sorry, 86,000 units are going down quite a bit from there. So we’re seeing a lot less immediate supply, and the way we measure it has more to do with that proximity than that market level as a whole.

Michael Manelis

Yes. I think the one thing I’d add — this is Michael. I could just add one thing. In like markets like D.C., we have found that because there’s such good transit, like that mile radius doesn’t hold as well. So we would say that we’re going to cast a much wider net and assume that people will move between markets, between some markets just because of that transit. So, every market has like a rule of thumb that we use, and then we drill in and go deep with the investment officers doing their drive buys and given their input, and then the property management team is weighing in, and we ultimately get to this consensus view. And we’ve been doing this way for a long time, and it seems to really hold true. What we have found like in ‘21 and ‘22 that even with elevated supply right on top of us, if the inbound demand is so strong, it doesn’t matter. So, that’s why that absorption rate matters.

Unidentified Analyst

That’s really helpful color. And then, one more for me. You touched on overall concession still being pretty elevated. So, I know all recessions are not created equal. But from a historical context, how have concession strategies looked during spring leasing season during a recession? And whether we can draw any lessons from the past to imply what could happen if things go sour? Thank you.

Michael Manelis

Yes. So, this is Michael. That’s — I don’t know if I have that in front of me to look at what the concession dollars were back across the previous recession periods or by quarter to understand the seasonality of them. I guess, what I would look at is just — it’s very common to see concessions in the stabilized portfolios in the shoulder period that are used in a very strategic basis to really hold up base rent. And when you see it spread where — like we’ve seen in some of the urban cores of Seattle and San Francisco, where 60%, 70% of the properties that we compete against are offering some form of concession, that is a signal, right, of something in that market. Now, the good news, like I said, is we’re seeing it dial back. And clearly, we’re seeing demand softening. You wouldn’t feel a dial back in that concession amount.

So, how you would frame the spring? Right now, I guess I would tell you, I would expect concessions will continue to dial back, both in volume and dollars. But obviously, if you hit like a pretty significant recession period, maybe they sustain and hold at this level. It’s hard for me to say that.

Operator

And we’ll take our next question from the line of Ami Probandt from UBS. Please go ahead.

Ami Probandt

Thanks. The first round of requirements for compliance with the Local Law 97 in New York City are scheduled to take effect in 2024. Do you have any estimates on the impact for your portfolio?

Alec Brackenridge

Hi Ami, it’s Alec. We’ve looked at that, and we don’t have an impact right now. We can reach those thresholds. It gets challenging, as you know, over time and ‘23 is another benchmark year, and we’re working towards that as well. So, so far so good, but it’s certainly to get more owners over time.

Operator

That concludes today’s question-and-answer session. I’d like to turn the call over to Mark Parrell for closing statements.

Mark Parrell

Well, we’re excited, as you can tell from the call about our 2023 prospects, the Company’s long-term positioning, and we’re looking forward to delivering a really good 2023. So, thank you all for your time today and your interest in Equity Residential.

Operator

This concludes today’s conference call. You may now disconnect.