AvalonBay Communities (AVB) sees property development and redevelopment as an opportunity to enter new markets and strengthen existing ones. Other major apartment REITs such as Equity Residential (EQR), Essex Property Trust (ESS), and UDR (UDR) are also active in property development and redevelopment projects. The iShares Cohen & Steers REIT ETF (ICF) invests 5.74% of its portfolio in AvalonBay Communities.
AvalonBay Communities had 26 development communities under construction as of the fiscal year ended 2014. These communities are expected to add 8,524 apartment homes to the company’s portfolio for a total capitalized cost of ~$3 billion. The average rent for development communities was $2,615 as of June 2015. In addition, the land for two development communities that the company controls under long-term land lease agreements is expected to generate rental income of ~$7.7 million in 2015.
The number of apartment homes in development communities rose from 3,334 in 2010 to 8,991 as of June 2015. AvalonBay Communities increased development activity in recent years in anticipation of continued favorable economic conditions and apartment fundamentals. In 2014, AvalonBay Communities completed the development of 17 communities for an aggregate cost of $1.1 billion, while it started the development of 14 communities for an estimated cost of $1.34 billion. Development will continue to be a primary driver of growth for the company in the years to come.
As of the fiscal year ended 2014, there were eight communities under redevelopment, which are expected to add 2,938 apartment homes compared to 1,126 homes in 2013. The company expects the total cost to redevelop these communities to be $131 million. In 2014, it completed the redevelopment of five communities for $53 million.
In the next article, we will discuss AvalonBay Communities’ strategy.