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AvalonBay Resuming Apartment Construction

February 18, 2010

After nearly a year of halting new construction, AvalonBay has resumed apartment construction. The company has plans to construct some $400M of new apartment product as the company and others begin to wager that jobs will return and apartment vacancy rates will plummet.

AvalonBay, based in Alexandria, Virginia, is putting shovels in the ground when 8 percent of apartments sit empty, an all-time high, according to researcher Reis Inc. U.S. builders started 92,000 units in 2009, a 58 percent decline from 2008 and the fewest since the government began collecting the data in 1974.

Though construction had essentially dried up in 2009, existing apartment product has been one of the hottest sectors to invest in, primarily because of the agency debt available. In addition, investors are making a big bet that absorption will happen quickly as the economy recovers and family creation resumes – pushing people out of the house and into rentals.

In areas such as New York and San Francisco, this will likely happen the fastest so the bet is a good one at the right price, though there is still some risk. With the amount of debt out there and where we are at economically, the economy needs to consistently grow at some 3% to start pumping out jobs. Fourth quarter numbers were good, but they cannot be sustained so the next few quarters will be somewhat telling as to whether the market will indeed come back as fast as many predict.

[via Bloomberg]

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Categories: Commercial Construction | Market Data
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