Multifamily Market Forecast with Ben Schall

One call out I'll make upfront and hopefully this resonates to the developers in the Mid-Atlantic. There's a ton of focus on supply coming down in the Sun Belt. Supply is also coming down on the coasts and coming down particularly in the Suburban Coast. So this is I do think it's going to be a benefit as you look at over a multi-year period. Obviously there's less starting, that's going to be less competition, but I think there's an over kind of heightened focus on supply coming down in certain markets where I think it'll happen in the overall industry. I'm generally of the view that there is going to be a longer tail from supply, particularly in places that are seeing, you know, go into the Austin of the world, you know, just historic levels of new supply coming through the system.

Yeah, I'm for do this. I'm going to turn this chair a little bit this way so I can look. So I'm from the DC area, and when I come to town I stay with my parents. I think most of my friends who hear that I stay with my parents kind of get a big chuckle that I don't stay at some fancy hotel and say it with Mom and Dad. But I raised this story because this morning I woke up to get out here at quarter of 7, and I'm in the shower, and all of a sudden I hear a knock at the door, and it was my 86-year-old dad making sure that I was up in time to be here. And it made me feel like I was in sixth grade back at St. Alvin. I don't know anyone has worried whether I'd gotten up for an alarm in many, many years, but it was a really cute moment this morning.

I grew up in New Jersey, most of the time in Southern New Jersey, sort of the Cherry Hill area, suburbs of Philadelphia.

Yeah, I've got a long family connection there, so that was at the core. But up until my junior and senior year, it was not sort of my expectation. Ended up just being a great fit academically, a place I could go and play sports, small intensive academic environment. Love it, tons of value out of it, and I've stayed very close and connected to the school since then.

Not anywhere on the radar. Swarthmore, traditional liberal arts education, great place to learn, great foundational set of skills. But at the time, I don't think they even had one business class, let alone one class in real estate. I this advances a little bit further. I really didn't get my first taste of real estate until I was a couple years out of college, and I was working for the New York City Economic Development Corporation. One of the roles of that organization was to sell city-owned land to private developers. So I quickly sort of like, you know what, I want to be on that side of the table, seeing how the developers were buying land from a city organization. And then used business school to really make that transition to get into the space. But yeah, I didn't grow up in a family of real estate people, didn't really have exposure to it, and it just ended up being a great fit for how my mind works and what I enjoy, and what gets me passionate about, particularly today, how we can create places. And you know, this gets to Avalon Bay's purpose, but creating a better way to live just kind of increasingly spoke to me.

No, it was a little earlier. I was there a couple years earlier.

There was actually, and it was my college roommate. He out there, college roommate. We took two different paths to get there and we're in two different industries, but we did wind up there at the same time.

Yeah, I was definitely on the outside. I mean, it ended up being great for me because I went there to get the harder set of skills. But as you know, I mean, you're sitting there with the private equity guys and the investment bankers of the world, and they've been driving hard that way for a while. I loved HBS. I mean, it was an awesome place. I enjoyed it socially, some great friends and network, business training, and then the power of it was allowed me to make the switch, right? It gave me the opportunity to make that switch, particularly during my summer. And we can get into the story, but I ended up banging on a ton of doors and got into Vornado as my kickoff in the real estate space. People probably know Sandeep Mathrani. He did GGP and then WeWork and lots of other things, but he was the guy that gave me my first shot in the industry.

We played a lot of basketball there. I thought you, I don't know if I would say star, but we definitely played, definitely an everyday activity. Yeah, that competitive nature runs deep there.

Yeah, yeah. And for folks in this room and from this area, it's critical to differentiate between the original Rouse and the new Rouse. When people associated with the original Rouse don't necessarily love the use of the new Rouse name. I'll give a little bit my time at Vornado was an amazing experience, super entrepreneurial place, the type of place that would give young executives just tons of experience, varied experience. I'm thankful to people like Steve Roth and Mike Fascitelli and Sandeep for effectively just giving me opportunities that I was not ready for, and it really did help accelerate my career. The reason I kind of start there was one of my primary functions at that time, kind of as an early buck in the space, was Steve had a lot of old decrepit shopping centers. They were occupied by you know, Bradley's and it was actually originally the old two guys from Harrison's. So he had all this real estate that needed to get redevelopment, and I cut my teeth there and really being somebody who could organize a team to think about repurposing space for higher and better use. And that's sort of the early part of the theme of my career, which is being able to sort of be a guy who can bridge the world of development, re-envisioning space, thinking about what's going to drive customer demand by doing it in a world of the public company setting. And so I was there for 10 years. I ended up running their suburban retail business. After I left, it ended up being spun off, so it's now Urban Edge for people that know that business. But all that was a buildup to Rouse, which the new Rouse was a spin-off from GGP. And literally people referred to this new company that I joined as the dead mall company, like that was how people - you're going to go to this dead mall company. But the purpose of it was a set of generally a set of malls in smaller markets that had just been forgotten about. And so what we tried to do was to reconnect those malls back to the communities in which they operated. They had been owned by this big corporate behemoth of GGP and really just got no attention. I started going out to these sites and I'd be the first executive that these teams had seen in 10 years, right? Just completely forgotten about. The other premise of it was we needed to re-envision what we were going to do with these old mall boxes. The early throws of the end of the department stores as the anchor of these boxes. And so we were thinking, we got to be early on that journey of thinking about new uses, alternative uses, retail, non-retail. And again, continuing my career journey down the path of re-envisioning space through this development angle and how to best reconnect it to the communities in which it existed.

So it was a really unique opportunity. For folks that don't know, Seritage was formed as a spin-off of Sears. There was 40 million square feet of real estate that was being spun out to figure out how to redevelop into higher and better use. Did Eddie Lampert have a role in? He did, yeah. So he ended up being the largest shareholder in it. So if you were a shareholder of Sears, you got a share of this new company. He was a large shareholder, was the chairman of the company for a long time as well. I'll start with sort of the, it was my first seat, first time in a CEO seat. What was really unique about it was we started it from scratch. So I was employee number one, my assistant I brought with me was employee number two. And part of that journey, and this starts to then inform what brought me to Avalon Bay, but it was the first time where I could really think about the culture that I wanted to build in an organization and how to bring together a group of people who believe similarly about cultures of an organization, how we wanted to lead, and what was critical there. So pretty rare in your career where Vornado had a very established culture, Avalon Bay has a very established culture, that was a spot point in time where I could think about what it meant to me to be a leader of a real estate organization and really try to create something that I thought would inspire a group of people to come together. And we were doing it in a super entrepreneurial type of environment. The real estate side, 40 million square feet, blank canvas, was the ultimate redevelopment opportunity. And a lot of it was repurposing in and around retail, but it did start to get me involved in thinking about housing uses for a lot of these sites, which is my early entry into, you know, more significant time that I started to spend in and around potential apartment opportunities and meeting folks in that world as we thought about repurposing some of the real estate.

Yeah, I was very clearly not a multifamily guy. You know, touched it as I talked about and as you referenced, but not a multifamily guy. And this brings it back to culture. Avalon Bay has a longstanding, evergreen culture, actually goes back to our original founders. Some of you from the region probably know him, Dick Michaux, Chuck Berman. In the mid-90s, they were a Trammell Crow Company, thinking about creating a separate company, and they asked themselves what would create an evergreen company. There were HBS guys at the time, Jim Collins was obviously big, Good to Great. And what they landed on in terms of what was going to separate Avalon Bay over time was our culture. And the cultural values that they set then remain the cultural values that we have today. The three lead cultural values are a spirit of caring, integrity, and continuous improvement. Which for me, you think about like you want to wake up every day, think about your North Star, if you focus on those three items you'll get to the right place. They are also three items that really spoke to me as a leader, and this goes back to kind of the culture I built at Seritage. Lot of connections in terms of how I think about leadership, how I think about bringing together partners of leaders as an organization. And that at the end was, as Avalon Bay is going through and thinking about who they wanted to have in the seat, obviously there's the aspects of having somebody who's run a public company, dealt with strategy, dealt with capital allocation. But at the core of it was, as Tim and I started spending more and more time together and I spent more time with the board, it was that connection around culture. And I very much see my role at Avalon Bay, we've been around for 30 years, amazingly successful throughout cycles. One of my key roles is just being one of those next stewards of our culture.

Yeah, when I joined Avalon Bay end of 2020, early 2021, people kind of think back, there was a question of are people going to live in urban apartments generally? What's that environment going to be like? Are people going to feel safe? So it's definitely been a roller coaster through the apartment industry and also in our portfolio. To your question, will our movement to both the suburbs, which has been a big push, continuing our push to the suburbs and our push to what we refer to as our expansion markets, which are a subset of Sun Belt markets, started before I was there. We actually kicked off moving to Southeast Florida and Denver, this is now kind of like five or six years ago. So the process was underway. I'd say what, as we brought the management team together and as I stepped in as CEO, this was a very successful business, this was not a broken type of situation, this was a very successful business. And so what I focused on and what we focused on as a team is how do we need to continue to evolve our business given the changing environment? And so when we get to talk further about our movement into these expansion markets and the reasons for it, it's a continued evolution of our business that we think will better position us for superior growth in the years ahead. And a lot of the portfolio allocation is optimization and really tailoring our portfolio to those markets. A big part of it is just following our customer. We recognize that more and more, what we think about the Avalon Bay core customer, that knowledge-based worker, is in a more dispersed set of markets. So let's find the markets where those customers are going to be that have the attributes that we think about delivering strong long-term apartment growth, and let's take what we do well and bring it to those new places. It's an expansion of our opportunity set.

Yeah, that is definitely in the realm. We're constantly evolving it based on customer feedback. We actually have Kurt Conway in the room who runs that part. We're constantly out talking to our existing residents, every new project we're constantly getting feedback. So it is a constant evolution. The amenity space transitioned over the last three to four years with a couple of different themes. One, flexible space. The old model of defined distinct leasing office space from common area space, we've broken down those boundaries completely. So it is now flexible space where our associates are out interacting with existing residents or prospects. That's one. In a lot of climates, that flexible space is also creating indoor-outdoor spaces that can flex over time, everything from fitness being indoor and outdoor but also how people want to spend their time when they're in our amenities. And then more recently, we also spent a lot of time thinking about where people want to spend their time if they're spending more time at home working. That has led us down a couple of different paths. One is the apartments we're building are actually different. This is an interesting differentiation for Avalon Bay. As a developer, we're the most active public developer by far, but also as long-term holders, it leads us to development decisions that are different than what I would refer to as the typical merchant build model. So what I'll call out there is we're actually building apartments that are 100 square feet larger than they were four or five years ago, which is actually not where a lot of the industry is going. I reference that because as you think about people wanting to spend more time at home, we're actually building larger units and where we can, building in lofts, dens, those types of spaces. And we're able to do that with a little bit less of a mentality on maximizing per-unit values and thinking about what's going to really retain and drive rental growth over the long term. And then bringing back to the common area space, we've evolved to if people are going to come out of their apartment, what they want is an individual quiet space for them to work and do their call. So we actually now, we've drifted away from the big communal table where you're expecting people to be kind of working there. Now we, as much as we can, we're building 50-square-foot glass-enclosed areas for people to have their quiet time. That's what's going to get them out of their apartments to come down and work. And there's real value that customers place for that amenity.

Yeah, huge amounts on the technology side. Maybe I'll describe this just generally, our operating model journey, which has been the most significant change at Avalon Bay over the last five or six years. I'll describe it this way: we now lead in our interactions with customers and prospects through AI. We were very early. People are probably aware of used to be called Meet Elise, it's now Elise AI. We're now using that technology. We were early investors, early adopters, really helped shape that technology. That technology now handles 95% of our prospect interactions. And we're now taking that type of technology and using it throughout the customer journey. But I start there and emphasize that if you're a customer of ours, your first interaction with us we want to be AI-based. If AI can't handle your situation, the other big shift is we're continuing to invest in centralization. So we now, we're one of the first in the industry to have a centralized service center. Typically it was very back office oriented, it's now shifting to both back office and front of the house, and continues to get a lot of investment. That's the second landing spot. Then you get to a team, and you get to an on-site team. The big change there is the old model of having dedicated staff at individual properties, we are moving (and others in the industry are as well) to neighborhood teams, where they're now a team that's handling four or five assets in a neighborhood. And it's allowing us, when you put that together with the technology, centralization, and the neighborhood model, we feel we can deliver a higher value proposition to customers. And we do measure that through NPS and other factors. Delivering higher value proposition and doing it much more efficiently.

Yeah, for sure. And when it works well, I'll use Elise AI, you get the strategic benefits, you get the operational benefits, and you get the investment benefits. So Elise AI, I mean it was nothing of a company, very small valuation, just had a funding raise north of a billion dollars. So it worked for them by getting a strategic partner like us involved early, early adopter, constant feedback. And it's great for us because we're at the table with them, actually tell like we need you to tailor the product in this way to help us execute what we need to execute. So when we do a decent amount of proptech investing, those are the types of relationships that we try to find. We can have both the strategic benefit as well as the financial benefit.

So early on, the two were us and EQR, so the two of us. Now it's a much broader customer base, but it was really the two of us early at the table coming together to make the investment and spend the time with them.

For sure, and I'll take it further. We're now taking it's really the combination of technology, centralization, and neighborhood, and incorporating that into our underwriting of assets. And we now, a typical asset if we can have it in the correct neighborhood, we feel like we can generate 30 to 40 basis points of incremental yield by having that asset on the Avalon Bay platform. And we were not underwriting that type of benefit a couple years ago. So it speaks to my view and our view that in our industry, in the multifamily industry, scale is going to be increasingly important, particularly driven by the investments that are needed to be made in technology, centralization, and then the benefits that are increasingly going to come through having clusters of assets together.

Yeah, yeah, yeah. Let me dig in a little bit. Our conviction on the suburban coasts remains very, very strong. In the near term, they continue to benefit from steady demand and low levels of new supply. One call out I'll make upfront and hopefully this resonates to the developers in the Mid-Atlantic, there's a ton of focus on supply coming down in the Sun Belt. Supply is also coming down on the coasts and coming down particularly in the Suburban Coast. So this is I do think it's going to be a benefit as you look at over a multi-year period. Obviously there's less starting, that's going to be less competition, but I think there's an over kind of heightened focus on supply coming down in certain markets where I think it'll happen in the overall industry. I'm generally of the view that there is going to be a longer tail from supply, particularly in places that are seeing, you know, go into the Austin of the world, you know, just historic levels of new supply coming through the system.

And so that's you're seeing that come through our operating results. The momentum we had in the business, you know, this year we're posting of the public peers sector leading revenue growth in the, you know, three and a half percent type of range. But it's not just the near-term. I mean, this is we've been pushing this way. As we, you know, we're constant, this goes back to my Evolution theme. We're constantly thinking about what are the trends that are going to be influencing our business over the next 10 to 20 years. And demographic trends, particularly the aging Millennial trends, along with you know what's happening from a regulation standpoint, being kind of two main factors, continues to have us push to the suburbs. And Matt Bound, my CAO, kind of puts it this way: to a certain degree, our portfolio, our Suburban Coastal portfolio, is better positioned to capture rental demand over this next 10 years than it was over the prior 10 years. So you're going to continue to see that be the core of our portfolio. We today we have about 90% of our portfolio in those Suburban Coastal markets and 10% in our expansion markets. And as we think about optimizing that portfolio, we want to get that 10% to about 25%. As we're making that shift, and we pursue that growth through multiple channels: acquisitions, development, and then also funding of other developers. And let me kind of turn to the Austin example because I think it speaks to what I consider one of the true strengths of Avalon Bay, which is our sort of detailed, intensive focus on both which markets and how we think about the timing of entering those markets. So in Austin, we announced that we wanted to be in Austin three or four years ago. We made, we started our first development project two months ago, we bought our first deal 30 days ago. Right. So we are positioned as a type of company that can be patient to figure out when we think about the right overall market, but when's the right time to enter that market. And so when I look at Austin today, the next couple of years probably still some continued pain. I mean, there's still a lot of deliveries that are coming through, particularly in certain submarkets there. But as we think about over the next cycle, and I think about where rents were to where they are today, when I think about where asset values and cap rates were to where they are today, we feel like it's an attractive entry point. I may give kind of one data point which we were looking at a couple of months ago, and actually we're living and breathing it every day, and it actually surprised me, which was Austin rents relative to pre-COVID only up 9%. Right. So you think about that trajectory that they've been through, only up 9% relative to summer. That's actually, you know, a couple percent of growth a year. Right. Relative to lots of other markets. And we look at that and think about the price, the point in time, the basis we can get in those assets, and then think about growth going forward over the next 10 to 15 years, we feel like it's a relatively attractive time to be entering markets.

Yeah, it's a huge dynamic and a huge driver of demand. At this point in time, as Willie called out, $2,255 per month more expensive to own a home than rent a home in our core markets. That's driven primarily by our concentration in the Suburban coasts, where you've seen both huge price appreciation as well as high mortgage rates and limited supply of new homes because the home builders haven't been building there. Can't find the land. It's hard to have that type of competition. And what that's translated to on the demand side is typically if you look historically, we track why people leave us when they're leaving us as a renter. Traditionally, call it 15 to 17% of people that would leave us to go buy a home. Today, last 18 months, that figure has been 8 to 10%. We've never seen those types of figures before. So for sure a portion of our customer base is having to stay with us longer, and that's one of the reasons you see in the overall industry why retention is high and turnover is as low as it is. As we look forward, it's tough to know where things head over a multi-year period. I do think about this dynamic as providing a pretty significant cushion or margin of safety. There's a large movement that has to happen both in terms of home prices and mortgage rates to even close a portion of that gap. So I do think it's going to be a tailwind for the business over a multi-year period going forward. So I was last night I was looking at a chart that Zelman, who's our research organization, put out. At the beginning of the Obama second administration in 2012 and at the beginning of the first Trump administration in 2016, 45% of renters in America could afford to buy the median priced home. That today is at 25%. So only a quarter of the tenants in an Avalon Bay community can actually afford to buy a single family home. So to exactly what you're talking about, that protection in the markets where you are, particularly given the undersupply on the single family side, if you go to Nashville or Austin, you're getting a lot of both single and it's oversupplied in both single and multi, so that delta isn't nearly as wide as it is in your core markets. Yeah, agreed. The other, let me take us this way. Another new growth channel for us given some of these both population trends, challenges of owning a home, we announced on our last earnings call we are formally moving into the BTR space. It feels like we have what, 25 sites right now for BTR? No, not so. We have existing communities that are sort of town home style. So part of this is I describe it we think about the BTR space for us as just an expansion of what we already do, an expanding part of our business. I don't think about it as a new business line for us. We've been building garden and town home products since the beginning of Avalon.

So our growth channels are, we've got existing product in the portfolio that we build up over time. In the near term, it's going to be both buying, so buying BTR product as it's completed, and then funding BTR developers. We have a program that we use on both multifamily and now we're using in the BTR space, we call it our developer funding program. We provide full capital stack to third-party developers. They've got sites, they're ready to go. We own it, we show up at closing, we buy the land, we fund the entire project. The developer sort of a typical LP/GP deal, but they're not putting in the upfront capital. They do get to participate in the value creation and earn a typical type of promote. So we've taken that program which has been successful for us on the apartment side and now we're bringing that over to the BTR side, one to be able to activate it more quickly. Right, we don't have the presence, we don't have control over that land, so we can leverage third parties who do. We also, I mean, there's aspects that are similar to the apartment development space, but there are aspects that are different. Right, it is a product that's built differently, different subs, and so we're going to use those relationships to get smarter and learn more about the business over the next 12 to 18 months.

We haven't said specifically. So yeah, we are leaning into development today, which not everyone is saying. And our objective is it feels like a point in time where Avalon Bay can capture an outsized share of what will be an overall lower level of development starts. I think about our cost of capital. We raised through the public equity markets $850 million at an initial cost of capital at 5%. Looking at leveraging the scale that we have with our teams in the market, we are seeing construction costs come down. Think about the spread between development yields, which for us we're finding development yields in kind of the six and a half percent type of range, relative to our cost of capital, relative to underlying cap rates, all of that has us leaning in. The bulk of the billion five is going to be apartment oriented. But of that billion five, the potential to take it higher would be through more DFP business, more funding of third-party developers, and further acceleration of our BTR program.

Yeah, I mean, for sure. Given where rates are and the uncertainty in rates, we're going to need to stay nimble. That's the message and theme that I value with the team. We're in a kind of continued period of heightened uncertainty, so we can't get stuck in a plan. What we focus on at Avalon Bay, and we've done this over multiple cycles over 30 years, is triangulating in and making sure that when we're starting new developments at that point in time, we don't trend rents, we don't trend costs. We focus on spot point in time: what's that yield look like relative to the underlying market cap rate and relative to our cost of capital? And we maintain 100 to 150 basis points of spread between those two to effectively provide the protection that's required from development risk. So a little bit of that is kind of rate risk. The other part which is unique to us and it does come with a cost, but we typically lock in our capital in new development upfront. So at any point in time, we're generally 75% today, we're actually overfunded on our new development activity. So one of the ways that we protect against the risk on rates is when we decide we're going to go shovels in the ground, we're matching that project up with discrete capital at that point in time to take the capital cost risk off the table. Doesn't mean there's not development risk, but we're taking the capital raising cost risk off the table when we say go.

Yeah, one call out I'll make upfront, and hopefully this resonates to the developers in the Mid-Atlantic, is there's a ton of focus on supply coming down in the Sun Belt. Supply is also coming down on the coasts and coming down particularly in the Suburban Coast. So this is I do think it's going to be a benefit as you look out over a multi-year period. Obviously, there's less starting, that's going to be less competition. I think there's an over kind of heightened focus on supply coming down in certain markets where I think it'll happen in the overall industry. That's point number one. Point number two is I'm generally of the view that there is going to be a longer tail from supply, particularly in places that are seeing, you know, go into the Austin of the world, just historic levels of new supply coming through the system. I think as we get into 2025, we'll start to be a little bit of a bifurcation in some of the high supply markets and some of the Sun Belt markets. I think some of those markets will make their way through the bulk of new deliveries in 2025. Still, you know, still have challenges around maintaining occupancy, still have challenges around rents. The roll through of that in terms of NOI into 2026, I think people at least in the public arena, our investors, get very focused on rent change. And we're trying to reorient them like that rent change, you got to build your rent roll over a year. The dynamics that exist today are going to roll through rent rolls over the next 12 months. And then there'll be certain markets. So I think there'll be a set of Sun Belt markets that return to normal as we get maybe rents start to inflect in the back half of '25, the NOI impacts roll through in '26, by the time you get to '27 things feel a little bit normal. But there's also a set of markets where it's probably another year behind. I mean, we're in one of them, and we went there consciously knowing there was going to be a lot of supply. But people been to the South End in Charlotte as an example, I mean just go and look at the cranes that are still in the sky. There are deliveries that are going to be coming there for another 12 plus months. So the first category I just described, you got to advance that another 12 to 18 months before you're on the other side of a more normal supply demand dynamic. More broadly, our outlook for next year got a lot of flavors of sort of similar to this year. What we saw this year was East Coast continue to outperform West Coast, both the East and West Coast outperform the Sun Belt. And next year, as you think about from a jobs perspective, generally things have changed a little bit, a little bit more momentum around potential jobs next year, but jobs are expected to come down in '25 relative to '24. So supply is also coming down in '25 relative to '24. But if you look at the job to supply ratios, at least sort of spot point in time, they're pretty similar year over year. And so for us, when we think about what are the markets that are going to underperform or outperform in an environment like that, it's going to continue to be driven primarily by where there are higher levels of supply. And so as we think about next year, I think our expectation is at least for another year where you've seen momentum in markets is likely going to be the places where you continue to see the momentum.

Yeah, I'll make a couple of comments. So on the regulatory front, see it as a net positive. Now, as everybody knows, most of the regulations that we deal with are at the state and local municipal level. But there was a lot of rhetoric coming more and more at the national level in and around rent control. We continue to be big believers that to solve our housing problems in the country, they need to be supply-based solutions. So I think that'll be net positive. As it relates to the economy, obviously very challenging to forecast what policies are going to be implemented, what the implications of those are. It seems like economists generally are now expecting slightly higher growth. That higher growth may come with higher interest rates. So on the growth side, I think that growth should benefit apartments. I think there's a case to be made, particularly for our type of customer, that more of that growth and more of the wage and income growth that'll come from it should be our type of customer. You just think about deal activity, financing activity, sort of the parts of the economy potentially could get going that have been a little bit subdued. So I think that's a potential kind of net positive there. Rates staying higher likely translate over into cap rates staying higher for a period of time, so that's a headwind on values. So kind of an absolute net negative. Now at the same time, in my Avalon Bay seat, to a certain degree it extends out the period of time where I've got a pretty significant cost of capital advantage. So from an absolute level, apartment values, higher rates are net negative. But you think about where I'm raising cost of capital relative to where a private developer could raise cost of capital, that's pretty wide today. And so if we stay in that type of environment, it probably extends out our period of time where we can use that advantage to capture our share of growth.

Yeah, I definitely take a long-term perspective on it. We've been at this 30 years. We've delivered an 11 and a half percent annualized compounded return to shareholders over that time period. And to be able to do what we do and deliver that type of consistency, both dividend growth and share growth, it's an amazing platform. And underneath that is multifamily. We're in an amazing asset class. We're connected to the growth of America. We're connected to wage and income growth of our country. And so I look at that longer term and I think we're in an amazing business. And of all the asset classes I look forward, a lot of the other ones you touched on, even the ones that are sort of everybody's favorite asset class today, I think people have a harder time envisioning what those asset classes look like 10, 15, 20 years from now. And our business will evolve, but in terms of being disrupted by some other changes, I think we've got the least risk associated with that. And so when I think about both from a shareholder perspective, kind of wealth preservation plus growth, come to multifamily. You want to do that over a long period of time, we're a beautiful place to be. And so then on that, if I said to you, you've got $1,000 to invest in the stock of either an office REIT, I said Boston Properties is down 40%, a retailer like Simon Properties that's flat over the last decade, Equinix that's in the data center space, or Prologis that's in the industrial space, where would you put your money? Outside of a recovery in office, growth in retail, further on data centers, or more industrial? As much as it's more than the flavor of the day, as much as there's an intense focus on capital flowing into data centers, the time I spend with some people who lead our industry, to hear them say if they had that dollar they would put every dollar they had into the data center space. So outside of apartments, at least over the next couple of years, I think there continues to be momentum to ride in that wave. I will say, I was at a conference up in New York two days ago, Ben, with Milbank and Goldman Sachs on data centers, and they had 80 CEOs of the big data center either investors or operators. I was completely a fish out of water. And Wes Edens from Fortress was up talking about the data center space because New Fortress Energy is a big energy supplier to data centers. And Wes was having a conversation with Andy Jassy at Amazon just a couple weeks ago, and he said, Andy, what's the trajectory for growth in data centers? To which Andy Jassy said, you know, Wes, I don't know. To which Wes was like, if there's anyone on the face of the planet who should know the trajectory for data center usage, it should be you. But what Andy did say was, every single time that there is a new unit of capacity created, it is gone instantaneously. And from a demand-supply standpoint, that's not a bad place to be. It's really not a bad place to be. I don't want to miss your question about Mid-America, who I admire as an organization, I think highly of Eric Bolton. Our focus as an organization, and we did a big investor day on this last November, is we are laser-focused on delivering superior growth over the long term. And what we're focused on are a series of activities that we think can consistently drive that growth. And it goes to the operating model transformation that I talked about before. Just a quick tidbit there: currently over the next couple of years, we think there's $80 million of annual incremental NOI both from increased revenue and from operating efficiencies to come out of the investments that we're making in our operating model transformation. Continuing to leverage our development capabilities. We have a really unique in the public sphere. There are a lot of private developers, but in the public sphere, I'll give you guys this stat: over the last 10 years, we've developed more than all of our public multifamily peers combined. So we have a self-generated way to generate external growth that we're going to continue to lean into and take into some new product classes and new arenas. And then also we need to be constantly adjusting and thinking about portfolio allocation and asset management. I think there are opportunities as we optimize those activities, they should also lead to superior growth. And then I bring it all back to MAA's got a good culture, strong culture as well, but at the core of it, if we're going to have best-in-class teams, best-in-class people, we need to continue to have a unique culture that keeps people engaged, we're able to grow their careers, that as its core is going to lead to our long-term success.

It's all of the above. The private equity guys, given their scale, the capital that they've been deploying in the space, they've built up some very sizable platforms. And so I think increasingly they will be seen as a competitor of ours. But it's different. They're generally investing through third-party managers. Some of the other models you described, people at the center of operating the assets have lots of different capital partners. I think what distinguishes us, partially the REIT model, but then also Avalon Bay is we are wholly owned and we're wholly owned for the long term. And so it allows us to make investments at a level that a lot of the competitors in the multifamily landscape just can't make.