Q3 2023 Essex Property Trust Inc Earnings Call
Participants
Angela L. Kleiman; President, CEO & Director; Essex Property Trust, Inc.
Barbara M. Pak; Executive VP & CFO; Essex Property Trust, Inc.
Jessica Anderson; SVP of Operations; Essex Property Trust, Inc.
Rylan Burns; SVP of Investments; Essex Property Trust, Inc.
Adam Kramer; Research Associate; Morgan Stanley, Research Division
Austin Todd Wurschmidt; VP; KeyBanc Capital Markets Inc., Research Division
Bradley Barrett Heffern; Analyst; RBC Capital Markets, Research Division
Connor Mitchell; Research Analyst; Piper Sandler & Co., Research Division
Daniel Peter Tricarico; Associate; Scotiabank Global Banking and Markets, Research Division
Eric Wolfe
Haendel Emmanuel St. Juste; MD of Americas Research & Senior Equity Research Analyst; Mizuho Securities USA LLC, Research Division
James Colin Feldman; Equity Analyst; Wells Fargo Securities, LLC, Research Division
John Joseph Pawlowski; MD of Residential and Health Care; Green Street Advisors, LLC, Research Division
John P. Kim; MD & Senior U.S. Real Estate Analyst; BMO Capital Markets Equity Research
Joshua Dennerlein; VP; BofA Securities, Research Division
Linda Tsai; Equity Analyst; Jefferies LLC, Research Division
Stephen Thomas Sakwa; Senior MD & Senior Equity Research Analyst; Evercore ISI Institutional Equities, Research Division
Wesley Keith Golladay; Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division
Presentation
Operator
Good day, and welcome to the Essex Property Trust Third Quarter 2023 Earnings Conference Call. As a reminder, today's conference call is being recorded. Statements made in this conference call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties. Forward-looking statements are made based on current expectations, assumptions and beliefs as well as information available to the company at this time.
A number of factors could cause actual results to differ materially from those anticipated. Further information about these risks can be found on the company's filings with the SEC. It is now my pleasure to introduce your host, Ms. Angela Kleiman, President and Chief Executive Officer for Essex Property Trust. Thank you, Ms. Kleiman, you may begin.
Angela L. Kleiman
Good morning, and thank you for joining Essex's third quarter earnings call. Barb Pak and Jessica Anderson will follow with prepared remarks, and Rylan Burns is here for Q&A. My comments today will focus on how we performed to date, our initial outlook for 2024 and a brief update on the investment markets.
Overall, 2023 has unfolded generally in line with our expectations. We increased our same property revenue and NOI growth in middle of the year despite a challenging operating environment with almost 2% of rent delinquent for the first 9 months of the year. For context, this delinquency level is approximately 5x our historical average. The unprecedented eviction protections enacted during COVID exacerbated by subsequent court delays has resulted in protracted exposure to nonpaying tenants and uncertainty on timing of when we could recapture these units. That said, we made considerable progress reducing delinquency, as a percentage of rent, which is now at 1.3% in October. This improvement has naturally resulted in a temporary trade-off between rate growth and occupancy but has proven to be an optimal strategy to maximize revenues, as we make progress towards normalization in our markets.
Looking ahead to 2024, we plan to publish a more comprehensive outlook for the West Coast in conjunction with our full year guidance on our fourth quarter earnings call. For now, we have provided our initial 2024 supply outlook for our markets on S-17 of the supplemental, which forecasts total supply growth of only 0.5% of total housing stock. Unlike many other U.S. markets, total housing supply in our markets is expected to remain at low levels, and we do not see a near-term catalyst for increasing housing supply growth in the Essex market. This supply landscape also minimizes our risk to job growth relative to other markets, especially if we encounter a softer demand environment and will be a tailwind for Essex when the economy accelerates.
While muted supply is part of our thesis, we also see conditions that could drive demand for housing. First, after a year of retrenchment, layoff in the tech industry appears to be slowing and return-to-office is gaining momentum with percent of remote job hiring at the largest tech companies now in the low single digits. Implying that once tech hiring resumes in a meaningful way, job growth will be highly concentrated near major employment centers. Second, it remains to be seen how the artificial intelligence industry will grow. We know the success in this industry will require immense scale and capital resources, and these types of companies are largely concentrated in the Bay Area and Seattle.
Third, affordability, particularly in Northern California. Today, the Bay Area is as affordable as we've seen since we began tracking this data, and we expect this will provide a long runway for rent growth. In summary, the combination of this potential demand backdrop and a muted supply outlook gives us confidence that the West Coast is well positioned to outperform in the long run.
Lastly, an update on the apartment investment market. Deal activity slowed further in the third quarter as interest rates increased sharply in recent month, compressing prospective returns and resulting in many buyers remaining on silence. We have seen several marketed deals now transact this year, as sellers await a less volatile interest rate environment. There is little evidence to suggest transaction activity will pick up in the near term as bid-ask spread remains wide. We have navigated through many economic cycles, and our finance team has done an excellent job in fortifying the balance sheet, which positions Essex well for any environment. With that, I'll turn the call over to Barb.
Barbara M. Pak
Thanks, Angela. Today, I will discuss our third quarter results, along with investments in the balance sheet. Starting with our third quarter performance. I'm pleased to report that core FFO per share for the quarter came in $0.03 ahead of our midpoint. The outperformance was driven by slightly higher revenues, other income and lower G&A expenses. Partially offset by higher operating expenses. Most of the beat in the third quarter is timing related. As such, we are reiterating the midpoint of our full year core FFO per share and same property revenue, expense and NOI growth. As it relates to operating expenses, 2023 has been elevated compared to our historical run rate, given above average increases in repairs and maintenance costs and insurance. This was partially offset by real estate taxes, which increased by only 1% due to the favorable outcome we received in Seattle. As we look to 2024, we expect operating expenses will remain elevated, primarily driven by noncontrollable items such as insurance and utilities. In addition the tax benefit we received in Washington share is not expected to repeat in 2024.
However, it should be noted that we have done a good job over the past 4 years, improving the operating efficiency of the platform, which has led to a modest increase in our controllable expenses. Since 2019, our controllable expenses have increased around 2.75% annually despite elevated inflationary pressures and higher costs related to our delinquent units during this period. This favorable outcome is primarily driven by the rollout of Phase 1 of our property collections model. As always, we are continuously looking for ways to improve efficiencies within the platform in order to optimize our cost structure.
Turning to investments. For the year, we expect preferred equity redemptions to be around $70 million, as we anticipate being fully repaid on a $40 million investment in the fourth quarter. As we look to 2024, we expect redemptions within our preferred equity book to be around $100 million. While we are actively looking for new deals to replace these investments, there could be a timing mismatch in terms of when we get repaid and when we can reinvest. We are finding there are still significant capital sources eager to invest in this portion of the capital stack, while at the same time projects with reasonable return expectations are becoming harder to find. We will remain disciplined in this environment, meaning on our deep network on the West Coast to source deals at attractive risk adjusted returns.
Turning to capital markets and the balance sheet. In July we closed $298 million in 10-year secured loans at a fixed rate of 5.08%. The proceeds will be used to repay our 2024 consolidated maturities. We were proactive in refinancing our debt early in today's volatile rate environment, locking in favorable financing ahead of the recent acceleration in treasury yields. As such, the company is well positioned with minimal financing needs over the next 18 months. We are pleased that our net debt-to-EBITDA ratio continues to trend lower and stands at 5.5x today as compared to 5.8x 1 year ago. With over $1.6 billion in liquidity, the balance sheet remains a source of strength.
I'll now turn it over to Jessica Anderson.
Jessica Anderson
Thanks, Barb. For my comments today will cover our recent operating results and strategy, followed by an update on our delinquency progress and regional highlights. Operating results were solid for the quarter, including same property revenue growth of 3.2% on a year-over-year basis. We experienced a normal peak leasing season across all markets. Market rents peaked in August at 6% growth year-to-date compared to December 2022, and has subsequently moderated by 10 basis points in September, which is consistent with typical seasonality. While we took advantage of opportunities to push rents during peak season, we shifted back to an occupancy-focused strategy midway through the third quarter as we began to recapture a larger volume of units from nonpaying tenants. This shift in strategy tempered our blended trade-out rates in Q3, which were similar to Q2 at 2.1%. Renewal growth rates were healthy at 3% in Q3 and 5.3% in October, boosting our blended trade-out rates while new lease growth was muted at 1.2% for Q3 reflecting new lease incentives to backfill recently vacated nonpaying units.
Eviction-related move-outs increased in September, allowing for improvement in delinquency as a percentage of rent to 1.9% in September and even further improvement in October to 1.3%. Several of our markets such as Santa Clara, San Mateo and San Diego have returned to delinquency levels close to the long-term run rate. Los Angeles and Alameda counties remain elevated, but significant progress is also being made in these areas after protections expired earlier in the year. As Angela mentioned, the improvement in delinquency will result in a temporary trade-off with new lease growth and occupancy, which can be seen in our preliminary October numbers, but we view this progress as a positive for the company. Consistent with our approach all year, we remain nimble and will shift our strategy as necessary to maximize revenue in any operating environment.
Finally, I want to thank the Essex team for their diligent efforts this past quarter. They've been a major driver of the improvement we've achieved.
Moving on to regional specific commentary. Beginning with Seattle, this market has performed as expected this year. Blended net effective rent growth averaged 0.5% for the quarter, improving 70 basis points from Q2. Despite nominal trade-out growth, demand fundamentals were solid in Q3, and I am pleased with the recovery of this market after a slow start to the year. Market rents in this region were the first to peak in July on par with a typical year, and we anticipate a normal seasonal moderation. Although higher levels of supply deliveries in the fourth quarter may have an impact on pricing.
Turning to Northern California. Blended net effective rent growth averaged 1.4% for the quarter, consistent with Q2. Market rents peaked in late August, later than normal, an indicator of solid fundamentals in this market. Santa Clara was our top performing market for the quarter as outlined on Page S-9 of the supplemental. The ongoing return-to-office along with corporate housing activity contributed to these positive quarterly results. San Francisco and Oakland CBD, which account for a small portion of our NOI, have lagged the regional average. Oakland continues to be impacted by supply, which is expected to continue into 2024.
Lastly, Southern California continues to be our top performing region led by San Diego. Market rents in Southern California were last to peak in mid-September and blended net effective rates remained resilient at 3.7% despite the headwinds in Los Angeles, our market most impacted by delinquency. In October, delinquency in Los Angeles was at 4.6%, reflecting a 2.1% improvement since the start of the year. We anticipate making continued progress on delinquency in Los Angeles, and as such, we expect rents and occupancy in this area to be more volatile in the near term.
In summary, we are encouraged by the improvement we are seeing on the delinquency front and expect continued progress heading into next year. As we conclude the balance of the year, we remain focused on preserving occupancy and positioning the portfolio favorably heading into 2024.
I will now turn the call back to the operator for questions.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from Austin Wurschmidt with KeyBanc.
Austin Todd Wurschmidt
Jessica, you highlighted that you had shifted your strategy from pushing new lease rate growth to growing occupancy, due in part to the elevated move-outs of nonpaying tenants but from what I recall, the guidance assumed both an improvement in cash delinquency and reacceleration in new lease rate growth towards that high 2% range in the back half of the year. So I guess I'm just curious if anything else changed from a demand perspective that also contributed to that shift in sort of operating strategy?
Jessica Anderson
Well, just to emphasize, we are on track for the year. And as mentioned in my prepared remarks, there is essentially a trade-out. We did expect delinquency to stay elevated above the 1.3% that we reported for October, so that is lower than we had planned, although we had experienced the trade-out with occupancy and our new lease trade-out rate. So as far as demand goes, all the markets are performing as expected as we move into the seasonal slow period, and we're encouraged by recapturing the nonpaying units because it will position us well as we head into 2024.
Austin Todd Wurschmidt
Got it. That's helpful. And then can you just remind me, I know you guys report financial occupancy, but does that capture cash delinquency? Or is that figure more a reflection of gross potential rent?
Jessica Anderson
Financial occupancy does not include delinquency.
Operator
Our next question comes from Eric Wolfe with Citi.
Eric Wolfe
Just curious what you think drove the decline in delinquencies in October sort of specifically versus, say, 2 months ago and -- or even a couple of months ago and some of your peers started seeing it. And do you think that the improvement is sustainable going forward?
Jessica Anderson
Hi, Eric, this is Jessica. Well, we're definitely encouraged by the improvement that we've seen in October, and there are several factors that are contributing to that. The first is for all of our areas outside of Los Angeles and Alameda protections expired in July last year. And at the time, we were reporting that evictions we're taking in the range of 10 to 12 months and some longer. And so now that we're a year plus into those areas, we are seeing a lot of those units have made their way through the system. And the move-outs that we're experiencing. As far as Los Angeles and Alameda though those protections earlier in the year. And those tenants are realizing that there are no more protections. There is no more emergency rental assistance. So overall, the tenant sentiment has changed, and there's a greater sense of urgency. So we are seeing increased move-outs as tenants are realizing this.
And as far as forward looking, 1 month certainly doesn't make a trend, and we've seen some choppiness in delinquency as we've worked through it the last couple of years. But we're certainly encouraged by our recent results, and we're going to be monitoring that closely, and we'll have more information on our fourth quarter earnings call.
Eric Wolfe
That's helpful. And I guess, it leads to my second question, which is around the -- you're dropping through new lease rates to increase occupancy of the nonpaying tenants, I guess, how long would you sort of expect that process to take? And would you expect new lease rates to sort of go back up to that sort of 2.8% that you discussed on the last call? Or should renewals have to come down? Because I think you also talked about renewals tending to follow a new lease. So just trying to understand how long new lease rates will you depress and if we should also expect renewals to come down to follow them.
Jessica Anderson
All right. Let me tackle that. I'll tackle new leases and then renewals. So as far as what we can expect for new lease rates through the quarter, I expect those to remain muted. We have come into a period of easier comps, but since we've increased incentives to backfill these units, that's going to mask some of that progress. And overall, we view that as a positive. I think it's neutral over the short term with only a couple of months left in the year, but a positive as we look to 2024 because essentially, we have people occupying units that are not paying rent. And so if that unit becomes vacant, it's now vacancy, but essentially, that's a neutral trade-out. And we're offering concessions to refill -- backfill these units as quickly as possible. And at that point, you have somebody occupying the unit that will be paying full market rent in the near term. So it sets us up favorably for 2024.
And with regards to renewals, renewals is where you're seeing our comps show up. Renewals are insulated from some of the choppiness of the day-to-day pricing strategy as we've increased incentives to backfill these units. But what you're seeing in October is essentially 50-50 gross rent growth and then also concession burn-off in that 5.3%. I expect for the quarter, renewals will be pretty consistent. We've sent them out around 5%. And we'll monitor conditions closely. We may negotiate those a little bit, but expect those to be fairly consistent through Q4.
Operator
Our next question comes from Nick Yulico with Scotiabank.
Daniel Peter Tricarico
It's Dan Tricarico with Nick. First question is on market rent growth thoughts for next year. With the 0.5% supply growth you gave in the sub, just curious what sort of demand environment would drive negative market rent growth next year given that supply backdrop, just looking to sensitize possible outcomes.
Angela L. Kleiman
Yes, that's a good question. It's Angela here. We -- one of the reasons why we held off on publishing our macro outlook is because we listen to our investors' feedback to better understand the value of publishing that outlook because that ultimately impacts our view on market rent growth. And we have decided not to change -- I mean, to change our approach to -- so we would provide the outlook early next year. So it aligns better with the timing and the release of our guidance.
And so, we want to give you that backdrop. But ultimately, the market fundamentals really are going to be impacted by a couple of factors. And we start with looking at the third party macro economist forecast, which is still evolving. And we've not seen anyone with a robust outlook, but it is too early to predict. We will say is that Essex is in a better position relative to other markets due to low supply that you mentioned earlier, which, of course, reduces the risk to rent growth and, of course, having some potential upside when it comes future demand. And so those are all the different moving pieces that we are evaluating at this time.
Daniel Peter Tricarico
No, that's good. And the next question would be on just your different regions. SoCal has been your strongest, but curious if you could see that gap to Northern California and Seattle remaining or maybe converging next year? Any thoughts on the puts and takes there.
Angela L. Kleiman
Well, I think Northern California is our steady eddy market. And it has a profile -- employment profile that's similar to the U.S. but with higher level of professional services. So the demand remains constant. In Northern California, we do expect that recovery will come. Of course, the timing is the question, right? And so ultimately, it should continue -- it should outperform if not just if nothing for the sake of it's in -- still in the recovery mode. And so that's how we're thinking about the 2 regions.
Operator
Our next question comes from Steve Sakwa with Evercore.
Stephen Thomas Sakwa
First, Jessica, could you provide a kind of a loss-to-lease and an earn-in figure for the portfolio?
Jessica Anderson
Sure. As far as loss-to-lease goes at the end of September, we were looking at roughly 1.5%, which is consistent with periods pre-COVID, the 3 years average pre-COVID. And as far as earning goes, typically, in the past, we look at using roughly 50%, maybe a little bit more of that loss-to-lease number, which gets us to roughly 70 or 100 basis points and then we'll look at whatever our market rent forecast is for the year and take 50% of that, and it's still early and we'll be evaluating that and providing more information on our fourth quarter. We do see some other building blocks as far as earning for next year with some other income initiatives as well that will contribute to revenue growth as well next year.
Stephen Thomas Sakwa
Great. And then maybe just on the investment side, I guess, I think Barb might have talked about some repayment of some of the preferred investments. I guess just what are you seeing in the marketplace today? From either developers or other investors who might be in trouble from a financing perspective?
Rylan Burns
Steve, Rylan here. We are still seeing a few opportunities. I would say, just a little historical context, the majority of our deals up until last year were development based. This year, it's been a mix, I would say about 50-50 between development and stabilized recaps. And I anticipate next year, we're going to see more opportunities for stabilized properties that are seeking recaps. We've seen several deals in the past couple of years with above 50% leverage and very low interest rates capped or swap that will roll in the next few years at a very different interest rate environment. So with limited NOI growth we've seen in several of our markets, we think there are going to be opportunities to put some capital to work.
Operator
Our next question comes from Joshua Dennerlein with Bank of America.
Joshua Dennerlein
I appreciate that your markets have lower supply than a lot of other markets out there across the country. But just kind of curious on what you're seeing as far as demand goes in San Francisco and Seattle. And then what do we need to see to kind of see an acceleration of that demand in those markets?
Angela L. Kleiman
It's Angela here. I think on the demand side for Northern California, we do want to acknowledge that it remains soft. But I do think that we got 2 things happening. One is from a year-over-year comp perspective, September was still quite robust last year because that was before the tech sectors began their retrenchment. And at this point, what we're seeing is that, that has stabilized. And so that's definitely a good indicator.
As far as other indications, we look at, of course, unemployment claims that remains stable and WARN notices, it's back to pre-COVID levels. So that all points to that the market is functioning as it should. In terms of looking forward, we do think that the technology sector, the hiring needs to return in a more robust way. It's -- this is -- what it looks like is that they're going through kind of the tail end of the retrenchment. And so we do see light at the end of the tunnel from that perspective. And of course, having the remote or the remote job hiring, which is now 8% versus, it was 25% last year, and of course, 100% during COVID that we need to continue to decline and which we expect that to happen. And then, of course, the last piece is really the international migration, which has been quite muted as a result of COVID and of course, the various retrenchment. And so with those 3 elements, those are all potential upside for our markets.
Joshua Dennerlein
Okay. I appreciate that color. And then maybe just one quick one, and apologies if I missed this, but what does your guide assume the rest of the year as far as the new lease rate growth goes?
Barbara M. Pak
Josh, it's Barb. So there is a specific number that we need to achieve to hit the fourth quarter guidance. It's going to be a variety of factors. As Jessica mentioned, we got back a lot of units from nonpaying tenants. It has had an impact to our occupancy but there's a trade-off there. So there's a variety of factors that will play into the fourth quarter guidance and if there's not a specific rent growth number that we need to achieve because there's all the other factors play into it.
Operator
Our next question comes from Jamie Feldman with Wells Fargo.
James Colin Feldman
Can you talk about sort of the occupancy first initiative in the first half, do you think that sets you up for a potential acceleration next year?
Jessica Anderson
Jamie, this is Jessica. Can you clarify your question? Are you talking the first half of 2023, first half occupancy acceleration?
James Colin Feldman
Yes, I'm just thinking about like what the year-over-year comps could be into next year? Like where did you push harder in the first half of '23 that you may get the benefit might be harder to have the comps for the first half of '24, both on occupancy by market and also by rent?
Jessica Anderson
Yes, I understand what you're saying. Yes, year-to-date occupancy, I believe, we're sitting about 96.5% and right now, we floated down to 95.9%, but again, there's a trade-out, so it's revenue neutral over the short term, but potentially positive as we head into 2024. So where we're heading right now with occupancy, it's hard to peg exactly where we'll end the year. As I mentioned, we remain focused on occupancy and backfilling units. It's a seasonally slow period. So it's uncertain how much progress we'll be able to make with occupancy over the short term. So with that said, as we head into the year, we certainly could be lower than last year, but stable is what my expectation is from an occupancy perspective. But there's other components that will add to a favorable revenue outcome as we see our delinquency come down.
And as far as occupancy by area, I mean, generally speaking, we're seeing our stronger occupancies in Orange County, San Diego, Ventura, Seattle is performing quite well now and having quite stable seasonal slowdown, particularly when compared to last year and is sitting around 96%. Los Angeles is 95.4%, and I would expect that market to be particularly impacted with a lower occupancy, but again, an upside on the delinquency front, and the Bay Area is also sitting around 96%. Does that answer your question?
James Colin Feldman
Yes, that's helpful. And then, I guess, just switching gears for the investments here to investment potential. I mean you mentioned Oakland. I mean some of these submarkets that do have more supply. I mean, would you want to expand there if you saw better opportunities or better pricing?
Rylan Burns
Jamie, it's Rylan here. I'd say we are open to any good investment opportunity subject to the conditions that are presented to us. At a high level, as we've talked about, we are relatively bullish on the prospect for Northern California on the next several years. And I think Angela has reiterated several other reasons for that case. Oakland will be challenged for the next year or 2 given the supply that's went out there. So it would have to be a pretty compelling investment opportunity. But it's -- we are open and eagerly looking for opportunities in all of our core markets.
Operator
Our next question comes from Brad Heffern with RBC.
Bradley Barrett Heffern
Can you talk about some of the return-to-office mandates you've been watching, like we saw with Meta in September and has there been a noticeable impact in leasing activity on the ground from those?
Angela L. Kleiman
Yes. It's Angela here. The return-to-office mandate that we've seen so far, it's been a good sign that it's sticking. So what I mean by that is last year when the tech employers announced, they had to make some adjustments. They have settled 3 days and then they move back to 2 days, and they were still hiring remotely. This year, what we're seeing is that the rehiring -- the remote hiring has stopped. And in fact, it's become policy. And the -- and of course, the return-to-office has been gaining momentum. It's difficult to point exactly to the -- to our financial lease rates because we're in the middle of working through the evictions and delinquency issue, and that's taking precedent. So there's a lot of noise in that, certainly, we expect that, that's been a benefit. But to point to an exact number, just it's not as straightforward as possible at this point.
Bradley Barrett Heffern
Okay. Understood. And then concessions have come up a few times on the call. I'm just curious if you could walk through the individual markets and just give the average concessions that you're offering right now?
Jessica Anderson
This is Jessica. Yes, as far as concessions go, what we're offering across the portfolio is an average of 1 week free. And I anticipate that may go up we'll monitor the nonpaying units as they come in and adjust as needed to manage our new lease velocity. As far as by market, we have the largest volume of concessions concentrated in pockets. Southern California is still generally just a few days outside of Los Angeles. And we're seeing larger concessions in Los Angeles areas -- the Bay Area. And then Seattle, surprisingly is only a few days at this point. As I mentioned a few minutes ago, it's been a very stable seasonal slowdown in that market.
Operator
Our next question comes from Adam Kramer with Morgan Stanley.
Adam Kramer
Just a couple of questions on kind of a couple of different demand drivers you guys have touched on in the past. I think one would just be some of kind of the in-migration to your markets, right? And that can be overseas tech workers, visas other kind of integration factors. Just want to maybe kind of walk through that because I know there's a lot of focus on the outward migration. So maybe just kind of think about the in-migration to your markets. And then the other kind of demand driver question is just on kind of the end of the writer strike, actor strike, if that -- what potential impact that could have on your business?
Angela L. Kleiman
Adam, it's Angela here. Good question on the in-migration. Those -- the data are on that front is not as readily available. But what we've been tracking is really the move-ins. And as I mentioned, last year, we saw a good uptick and I think part of that relates to really a recovery. And since then, it's been steady. And so the in-migration data into our markets from outside of California and Washington have generally remained steady. The piece that we're still missing actually is the international migration part of it. And I think that, that will return and just not as immediate at this point. And as far as the hospitality industry, it's very telling that when we look at the drivers of job growth in the third quarter, it's mainly education and health care and other services. Hospitality and leisure was very muted. And we do think that, that's partly attributed to the strike. And so we do think that, that could be a potential demand catalyst as well.
Operator
Our next question comes from Wes Golladay with Baird.
Wesley Keith Golladay
You mentioned getting, I think, repaid on $100 million extra structured finance. Do you have a timing estimate on that? Do you -- is there any chance to extend that? And then when looking at the entire structured finance book, is there any geographic concentration?
Barbara M. Pak
Wes, it's Barb. I think for now, you could assume midyear on the $100 million is probably a safe assumption. I think we have some in the first half of the year and some in the back half of the year, so maybe your assumption is good there. And then in terms of geographic concentration, our portfolio is actually -- it mirrors our actual portfolio in terms of our investment. So about 40% in Northern California, 40% in Southern California and 20% in Seattle is how the portfolio aligns in terms of where it's located geographically.
Operator
Our next question comes from John Kim with BMO Capital Markets.
John P. Kim
On the 5.3% renewal rate growth achieved in October, can you break that down between how much of that was rate growth versus concession burn-off from a year ago?
Jessica Anderson
John, it's Jessica. Yes, that -- it's roughly 50-50. So we're seeing about 2.5% to 2.8% or so in rate growth and then the rest is concession burn-off.
John P. Kim
So when you compare the concessions that you mentioned earlier that you're offering versus a year ago, is it additive to renewal rate growth going forward?
Jessica Anderson
Where we sit right now, it is additive. So last year, we were at roughly 2 weeks pretty consistently across Q4. And right now, we're sitting at a week. Like I said earlier, we may increase the volume of concessions and the amount, but we'll monitor that. But as of right now, that's a positive.
John P. Kim
Okay. Has there been an update on the gross delinquency outlook for the second half of this year, it was less at 1.9%. I think you're basically there, including October. Has that changed at all?
Barbara M. Pak
John, it's Barb. We didn't make any changes to our guidance for the full year. We believe we're on target for that. There may be puts and takes. And if delinquency does come in favorable, there may be a trade-off with occupancy. And so net-net, we're in line with our full year guidance.
Operator
Our next question comes from John Pawlowski with Green Street.
John Joseph Pawlowski
Barb, I have a question about the potential deferred repair and maintenance and CapEx costs that might be in the portfolio today associated with delinquent tenants. Have you -- could you give us an order of a sense, like an order of magnitude of the total amount of dollars you think that needs to get spent over the coming years on these units? I'm just trying to get a sense of whether -- or early innings of seeing the cost flow through from evictions or you've already worked through most of it?
Angela L. Kleiman
John, it's Angela here. Let me give you just a high-level answer to that because, frankly, what we're seeing is the turnover as it relates to delinquent tenants has not -- the higher level of CapEx is not material relative to in the past when we have delinquent tenants. And some actually have just decided to leave. And so the turnover just a natural turn. And there's going to be bad actors from time to time. But once again, it's at a comparable rate as pre-COVID. And so that's why there is a number that Barb can point to. Our CapEx at this point is really more driven by other activities like storm damage. And as far as eviction is concerned, it's a higher volume, but it's not a greater damage because of evictions.
John Joseph Pawlowski
Okay. Maybe shifting over to the private market, and I joined the call a few minutes late, so apologies if I missed this. But Rylan, I'm curious what -- where you think market clearing cap rates are right now and like kind of the urban cores of San Fran and San Jose. I imagine they're pretty close to red line right now. So I'm just curious what type of pricing do you think buyers and sellers might agree on pricing in the kind of urban high-rise environment San Fran, San Jose?
Rylan Burns
John. I appreciate the question. I hesitate to give you a specific number because as you are well aware, when there's not any transactions, it's very difficult to pinpoint where buyers are. I also would take some pause with the idea of redlining a whole city, we are still seeing -- we've seen some transactions occur year-to-date, and the buyer profile is different than what we've typically seen. I think you're seeing some family office buyers who are coming and looking at the basis versus replacement costs that are still continuing to transact in some of the submarkets that you mentioned. So obviously, a challenged market fundamentally over the past year or 2. But as those turn, I suspect you're going to see people investors come back in. And so I'll leave it at that without giving you a specific number, but hopefully, that color is helpful.
John Joseph Pawlowski
Yes. No, it definitely is. Maybe one follow-up. Just curious, I know you've been talking more suburban in the last few years. Like what pricing becomes interesting to you to go back into these urban markets that have not really healed in COVID? What kind of range of cap rates would you be willing to be a buyer at?
Rylan Burns
Thanks, John. Another good question. As you know, we force rank our 30-plus submarkets and forecast to rent growth for 5 years forward-looking based on our fundamental analysis. And so the cap rates have to accommodate for a higher IRR based on those rent growth estimates. So there is a price at which we would be willing to invest in these submarkets. I will say, given the performance we've seen over the past several years with the suburbans strongly outperforming. And where we're looking at supply for the next few years, I would think on average incremental dollars will go towards our portfolio investments that look similar to what our portfolio mix currently is demonstrating. But there is a price, and we have our -- we're turning over every rock and looking for opportunities, and I'm optimistic we're going to see more in the next few years.
Operator
Our next question comes from Connor Mitchell with Piper Sandler.
Connor Mitchell
Just wanted to follow-up on some of the in-migration discussion. Would you be able to kind of give a weighting or the amount of impact that you're expecting from international migration maybe compared to historical figures, whether that's 10% of the growth compared to the current return-to-office we're looking for? Like how much of an impact you think that could have versus the other demand factors looking forward?
Angela L. Kleiman
Yes. Connor, it's Angela here. That's a good question. The one thing I can point you to is California historically has a negative in like net in-migration. So 17 out of the last 20 years, even during years when we have significant growth. And so the 1Q faster in international, net migration becomes positive. As far as the exact percentage, that's influenced by a lot of factors. It's influenced by, of course, supply and the demand and where the macro economy generally is. And of course, it's influenced by the affordability ratio. So I don't think I could do you justice by making a straight line from migration number to an absolute percentage of increase.
Connor Mitchell
Yes, of course. And then just another question. You've talked about the secured financing a little bit. So after you issued the secured debt earlier this year recently. Just wondering if you could give an update on how the unsecured market is looking now versus the secured market whether there's been any narrowing of the spreads. The unsecured market has improved a little bit since then.
Barbara M. Pak
Yes, this is Barb. So on the unsecured bond market, for us today, we'd probably be in the high 6% range to do a 10-year unsecured bond offering. And if we were to go to a secured loan, 10-year secured loan like we did, I think we're in the around a mid-6%. So there has been a little bit of a narrowing from when we originally did our secured loan back in July. But yes, there hasn't been a lot of transactions unsecured bond market as well. And so it's a little unknown at this time, but we feel good about where we executed and our capital needs for next year. We don't have a lot of capital needs next year.
Operator
Our next question comes from Haendel St. Juste with Mizuho.
Haendel Emmanuel St. Juste
A couple of quick ones for me. First is, I guess I'm curious any perspective on -- there's an article in New York Times the other day it called California called slams San Francisco for 'Egregious' Barriers to Housing, I think, was the header. So I'm curious if you have any thoughts on this, certainly the idea of low barrier to entry, low supply in California the key thing -- key part of the thesis there. So I'm curious if there's any perhaps updated perspective reviews on the barriers to building, if there are any changes that are being contemplated that could be real and how that could impact the marketplace?
Angela L. Kleiman
Haendel, it's Angela here. It's a good question. I think we've all seen the acute housing shortage in California and despite Governor Newsom's efforts to enact multiple legislations to spur housing production, it just has not moved the needle in a meaningful way. And you may recall that he campaigned on building 3.5 million homes by 2025. And as part of that, there were numerous legislation passed and even recently a few more passed but that barrier continues because there is a cost barrier. There is -- as part of legislation, they enacted requiring programming wages. There's environmental protections. And so it just is very challenging. And so I go back to that original goal of 3.5 million homes debt to be built by 2025. Currently, they're on track and have issued about 450,000 permits. So no units built, and we're 2 years away. So that gives you the magnitude of how we view supply and why we do believe that it will remain favorable. And when we look at the permit data, it still remains very low as well.
Haendel Emmanuel St. Juste
Got it. Got it. And then one more. I believe earlier, you mentioned that concessions in San Francisco broadly in your portfolio average 1 week. I was hoping you could bifurcate that a bit further maybe San Francisco proper versus down in Peninsula.
Jessica Anderson
This is Jessica. I don't have that information in front of me. I mean San Francisco is such a small market for us, which is 1,000 units and a couple of large buildings. But like I said, as far as what we're currently offering, I would say roughly 1 week free with a little bit more in pockets of the Bay Area, like San Jose, Oakland is supply impacted, so we have higher concessions there. Seattle, very minimal concessions, all of Southern California outside of Los Angeles minimal concessions.
Operator
Our final question is from Linda Tsai with Jefferies.
Linda Tsai
Over the next 12 months, across which markets would you expect the highest rent growth? And how much faster might growth be in these markets versus your portfolio average?
Angela L. Kleiman
It's Angela here. We do expect our Northern region to outpace the Southern region and so particularly in Northern California and Seattle. And for different reasons, Northern California, a much lower supply. And of course, we'll have a benefit ultimately from the tech hiring when they come. And Seattle, it's been our strongest job growth market, but Seattle also has a higher level of supply, about 2x of that of California as a percentage. So about 1% of stock versus 0.5%. Having said that, both of these markets, particularly in Northern region are rebounding. And of course, Northern California, as I mentioned before, has a much better affordability metric. And so for those reasons, we do expect the Northern region to outperform the Southern regions.
Linda Tsai
And then just one quick follow-up on expenses. Given the commentary about higher utility insurance costs in '24, do you see more markets where there's more pronounced versus others?
Barbara M. Pak
Yes. This is Barb. On the insurance front, it's just a broad -- it's actually a national issue, not an Essex specific or West Coast issue. We're just seeing a lot of pressure on insurance cost, and we expect that to continue. It's been an issue in '23. We expected to issue in '24. And then on the utilities front, we're up about 6% year-to-date, and we do expect that utility pressures will continue to be above inflationary levels near term despite all of the ESG efforts we're putting into place. And so those 2 will cause expense growth to be elevated next year.
Operator
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
