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Equity Residential (EQR) Disposing Assets in New York City

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Residential REIT Equity Residential (EQR - Free Report) is putting up two Manhattan apartment buildings for sale, according to a recent report from Bloomberg. The company also completed the sale of another building in New York, recently. The latest move comes as the company is aiming at lowering its exposure to this market where fundamentals are tempering.

Particularly, Equity Residential is in quest of buyers for a high-rise tower in Chelsea — 800 Sixth Avenue as well as for 505 W. 54th St. in Hell’s Kitchen — per the report. On the other hand, the property that has already been sold for $416 million is a 506-unit building between 64th and 65th streets — 101 West End Avenue.

Notably, per a report from the real estate technology and analytics firm RealPage, over the past year, the New York and Northern New Jersey apartment markets, which account for around 14% of the U.S. market, added more than 23,000 new units. In fact, 15,600 new units were brought online this year by developers in the New York City area.  

This elevated supply is resulting in a slowdown of rents and in fact, the market is trailing the national average of 2.3%. Moreover, there is no respite in the near term because another 22,000 units in New York are currently under construction, which suggests further building up of a competitive leasing environment.

In a July conference call, while discussing about putting up a property for sale on Manhattan’s West Side, David Neithercut, the company’s CEO noted that the disposition marks an opportunity to lower “exposure to the West Side” where it has a substantial portfolio of assets and a scope “to address the negative impact on our New York City growth rates by reducing our exposure to properties with expiring 421-a real estate tax benefits.”

Overall, the U.S. residential REIT industry’s growth in rent is slowing and there is no near-term respite in sight. Even though solid job growth in recent months indicates more household formations and raises expectations of a revival of the U.S. residential real estate market fundamentals, the struggle to lure renters will continue in the upcoming quarters, when much of new supply is likely to come on course.

Therefore, landlords’ ability to command more rents will likely remain stunted and concessions might be rampant in the near term. This, again, is feared to cast a pall on residential REIT stocks like Equity Residential, AvalonBay Communities, Inc. (AVB - Free Report) , Apartment Investment & Management Co. (AIV - Free Report) , better known as Aimco, and UDR Inc. (UDR - Free Report) .

Nevertheless, Equity Residential is expected to benefit from its efforts to reposition the company’s portfolio in high barrier-to-entry/core markets, growth in millennial population, lifestyle transformation and creation of new households.

Equity Residential currently has a Zacks Rank #3 (Sell). The company’s shares have appreciated 8.6% in three months’ time compared with its industry’s growth of 6.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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