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Equity Residential (EQR) Q2 2021 Earnings Call Transcript

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Equity Residential (NYSE: EQR)

Q2 2021 Earnings Call

Jul 28, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Equity Residential Second Quarter 2021 Earnings Conference Call. Today's conference is being recorded.

And now at this time, I would like to turn the conference over to Marty McKenna. Please go ahead.

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Martin McKenna -- Investor Relations

Good morning, and thanks for joining us to discuss Equity Residential's second quarter 2021 results. Our featured speakers today are Mark Parrell, our President and CEO; Michael Manelis, our Chief Operating Officer; and Bob Garechana, our Chief Financial Officer. Alec Brackenridge, our Chief Investment Officer, is here with us as well for the Q&A. Our earnings release as well as a management presentation regarding our results and outlook are posted in the Investors section of equityapartments.com.

Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events.

Now I'll turn the call over to Mark Parrell.

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Thanks, Marty, and thanks to all of you for joining us. Today, I'll give some brief remarks on our operating trajectory and investment activity, then Michael Manelis will follow with some top-level commentary on the current state of our operations and how we see the remainder of the year playing out, followed by Bob Garechana adding color on our guidance changes and balance sheet, and then we'll take your questions. Also, as Marty mentioned, we are pleased to have Alec Brackenridge, EQR's Chief Investment Officer, available during the Q&A period. For those of you who do not know Alec, he's a 28-year veteran in this company.

He literally started work here the day we went public in 1993 and took over as our CIO in 2020. As you can see from the release, he and his team have done exceptional work of late on the transactions side. Turning to operations. All of our operating metrics continue to improve at a faster rate than we assumed earlier in the year. We are seeing demand levels well above 2019 in all our markets. And this has allowed us to continue growing occupancy, while at the same time raising rates. This resulted in the company materially raising annual same-store revenue, NOI and normalized FFO guidance.

While our quarter-over-quarter same-store revenue and NOI results remained negative, the decline was less than what we expected, and our sequential same-store revenue and NOI showed positive growth for the first time since the pandemic began. As we have discussed on prior calls, improvement in our reported quarter-over-quarter same-store numbers will lag the recovery in our operating fundamentals as we work these now higher rents and lower concessions through our rent roll.

We believe that our business is set up for an extended period of higher-than-trend growth beginning in 2022 as we recapture revenue loss due to the pandemic and continue to benefit from strong demand and growing incomes in our target demographic. Also, the more diverse portfolio we are creating should improve long-term returns and dampen volatility going forward. On the investment side, we are active buyers and sellers in the second quarter and expect to continue being active capital recyclers.

Consistent with what I've said on prior calls, we are allocating capital to places that are attractive to our affluent renter base, including the suburbs of our established coastal markets as well as Denver and our two new markets of Austin and Atlanta. We are making these trades with no dilution, even given higher pricing levels for the properties we are targeting because we are able to sell our older and less desirable properties at low cap rates and at prices that exceed our pre-pandemic value estimates.

Earlier this month, we reentered the Texas market after an 11-year absence by acquiring two well-located new assets in Austin, Texas. These properties are located in a desirable area with high housing costs that is equidistant between Downtown Austin and the Domain Hub on the north side. We acquired these two properties for $96 million, and approximately, a 3.9% cap rate and about $195,000 per unit. We expect to acquire a mix of urban and suburban assets in the Austin market.

During the second quarter and in July, we acquired two properties in Atlanta. SkyHouse South in Midtown for $115 million with a 3.6% cap rate. This is a deal we did previously disclose. And a few days ago, we acquired a second property in Atlanta in the bustling Midtown West neighborhood. We acquired this new property for $135 million, and it is about half occupied. And once it completes lease-up, we expect it will stabilize at a 4.1% cap rate. We also continued adding to our Denver presence by purchasing an asset in the suburban Central Park area of Denver for $95 million.

This property is located just west of the large and growing Fitzsimons medical campus and draws residents attracted to its access to abundant outdoor amenities. We expect this property, which is also in lease-up currently, to stabilize at a 4.2% cap rate. We're also pleased to add to the portfolio of property each in the suburbs of Boston and Washington, D.C. The Boston property is located in Burlington, Massachusetts, and is a new asset that we acquired for $134.5 million at a 4.1% cap rate.

This property is in a difficult-to-build suburb of Boston with high single-family housing costs and good access to high-paying jobs. The D.C. asset is located in Fairfax, Virginia, and is a 2016 asset that we acquired for $70 million at a 4.3% cap rate. This property is well located with both good highway and good metro access and proximity to the growing job base in Northern Virginia. Both the Burlington and Fairfax assets are located in submarkets, where our existing assets have performed particularly well.

Year-to-date, we have bought $645 million of properties and expect to close on another $850 million in acquisitions, a good number of which are in various states of advanced negotiation by the end of the year. We'll fund these buys with an approximately equivalent amount of dispositions, mostly from California of older and less desirable assets, which we sold or are under contract to sell at significantly above our pre-pandemic estimate of value.

Turning to development. We've put into service and began leasing our newly developed property in Alameda island, a short ferry ride to the city of San Francisco. Built on the side of a former naval base, this property has terrific views of the skyline and an evolving restaurant and bar scene that we think is attractive to our clientele. Over the next few months, we'll complete our other two current development projects, including the Alcott in Central Boston, the largest development project in the company's history.

Early leasing efforts on this project and our development project in Bethesda, Maryland, are going well. And our current estimates are that these three projects will stabilize at a development yield of approximately 5%, considerably higher than prevailing acquisition cap rates. These properties will be meaningful contributors to NFFO starting in late 2022. We see development as a good complement to our acquisition activities as we spread more of our footprint to the suburbs of our established markets as well as to our new markets. We expect a significant amount of our development activity going forward to be done through joint venture arrangements.

This allows us to leverage our partners in place sourcing and entitlement teams in locations like our new markets where we do not currently have a development presence. Before I turn the call over to Michael, a big thank you to my colleagues in our offices and properties across the country. You're doing an exceptional job during this particularly busy leasing season, and we're all very proud and grateful.

Go ahead, Michael.

Michael L. Manelis -- Executive Vice President & Chief Operating Officer

Thanks, Mark. As evidenced by our revised guidance, the pace of recovery has been very strong. In both the earnings release and in the accompanying management presentation, we have provided some key performance metrics. Let me highlight a few of the overall trends. So first, we continue to see very good demand for our apartment homes. Our national call center in Ella, our AI leasing agent, are responding to record high levels of inbound interest for our apartments, which is converting into high volumes of self-guided tours.

This overall level of demand continues to drive applications and move-in activity that is exceeding move-out, and ultimately, is delivering stronger-than-expected recovery in occupancy. Portfoliowide, physical occupancy is currently 96.5%, which is back to 2019 levels. San Francisco and Seattle are still trending slightly below 2019, and Southern California markets are slightly above. At this point, we expect to run the portfolio above 96% through the remainder of the third quarter. This strength in occupancy is allowing us to push rate and drive revenue growth.

Overall, we are more than halfway through the typical peak leasing season, and the momentum has been very strong, providing us the opportunity to raise rates, reduce concessions and grow occupancy. These fundamentals are delivering RV recovery. From March to December of 2020, pricing trend, which includes the impact of concessions, declined approximately $500 per unit. From January 2021 to today, pricing trend has grown $660, and is now not only above prior year levels in all markets but every market, except for San Francisco is also above 2019 peak pricing trend levels. Today, the portfolio is approximately $100 higher per unit than our peak 2019 levels.

Our priority has been to test price sensitivity in every market by raising rates and reducing both the value and quantity of concessions being granted. At the end of the first quarter, about 20% of applications were receiving on average four weeks in concessions. As of July, we are now running with less than 3% of our applications receiving on average just over two weeks, and we expect this to continue to drop-off even further. To give you perspective, the total dollar of concessions granted peaked in the month of February at just north of $6 million for the same-store portfolio. For July, we will be at $1.5 million for the month, and August should be less than $750,000. Last week, only 12 properties had any concessions being offered.

The percent of residents renewing has stabilized around 55%, which is very much in line with historical averages but below the record high 60% levels that we had in 2019 and early 2020. As you saw in the press release, achieved renewal increase, new lease change and blended rate, all continued to improve in July, and we expect further improvement through the balance of the year as the comp period becomes more favorable and the business continues to strengthen. As we progress through the remainder of the year, our focus will continue to be to push rates in our markets and manage our renewal negotiations. In our management presentation, we provided color on all of our markets, but I wanted to take a minute to highlight New York and San Francisco as they tend to be the markets we receive the most questions about.

Both markets are recovering nicely with concession use nearly nonexistent in our New York portfolio and declining rapidly in San Francisco. New York is seeing stronger demand right now, and we think it is primarily due to greater clarity around employer return-to-office plans. New York employers, particularly the banks and financial firms have called their employees back to the office, and you could feel it in the economic activity in many areas of Manhattan. We see it in our portfolio after nine consecutive weeks of record application volume. In San Francisco, however, the return to office and reopening is a little more ambiguous. Employers have been slower to call employees back in, with many initially targeting after Labor Day.

Adding to the uncertainty in San Francisco is the reintroduction of strong recommendations for indoor masking and some delays in reopening, which were announced last week. The situation in San Francisco is likely to lead to a delayed leasing season in that market and a slower full recovery of occupancy. That said, occupancy is 95.4% today in San Francisco and is growing as is pricing trend. At this pace, we expect the San Francisco pricing trend to be back to pre-pandemic levels by the end of the third quarter. Meanwhile, we are seeing some indicators that we could see an extended leasing season with a second wave of demand in New York, Boston and Seattle.

Our leasing teams in these markets have been dealing with prospects that are looking for move-in dates in late August and September and hearing from them that these moves are in connection with their need to be back in the office, or in the case of Boston, back on campus. This demand is more robust than historical patterns, which could suggest an extended peak leasing season in those markets, and matches up nicely with our lease expirations, which are more weighted toward the back of the year than usual.

Combining all of the data points I've just shared and those included in the management presentation, we see an unprecedented opportunity to grow sequential revenue over the next several quarters as the impact of better rates, nearly nonexistent concessions and higher occupancy compound. We acknowledge how badly our operations declined over the last 16 months, but the current recovery appears to be strong enough to both quickly recapture all that was lost in the pandemic and take us into a new period of strong operating fundamentals.

Finally, I want to take a minute and give you an update on the government assistance program for renters. As we've discussed on previous calls, approximately $50 billion in rental assistance for those impacted financially by the pandemic was made available in the various relief bills. We are laser-focused on accessing the rental relief funds and are working very closely with our eligible residents to apply for this relief. Processing to date has been relatively slow in our markets, but we were able to recover approximately $5 million in the quarter. Bob will provide some color on our expectations for collections for the remainder of 2021 in his remarks. Let me close by thanking the entire Equity Residential team for their continued dedication and hard work. This pace of recovery would not be possible without them, and they remain relentless in taking care of each other and serving our customers.

Thank you. I will now turn the call over to Bob.

Robert A. Garechana -- Executive Vice President & Chief Financial Officer

Thanks, Michael. This morning, I'll cover the changes in 2021 guidance that were included in last night's release, along with a couple of quick comments on the balance sheet and capital markets. As Michael just discussed, the recovery is well underway and is exceeding our prior expectations for the same-store portfolio. The continued strong operating momentum from this leasing season has led us to raise our annual same-store revenue guidance from negative 6% to negative 8% to negative 4% to negative 5%, an improvement at the midpoint of 250 basis points.

Strong expense controls and favorable real estate tax outcomes, which I will talk about in a moment, also allowed us to reduce our same-store expense guidance range to an increase of 2.75% to 3.25%, resulting in an NOI range of negative 7.5% to negative 8.5%, which is a 400 basis point improvement at the midpoint relative to our prior guidance. Drivers of our revenue guidance increase of 250 basis points are roughly 150 basis points of improving operating fundamentals that Michael just outlined; 60 basis points or $15 million for the full year in related lower bad debt, primarily due to anticipated rental assistance collections; and the remaining 40 basis points is due to improved performance in our nonresidential business.

Before I move on to expenses, a quick comment on our bad debt assumptions. The back half of the year has about $10 million of additional assumed rental assistance collections on top of the $5 million we've already received. We feel very confident about this amount because we either received it in July, or after some real digging, can see that it is far along in the approval process. There are other resident accounts being worked on, but they are not as far along.

Given the lack of transparency and the relative slow processing speed to date, it is difficult to handicap how much will successfully get processed and whether we will receive these funds in 2021 or it will spill over into 2022. On the expense side, we have also seen improvements versus prior expectations, which led us to center the midpoint of expense guidance at 3%, which was the low end of our prior guidance range. This reduction is in part due to the modest growth experienced in second quarter 2021 even with a really challenging comparable period from second quarter of 2020.

While some expense categories experienced a typically high percentage growth change quarter-over-quarter due to this comparability issue, overall expenses were less than originally anticipated. Key categories driving the current period and anticipated full year lower were real estate taxes and payroll. Reduction in growth expectations for real estate taxes is primarily driven by lower than forecasted accessed values in some key markets. Lower payroll growth expectations are primarily driven by our progress in optimizing staffing utilization as well as higher-than-usual staffing vacancies.

We expect that 2021 will be our third consecutive year of low payroll growth, having delivered a three-year average below 1%, while keeping other controllable expenses like repairs and maintenance in check. As a result of these same-store guidance changes, we raised the midpoint of our normalized FFO from $2.75 to $2.90. A couple of closing comments on the balance sheet and debt capital markets. With the impact of the pandemic on our operations increasingly in the rearview mirror, it is clear that our balance sheet has held up remarkably well.

Despite unprecedented pressure on operations, our credit metrics have remained well within our stated net debt-to-EBITDA leverage policy of between 5.5 times to 6.5 times. The debt capital markets are also incredibly attractive at the moment for issuers like us. This creates opportunities to term out commercial paper with treasuries and credit spreads at or near record lows, the potential of which has been incorporated into our revised guidance range.

With that, I'll turn the call over to the operator for Q&A.

Questions and Answers:

Operator

[Operator Instructions] We will begin with Nick Joseph with Citi.

Nick Joseph -- Citi -- Analyst

Thanks. Maybe we'll start on the rental assistance. Bob, I appreciate all the comments in terms of what was recovered in the second quarter and what's assumed. I understand the kind of desire to be conservative, but can you frame kind of the total opportunity of collecting any of the back rent through these programs?

Robert A. Garechana -- Executive Vice President & Chief Financial Officer

Yes. Thanks, Nick. So if you look at our disclosure in terms of our total receivables, the gross amount of receivables on the books in the same-store portfolio is about $44 million, right? So that's -- and it's almost entirely reserved against. So that's really the total pie of possibility if you think about it. When you break it down kind of more granularly, we always run with $10 million, $11 million worth of receivable or bad debt. So it's probably a number that's a little bit below that. And again, so that leaves probably another $5 million to $10 million potential long run.

The really hard part, as I kind of mentioned in my remarks, is just the frequency and the process associated with this. So it's a pretty long process. Michael's team is all over it. We've gotten the best transparency we could, but it does require both the resident and us to match information to get it run through the process. And then it takes a while to, even after approved, have the cash kind of come through the door. And that's where the volatility arises in the numbers, which we wanted to highlight and be really clear about given what we have in guidance.

Nick Joseph -- Citi -- Analyst

Thanks. That's helpful. And then maybe just on the expansion markets. As you look at the pipeline today and you look at kind of transaction volume broadly across multifamily, particularly in these markets, how quickly do you expect to get to scale in, I guess, Austin and Atlanta and continue to ramp up in Denver?

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Thanks for that, Nick. It's Mark. And I'm going to answer a little bit, and then I'm going to kick it over to Alec Brackenridge, our CIO, who is on the call. So when we look at the expansion markets, we would suggest to you, there'll probably be one or two more expansion markets, probably more news to come on that in future quarters. Some of those markets, Atlanta is a particularly large market, often are smaller markets. So there's different volumes there. So I'm going to kick it over to him to talk a little bit about how long it takes to kind of create a portfolio that makes sense in those markets.

But I want to point out to you that it depends also on the saleability. If we're able to continue to sell properties well, that will fuel the engine to buy properties well. So it depends both on transaction volume in those new markets that Alec will speak to and our ability to continue to dispose as we've very successfully done to date of properties at good prices in places like California, New York and D.C., where we're trying to lighten the load a bit.

Alexander Brackenridge -- -Executive Vice President & Chief Investment Officer

Yes, following up on that -- and this is Alec. Atlanta is a really robust transactions market. And we have great contacts there from the past. I've worked in that market for almost 25 years now. And whether it's joint venture development or acquisitions, there's a wide range of things we can choose among. And generally, the properties we're looking at are roughly $80 million to $100 million. And what we're shooting to do over the next few years is to get to about $2 billion. So 20-ish properties, and we think we can achieve that. Austin is a smaller city, so that will be more in the $1 billion range, 10-ish properties, 10 to 12, maybe. But again, we have good feelers. We have a great team that has a lot of experience in these markets, and that's what we're looking to accomplish.

Nick Joseph -- Citi -- Analyst

Thank you.

Operator

Now moving to our next question. That will come from John Pawlowski with Green Street.

John Pawlowski -- Green Street -- Analyst

Thanks for all for the time. Maybe for Alec or Mark, I know you made the comments in the past that given where replacement costs are, ground-up development doesn't pencil, particularly in Manhattan. Curious some more stable markets, Boston and D.C., do you think ground-up development pencils today?

Mark J. Parrell -- Chief Executive Officer, President & Trustee

We do have some deals we're working on, John. So thanks for that question. It's Mark. And we do think, in some cases, it does. We've got some deals in the Northeast, a couple that we're likely to start in the next quarter or two, where on current rents, we're looking at yields around 5% and a little bit higher. We like the locations. We have to constantly refresh the portfolio. So I would say, right now, with us feeling a little better about construction costs, and we can get into that, it's not that they're not going up, but we have a better handle than maybe we did in the middle of the pandemic. Our sense is that some of this development is going to make some sense to us and that we are going to do some of it selectively. And it's really going to help, I think, give us exposure in some of the suburbs of these established markets and some of these new markets we're trying to enter into.

John Pawlowski -- Green Street -- Analyst

Okay. And then last one for me on operations. Michael, given all the leading indicators you see today, do you think you'll have to ramp up concessions back up in any markets later this year?

Michael L. Manelis -- Executive Vice President & Chief Operating Officer

Based on what you see today, I would say, no, we do not. There's a couple of areas I will tell you like the South Bay in San Francisco, which I think I've said on previous calls, just from the volume of new supply being introduced into that submarket in a proximity to some of our properties, I could see a little bit of that pressure from the new supply, bringing concessions back to some of the stabilized assets in that submarket. But I don't see us reversing trend right now given the strength, the demand that we see. It's really more if the demand stays strong enough to aid the absorption of the supply that's coming in the back half of the year, that would be the only thing that could kind of impact the concession use on stabilized assets.

John Pawlowski -- Green Street -- Analyst

Okay. Thanks for the time.

Michael L. Manelis -- Executive Vice President & Chief Operating Officer

[Indecipherable]

Operator

Now we will take a question from Rich Hightower with Evercore.

Rich Hightower -- Evercore -- Analyst

Good morning, everybody. Thanks for taking the questions here. I think as we think about guidance through the back half of the year, I'm wondering which markets sort of assume a normal path of seasonality, and which I think you mentioned a couple of which maybe aren't going to be on that normal seasonal path? And then how do we think about that setup for 2022? Do you expect all your markets to sort of resemble that normal seasonal path in terms of market rents and so forth?

Michael L. Manelis -- Executive Vice President & Chief Operating Officer

Yes. So I think first, for the balance of this year, I would look at the Southern California markets and say they're probably kind of going to be more in line with normal seasonal trends. And again, a lot is going to depend on what that strength, the demand is. If you have a second wave of demand coming into these markets, that is going to change the profile through the fourth quarter. As you think about next year, we are doing some things now with some lease terms for the new leases we're writing.

But again, we saw about a 5% shift, so we -- meaning, we have about a 5% more expirations in the back half of 2021 than we normally would have otherwise seen. My guess is over the course of 2022, that clearly starts to mitigate back toward a normal pattern. But again, the strength of the fourth quarter this year could put us in a situation where we'll have more expirations in the fourth quarter of next year as well. So I still think it's a little too early to tell what -- how fast you're going to get back to a normal profile in the portfolio.

Rich Hightower -- Evercore -- Analyst

I guess just to follow up on that, Michael. There's a lot of drivers of this sort of extraordinary demand going on right now, right? You've got two cohorts of college graduates filling the pipeline. You've got people decoupling from mom and dad's basement and so forth. I mean do you think that's a -- does that set up a risk next year that there's going to be an air pocket relative to what's happening right now? Or do you think that's not a reasonable -- maybe not an expectation, but a reasonable guess at what might be the case?

Michael L. Manelis -- Executive Vice President & Chief Operating Officer

Listen, I think when you look through our markets, we have such strong demand drivers and fundamentals, job growth, you have constrained housing. So I don't think this is like pulling future demand forward, right now, what we're feeling. This is like our catch-up period. And then I think, again, a lot is going to depend around what does this second wave look like of demand coming to us in late third quarter and fourth quarter, how strong is that, will play into kind of what we should expect for next year.

Mark J. Parrell -- Chief Executive Officer, President & Trustee

And Rich, it's Mark. Just to build on that. I do think next year, if you recall, late in 2019 and very early in '20, we were doing well. The industry and this company, we're doing well. We had good solid demand, our own internal statistics as well as all the stuff we read from the analyst firms we subscribe to says our residents have kept their jobs, they have good income growth. So we're going to have the ability, we think, to access that demand, access that income growth and just kind of -- not just catch-up, which seems like to some extent, absent a real reversal in the pandemic, a foregone conclusion that we will get back to where we were, we think we're going to keep right on going.

And we say that with confidence now, again, assuming conditions in the economy remaining generally supportive because we saw that great demand in '19 and '20 before the pandemic. I think that demand is still there, job growth is still good, and we see that our demographic keeps getting raises, keeps being in demand, and the shift to technology into the kind of jobs that make up our resident base continues. So we have a lot of reasons that we feel like this thing will have this big catch-up, and then it's just going to have this continuation to it.

Rich Hightower -- Evercore -- Analyst

All right. Great. Thanks for the comment guys.

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Thanks Rich.

Operator

Next question will come from Jeff Spector with Bank of America.

Jeff Spector -- Bank of America -- Analyst

Great. Good morning. Along those lines or a similar question, I was going to ask if you can point to maybe something in the past or thoughts on the extended leasing season in '22. But in particular, do you think it's a good indicator for renewals? You mentioned you're at 55%, but Mark, to your point, things were really strong pre-COVID at around 60%. I was just curious if you -- how -- what are your thoughts on the extended leasing season, and maybe in a positive way, could lead toward higher renewals in '22?

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Yes. Absolutely. I mean as you keep seeing the strength in demand coming in and you look at the recovery in these markets, you have to assume that we will fall back to kind of that higher retention level, which was renewing 60% of our residents. Right now, we are going to have a little bit of noise as we think about the back half of this year and those residents that moved in with us with concessions -- moved in, in the second half of last year, came in with concessions at low rates. That's going to put a little bit of pressure on us from a retention perspective in the back half of this year. But again, the strength of the front door or that demand coming in is strong enough to backfill kind of that pressure on the renewals right now.

Jeff Spector -- Bank of America -- Analyst

Thank you. And then just one question. Wanted to clarify dispositions. Mark, you specifically had mentioned California. To confirm, are you thinking of selling similar older assets, lower growth assets in other parts of the country or just California?

Alexander Brackenridge -- -Executive Vice President & Chief Investment Officer

Jeff, this is Alec. Yes, we are considering in other markets. We're selling in California right now because the bid is just so hot for it. But as that moves around the country, and we think markets like D.C. and New York with its improving fundamentals, will also become hotter investment markets, and we'll list properties there, and we expect to move some property there.

Jeff Spector -- Bank of America -- Analyst

Great. Thank you.

Alexander Brackenridge -- -Executive Vice President & Chief Investment Officer

Thank you.

Operator

Now we'll move to a question from Nick Yulico with Scotiabank.

Nick Yulico -- Scotiabank -- Analyst

Thanks. Hi, everyone. In terms of the residents that are moving back into the portfolio in a couple of markets such as New York, San Francisco, can you just give us a feel for what you're learning about those incoming renters? Where -- did they used to be in the portfolio? Are they younger? Anything sort of about the profile of the renters in those two cities would be helpful.


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Mark J. Parrell -- Chief Executive Officer, President & Trustee

Yes. So not a lot of change, and I'll expand beyond just those two cities. In any of our markets, right, when you think about the demographics coming in, and by that, I'm going to refer to not only the age of the new residents that moved in, in the quarter, but also the average household income for those residents. So during the second quarter, our average age for move-ins was 30 -- just over 33 years old, slightly below the historical average for second quarters in previous years that was at 34, but pretty much right in line. And when you think about the overall affordability index, I've said on previous calls, our range of rent as a percent of income between all of our markets goes between 17% at the low to 23% at the high. And as a portfolio for the move-ins that occurred in the second quarter, we were just over 19%.

And that is very much in line with the historical averages for this portfolio. So I think what you take away from that is our rents clearly have increased sequentially, but so have the average household incomes for the residents that have been moving in. So sequentially, we averaged at $152,000 was the average household income in the second quarter, that's up from just under $150,000 for move-ins in the first quarter. So you can kind of see that balancing out. And New York and San Francisco really kind of just fall right in line with the statements I just said.

Nick Yulico -- Scotiabank -- Analyst

Okay. Great. Thanks. And then in terms of the moves into Atlanta, Austin, I know you talked some about this earlier about creating scale. I guess I'm just wondering if instead, there's any potential to do a larger portfolio transaction across the Sunbelt? Maybe work with a developer? Or any sort of M&A potential that would be possible to kind of speed up some of that process instead of buying individual assets in some of the Sunbelt markets?

Mark J. Parrell -- Chief Executive Officer, President & Trustee

It's Mark. Thanks for the question, Nick. Alec and his team look at everything. So we're certainly open to portfolio transactions. And indeed, the Austin deals were a portfolio deal effectively, were kind of bundled together. But again, when you start doing large-scale transactions, you can end up competing against different groups of people. Some of the deals we've done were off-market transactions. We located them on our own. So we are very open to portfolio transactions.

We're open, for example, to OP unit, operating partnership unit, deals, which often end up being larger deals as well. But we just haven't seen a lot of that offered, and a lot of the portfolios we do see have some assets we like and a lot of assets we don't. So buying them one at a time gives us an advantage. And M&A is just a totally different conversation. It requires a willing participant on the other side. Often, the payment of premiums and other things can make the deal less economically useful. But still, we underwrite that step, too, and think about it as well.

Nick Yulico -- Scotiabank -- Analyst

Okay. Thanks, Mark.

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Thanks, Nick.

Operator

Now we'll take a question from Rich Anderson with SMBC.

Rich Anderson -- SMBC -- Analyst

Thanks. Good morning. So when I think about all these building blocks of improving fundamentals that don't yet kind of matriculate to the bottom line, you still have negative same-store growth, of course. But if you were pre-pandemic sort of 3%-ish, 4%-type NOI same-store growth and you're down 8% in the midst of it now or in the tail end of it, hopefully, you -- Mark talked about the bounce back opportunity. Is there any reason mathematically that we wouldn't be talking about a mirror image of that move? So in other words, something like in the range of 10 -- double-digit type of a bounce back in 2022, maybe not sustainable, but that's the kind of sort of correction that might happen, and then we go back to more normal way type of growth in the years afterwards. Is that a reasonable way to think about it?

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Rich, it's Mark. Thanks for the question. Bob, you may supplement or correct me as needed here. We're not going to give '22 guidance, but I think your thought process, if conditions continue, as Michael has described, the last two years, we acknowledged '20 and this year '21, have been among the worst. There's a lot of reasons to believe '22 will be among the best years for EQR, if not, the best, and an exceptional year for same-store revenue growth and NOI. I think we've got good discipline on the expense side.

And so getting the double digits would require excellent expense controls as well. So I'm -- we're not going to commit to a specific number. But the way the numbers just set themselves up is as these concessions go away, we report on a straight-line basis. As we move rents up in a lot of cases beyond pre-pandemic numbers, the kind of math you're putting out there is certainly attainable.

Rich Anderson -- SMBC -- Analyst

Okay. Great. And then second question is left out of the discussion so far has been the delta variant and the uncertainties that still lie ahead. And clearly, California has taken some steps, few of them really being sort of socially similar to California, L.A. and San Francisco. Do you have any concern about getting too far ahead of your skis and that there's more to come with all this, and we're not quite through it, and there could be a hiccup along the way? Is that a part of your line of thinking at all at this point?

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Yes, Rich, a very fair question. None of us here are experts. I'm not an immunologist, but it seems to us that if the vaccines continue to provide protection to the vast, vast majority of people that are vaccinated, then you're going to have a situation -- and by protection, I mean protection from serious illness or death, I think businesses are going to remain open. Cities are going to remain open. Things are going continue to progress, and our business will continue to improve. I'm not as anxious about mask mandates, whether what the CDC did yesterday or some localities have done. I think to your point, we need to learn to manage this and live with this virus. As much as we all were hoping, it was just done and over. I think it's going to be part of our lives for an extended period of time.

On the good side, we've all sort of learned or many of us have learned how to live with it. And I think society will manage through it. I think if you do have widespread city closures, that could be a concern and would certainly be a derailer for us. I would say though that as you think about the way we've all learned about how lockdowns work, the mental health impact on people, the economic disarray that lockdowns closed these sort of citywide shutdowns, the deferral of other needed medical procedures, there's a lot of good reasons when -- especially when you have a vaccine that 60% of the population over 16% has taken at least one dose of. That seems like a more thoughtful way to proceed along with masks to us. So we're not trying to whistle past the graveyard, or otherwise, ignore the delta variant. It's just our sense that policymakers have different tools at their disposable -- disposal, excuse me, and better knowledge than they did back in 2020, and that widespread lockdowns are not as likely as they were in the past.

Rich Anderson -- SMBC -- Analyst

Okay. Thank, Dr. Mark.

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Thanks, Rich.

Operator

Our next question will come from Brad Heffern with RBC Capital Markets.

Brad Heffern -- RBC Capital Markets -- Analyst

Hey, everyone. Going back to the recoveries, I appreciate all the color on that. Was there any portion of that $15 million that was in the prior guide? And then additionally, is there any assumed improvement in the guide just from day-to-day collections in the second half?

Robert A. Garechana -- Executive Vice President & Chief Financial Officer

Yes. So the $15 million referring to the rental assistance that was added to the guidance. It was not in the prior guide. We had kind of telegraphed on the first quarter call and even back to original guidance that we had assumed that collections would remain the same and that the bad debt level would be the same. So the $15 million is incremental. We're also assuming that the collection rate, the 97%, stays the same. So the only real change we made to the guidance was adding the $15 million, $5 million of which we've already received on the rental assistance side.

Brad Heffern -- RBC Capital Markets -- Analyst

Okay. Great. And then on California, you talked about how hot the market is. Can you just walk through maybe any rationale for why that would be? Because obviously, we all know about the regulatory risk and sort of the lagging recovery in that market? And then is there sort of a minimum size that you think about California representing in the portfolio?

Alexander Brackenridge -- -Executive Vice President & Chief Investment Officer

Brad, it's Alec. California is such a big state that I can't say that all parts of California are hot. San Francisco right now has not had trades, Downtown San Francisco, as an example. But we have a broad portfolio, and we find, particularly for value-add opportunities, there's just a wide, wide bidder pool. So that's what we're seeing. And as we mentioned, we're selling properties that are typically 18, 20 years old, and that appeals to that value-add group.

Mark J. Parrell -- Chief Executive Officer, President & Trustee

And just to add a little bit and answer the rest of the question, we think about what percent California could be of Equity Residential a few years and in the future. Again, we're in the Bay Area. We're in Los Angeles. We're in San Diego. We're in Orange County. Great people, great properties in those markets. I think what you're going to see is we're going to do a little building. We're going to do a little buying in those markets. But generally speaking, we'll be a net seller, and our 45% asset exposure will go down below 40%, and some of that capital will be redistributed to these expansion markets.

And whether we get to the mid-30s or whether it's the high 30s, we'll just have to see. But we do want to mitigate a little of this regulatory risk in California. We want to be thoughtful about balancing out the portfolio. 45% is a pretty high concentration in any one state. So we think that's sort of a thoughtful way to balance things out a bit.

Brad Heffern -- RBC Capital Markets -- Analyst

Okay. Thank you.

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Thank you.

Operator

Rich Hill with Morgan Stanley will take the next question.

Rich Hill -- Morgan Stanley -- Analyst

Hey guys. Thanks for making the time. Thanks I'm looking at your charts in your presentation where you compare your various different markets. And obviously, Orange County, San Diego and Denver are doing really well. I'm wondering, does that strike you as a leading indicator for San Francisco, Los Angeles, Seattle, New York, where as people begin to move back rather than just moving out, we could see a sustainable shift higher in pricing trends. So long story -- long question, but -- is the hot market a leading indicator for some of the coastal markets that were weaker but might have a sustained trajectory?

Mark J. Parrell -- Chief Executive Officer, President & Trustee

So Rich, it's Mark to start and Michael may -- or Alec correct or supplement, but Orange County and San Diego for us are almost entirely suburban portfolios. And Denver is a little more urban than suburban, but has a big suburban component as well. So those markets have just really not been as affected and continue to progress right on straight through 2019 numbers. We think the leading indicators on coastal is what's going on in New York. So with the city not even all the way opened a few months ago, we started a strong recovery. Now that recovery is in full swing, we see that recovery in San Francisco.

Michael and I were there a month ago, and all our buildings are 95% occupied. Concessions are nearly nonexistent. And that's before the city at the end of June, and it just reopened, and it wasn't very activated, to be honest, and the office population wasn't that high. So I would say to you that the leading indicators to us in the coastal markets are the coastal markets. I mean they are already recovering and doing very well. I think what you're going to see a year from now is that if things, again, continue to be supportive, the coastal markets will just keep going, like they were in late '19 or early '20, and that recovery from the pandemic is not the limit of the upside in those markets.

Rich Hill -- Morgan Stanley -- Analyst

Got it. That's very helpful. Maybe just a question on underwriting, not necessarily what you're underwriting, although I'd love to hear it from you. But when you're selling a property, what do you think your buyers are underwriting? Because obviously, buyers don't underwrite what's happening this quarter, next quarter or next year. They're taking a longer-term view. So as you think about the trends that buyers and sellers are underwriting in the current market, what does that look like in the out years?

Alexander Brackenridge -- -Executive Vice President & Chief Investment Officer

Well, Rich, this is Alec. You mean buyers are optimists, right? I mean that's why they're buying. And typically, with the value add, they're pricing that in. But there's -- the only successful bidder right now is assuming a full recovery, right? You're not going to be able to be the prevailing bid without doing that. And so that's what we're seeing. And in terms of further out years, I really don't know per se each deal. I think everyone has their own view on long-term inflation. But what drives the cap rate in the short-term return, are these -- either a value-add return or a return to pre-pandemic rents or plus, plus some.

Rich Hill -- Morgan Stanley -- Analyst

Got it. Okay. That's helpful. I think that is it for me guys. Congrats on a nice quarter.

Alexander Brackenridge -- -Executive Vice President & Chief Investment Officer

Yup. Thanks Rich.

Operator

Next question will come from Alex Kalmus with Zelman & Associates.

Alex Kalmus -- Zelman & Associates -- Analyst

Hi. Thank you for taking the question. With the three properties in the pipeline expected to be completed this year, what are your expectations to replenishing the development pipeline for the end of the year?

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Yes. Thanks for the question, Alex. It's Mark. We expect to start three or four deals through the balance of the year, maybe $400 million to $500 million of construction cost to be incurred over the next few years on those. There's always some uncertainty. You just don't know if you get your GC lined up quite right. Couple of these deals are JVs. The deals are both in Denver, suburban and urban Denver, as well as in the Northeastern markets and suburban locations. So as we said, we will continue to invest in the suburbs of our established markets, and one of them is actually an urban deal in one of those markets.

So we'll certainly go through the details with you next quarter, but we are looking to replenish the pipeline. And in fact, we're hopeful there is -- there was a question earlier in the call, and I want to supplement the answer. I mean, right now, there are -- most newer properties are going for some premium to replacement cost. So there is, in our mind, some reason to do more development as long as you're thoughtful about what your construction costs are, your execution risks, how you're funding it. So I think you'll see us do a little bit more development, the deals I just mentioned, plus some other stuff we're working on in the near term.

Alex Kalmus -- Zelman & Associates -- Analyst

Got it. Thank you very much. And looking at the transaction market, again, when you're thinking about the acquisitions, how do the cap rates on a stabilized basis compare to what the trailing 12 months were? And what kind of NOI growth are you sort of baking into those assumptions?

Alexander Brackenridge -- -Executive Vice President & Chief Investment Officer

Well, Alex, this is Alec. It varies so much property by property. Some of the properties were hurt more by the pandemic, so there's more of a recovery there. Others not so much. Some of them have been -- because they're newer properties, they're coming out of lease-up. So there's a burn-off of concessions that's going on. So it's hard to give a blanket statement, but we're certainly seeing far fewer concessions in any of our markets and expecting a return to the run rate of rental growth over time.

Alex Kalmus -- Zelman & Associates -- Analyst

Okay. Got it. Thank you.

Alexander Brackenridge -- -Executive Vice President & Chief Investment Officer

Thank you.

Operator

Amanda Sweitzer with Baird has the next question.

Amanda Sweitzer -- Baird -- Analyst

[Indecipherable], good morning.

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Good morning.

Amanda Sweitzer -- Baird -- Analyst

As you think about lease rate growth in the near term, are there still areas where you're facing some COVID-related restrictions in terms of your ability to push those lease rates? And then if there are, how significant are they? And what's kind of the outlook for them rolling off?

Mark J. Parrell -- Chief Executive Officer, President & Trustee

So yes, I mean, there are still several markets that we operate in that we are under restrictions on the ability to grow rate or grow the increase on renewals. I think that lessens as you get past the end of September, but there still will be some restrictions in place beyond that date. But I think we still -- right now, we're looking at our opportunities as we get past that September to kind of keep pushing those rates in all of the markets that we're operating in.

Amanda Sweitzer -- Baird -- Analyst

Okay. That's helpful. And then following up on to your San Francisco comment on the transaction market, specifically, do you think that 4.4% cap rate you reported for the smaller asset you sold in the suburbs is indicative of market pricing? Or has there just not been enough volume to tell yet?

Robert A. Garechana -- Executive Vice President & Chief Financial Officer

Yes. There's not enough volume to tell. I mean there's such a wide range in how properties are performing that there's not enough. And our expectation is that cap rates will normalize there and lower over time and that there'll be a lot more bids that they're looking for.

Amanda Sweitzer -- Baird -- Analyst

Thank you. I appreciated the time.

Robert A. Garechana -- Executive Vice President & Chief Financial Officer

Thank you.

Operator

Next question will come from John Kim, BMO Capital Markets.

John Kim -- BMO Capital Markets -- Analyst

Thank you. On developments, Mark, I think you mentioned in your prepared remarks doing more through joint venture arrangements. Can you provide some more color on what this may look like? Are you just the funding partner and you have the option to take it out? Or do you see them being long-term partnerships?

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Yes, more the former, more where we're partnering with a local or regional or maybe even national developer who has an embedded existing infrastructure of deal finders, entitlement experts in markets, particularly the suburbs where we have less of a presence, our development focus of late has been doing our own wholly owned deals in urban centers. But in the suburbs of our established markets and in some of these new markets, so it would be us sort of renting that expertise in exchange for a promote. The developer building the deal, us being the capital and having the right to purchase the asset at the end. So it's not a merchant build program in a sense that we're certainly happy to make money. But we want to end up with the asset at the end and add it to the portfolio and kind of help us fill things out.

John Kim -- BMO Capital Markets -- Analyst

And so what would be the yield differential between joint ventures and on balance sheet development?

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Yes. That's a great question. We spent some time talking about that in some real-life examples. So I'm going to ballpark some of these numbers and would ask you to stick with me for a minute, and Alec can sort of supplement that. But paying promote does not have a terribly material impact on the yield even in a fairly successful deal. So we thought about a deal where the unlevered IRR of the deal was something like 11% or 12%. And I believe it changed the acquisition yield for EQR from a 5.4% to a 5.2% cap rate. It had a -- that's not 0, 20 basis points is real, but it -- when you think about the fact that EQR doesn't have to carry all that overhead, doesn't have dead deal cost, doesn't have failed deal cost and could be expert capital allocators, I mean we all learned about some costs in business school, but it's still really hard to let go of a deal you've worked on. When you're in our position as a capital allocator, not as only a developer, you're in a better position to pick and choose the opportunities that suit us best.

Alec, do you have anything?

Alexander Brackenridge -- -Executive Vice President & Chief Investment Officer

I would just add that the developers typically are really small part of the Equity -- overall Equity. Typically, 5% to 10%, we're 95% to 90%. So that's why it doesn't really change the return to us as much as you might think.

John Kim -- BMO Capital Markets -- Analyst

That's very helpful. Thank you. My second question is on renovation capex, which has been cutting down over the last couple of years, which is totally understandable. But now that your markets have fully recovered, when do you expect that to ramp up and you have the ability to do so to increase rents?

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Yes. So we're looking at that all the time. And we're pushing opportunities where we can. But I'll tell you, there are a lot of challenges right now just getting appliances is an example, getting lumber, as you've heard, cabinets are hard. So the reasons why we're not picking up to the pace outside of the immediate impact of the pandemic, which has abated in some of our markets. But our expectation is to increase that over the next 12 months.

John Kim -- BMO Capital Markets -- Analyst

Great. Thanks.

Operator

We'll now hear from Alexander Goldfarb with Piper Sandler.

Alexander Goldfarb -- Piper Sandler -- Analyst

Thank you. Good morning out there. So two questions. First, just going back to a few analysts ago. When you guys were talking about managing the heavy two to three months pre-expirations this fall, is it your view that you're going to bring, basically, all of those to market like force turnover? Or is it your view that it will be sort of split, some you'll stairstep, some you'll first force turnover? Just trying to understand how much of that -- given the strong market demand, you guys talk about, how much of that you think you'll be able to get this year versus having to wait until next year to get it?

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Yes. Good morning. So a great question. And I'll tell you, so far, we remain optimistic about the renewal performance for the remainder of the year. We just started in July and August to see the renewal quotes going out to folks that had previously come in with concessions. So about 17% of our offers for July and August went out to those folks that received a concession. And so far, the retention and ability to bring them up to market has played out. Now as we progress through September and into December, that number, 17% grows to about 25% of our offers, will be to individuals that came in on a concession. So the strong demand that we have right now is really driving the confidence and in our ability to backfill at current rates.

So while we don't want to drive the additional vacancy, we're going to work with residents, and potentially, stairstep. If the demand remains as strong as it is, we will bring everybody up to market, or we will have some increased turnover because we can replace those units at higher rates in a very short order of time. So the other thing I just want to call out is our residents are used to paying us that gross rent amount, and the concessions that we granted were granted in usually the first or second full month of occupancy with us. So our challenge and our opportunity is really more around bringing them up to the gross street rents that you see today. And like I said, if the demand at the front door remains as strong as it is, we have a high degree of confidence because their options to go elsewhere in that market are going to be very limited because we're at market rates now.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. So basically, you're saying that when you guys offer the -- whatever, two months freight, three months freight, that was at the initial first month, and since then, the people have been paying the full freight?

Mark J. Parrell -- Chief Executive Officer, President & Trustee

That is correct.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. Second question is, as you guys have returned to markets like -- I mean, you've been back in Denver a while, but Austin, Atlanta, etc. When you compare now versus when you were previously in those markets, what would you say is your biggest sort of shock, if you will? Is it household income? Is it how the areas have built up, lack of supply? Is it better product than what you used to own? I'm just sort of curious how you compare when you guys left those markets to now? And what's been the most -- the biggest change that you've encountered, obviously, that makes you excited to reenter? But I'm just curious the biggest change that you've noticed.

Alexander Brackenridge -- -Executive Vice President & Chief Investment Officer

Yes. So there are quite a few of those things -- and Alex, this is Alec -- that change. But the primary thing that we look for in a new market is that renter. The knowledge-based industry renter who's got a resilient job, growing income. And that -- those numbers are up dramatically in Atlanta, and certainly, in Austin, but also in Denver. And that comes then with these much more vibrant urban settings that they're choosing to live in and kind of foster and be part of. And that's a big part of why they stay in these neighborhoods longer than in the old days when we had a lot -- much lower rents. We had much more turnover.

And single-family home prices were so much lower, particularly in the kind of neighborhoods that folks were living -- that our renter was choosing to live in that, that was a big source of competition. Whereas, today, in a market like Atlanta to find an affordable house, you have to go out really far. And a lot of people just don't want to make that trade-off when they've been living in Midtown or Midtown West or Buckhead. They're enjoying the lives that they have, and they're just less likely to move out. And that's been a big change from the way it was when we were there 10, 15 years ago.

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Yes. And that's a great question, Alex. I'm just going to build on it, it's Mark. I mean rents that we used to charge were $1, $1.50 rents. And our situation when we exited those markets was our best renters could immediately afford to purchase a home, and our worst renters didn't pay us and left in the middle of the night. And it was a whole different demographic. And now this demographic is much more like a coastal demographic. They're well employed in financial, technology, new media, other fields. They enjoy these urban amenities and these dense suburban amenities. They might want to buy a home, but home prices -- and we spend a lot of time on this in Atlanta because average prices in Atlanta for the metro aren't very high for homes. They're about the national average.

But in the areas near where the employment centers are, people work, and the neighborhoods that Alec mentioned they want to live, it is quite high. Atlanta has got a lot of traffic. So if you want to move just like you can move in New York, you can move to your qualify, but it's a good distance wherein before in Atlanta, it wasn't much of a distance. So again, we got a lot of our folks siphoned. So we're looking at rents in the $2 to $2.5 a foot in these areas, double what it was before, a demographic that's got much higher incomes. A single-family situation that to us looks a lot better than it did when we left these markets a decade or a decade ago. And then again, that combines with the political risk that you and I and others have talked about on these calls for a long time. That's considerably more favorable than some of the other markets we're in.

Alexander Goldfarb -- Piper Sandler -- Analyst

So just to sum that up, would you guys look at the rent-to-income, like you guys actually, I think, sort of 18 to 23 year -- or 17 to 23, in general. Are these markets where you see them right now in the lower end of there -- and therefore, you see more of an opportunity to push growth and you push rents? Or are those markets just more structurally, the rent-to-income levels are just probably lower versus in New York, San Francisco, etc.?

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Yes. I missed a little of that question, but generally speaking, the rent-to-income ratios are higher in the markets we're going into. We think that will be offset a little bit by pretty good growth in incomes by those residents because those areas are growing so much. I also say that some of the cost structures like the fact that there's no taxes in Texas matter as well. So it isn't an apples-to-apples comparison. But the ratios in places like New York are lower than places like Atlanta.

Alexander Goldfarb -- Piper Sandler -- Analyst

Thank you. Thank you, Mark.

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Thanks Alex.

Operator

Now we'll take the question from Haendel St. Juste with Mizuho.

Haendel St. Juste -- Mizuho -- Analyst

Hey guys. Good morning out there. Just two quick ones for me. I wanted to ask you if you could talk a bit more specifically or share the math and how you underwrote the IRRs on the assets you bought here in Atlanta and Austin? And how that compares to the IRRs on the assets that you underwrote when you sold them?

Robert A. Garechana -- Executive Vice President & Chief Financial Officer

So I'm sorry, can you repeat the question?

Haendel St. Juste -- Mizuho -- Analyst

Can you hear me? So the question is on the comparative IRRs. If you could talk a bit more specifically on how you underwrote the IRRs for what you're buying in Atlanta and Austin? And how that compares to...

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Got it, got it. Sorry, I missed the first part. Yes. So the big -- one of the big differences is the age of the property. So we're selling properties that are a lot older that have -- typically have capital needs. And again, we find buyers who look at the future a little differently than we do, want to invest the value-add money. So when we look at that, we're not sure you're going to get the return on that. So it ends up in a lower IRR. The properties we're buying, we just see such strong demand for that we think that, that IRR over time will exceed the one we're seeing as a result of a combination of higher rent growth and less capex.

Haendel St. Juste -- Mizuho -- Analyst

So to be a bit more specific, I think you bought that asset at [3 8] in the quarter, you filled at [4 0]. You've mentioned in the past that you're looking to do these max-funded deals on a net neutral to IR basis. So I was curious if that was indeed the case here. Are you able to underwrite where your basis...

Mark J. Parrell -- Chief Executive Officer, President & Trustee

So the numbers you're citing are the cap rates, the going-in yields, what I was referring to as a longer-term IRR. I think the IRRs are higher -- yes, Haendel, the IRRs are higher on what we're buying than what we're selling. And the cap rates are the same. So one good question that we've been talking about on these calls is our shareholders going to miss out on some of the recovery, on some of these assets we're selling because we've talked about, it's going to be pretty strong income growth in California and New York.

And I'd say that it's not going to be the case because we're not selling the best assets with the best income growth. We're selling assets that have regulatory challenges or concentration issues where we own so much already in that submarket that the shareholders will get the benefit, or as Alec said, we just don't believe in the renovation play. So I think just, again, we're selling what we believe are lower IRRs and buying higher, and we believe that's true both on the NOI side and on the net cash flow because of the capex.

Haendel St. Juste -- Mizuho -- Analyst

Got it, Mark. Thank you. That's helpful. And then you've mentioned development teams a few times here in your remarks and the Q&A and you've outlined that with some on-balance sheet development. So it certainly sounds like building out an internal platform is just not in the cards near term. I guess my question is, how much more fruit do you think there is less to shake from your existing relationships like, say, with Toll Brothers. You guys have a history of working together. It looks like you bought one of your Atlanta assets from them. They have a large development footprint in a lot of, let's call it, attractive markets. So they seem like an ideal partner. So I guess what's the perceived opportunity there? Are you having conversations? And does that kind of fit the profile of the partner you'd be looking for?

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Well, first, I just want to correct the beginning statement. We have a terrific existing development team. It just isn't in Atlanta, it isn't in Austin, and it mostly isn't in Denver. So our development team, not as large as some of our competitors but very capable, certainly exists. That team has delivered Alcott this enormous $400 million building on time and on budget during the pandemic. So we've got a very capable team, and they'll continue to focus on things.

For example, our California team, we've got a lot of densification deals that we've mentioned on occasion, but you'll hear more about in the next few years. And these are deals where, for example, Haendel, we have a 300-unit deal. You take down 60 units in a garden-style structure, and you put up mid-rise 200 units. Those are terrific deals for EQR. Those, we do on our own. We don't need a partner for that. So we're open to all sorts of partnership opportunities. Again, national, local, regional, you should expect that we're exploring all of those things at this point. And we're thought of as a high-quality partner, and we're looking for a high-quality counterparty.

Haendel St. Juste -- Mizuho -- Analyst

Okay. Fair enough. And did not mean to diminish that -- the team in any way. I was just making my point that, obviously, it could be larger given the company of your scale and just probing on if there are any opportunities under discussion today with Toll Brothers, as I indicated, as you know, obviously, you bought the asset in Atlanta from them. I was curious on if that was a fruit -- well, a tree that could bear more fruit.

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Sure. Haendel, I don't mean to be defensive. I just want to acknowledge the contribution to the team. We've got a lot of people working hard, a lot of people listening to this call. As it relates to any specific party, I mean, if we were doing something, I couldn't tell you. And if we're not, it wouldn't matter. So I just would say we're out there. We're always talking to people, and that's Alec's job. He has a whole team that is out there talking to developers of all shapes and sizes.

Haendel St. Juste -- Mizuho -- Analyst

Well, I have to ask. But thank you for taking the questions [Speech Overlap]

Mark J. Parrell -- Chief Executive Officer, President & Trustee

No, no. You did.

Operator

And there appears to be no additional questions in the queue. I will turn the call back over to your host for any additional or closing remarks.

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Yes. Well, thank you, everyone, for your time today. Enjoy the rest of the summer, and we'll see you on the conference circuit in the fall. Thank you.

Operator

[Operator Closing Remarks]

Duration: 68 minutes

Call participants:

Martin McKenna -- Investor Relations

Mark J. Parrell -- Chief Executive Officer, President & Trustee

Michael L. Manelis -- Executive Vice President & Chief Operating Officer

Robert A. Garechana -- Executive Vice President & Chief Financial Officer

Alexander Brackenridge -- -Executive Vice President & Chief Investment Officer

Nick Joseph -- Citi -- Analyst

John Pawlowski -- Green Street -- Analyst

Rich Hightower -- Evercore -- Analyst

Jeff Spector -- Bank of America -- Analyst

Nick Yulico -- Scotiabank -- Analyst

Rich Anderson -- SMBC -- Analyst

Brad Heffern -- RBC Capital Markets -- Analyst

Rich Hill -- Morgan Stanley -- Analyst

Alex Kalmus -- Zelman & Associates -- Analyst

Amanda Sweitzer -- Baird -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Alexander Goldfarb -- Piper Sandler -- Analyst

Haendel St. Juste -- Mizuho -- Analyst

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