Equity Residential (NYSE:EQR) Q3 2020 Earnings Conference Call October 28, 2020 11:00 AM ET

Company Participants

Marty McKenna - Investor Relations
Mark Parrell - President & Chief Executive Officer
Michael Manelis - Chief Operating Officer
Bob Garechana - Chief Financial Officer

Conference Call Participants

Nick Joseph - Citi
John Pawlowski - Green Street
Rich Hightower - Evercore
Rich Hill - Morgan Stanley
Jeff Spector - Bank of America
Anthony Paolone - JPMorgan
Rich Anderson - Sumitomo Mitsui Banking Corporation
John Kim - BMO Capital Markets
Rob Stevenson - Janney
Haendel St. Juste - Mizuho
Alexander Kalmus - Zelman & Associates
Nick Yulico - Scotiabank
Alexander Goldfarb - Piper Sandler
Amanda Sweitzer - Baird
Michael Bilerman - Citi

Operator

Good day, everyone, and welcome to the Equity Residential 3Q 2020 Earnings Conference Call. Today's call is being recorded.

At this time, I'd like to turn things over to Mr. Marty McKenna. Please go ahead, sir.

Marty McKenna

Good morning, and thanks for joining us to discuss Equity Residential's third quarter 2020 results. Our featured speakers today are Mark Parrell, our President and CEO; and Michael Manelis, our Chief Operating Officer. Bob Garechana, our Chief Financial Officer is with us as well for the Q&A.

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 will turn the call over to Mark Parrell.

Mark Parrell

Good morning, and thank you all for joining us today. I will start by thanking my 2,700 Equity Residential colleagues across the country for all they have done this year to take care of our residents and run the business under often trying circumstances. I appreciate your tireless work in meeting the needs of prospects and residents, in an environment that has been constantly changing.

Shifting to the business. Our third quarter results reflect the challenges posed by the continuing health crisis and the impact it has had on living and working in the urban centers of our markets. The approximately 23% of our portfolio located in Downtown San Francisco, Manhattan and Brooklyn and Downtown, Boston and Cambridge continue to be the most impacted.

When we last spoke with you in late July on our second quarter call, we were seeing demand in excess of 2019 levels and renewals that were at or near 2019 levels, albeit with significant rent reductions and concessions, leading to occupancy being generally stable.

As we went through August and early September, we continue to experience good demand, but turnover increased significantly pressuring occupancy. The timing of these turnover increases PAUSE generally with the announcements by employers of delays in bringing employees back to offices, as well as incidence of civil unrest. This occupancy pressure in turn caused further rent declines and increased concessions.

So far October has been broadly similar, though we have seen scattered positive signs in the form of modestly improved renewals and higher application volumes. I caution, however, that market conditions remain too volatile and the timing of developments on mitigating the virus too unclear to suggest that we have turned a corner.

All that being said, we are heartened by the demand we see for our product, even in urban centers, where life has been significantly impacted by the pandemic. We also see recent office leasing activity by technology firms, as well as activity by financial services office users as a long-term vote of confidence in our urban centers.

We believe that the knowledge-based economy will continue to drive growth in the U.S. and that our markets with their massive installed base of universities, innovative companies, venture capital firms, and the many other things that make a knowledge economy grow not to mention renowned entertainment and cultural amenities, will keep them at the center of this activity.

The cities in which we do business, and in which many of you live and work, will again be attractive places for affluent long-term renters to live work and play once the pandemic wanes. The impact of the pandemic on increasing the ability of many office workers to remote work is certainly a fascinating new trend, whose long-term impact is difficult to gauge. But no matter what it does to longer-term office demand, we feel that our relatively young demographic craves both work proximity and proximity to the entertainment and cultural amenities in our cities, which we think will remain very attractive to affluent renters once our cities reopen fully.

Also, supply in urban centers should in the midterm decline sharply, as developers, lenders and investors react to market conditions and construction costs that have not declined as of yet. While we are not providing earnings guidance, we do want you to be aware that our financial results will weaken over subsequent quarters, as the full impact from the pandemic works its way through our rent roll.

Lower lease rates take some time to fully manifest themselves in our reported same-store revenue numbers, because at any one time our rent roll is made up of both new leases with lower rents and leases that were signed at higher rents prior to the beginning of the pandemic.

As the composition of our rent roll changes to include more of these lower rate leases our same-store revenue results decline. The opposite is true on our way back up. Occupancy change is causing much quicker shift in the trajectory of our reported revenue numbers.

In the meantime, the combination of our portfolio diversity and strong balance sheet will allow us to weather this challenging operating environment. For EQR recovery is a matter of when, not if.

A quick note on collections. We continue to have strong results. We are collecting about 97% of our rents and resident payment behavior has not changed. That said, we had increased residential bad debt costs in this quarter, reflecting the fact that although in the aggregate there's only a small number of residents who have stopped paying since the pandemic began. We had a peak in July of those that reached our three-month non-payment threshold and their full balances were written off.

From that point forward, only a small number of new non-payers have surfaced, so while we will continue to deal with elevated bad debt and will likely not be to the same extent seen in our third quarter numbers. On a similar note, the write-off of non-residential straight-line rent amounts in the quarter was large and lumpy and should not reoccur going forward.

My final comment will be on investment activity. We closed on one acquisition in the quarter 158 unit property in suburban Seattle, and easy commuting distance for the growing job center of Bellevue. The purchase price was $48.9 million. The property is a brand-new asset in lease-up, and we expect a year two cap rate upon completion of the lease-up to be 4.7%. This is the only asset that we have purchased this year versus approximately $750 million in 2020 property sales. And this purchase is a continuation our strategy of buying urban and suburban properties, with affluent well-employed residents, the acquisition of which we believe will lead to attractive long-term cash flow and unlevered IRR growth.

We will continue to buy properties using proceeds from selling assets and we think have weaker prospects, due to property condition or location or where the buyer is willing to pay a price that exceeds our estimate of fair value.

I will now turn the call over to Michael Manelis, our Chief Operating Officer to walk you through the markets in detail and then we'll take your questions. Michael?

Michael Manelis

Thanks Mark. Let me start by thanking our employees for their dedication and hard work during the third quarter. This has been a year like no other and their commitment to their residents, their colleagues has been tremendous.

The third quarter saw better overall demand for our apartments both urban and suburban. Suburban assets are holding up relatively well while our urban assets are producing higher turnover leading to decreased rental rates, increased use of concessions, and lower occupancy.

Overall, this quarter's performance was determined as much by the density of the location urban or suburban as by the market. As we previously discussed, a little over half of our portfolio is urban, while the remainder is suburban.

On a positive note, the improvement in demand across all locations resulted in a 5% increase in year-over-year movements. Resident turnover, however, was a more challenging story. After eight consecutive quarters of improving resident turnover, the third quarter of 2020 was the first quarter where the number of residents moving out increased on a year-over-year basis. Resident turnover continued to decline in the suburban markets, but the increased turnover in the urban markets more than offset this improvement.

On the renewal side, as we sit here today, we are renewing just over 50% of our residents with approximately 35% of our fourth quarter renewal offers being issued with some renewal increase mostly in the suburban submarkets.

Portfolio-wide occupancy is currently running just above 94%. The suburban portfolio is around 96% with the urban portfolio slightly below 93%. As I mentioned, the good news is that we continue to see more people looking for our apartments than last year.

As disclosed in the release, applications at the company level were up 20% over last year in the quarter, driven by outsized growth in the urban core and this growth accelerated in October, define normal seasonal slowing.

Given the amount of inventory we have available to sell in our urban portfolio, we will need to maintain this velocity through the fourth quarter or reduce turnover in order to continue to hold portfolio-wide occupancy at 94%. A stabilization and an improvement of our occupancy is what would allow us to dial back concessions and begin increasing rates.

Much like applications, turnover, and occupancy, the pricing story is also bifurcated between urban and suburban. In the urban markets, pricing continued to trend down and concession usage increased throughout the quarter. 70% of the portfolio-wide concessions used during the quarter were in Manhattan, Brooklyn, Boston and Cambridge, and Downtown San Francisco. The volume of new leases is strong in these submarkets, however, price prospects continued to be very price-sensitive.

Previous addresses provided on applications suggest that the large majority of these new residents are deal seekers who are moving to us from within the same market. In the suburban markets, concession use was rare and pricing was fairly stable throughout the quarter with a few submarkets beginning to show modest year-over-year growth particularly in Southern California.

Now, let me move on to some market-specific commentary. Starting with Boston, elevated vacancy levels at existing properties and the inopportune recent delivery of new supply in the city will continue to challenge Boston's near-term performance.

While concession use remains elevated in the city in Cambridge it has been consistent since July with about four to six weeks being the norm. Leasing activity is predominantly coming from intra-city moves with the lack of international students and workers continuing to pressure rates.

Currently, we have seen some very early signs of stability with no incremental declines in rates for the last several weeks and marginal improvement in occupancy. Boston is typically highly seasonal and these albeit early signs are bucking that typical trend.

For the market to fully stabilize, it will require continued improvement in the demand drivers to aid and absorption of the new supply that is being delivered currently and anticipated in 2021.

New York continues to be one of the markets' hardest hit by the pandemic and we still see residents leaving the city to wait it out. During the quarter, leasing activity was driven by deal seekers or intra-city moves who represented approximately 75% of total move-ins. This is up 15 percentage points over last year.

Meanwhile, the elevated move-outs continued with most of our residents moving to the surrounding states with suburban New Jersey capturing the largest share. In our conversations with New York-based employers and based on Mark and My's recent visit to New York, you can see early signs of the city trying to reenergize.

While overall activity in the city remains meaningfully suppressed, there are absolutely a few areas where things are starting to feel a little better, specifically the Upper West and East side submarkets.

Other submarkets notably Midtown, Chelsea, SoHo, and the financial district have a long way to go. Overall, we've noticed a brief period of stability beginning in late September and through October which is far better than the weekly sequential declines we experienced throughout the entire second quarter and much of the third.

Currently, we are defining the usual seasonal drop-off in applications and are achieving outsized growth in weekly application counts. We have also recently seen a slowing in the pace of move-outs. However, we will continue to feel pressure on occupancy until move-outs fully normalize.

Our occupancy in the market is just below 90%. Studio apartments which were once our highest occupied unit type prior to the pandemic are now our lowest at 88%. We are getting ready to furnish a few of these as many offices available for our residents who are working from home and we're going to test the demand for renting these spaces in hourly blocks of time.

The good news is that New York is resilient and we strongly believe that it will remain a top destination for highly educated workers. We hear anecdotally from our local teams that residents intend to return when we get to the other side of this pandemic.

Declines in rates have made living in Manhattan more affordable and that could be a catalyst to bringing people back. The broader recovery in this market will be fueled by a lack of competitive new supply and the continued growth of big tech employers in this market.

Many of these tech firms continue to expand their investments in this market, even during the pandemic, supporting the view that the city will continue to thrive as it has in the past post pandemic.

Moving to D.C., which is holding up better than our other East Coast markets, but performance during the quarter moderated due to slowing Class A multifamily absorption. The market benefits from federal government employment, which has actually seen a net increase over the last 12 months, but the overall job growth has declined.

The ability of our residents to pivot to work from home has allowed us to maintain occupancy with concession use that was relatively low in the quarter. We are seeing some increase in concession use and pricing pressure in this market and expect performance to moderate through the fourth quarter, partly due to normal seasonality, but also due to the continued competitive pressure from new supply.

Heading over to the West Coast. Seattle began the year with strong expectations based on elevated job growth and a favorable competitive supply landscape in the downtown area for the second consecutive year. In addition, Seattle's median income within the city limits increased by 10% and crossed the $100,000 a year threshold, which makes it the third major city to do so.

While Seattle was initially impacted in March by COVID, its performance through late July was very stable. Social unrest in the city and extended work from home announcements in late July and August, however, began impacting our performance, especially our ability to retain residents in the CBD Belltown and Capitol Hill submarket.

Overall, market occupancy is now just below 95%, with elevated turnover during the quarter that was heavily concentrated in the Capitol Hill and CBD Belltown submarkets. Concessions, which were hardly used previously, are now starting to be seen in stabilized assets, mostly in these submarkets. Eastside properties are also using concessions, but with a lower frequency and properties to the north continue to be in the best overall shape with good year-over-year growth in the Bothell Mill Creek submarket.

Overall, housing prices continue to rise at a fast pace. And along with the other factors just discussed, we would expect this market to quickly bounce back post pandemic. San Francisco is our most challenged market, although it is not the same everywhere. Overall, occupancy is now below 93%, while our downtown assets are 87%, East Bay is 96%, and both Peninsula and South Bay are currently at 94%.

Since mid-March, the downtown portfolio has been pressured on rate with escalating concession use. Concessions at two months are now common downtown and what used to be a 15% to 20% rent premium between Downtown San Francisco and new supply in Downtown, Oakland is now flat to a 5% discount.

As we think about the future, San Francisco should recover when there is more clarity on tech company's long-term plans regarding office versus work-from-home policies, and an improved quality of life in the downtown area. Supply in 2021 will continue to be concentrated in Oakland and the South Bay. South Bay supply may challenge operations even further, unless the tech workers resume living in closer proximity to their offices.

One small positive from the declines in rental rate is that, it has made the city of San Francisco, a more affordable place to live, potentially attracting more people back into the city. During October, we saw outsized growth in applications and a slight improvement in renewals. This, in turn, led to slower declines in pricing in our downtown portfolio.

In Los Angeles, the urban portfolio maintained occupancy around 95% through the quarter, while contending with continued pressure from new supply in the Downtown, Koreatown Mid-Wilshire Corridor. West L.A. continues to feel pressure from the slow restart of online content creation.

Overall, pricing including the use of concessions has been stable since mid-September, while the application activity has continued to grow. The suburban portfolio continues to show signs of improvement with occupancy staying at or near 97%. The suburban submarkets of Inland Empire Santa Clarita Valley and Ventura County are all experiencing modest year-over-year gains in rental income.

That being said, we expect the overall portfolio to modestly improve through the quarter, primarily driven by continued rate improvement in the suburban submarkets. It is only fitting that I conclude our market updates with Orange County and San Diego, which stand out for their resilience through the pandemic. While our portfolio in these markets consist primarily of suburban assets, and were certainly impacted by the pandemic, they have consistently sustained occupancy above 96.5% collectively, while also improving the percent of residents renewing their leases. Both markets have year-over-year revenue gains and are expected to sustain or strengthen their performance through the fourth quarter.

Overall, we haven't seen anything that leads us to believe, that the trends just discussed are likely to change meaningfully in the near term. The suburban portfolio should continue to outperform with some potential improvement in pricing and relatively stable occupancy. The urban markets will likely continue to be challenged, particularly Manhattan Brooklyn, City of Boston and Cambridge and Downtown San Francisco, where continued pressure from the increased turnover and a highly concessionary operating environment impact performance.

As detailed in the release and in my remarks, we have seen tentative signs of improvement in some of the metrics in these markets, but pricing remains under significant pressure. We will need to see occupancy begin to improve and pricing to stabilize to feel like we have turned a corner.

Our urban properties in Washington D.C., Seattle and L.A. will likely continue to see slight moderation in both rate and occupancy, with potentially more pressure in Seattle, where some signs of weakness have come into play of late. While the economic uncertainty and the extended impact from the pandemic have made it difficult to predict what a recovery looks like and when it may occur, we remain optimistic on a number of fronts including the ability to grow rate in our suburban portfolios, continued demand for our product regardless of location and solid collection performance. Our ongoing efforts will continue to seek out those opportunities to improve performance while ensuring the well-being of our employees and residents.

Thank you. At this time I will turn the call back over to the operator to begin the Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] We'll hear first today from Nick Joseph with Citi.

Nick Joseph

Thanks. Mike I appreciate all the details. You mentioned at the end that the trends are not likely to change in the near-term. So I'm wondering what the historical relationship has been between applications, which you are seeing pick up particularly in October for the urban core and ultimately occupancy or net effective new lease rate change?

Michael Manelis

Well, I guess I would think about it this way, which is the volume of applications on a year-over-year basis is improving and it's strong but again there is seasonality to applications right? So applications are the highest in the third quarter and will drop-off in the fourth quarter. As we think about that relationship to new lease change, obviously, if we can continue this extended leasing season that we're seeing throughout the balance of October and November that should start stabilizing that occupancy and give us the ability to start dialing back some of the concession use and then ultimately try to pressure test increasing rates back up a little bit. But I think it's still too early to see what's going to happen for the balance of the quarter. But I think right now looking at where we sit at the end of October, we feel pretty good that we're seeing this extended leasing season continue. We just don't know how much longer it will continue for.

Nick Joseph

Thanks. And then I appreciate all the additional disclosure, and I certainly understand the lease role and the seasonality in the current operating environment, but given how much price transparency there is in the market, how many tenants with in-place leases are you seeing trying to renegotiate? And then how are you handling that?

Michael Manelis

Well, so I think there's two aspects to that. So first is transfer. So people that are on a current lease, seeing what's available in their building and trying to move intrally, so we did see an increase in our transfer activity through the quarter. We raised our transfer fees in early April trying to mitigate some of that activity but ultimately a large percentage of those residents that are transferring are actually moving to a larger unit that has an increase in rent still.

And then on the other side at the end of the lease, you are still seeing some folks trying to trade units and really going after kind of more space. So people that were in studios moving to the one-bedroom et cetera, and again at that point we're doing our best to negotiate with them to keep them in place in their current unit, but ultimately we want to retain them in as a resident. So we're going to do what we need to do to keep them.

Nick Joseph

And how about just on pure lease breaks either saying, we're looking at a unit and saying, okay, this unit is now down 20%. I may end up just moving out and paying a lease break versus renegotiated mid-lease.

Michael Manelis

Yeah. So early lease terminations are -- continued to be elevated on a year-over-year basis we're up about 25% year-over-year. Sequentially we definitely saw July like ticked down from June, but then the announcements from the large tech companies an extended work-from-home policies and the civil unrest in the cities in early August resulted in early terminations increasing in the month of August. So far September and October remain elevated on a year-over-year basis but they're not as high as they are in August.

Mark Parrell

And just to add Nick it's Mark. We do receive lease termination payments from residents who terminate leases early. So depending on the jurisdiction that could be continuing to pay on your lease or paying us two to three months right then and there as a lease termination cost. So there is the same elevated number, but it isn't like a free option for the resident to exercise.

Nick Joseph

Thank you.

Mark Parrell

Thank you.

Operator

We'll hear next from John Pawlowski with Green Street.

John Pawlowski

Thanks. Mark, the first question is just on the private market values in some of your hardest hit urban cores. So if you went out and JVed or sold outright your Manhattan portfolio or your San Francisco portfolio today, would there be a sufficient bid do you think? And how would values look versus pre-COVID?

Mark Parrell

Yeah. Thanks John. I guess I'll do a quick survey and just say that if you're in the suburbs and I think this is consistent with you and others have written if you're suburban property owner of a B-property quality asset with a renewal -- or excuse me a renovation potential that probably the asset's worth a little bit more than it was pre pandemic. Class A suburban's probably about the same as it was pre pandemic.

The urban stuff in San Francisco and New York would be very hard to trade. I mean, we still see total volume in the third quarter is down 60% for our kinds of assets. And even more so in New York and San Francisco. And I can't even point to completed deals to tell you what the mark is.

So I'd say those markets are pretty illiquid. It's I think very logical to assume there's been some reduction in value. My guess is it's going to end up being pretty modest because a lot of folks like us who own in those markets aren't compelled sellers. And because of that you won't see us putting those assets into the market. So I think what you're probably guessing at some modest reduction in value in New York and San Francisco for sure.

If we were trying to do a transaction frankly right at this moment I'm not sure how well that would go. I just think people are trying to underwrite declining rents, trying to understand the health crisis, the pandemic coming back again. And I think all of that is -- would make it quite difficult to trade these assets if we needed to do so in some kind of quick haphazard fashion. And of course we don't need to do that.

John Pawlowski

Sure. Okay. And then just trying to understand your comments on the recovery is a matter of when and not if. You're very still bullish on the knowledge based economies and you are in the past cycles opportunistic. I guess, why haven't you acted on the dislocation in your stock yet? I know there's illiquidity in some of your urban markets in terms of selling assets. It just feels like there's a big dislocation in front of you and I'm just curious why you're not selling more assets to buy back stock?

Mark Parrell

Yes. I think there's two things going on in there and one is a capital allocation thought process that you laid out and there's also in our minds a risk management thought process. I mean, when we start selling assets to buy stock, which we can do that. We don't have that much tax pressure though. At some point, we would and we can't sell an unlimited number of assets and not have gain issues. But as you go through that process of taking EBITDA out of your company, taking NOI out of the company, you're increasing risk. 23% of our NOI right now is under significant pressure.

So switching to a risk management thought process from our perspective, it seems better at this point to be a little more cautious to acknowledge the uncertainty that's out there in the world whether it relates to the pandemic or the values in some of these urban markets and just sit tight and operate the portfolio hard and that's a more prudent thing to do than to go and purchase shares. Because again once that capital leaves the firm, it can't come back.

So again for us just this recycling activity we'll keep doing John because again, it's just relatively minor and we're an apartment company. That's what we do, but buying stock back to us increases risk in the firm and we just think this isn't a point in time when you want to do that.

John Pawlowski

All right. So there's no big large disposition plan coming?

Mark Parrell

There are other assets that are going to be sold. We're going to sell into this bid as I mentioned for the value bid for some of this Class B renovation stuff in the suburbs. We've got properties where we don't believe in the renovation play where others may. So you should expect we'll sell into that. We may pay down some more debt. That will leave us with options, which could include a buyback at some juncture.

It will definitely include recycling into assets in these dense suburban areas and in other markets, which we've talked about on prior calls. So -- but doing a buyback right now with the pressure we're feeling on operations any uncertainty in the world at large does not seem like the right idea to us.

John Pawlowski

All right. Thank you.

Mark Parrell

Thank you.

Operator

We'll move on to Rich Hightower with Evercore.

Rich Hightower

Hi. Morning, guys. Thanks for taking the question. Mark, I can't believe you don't want to run EQR like a hedge fund?

Mark Parrell

It's always easier to look at these problems from the outside.

Rich Hightower

Yes. No, it certainly, it's the numbers on a spreadsheet for the rest of us, right? You guys are in a real business. But I do want to hit on the current concession environment. Michael, I know that you mentioned four to six weeks being the norm in. I think Boston was the market mentioned. But help us understand, where are we two months, where are we three months three or some of the more sort of extreme numbers in that conversation?

And then maybe a quick follow-on to that. If we fast forward a year from now and we've got all these people all this sort of induced demand as you described due to much lower rents and more affordability, more concessions and that sort of thing. What happens at the end of the lease term, what's your historical experience there when there is a bit of sticker shock 12 months out? How should we expect that to factor into occupancy and turnover a year from now? So I know it's kind of a compound question, but appreciate any color.

Michael Manelis

Yes. So first, let me just start. I'll just give you a little bit of color on the use of concessions today. So the markets that you would expect to have the most concession use, like I said 70% of all the concessions in the quarter were in those urban cores of the New York, Boston and San Francisco. New York about 70% of all of our applications are receiving a concession just about two months right now.

San Francisco the entire market overall, it's about 50% to 60% that are receiving a concession. And we're averaging right around that 1.5 months or six weeks. But if you go to the downtown San Francisco, you're closer to about 70% to 75% of all the applications receiving two months. Everywhere else is sitting kind of right at that six week or right around that one month mark. And I think what you should expect to see as I said in the prepared remarks, as we see some stability in occupancy see this improvement in demand or demand just holding steady, we'll start dialing back some of the concessions as we work our way through the year.

As far as coming upon the renewal side of the equation a year from now, when we underwrite applicants today, we underwrite them at their gross rent regardless of the concession. So our rent as a percent of income really has not changed in the portfolio from the applications. So we're still running between the low 17% in Seattle and the high at 22.5% in San Diego. And you look at those ratios and you would say they are going to be in a position to afford an increase. They're clearly going to be in a position to afford, continuing to write the check at the rent that the writing regardless of the concession they receive when they moved in with us. So I think that's how we're thinking about a year from now.

Rich Hightower

Okay. That is helpful. And then just based on your historical experience with this sort of thing if we go back to '09, I mean is that pretty much the way it's played out back then where you underwrite a certain income rent ratio and upon renewal the tenants just sort of take it if the market is stronger. I mean, is that a pretty predictable renewal curve, or do you think there's some variability just kind of get in the unique nature of what's going on right now?

Michael Manelis

Well, I think the extent of concession use is greater right now in the portfolio than it's ever been. So I don't know if we can look to the past down cycles and see what does that look like. I'll tell you a lot is going to depend on what the pace of the recovery is like. What do the cities feel like? What are these long-term work-from-home policies going to look like? That is going to dictate more around our concessions still being used widely in the marketplace.

If they are, we probably are not going to be able to just wipe off any concession on a year-over-year basis. We'll stair-step them back to the rents they're paying, but it's not like they're just going to go away. So a lot's going to depend about what is happening around us in that competitive market set as to how those renewals will be treated through our renewal negotiation process.

Rich Hightower

Great. Thanks for the color.

Operator

From Morgan Stanley, we'll hear next from Rich Hill.

Rich Hill

Hey, good morning, guys. I wanted to maybe just take a step back. I think what a lot of us are trying to get our arms around is when the headwinds begin to inflect. And so from your perspective, as you think about the drivers of rent growth in your markets, is it really a job growth inflection? Is it getting people back to markets like New York City that moved away because of COVID-19? Is it just rents resetting to a lower level? Can you just walk me through like what do you think from a macro standpoint are the biggest drivers of an inflection in rent growth?

Mark Parrell

Hey, Rich, it's Mark. Thanks for that question. I guess as we think about it it's pretty predominantly related to the public health emergency. So let's spend a moment together speculating on how that might play out and that's all this is, meaning there is good reason to believe the virus will get worse. I think there's good reason to believe the vaccine will become available, especially the health workers and people that are more at risk over the next few months. And then slowly all the rest of us will get that.

So you will head into the spring leasing season maybe with some positive signs on the COVID front. I mean one of the reasons you're hearing a lot of caution from us is we've got this elevated demand, which we like. We've got elevated inventory but we're also heading into the quietest time of the year. So we need to be really thoughtful about our seasonality. So not only are we fighting COVID, we're fighting seasonality.

Right now we're bucking the seasonality. We're doing really well on leasing. The team's doing a great job. Rate's still suffering but what we would hope would happen just as you think about headwinds to us the most predominant headwind is COVID. Because on job growth, our resident base from what we can tell didn't lose their jobs.

That was – unfortunately, people in some of these service sectors, in hospitality business, things like that and that is in our resident base. So I think a lot of our residents are well employed. They just don't care to live in some of these urban centers right now when their – these centers are disengaged and aren't as much fun to live in. And I think that a great number of those folks will come back.

And the new crop of people the people that graduated from MBA programs, from technology programs and want that city experience, those folks will still want it, because that younger demographic that we mostly cater to balances safety I think and engagement entertainment differently. And I think Rich, they'll be – they'll want to come back and they'll be eager to come back if the cities are a reasonable facsimile of what they were before.

So that's how we're looking at it. It doesn't mean, we're guaranteeing things are better in the spring but we're saying that the next quarter or so, we're dealing with the seasonal decline in demand as well as whatever the virus brings us. And that makes us a little more concerned.

Rich Hill

I think that makes a lot of sense. To summarize it sounds like a good old-fashioned supply versus demand technical. And as demand begins to increase as people move back, hopefully that will lead to an inflection. Is that a correct characterization?

Mark Parrell

Sure. And the comment in the press release that I made about things rolling through the financials I just want to make sure everyone understands, it isn't necessarily that things will keep getting worse and worse and worse. It's more that whatever is happening in the rent roll now, takes a quarter or so to manifest itself in reported numbers.

So what will happen first is on some call in the future in some press release, Michael Manelis will tell you things have started to get better. Occupancy is firmed up. Concessions are declining. Maybe rate isn't moving yet but that famed second derivative is going in the right direction. So you'll see it in what I call the management accounting numbers before you see it in the numbers that Bob reports to you for same store revenues.

So that's what we're trying. Because again we've got a pretty new group of analysts frankly on these calls. A lot of investors aren't as familiar. It's been a while since we've had a downturn. So we're just trying to make sure everyone understands how that works in the apartment business.

Rich Hill

Yes. That's very clear. Thank you for that. Just a strategic question. And maybe it goes back to one of the earlier questions and I do very much appreciate your commentary about why you don't want to buy back stock. I think that's generally not the right thing to do in markets like this. But your stock is trading at a pretty meaningful discount to private market valuations, particularly against the backdrop of low global yields.

There's a lot of money on the sidelines to invest in commercial real estate. Private equity seems to be making a big push in the commercial real estate, particularly for stable cash flow assets with strong secular tailwinds. And that all sort of regulates at least back to us to the apartment sector.

So I guess my question in a very long way is, is there a scenario valuations were to stay here for another six to 12 months, where you would seriously consider either a significant JV with a private company or maybe just say "Hey look. You know what? The best thing for our shareholders is to take ourselves private." I recognize that's a big check and there's a lot of friction costs and I'm curious how you think about that.

Mark Parrell

Well, there's one thing you said I want to latch on to. You said the interest of PE firms. And generally, the private folks with investment dollars are very interested in the apartment sector. And you use the word stable. I would say half our business is pretty stable. A third of it in the urban centers outside New York, Boston, San Francisco is okay, but marginally weakening and then a quarter of our business is having a tough run of it.

So I'd say that when you think about the buyback, like I said in some of the prior responses and when you think about any other action or interest from PE firms, there's going to be a lot of interest in the New York portfolio at the moment. That portfolio needs to find a floor on rents. It needs to have some enthusiasm and excitement in the urban center again and people moving back in.

Then you'll get a floor under that. In terms of taking a company this size private I mean that's obviously a matter for the Board to consider, not for me alone to determine, but I think it's way too early to start thinking about things like that. And I would expect that at some point again when the operations of the company, especially in the urban centers feel a little more stable, we'll feel like a larger menu of capital allocation options are open to us.

At that point, there'll be conversations with the Board about things like buybacks again, and other conversations. For now, I think the best thing to do is to run the portfolio hard and stay super flexible. And that's the right thing to do.

Rich Hill

All right, guy. Thank you that. Keep up the good fight.

Mark Parrell

Thank you.

Operator

From Bank of America, we'll hear from Jeff Spector.

Jeff Spector

Great. Good morning.

Mark Parrell

Good morning.

Jeff Spector

First question, -- hi, on markets. I appreciate, your comments on knowledge-based economies and your positioning in these different cities. Just to confirm, are you saying that you and your team you're not more concerned today about any of the markets you're in for example San Fran downtown or Seattle downtown and that you're happy with your positioning?

Michael Manelis

What I'd say about our positioning is the COVID virus the whole pandemic has just accelerated a bunch of trends. And among those is just the dispersion of high wage job growth outside the coastal centers where they used to be predominant, okay? So we have talked about adding exposure in Denver. We've talked about potentially going into Austin. There's other markets that at the right time we'll talk about with you as well. So I think you can expect that we will spread our capital around a bit more over time because I think those jobs have moved around for a lot of different reasons Jeff.

I think some people just want different lifestyle. Some folks are looking to get away from maybe some, sort of, tax or political thing that they're concerned about. But I would say for the most part, our residents when you look at where affluent we think renters and the knowledge industries are -- San Francisco still has a lot of advantages as a technology center. New York still has a lot of advantages as both the technology and financial services center. Boston and the biotech in Cambridge and biotech and financial services.

So -- but there are other markets that are of interest. So I would say in terms of our positioning right now I'd tell you I think we will continue as we've said I think since 2018 to add exposure in dense suburban areas where we can find affluent renters. And we'll follow our affluent renters to places like Austin and to Denver and we'll continue doing that. So you should expect that we'll continue to broaden the platform out and continue to react to that and react to things like political risk in some of our markets. But there's no risk-free apartment market. Some of the markets that you might move into have had in the past very significant supply issues don't have as big a base of high wage apartment renters. So there's -- again there's a balancing act as you enter each of these markets.

Jeff Spector

Thank you.

Michael Manelis

Thank you.

Jeff Spector

And my follow-up question is on New York City given that is one of the weaker markets. And I believe in the earlier remarks you talked about a lot of those renters leaving for New Jersey. I live in New Jersey and I could say, I don't think many young people want to live in New Jersey. So I take that maybe as a positive. I mean when you do your exit interviews are these 20 to 30 year-olds moving back home with the parents temporarily? Like I'm just -- I know you don't know, but if there is a vaccine and this -- that could be a nice boost to the spring/summer leasing season for 2021?

Michael Manelis

Yes. So, I guess, I'll give you just a little bit of color on -- I think, I said in the prepared remarks we're definitely seeing an increase in those that are leaving the market. So we used to have about 70% -- or used to be 50%. Now it's about 70%. And New Jersey, Connecticut and California are the top three states where those that do leave are going to with suburban New Jersey is where the majority of them were going.

The -- anecdotally from our doorman, from the concierge in the building are -- regardless of the demographic, whether it's young and going back with mom and dad, whether it's the older a lot of them basically are telling the doorman, telling the concierge they will be back. And they will be back as soon as we get to the other side of this pandemic. So to us that's the positive sign that we have that the renter base that we had will return. It's just a matter of when they're going to return.

Jeff Spector

Okay. Thank you.

Operator

We'll hear next from Anthony Paolone with JPMorgan.

Anthony Paolone

Yeah. Thanks. Just two, I think, bigger ones. One is just to understand in California, if you're offering a resident-free rent and then next year, they renew does that -- is that impacted by the CPI plus 5% regulation, or does that only affect the face rental? Like how does that work?

Michael Manelis

I'm not sure, we have that answer for you right at the top of our fingertips. I mean, CPI is often driven by housing in some of these places. So that is going to be approaching an 8% number under the California rules, which is a one-month concession at least. So I guess I don't -- we don't know the answer to that off the top of our heads.

Anthony Paolone

All right. And something like San Francisco where you give someone two months of free rent when that -- if they renew does that rule kind of inhibit the ability to take those two, three months out?

Michael Manelis

I don't believe so. I think concessions are going to be excluded from that calculation and if you held somebody's rent flat or you actually raised their rent up. But again I'm not 100% positive of that.

Anthony Paolone

Okay. And then just second one, just given the hits and rents in the portfolio how long do you think it takes, or what are the prospects to maybe do something on the property tax side?

Mark Parrell

Yes. So, I think, it's going it's a little bit of a laggard, right? So -- on the property tax side. So right now, we're kind of beginning or prepping for the -- I'll call it hand-to-hand combat or conversations with every local jurisdiction, but it tends to run kind of on a lagging basis. You probably won't see anything or any kind of relief at least until 2021 or maybe even into 2022 based on prior experience. It's going to be that argument or that conversation about what jurisdictions are doing on the rate side relative to what they're doing on the assessment side. We're very used to this. We've done it for years and we will have those conversations. So far we haven't seen much activity, but it's really just the nature of when -- when the actual assessments or new rates and all that comes out depending on the jurisdiction.

Anthony Paolone

Okay. Thank you.

Operator

We'll hear next from Rich Anderson with Sumitomo Mitsui Banking Corporation.

Rich Anderson

Very good. Good morning. So, it sounds like from a geographical pie chart, you kind of have some ideas about what the company might look like in the aftermath of all this down the road. But I'm wondering if anything that has happened operationally has opened your eyes to processes within the organization whether its tenant select -- resident selection credit process that maybe is -- could be sort of a cleansing event, I hate to put it that way, for the future of Equity Residential. Do you see any changes in how you run things as a result of what you've seen through all of this?

Michael Manelis

Well, I think, early on and we talked about this on the last quarter, we saw that the exposure from corporate providers, right, we didn't have a lot to begin with. It was like at 1.5% of the portfolio. We're now down 50%. So we have fewer than 600 units right now with corporate providers.

So, I think, one of the early lessons I learned is, yes, we'll probably keep that at a pretty low number throughout the portfolio. I don't think we'll bounce right back. Or if we do, we're going to have really large security deposits on hand from those kind of folks.

Operationally, other than that, I think, the biggest thing that this did is, it created a catalyst for us on our sales process. And it has shown us how fast we can move to virtual leasing and how fast we can move to self-guided kind of tours and still be able to produce pretty strong application count.

So I think operationally you're seeing us adjust that way to shape the business on the sales side. And we're getting ready to deploy kind of our new sales application this next month that's going to bring mobility to the sales teams and allow us to kind of have multiple assets covered by individuals. So, I think, those are probably the biggest takeaways that I've had on the learnings of these.

Rich Anderson

Okay, great. And the second question, maybe for Mark, and I don't know if we -- the best analogy might be back to 9/11 in New York. And I -- unfortunately, I wasn't there covering you back then too. And everyone said "I'm never coming back to New York." Do you have a recollection of how quickly the bounce-back happened and if there's anything about that period of time that can be fast forwarded today? Because they both kind of share a similar sort of fear element to it. And I'm wondering, if that is guiding you at any way, shape or form in terms of how things might progress when we do kind of get a vaccine or some sort of therapy in place.

Mark Parrell

Yes. It's a little anecdotal for us, because though we've owned for a while in New York, we really didn't own right then. So what we know about what happened then is mostly from, frankly, our people who did work at other apartment companies or all our contacts that lived in the market.

I mean, again, New York, you said it very well. The difference in population is significant. I mean, by 2016, the city was considerably more populated. And I think it might have had the highest population it ever had compared to 2001. And the obituary was clearly written on New York then.

The city, Michael and I would summarize it from being there and from our conversations, talking -- New York is definitely trying to get up off the mat. If some progress can continue to hold on the virus, people want to go back. There's a special feeling to the city. People are there. There's a lot of interest. Our volume in New York is higher proportionately than anywhere else. It's just the rate is low. We just need even more demand to make up for folks that have made the decision, Rich, to move temporarily to New Jersey or whatnot and come back.

So I'm probably a little less concerned with New York than I am with San Francisco, where a combination of work from home and just quality-of-life concerns and just the sort of general feeling around that -- those 10 properties we have in the city of San Francisco, that feels probably a little more concerning to me in the medium term. I think, again, as long as the pandemic by the spring starts to wane and we have it under control, I think, people want to be back in New York. And that will happen. In San Francisco, I just think it might take longer frankly.

Rich Anderson

Yes. Okay, great. Thanks Mark. Thanks, everyone.

Mark Parrell

Hey, thanks, Rich.

Operator

We'll hear now from John Kim with BMO Capital Markets.

John Kim

Hi. Good morning. Mark and Michael, you mentioned that safety, social unrest and the lack of social engagement activities are impacting apartment demand. And unfortunately these have been very politicized issues in many core cities. I was wondering, if you are working with any political or business organizations to encourage the reopening of offices or restaurants or other businesses?

Mark Parrell

So we have significant engagement through our trade associations on all sorts of things. I don't recall being specifically engages related to reopening restaurants. We're certainly big supporters of the idea that the partnership for New York put out in their letter of getting the cities running again and being on top of everything from sanitation to just all the transit all the things that make cities fun and livable.

So, I guess, our answer to that is, we're not involved day-to-day in that, but the trade associations we support are involved in those things. And we support the bigger groups of citizens and leaders and companies that are pushing for being a little more balanced here and for political leaders to take into account these business interests.

John Kim

You mentioned on prior calls that moved out to buy a home was around 12% and I'm wondering if that's changed at all with the homeownership rate spiking up to 67% earlier this year.

Michael Manelis

Yes, it actually ticked down this quarter. So we're just below 11%. We saw like a nominal pickup in the Southern California markets around Orange County and San Diego. But other than that, every market has basically declined about 1 point.

John Kim

And my final question is on the bad debt expense. What percentage of that 2% does that represent as far as uncollected rent?

Mark Parrell

The majority of it -- I guess, the majority of the 2% growth, really, all of it is uncollected rent. I mean, whether that's your monthly rent or your utility reimbursement, whatever the charge is to the resident, that's the uncollected amount that's in there.

John Kim

I missed to ask the question, I'm sorry. What percentage of the uncollected rent -- sorry what percent of bad debt expense is -- what percentage of the uncollected rent relating to that represents?

Michael Manelis

So John, do you mean on -- you're breaking up a little. Do you mean rent versus say utility charges or fees, or I'm not sure we follow the question.

John Kim

I'll take this off-line. I'm sorry.

Michael Manelis

Okay. Thank you.

Operator

And from Janney, we'll move to Rob Stevenson.

Rob Stevenson

Good morning guys. Just a question on the bad debt there. Mark, you said earlier your tenants weren't losing their jobs. What were the key factors in driving the bad debt higher? For some of the others, it was the elimination of the federal unemployment subsidy. But if you didn't have the unemployment what's been driving that? And is that still accelerating, or are you stabilizing at this point?

Bob Garechana

So I'd say that it's geographically focused, right? So some -- the bad debt is running higher in places like Los Angeles, which was before the pandemic, the area where you probably had the highest or the most constrained kind of rent to income levels. So you may have had probably centers or pockets, where you had a little bit more gig economy stuff. So some people have lost their jobs. We're talking about a pretty small population base in the aggregate of call it 1,100 folks that are in that bad debt piece anyways. So it's -- there is some job loss, right, but for the most part to Mark's earlier point, we think our general demographic isn't really driving it.

And I'll tell you, it's been really consistent and hasn't changed much. Mark said in his prepared remarks, we had this pocket of how our policy works. But if you look at individual accounts like you've had the same accounts, they hit the 3x. They kind of peaked in July. And since then, we haven't really added very much at all to that non-payer bucket. It's actually the same kind of existing group that has just continued not to pay that is there at 9/30.

Mark Parrell

Yes. And I just would add, I mean there's some percentage of our residents who did lose their jobs, did have situations like Bob mentioned. They could be gig workers in the content industry in L.A. There's also public policy reasons. Some people aren't paying, because they feel like they don't have to. And we continue to pursue those folks. And within the bounds of the law, we'll be relentless in that matter. I mean, there's a contractual obligation here, but we also want to work with people. I mean, if there's some understanding that they need from us, they need some more time, we've got a good number of payment plans out there.

So you made your comment. I think you're right. There's some folks where that government supplement mattered. That didn't matter as much to us, but there was a few employees -- or a few people excuse me residents of ours that did lose their jobs and that's certainly in the number that we wrote off in the quarter. But there is some of that that's likely behavior-driven and that's something that will work itself out over the next whatever number of quarters.

Rob Stevenson

Okay. And then, how are you guys feeling about the California vote next week? And is there any of this type of legislature or ballot initiatives in other markets that haven't got as much attention that you guys are worried about?

Bob Garechana

Sure. So we remain reasonably confident on defeating Prop 21. I think the industry is well organized. Barry Altshuler, who's one of our senior investment guys is the President of the California Apartment Association with other industry leaders. He's just led a really great campaign to educate people in California. That Prop 21 doesn't create a single unit new unit of affordable housing. It doesn't put anyone who's homeless into a home. All it does is discourage investment in our markets in housing. So I think what we feel as we've made a good case. Things have changed in terms of the way the vote will be tabulated. I mean it's all remote. It wouldn't surprise us if it continued past the actual election day as maybe more than one election will in the U.S., but we feel pretty good about it. There was a good poll in one of the Southern California papers on this as well. So at this moment, we're feeling reasonably confident, but it's a presidential election year. A lot more people will be voting than voted in 2018 and we'll keep making our case to the people in the state of California all the way through November 3.

Rob Stevenson

Okay.

Bob Garechana

And in terms of vote places, yes there's not a lot. There's a ballot measure in Colorado that would raise property taxes for residential both homeownership and apartment owners and stuff like that, but it's just not nearly as significant as Prop 21. So that's where for us at least most of the action is.

Rob Stevenson

And anything working its way through the legislature in New York or Massachusetts or elsewhere in California?

Bob Garechana

Sure. Well we'll do a quick survey. So Washington state, they're obviously they're going to have their legislative election. There's been some discussion there about California-tyle rent control, meaning a CPI plus and inclusive of vacancy decontrol. The industry continues to talk about that with them. There's some real downsides to part of that approach, but we're engaging in that conversation. As you go across a little less pressure in Massachusetts, certainly New York has its own set of elections in a week and we'll see what that ends up being. But I would imagine there's always things to talk about in New York, but there isn't anything on the hopper. And as I understand, it the general assembly isn't in session. So we don't need to worry about that at the moment.

Washington D.C. city council is considering various rent control measures, a few of which are highly negative. We don't think those are likely to go through. We're having constructive conversations there through our trade association. So there's always things that we're looking into Rob and we're always out there supporting. And we have a pretty active engagement with policymakers and when it's a ballot proposal with the whole electorate on this stuff. And usually, once you have the conversations, you and explain what's really going to happen here the emotional satisfaction of rent control, usually fades away because it doesn't work. I mean universally academics tell you it doesn't work and the market experience shows it doesn't work. And we try and talk about ways to improve zoning, to create private incentives, so that people are out there building more affordable. So that's really the battle.

Rob Stevenson

Okay. Thanks guys. Appreciate it.

Bob Garechana

Thank you.

Operator

We'll hear now from Haendel St. Juste with Mizuho.

Haendel St. Juste

Hey. Good afternoon here, good morning to you. Hey, Mark. So I guess first question. Just curious on your views on the extension of eviction moratoriums here in California and New York recently. I guess I'm curious, how much of a risk you think that poses indirectly and directly to apartment of portfolios and your portfolios in those markets?

Mark Parrell

So we're fortunate with these eviction moratoriums instead high-quality resident base where again our people are getting great service. I mean, I read all these comments Haendel and it's really awesome that we get from the people that work for Michael and on site. And it's folks that interact with our service personnel, our customers, our residents, interact with our concierge, with our on-site staff. And they say, terrific things.

So a lot of our people they don't hate their landlord. They like their experience with us. They think we're doing a good job. They appreciate how hard we work during the pandemic to keep them safe. So the good news for us is, most of our residents pay and that's not a problem.

In terms of these eviction moratorium which have been tough on a lot of more affordable landlords I think the right answer is, what the industry has been pushing National Multi Housing Council and others which is the proposal, the idea of putting more cash in the pockets of renters so they can pay their rent. The idea of putting this loss entirely on landlords and breaking the residential housing system in the United States is just a terrible idea in the long run.

And I think the answer is, if the need is great then we as taxpayers have to shoulder that burden. Congress needs to appropriate the money. President needs to sign the law and the money needs to go either directly to landlords or to residents who are in need so they can make their payments. So landlords in turn -- I mean EQR for example our biggest single expense is $400 million a year in property taxes. That in turn support all the first responders, in these hard-pressed municipalities and stuff and as well as our significant payroll costs and keeping our properties up.

So I guess Haendel, it's about having that conversation with people and explaining the whole, I've heard it called connected ecosystem here. I mean so -- but again for EQR it hasn't been quite as big an issue yet, but I think in the long run these eviction moratoriums are pretty awful idea. And I think they become less and less justifiable as time goes on.

Haendel St. Juste

I appreciate the thoughts there. Second question and I'm not going on New York City, but from a different perspective and I guess you have to have a little bit of patience here understanding the number of questions on New York City already, but I wanted to go back. And really the question that I asked you last quarter when we discussed well, I asked you when you thought New York could return to positive same-store NOI territory.

I think at that point in July we and many investors were expecting NOI to sort of like continue to decline into early next year with the trough in New York City not occurring until spring and maybe middle of next year and a positive return potentially by the second half of 2022.

Now since that July call obviously operating conditions have clearly remained and probably gotten a bit more challenging with concessions even more prevalent here. So I guess in my mind, is it fair to assume or expect that timeline to that potentially positive same-store NOI now shifting to now 2023, even if we get a vaccine and the pandemic starts to wane next spring, just given the level of concessions now being offered how deep into the year and basically the size of the hole you're not climbing out from here?

Mark Parrell

Wow. A lot in that question. I'm hesitant to give you guidance. I mean we don't have any formal guidance. And I'm hesitant to suggest any particular quarter for things changing on the NOI front. It doesn't mean that we have pessimism. It's just impossible with the public health emergency to predict.

But I will tease this color out. Again on the rate side it, takes a while for it to go negative and a while for it to go positive. And that's what we've been talking about. The little offhand comment we made was on occupancy. Right now we have buildings that are occupied in the high 80s that are very desirable buildings. And when New York becomes New York again and people move back, that improvement in occupancy will be immediate. And that will go to the top line immediately and to the NOI number you referred to.

So rate takes a while both up and down. This was quick because there was so much pressure. On the way up, you should expect it will take a while on rates to get rid of the concessions start moving rate. That will take a little while, but the occupancy boost will feel more immediate. And unfortunately I mean this portfolio was running 97%. Right now this morning we're 89.9%. So right at 90% as Michael said. You could make up 7 points in occupancy, if the city became the city again pretty quick. And again, I'm not predicting when that occurs, but I think there's an occupancy opportunity for us but which quarter it all occurs just depends on when the virus gets better.

Haendel St. Juste

Got it. Got it. And last one if you'll indulge me the obligatory political elections question on what perhaps the implications of a potential Biden victory would mean for coastal little bit of markets like New York, San Francisco Boston and the CBD portfolios there.

And how would you view the odds of perhaps potential direct stimulus after some of these markets and maybe balance that against perhaps a rollback in some of the mortgage tax deduction ceilings that we put in place during the Trump tax cut? So just at a high level just curious on your views on what a potential Biden victory would mean and perhaps some of the policy initiatives that could play out and what that means for your portfolio? Thanks.

Bob Garechana

Yes. So because that also depends on who controls the Senate and whether the House stays where it is now and -- but it's really hard to speculate on. I mean I think it's pretty well understood the programs people have. I mean some of the things you didn't mention for example, more certainty on immigration and more positive immigration policies would be helpful to us. More regulation would generally not be positive for us. Some things like taxes changing may create more or less economic growth.

So it's hard for me to say that, EQR is a particular dog in this fight and I'm hesitant to get involved in any of that. So -- but I do think the mortgage tax thing it wasn't a big impact on us before when they took it away, so I doubt it will matter very much here to us at all.

I think a stimulus package to me, I think after the election's done, I would guess there's a pretty high chance that that will get done because once the election's done given how frail the stock market and the economy feel, I think the politicians will look at each other and go, okay we need to do this now and there's not as much risk to the election is over and there's no benefit to be gained from waiting. So I guess, I'm sort of expecting some stimulus to happen after the election. That seems like the bedding line out there regardless of who wins.

Haendel St. Juste

Got it. Thank you for your time and I will look forward. Thank you.

Bob Garechana

Thank you.

Operator

And we'll move on to Alexander Kalmus with Zelman & Associates.

Alexander Kalmus

Hi, thank you for taking my question. Digging into the applications, what does the credit quality look like versus history? And how does the conversion process from application to lease compare, are you seeing a rent price bid-ask spreads of any kind?

Michael Manelis

So, I think I said earlier, we do not change our underwriting criteria at all. So, applicants coming in are run and screened against the growth rent, regardless of concessions. And we really didn't see a material shift in the affordability index, which is rent as a percent of income across any of our markets, where we range still between that 17% and 23%. As far as -- can you give me the last part of that question?

Bob Garechana

Just a credit quality question.

Alexander Kalmus

Yes. If there's a spread between a rent, maybe the price that they're throwing out for a unit that is maybe a low-ball offer. Or are you seeing more of that versus real legitimate prospects?

Michael Manelis

No. I mean this is legitimate prospects. I think one of the parts of the question I forgot, which was the closing ratio. So the way to think about kind of, typically you would have foot traffic those that come in for the virtual tour or a self-guided tour, about 25% of the time that converts into an application.

And that closing ratio has been fairly consistent. We had a little bit of a change when we got into the initial COVID period, but right now it's fairly stable in our ability to convert kind of that traffic to applications. But really not seeing anything from a quality of the renter or the quality of the applicant showing up for these units.

Mark Parrell

And I want to add, Alex. People, who are applying for us, are putting down a deposit and paying a fee. So when they're involved with us, it isn't -- you make it sound like it's a little bit of a bid. I mean at that point, we've sort of agreed on price with them, subject to a credit and criminal background check review. And they move -- the great preponderance of those people end up moving in with us.

So applications for us, just so you understand, are a forward indicator of move-ins. This month's applications are next month's move-ins, and are -- that month's reduction in left to lease and that next month's increase in occupancy. Maybe that helps you. So the quality -- and we do qualify people based on the rent without the concession, just to be really clear about that. So they can afford to pay the face rent, not just the rent, reduced on some effective basis by the concession.

Alexander Kalmus

Got it. Appreciate the color there. And then, so looking at a little different question here. The performance of nonresidential real estate asset touches overall, even underperformed, a lot of the residential sector that we see. Are you hearing of any conversions from hotels or offices or even retail into new apartment buildings in urban centers?

Mark Parrell

Yeah, there were some -- it's Mark. There were some discussion Alex, we've heard from our people in Southern California, both hospitality plays, strip centers in the Los Angeles area strip retail, of which there's a fair amount that might go residential. So there is some conversation, and I've heard about it, particularly in Southern California as to both hospitality and retail.

There's other spots we've been involved with shopping center owners, and thinking about repurposing out lots and things like that. So there's a fair bit of conversation on that. But, again most recently, I've heard a fair bit about it in Southern Cal.

Alexander Kalmus

Got it. Thank you.

Mark Parrell

Thank you.

Operator

We'll go next to Nick Yulico with Scotiabank.

Nick Yulico

Thanks. So, just a question on your urban core, it's helpful you guys break out the occupancy now. Do you have any stats on -- if we look at the drop in occupancy that was very visible in the urban core? How much of those renters stayed in the market versus left the urban core. Do you have any sense on that?

Michael Manelis

Yeah. Well, I think I shared a little bit of that before, like in New York that we saw an increase of those leaving. So both, New York and San Francisco, probably saw the most pronounced increases of those leaving that MSA but staying nearby, moving to kind of other nearby market, that may have more concentration of suburban-type properties in there.

Nick Yulico

Okay. But you don't have any specific stats you can share about -- because you've obviously framed this as an issue where occupancy is a problem, because people are leaving the urban core. They may come back, but how are you sure that you're not just losing out to other properties?

And I guess I'm wondering whether you guys feel like you are competitive right now with your concessions or if there's some elements of this occupancy drop that's happening in the urban core are residents, who are going to the developer down the road is just getting an even bigger concession package.

Michael Manelis

Yeah. So, I guess, I would say -- I think I've said it a couple of times now. In those urban cores, you're absolutely seeing people leave those downtown areas and go to other nearby markets with some upticks like in New York that actually leave the state entirely. So, as you think about the moves intra-city, so are we losing residents that then go to competitors in the market?

I guess I will tell you that our renewal process is set up in such a way to handle those negotiations, not only on site but then as soon as somebody does give us a notice, we leverage our national call center to place calls to those residents, just to make sure there is nothing we can do within reason to keep them.

And for the most part this is not a rate play. So, I'm sure there are a few that leave us and go somewhere to some concession offer that is just outside of the market boundaries, but a very small percentage of those residents that leave us are doing that to us.

The other way to think about it is the increased volume of applications that we're seeing right now, is a pretty good indicator from a market competitive standpoint of our pricing. If we were not competitive, we would not be seeing new leases coming to us.

Nick Yulico

Okay, great. Thank you.

Operator

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

Alexander Goldfarb

Thank you. Thank you, and good morning out there. So. two questions. The first one, one of the -- one of my peers asked earlier about the ability to reassess on the property tax given the drop in NOIs, but obviously that takes time. You guys have been very efficient on OpEx and on the G&A front, but still as you look at the rent declines, do you see an ability to offset some of that on the expense or G&A side, or you guys have gotten yourself so lean and then also on the capital markets side refinanced so much debt that there's really not much additional that you can do from either a cost or interest expense side?

Mark Parrell

Hey, Alex, it's Mark. We're going to split that up. I'm going to ask Bob to talk about capital markets and the debt maturity, we got coming next year that's at pretty high rate. He can go through in a second.

On our end, you're going to see that in the quarter at least G&A and property management, our overhead categories collectively were down, I think, it was 10% or 15%. You should expect that to continue. I mean, we're certainly responsive to the fact that cash flow's going down and overhead needs to follow that. So, there'll continue to be adjustments in that regard.

I don't feel like we have a lot of folks that aren't being well utilized. I think it's just a matter of what is going to be sort of bonus compensation, those sorts of things. That's where the discussions lie.

And then just running the business more efficiently, Michael talked earlier about he did in terms of remote leasing. That certainly has impacts on headcount. So things like that. So you should expect that we will be just as relentless. I'm not -- again, I don't feel like we have a lot of people sitting around on their hands, but I do think we need to be responsive to the fact that NOIs are going down and overhead needs to respond to that. And you can see in the third quarter, it did and you should expect it will continue to.

Bob Garechana

And on the balance sheet side, Alex as you think about it, you've got the big maturity the $750 million maturity in 2021. That does carry a 4.625% coupon, and we could refinance that today on a 10-year basis at call it 2%. So there is still a positive arbitrage between the refinancing activity going forward. So that exists frankly if you look at our maturity schedule on Page 2018 not just in 2021, but continue in 2022 based on where -- and 2023, despite the fact that we don't have a ton of debt maturing.

Alexander Goldfarb

Okay. And then the second question is going back on Haendel's question. Mark, as you look at the markets over time, there's definitely been a shift in the past certainly two decades, more rent control or more rent control used in markets the eviction moratoriums, I mean, there's a lot more housing regulation in coastal markets that we didn't previously have. Additionally, they're talking in progressive ways about rent moratoriums or rent write-offs or national rent regulations, et cetera, if the demo suite. So, certainly, there's a lot there.

How do you think about just overall when you guys originally looked at your current portfolio and all the factors that drove you to these markets versus the political changes that have happened now and maybe also price point changes, where maybe you get a more lower -- more of a broader mix, et cetera. So if you look at the overall EQR portfolio now, do you feel that the original trends that you saw that got you into these markets are still there, or you would say, hey guys, there's some things that have shifted on the political and on the affordability side that we should reassess. And maybe while these markets will come back, because they're viable they're going to be different and maybe we want to be positioned more differently than just waiting for the markets to come back.

Bob Garechana

Yeah, I don't think we're just going to wait for the markets to come back. I think political risk has changed in our markets. I think when we thought about this shift into urban 15 years ago. One of the reasons we liked the urban centers was it was politically difficult to build, that the politics created a supply constraint that we like.

So to be honest some of the markets were chosen with some of that in mind, Alex. And then as time has gone on, I would say what's happened is that there's this bit of a bias against landlords. There's a bit of a regulatory mindset that is challenging to work through and we do think political risk is higher in our markets. And one of the reasons to spread our capital out both in the suburbs of our markets, because a lot of rent control and rent regulation is local, okay? Some of it is at the state level, but a lot of it is local.

So you might want to be in a metro, but you may not be want to be exactly where you were in the center before. So you should expect we'll continue responding to that risk by spreading out and also going into some metros where the supply risk may actually be worse in some of those other metros we're not in, but you're getting some compensating political risk benefits.

I'll also say that you didn't mention it quite as much, but the fiscal situation is quite concerning in some of our markets by the way also in some markets we're not in, okay? So, there's plenty of municipalities under a lot of stress. That's another thing we keep in mind. So, whenever we buy an asset, we underwrite or develop an asset.

Two, we underwrite the locality, the county, the state and how it looks from a financial perspective and think about as a land -- long-term owner of this property whether that's a risk we're willing to take.

So, I think we're pretty focused on managing our existing political risk by having like, again, this big outreach to politicians and to policymakers we talked about and then secondarily just over time shifting some of our capital to places that maybe are a little friendlier in that regard.

Alexander Goldfarb

Okay. And then just one final if I could. You guys mentioned on your California residents are very happy in renting. Are you -- are all of the tenants who are taking advantage of this optionality if they can -- to pay or not pay. Are all of those tenants now out? Have you let those people just leave with a minimal break fee, or do you still have a bunch of California residents who are sort of living rent-free?

Mark Parrell

So, Alex, we believe in the sanctity of contract both ways. And so these people we don't have the ability to evict them. So, there are some number of people that can pay that haven't. We'll continue to monitor that situation. Again, we're always willing to -- some people haven't even communicated with us. We talked about ghosting on the last call and had a little fun with that, but we've got to have these conversations with people figure out how we can help them, how they can meet their contractual obligation to pay rent and how we can move forward. There is no rent forgiveness program at Equity Residential.

Alexander Goldfarb

Thank you, Mark.

Mark Parrell

Thanks a lot, Alex.

Operator

And from Baird, we'll move to Amanda Sweitzer.

Amanda Sweitzer

Great. Thanks for taking my question. Wanted to follow-up on some of your election comments. You guys evaluated all the potential benefit to your portfolio integration reform? And then do you have any data on either what proportion of your residential are skilled immigrants or which of your markets may benefit the most for immigration reform.

Michael Manelis

I think what I can give you is just a little bit of backdrop which is, last year this time about 7% in of our applications were coming from those residents outside of the United States. At present, we're down to about 2%, for the third quarter of 2020. So I think changes -- positive changes in the immigration policy that allow us to get back to where we were, would be a catalyst for some of the recoveries in some of those major markets where we're feeling more pressure right now.

Amanda Morgan

That's helpful. And just the 7% of applications that you mentioned, were those concentrated in any particular markets, or was it pretty widely distributed?

Michael Manelis

I guess, I would tell you that it's the major mar -- it is Boston, San Francisco and New York, that you see the biggest changes on this year-over-year basis.

Amanda Morgan

Okay. That's helpful. That's it for me. Thanks.

Michael Manelis

Thank you.

Operator

We'll take a follow-up from Nick Joseph with Citi.

Michael Bilerman

Hi. It's Michael Bilerman here for Nick. Just two quick questions, one, Mark you talked a little bit about, how taxes play into somewhat of your ability to sell substantial assets and do buybacks. One of the public apartment peers did a large joint venture and also doing a spin-off. Can you talk about whether either of those would work for EQR? And if not, why?

Mark Parrell

Sure. So again, I don't understand all the back and forth on the tax side with our peer. But I would say that most joint venture transactions when you're keeping the cash. And you're the 40-plus percent seller, which does create gain, unless you do a lot of structuring things that create other risks.

So doing a JV is great to prove value to create diversification to get new capital and all those other things. But in terms of it being a great way to sell an asset it isn't a whole lot different than just selling it out, right. So I guess I'd say on the tax side, I look at the JV and I look at an asset sale relatively similarly.

Now if a JV partner, an institutional investor wanted to be in with us in a market. And they would provide a better price and better terms on the portion they were purchasing, because they are differently correlated than just the straight up buyers, we'd be interested in that we're open minded. We have very few JVs, but we've done many in the past.

And so, I guess, I'd say, Michael, we're open to doing some JVs at some of our assets and maybe some of our urban assets if the price made sense to us. But it -- getting cash out and buying stock back just to use the most obvious example, is a pretty hard thing to do at least in great size, without triggering some kind of special dividend requirement or really stressing your tax situation.

Michael Bilerman

And then specifically then on the second part on, spinning or doing something to effectuate on an increased tax basis, does that have any -- does that resonate at all with the Board or with you or it just does not makes sense?

Mark Parrell

Every company has got its own goals and motives, but the way I've been taught for years is to not pay taxes earlier, than you need to. And so there isn't a great deal of desire on the part of our Board to create a taxable event, just so that the company has more flexibility in selling assets.

So if we need that flexibility, we can manage that at the time. And we did do a special dividend before. And that's because giving capital back to the shareholders, in that case made so much sense. So I guess I'd rather address that on an as-needed basis, rather than do it in some parameter fashion.

Michael Bilerman

Yeah. And then, just lastly just coming back on the application data and appreciate splitting up the portfolio and giving us the different pieces. I assume the increase in applications is also a matter of increased vacancy right?

Because no one's going to apply for apartments that are fully leased, you've got to create vacant -- you have to have vacancy for more applications. And so you have 80,000 or so units. Almost 5,000 of them are vacant today. You talked about that 1,100 that are not paying their rent for more than three months.

So do you have like at least the history on just numbers that go behind the percentages? And then, how those -- how coincident how lagging they may be just to sort of get the history of occupancy and applications over time, so that we can use these numbers as a potential leading indicator to occupancies moving up?

Michael Manelis

Yeah. So I guess I'll kind of frame it. So at a total portfolio level, the applications in the third quarter were call it $12,700. And that's compared to $10,700 last year there's definitely seasonality components to those applications. So you will see applications that hit a peak in June or July, call it at 4,000 or 5,000 applications a month.

They'll drop down to 2,000 a month or 2,400 a month in November and December. So I would look at this as just the indicator that we are seeing, an extended leasing season. Your point about available inventory is dead on. We need the applications to be running 120%. We actually needed them to be like 125%, in the third quarter just so that we could have held on to the occupancy that we had in the beginning.

So A lot of this is just the trade out between if retention starts to improve, we start to renew more residents, then that takes a little bit of pressure off the front door. But if we're going to continue to renew residents call it at 50% 50% of that we will need applications running, 120%, 130%, over prior year.

Bob Garechana

Yeah. That's a great point about we'll continue to try in our materials for NAREIT to continue to elaborate on that, because the virtuous cycle for us the beginning of improvement begins with retention improving and with applications holding. They don't have to go up from here and likely won't just given seasonally where we are, but continuing to outperform on applications which again a month later are move-ins and doing better on renewals especially in these urban markets.

That will start solidifying occupancy. That will start giving Michael confidence to start removing concessions. So we absolutely will try and be as clear as we can about, historical trends. And you've been around a long time. So this gets confused with you've got this cycle win this economic cycle on top of just our seasonal cycle.

So you have two things going on. We may tell you in December that, applications went down but they're still three times what they normally are in December, right? But they're less than November. So we'll try and do a good job of being clear on those things.

Michael Bilerman

Okay. Thanks for the time. I appreciate it Bob.

Bob Garechana

Thank you.

Operator

Gentlemen, at this time, I'd like to turn things back to you for closing remarks.

Mark Parrell

Well, we thank you for the interest in Equity Residential for sticking with us on a long call. And we wish everyone well. Thanks.

Operator

And that will conclude today's conference call. Thank you all for attending. Everyone now has left the call.