AvalonBay Communities (AVB) Q4 2018 Earnings Conference Call Transcript

AvalonBay Communities (AVB 1.10%)
Q4 2018 Earnings Conference Call
Feb. 5, 2019 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants
  
  See all our earnings call transcripts.

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to AvalonBay Communities fourth-quarter 2018 earnings conference call. [Operator instructions] Your host for today's conference call is Jason Reilley, vice president of investor relations. Mr. Reilley, you may begin your conference.

Jason Reilley -- Vice President of Investor Relations

Thank you, April, and welcome to AvalonBay Communities fourth-quarter 2018 earnings conference call. Before we begin, please note that forward-looking statements may be made during this discussion. There are a variety of risks and uncertainties associated with forward-looking statements, and actual results may differ materially. There's a discussion of these risks and uncertainties in yesterday afternoon's press release, as well as in the company's Form 10-K and Form 10-Q filed with the SEC.

As usual, this press release does include an attachment with definitions and reconciliations of non-GAAP financial measures and other terms, which may be used in today's discussion. The attachment is also available on our website at www.avalonbay.com/earnings, and we encourage you to refer to this information during the review of our operating results and financial performance. And with that, I'll turn the call over to Tim Naughton, chairman and CEO of AvalonBay Communities, for his remarks. Tim?

Tim Naughton -- Chairman and Chief Executive Officer

Yes. Thanks, Jason. With me today on the call are Kevin O'Shea, Matt Birenbaum and Sean Breslin. Sean is actually joining us remotely.

The three of us will -- or the four of us will provide comments on the slides that we posted last night, and then all of us will be available for Q&A afterwards. Our comments will focus on providing a summary of Q4 and full-year results and then a discussion surrounding our outlook for 2019. Before we get started, I thought I'd just note that we have chosen to eliminate quarterly guidance issue. You may have noticed that in our release.

We've thought about this for some time and have concluded that so long as we continue providing good disclosure that allows investors to assess our business in a detailed way, which we believe we do, moving away from quarterly guidance is better aligned with how we think about the business and will help discourage undue focus on short-term quarterly results. We will, however, continue to update our annual guidance after the second quarter, concurrent with our internal midyear reforecasting process. Starting now on Slide 4. Highlights for the quarter and the year include core FFO growth of 2.7% in Q4 and 4.4% for the full year, which was 80 basis points above our initial outlook.

Same-store revenue growth came in at 2.7% for the quarter or 2.8% once you include redevelopment. For the full year, same-store revenue growth ended at 2.5%, which was equal to what we saw in 2017. We completed $740 million of new development for the year at a 6.4% initial projected stabilized yield and started another $720 million. And lastly, we raised $1.7 billion in external capital this year, this past year principally through asset sales at an average initial cost of 4.7%, with more than half of that being raised in Q4, mostly from the closing of our New York JV, where we contributed an 80% interest in five stabilized assets to the newly formed venture.

The next two slides provide a little more detail on 2018 performance, and I think provide some helpful context to our 2019 outlook. Turning to Slide 5. As I mentioned before, same-store revenue growth for the year was consistent with 2017. However, some regions saw improvement while others actually decelerated from the prior year.

Specifically, Boston and Northern California showed significant improvement from 2017, up 60 and 130 basis points, respectively, while Seattle decelerated by almost 300 bps as that market began to feel the impact of several years of continuous and elevated supply. Turning to Slide 6. While same-store revenue growth was equal to that experienced in 2017, the cadence of rent growth through the year was not. We saw rent growth accelerate in the second half of the year, outpacing 2017 Q3 and Q4 by 70 and 120 bps, respectively, benefiting from a strengthening economy toward the end of the year and a cooling for-sale housing market.

This provides good momentum for our business going into 2019. Moving to Slide 7, and turning to the development portfolio. We continue to see a meaningful contribution to core FFO growth from stabilizing new development although at a lesser rate than in years past as we delivered only about a third of the homes as we did in 2017 and completed about half as much in capitalized costs as we had on average in the prior four years. With our starts down by about 40% over the last couple years, we will generate less growth from external investment over the next two to three years than we did in the early and middle part of this cycle when development economics were particularly compelling.

Moving to Slide 8. Of the capital that we raised this year, $1.3 billion came from wholly owned dispositions and the sale of 80% interest of the New York JV that I mentioned earlier. The initial cost of the capital activity was about 110 basis points greater than the $2.6 billion that we raised in 2017 when about 70% of that was raised in the form of debt. Since much of this higher cost capital was raised in Q4 at the end of the year in 2018, it will also contribute to lower external growth in 2019.

Now on to Slide 9. Our elevated disposition activity in 2018 did help drive down leverage. At year end, debt to EBITDA stood at a cyclical low of 4.6 times. Our liquidity and credit metrics, as you can see, are in excellent shape as we move into what will be the 10th year of the current expansion.

And finally, on Slide 10, we excelled and made progress with several of our other stakeholders this last year, including our customers, where we ranked No. 1 nationally among all apartment REITs for Online Reputation for the third consecutive year. With our associates, we were renamed to Glassdoor's list of top 100 Best Places to Work for the second consecutive year; and by Indeed as a Top 5 Workplace in D.C. And lastly, with our communities, where our efforts on the ESG front have been widely recognized by several organizations, helping to establish AVB as an industry leader in this area.

And with that, I'm going to turn it over to Kevin, who will provide an overview of our outlook for 2019.

Kevin O'Shea -- Chief Financial Officer

OK. Thanks, Tim. Turning to Slide 11. We provide an outlook for 2019.

In particular, we expect core FFO growth of 3.3%, same-store revenue NOI growth of 3%. In addition, we expect to start just under $1 billion of new development and complete $650 million of projects. NOI from Development Communities is expected to be roughly $27 million at the midpoint, which is down about halffrom last year. This is primarily a function of lower level of completions in 2018 and 2019 and unit occupancies being weighted to the back half of the year in 2019.

Turning to Slide 12, which summarizes the major components of core FFO growth. As you can see, all of our core FFO growth in 2019 is expected to come from the stabilized and redevelopment portfolio. Internal growth from the stabilized and redevelopment portfolio was contributing around 3.6% to core FFO growth or 170 basis points more than in 2018; and external growth from stabilizing investment and lease-up activity, net of capital cost, is not projected to provide a net contribution to core FFO growth this year. The next three slides identify some of the major drivers impacting projected external growth.

I'll quickly summarize. Slide 13 demonstrates the impact of a declining level of development completions later in the cycle as we expect 2018 and 2019 completions to be down by about $0.5 billion for the average over the prior four years. Slide 14 highlights the impact of higher short-term interest rates on $1 billion or so of floating rate debt. And Slide 15 shows the impact of higher funding costs on long-term capital raised in 2018.

Each of these factors is contributing to a decline in external growth in 2019. Some are cyclical in nature, like lower development volume and higher interest rates; while others are more of a onetime impact, such as the mix of capital raised in the prior year. Turning to Slide 16. The next few slides provide further context to our outlook for the upcoming year.

I won't go into them in detail but in many ways, 2019 is expected to be a bit of a mirror image of 2018. We're starting the year with a strong economy and labor market. But for a number of reasons, while we expect the economy to remain healthy in 2019, we do expect economic growth to moderate as we move through the year driven by a number of factors, including a projected slowdown in global growth, the stimulative effects of corporate tax reform beginning to wear off and heightened uncertainty and volatility surrounding government dysfunction and monetary policy. As a result, we expect corporate profit growth to decelerate in 2019 but remain at healthy levels.

Combined with elevated corporate debt and waning business confidence, we may see a slowdown in business investment as the year progresses. The consumer, on the other hand, should continue to propel the economy in 2019. The healthy labor market and accelerating wages are boosting confidence, spending and household formation. Furthermore, demographics and housing affordability should continue to support the apartment market on the demand side of the equation.

On the supply side, we expect deliveries to remain elevated in 2019 at a bit over 2% of stock. And while construction starts have remained elevated over the last year nationally, we've actually seen a decline in our markets, which should provide some relief next year. Construction cost inflation has been particularly acute in the coastal markets, and lenders have begun to take a more cautious stance on the sector. These factors should help constrain supply beyond 2019.

So overall, for 2019, we expect the macro-environment to remain favorable and fundamentals to support healthy operating performance in the apartment sector. As noted, Slide 17 through 23 drill down on these themes in more detail. We'll let you review these on your own. But for now, we'll skip to Slide 24, where Sean will touch on demand-supply fundamentals in our markets and the outlook for our portfolio in 2019.

Sean?

Sean Breslin -- Chief Operating Officer

Thanks, Kevin. I'll share a few thoughts about the demand-and-supply outlook for 2019 and our same-store revenue expectations. Turning to Slide 24. While 2018 job growth of 1.7% or 2.6 million jobs exceeded most forecasts, the consensus outlook currently reflects a deceleration to roughly 1.2% job growth or 1.8 million jobs during 2019.

The slower pace of job creation is expected in all of our markets but is most notable in the tech markets of the Pacific Northwest and Northern California. While job growth is expected to slow, the employed are certainly benefiting from the tight labor market. Wage growth has been accelerating over the past year and is expected to average at about 3% during 2019. Turning to Slide 25 to address supply in our markets.

New deliveries for 2018 came in below expectations at 2% of stock as the tight labor market and constrained capacity at local municipalities resulted in extended construction schedules. Supply for 2019 is now expected to tick up to roughly 2.3% of stock driven by increases in Northern and Southern California and the mid-Atlantic. In Northern California, the increase in deliveries will be concentrated in San Jose and East Bay with San Francisco being relatively flat. In Southern California, the increase in deliveries is expected to occur in L.A., with modest reductions in both Orange County and San Diego.

And for the mid-Atlantic, the increase is driven by new deliveries in the district. While we're tracking the deliveries that represent 2.3% of stock, our expectation is that the tight labor market will again result in some construction delays. Actual deliveries will likely be in the range of 2% by the end of the year. Turning to Slide 26.

Our same-store rental revenue outlook reflects a midpoint of 3% with the expected improvement in all of our regions except Southern California, which should perform relatively consistent with 2018. We're starting off the year in good shape, with roughly 1.2% of embedded revenue growth in the portfolio based upon rent increases we achieved last year. And for the month of January, same-store rental revenue growth was an even 3%. In addition, like-term rent change for January was 2.1%, 150 basis points ahead of last year.

And with that, I'll turn the call over to Matt to talk about development. Matt?

Matt Birenbaum -- Chief Investment Officer

All right. Great. Thanks, Sean. I'll start on Slide 27.

Our development activity has been moderating as the cycle matures, as you can see on this slide. We've averaged about $1.4 billion per year in new starts in the middle part of the decade but are expecting about $825 million per year for 2017 to 2019, as good deals are harder to find and capital becomes a bit more costly. This is a good late-cycle run rate for development volume for us, with starts in the $800 million to $1 billion per year range, keeping our local teams engaged while preserving our balance sheet strength. As shown on Slide 28, we also continue to maintain a land-light posture at this point in the cycle.

Since 2016, we have managed our land position to be at or below $100 million, and we will continue to be disciplined about structuring land contracts, so that we minimize the risk of carrying too much land on the balance sheet when the cycle turns. At year-end, the only significant land position included in our $85 million in land held for development is a site in Orange County, California, where we expect to start construction in the second quarter. In addition to minimizing the drag from land carry, this puts us in a good position to take advantage of any interesting opportunities that might arise if there is any future disruption in the land market. Turning to Slide 29.

We have structured our $4.1 billion development rights pipeline to provide a great deal of flexibility. These development rights represent future growth opportunities for the company over the next several years. Only about half are conventional land purchase contracts with private third-party land sellers where we would be expected to close on the land once entitlements are obtained. The other half are roughly split between asset densification opportunities, where we are pursuing added density at existing stabilized assets and public-private partnerships, which are generally long-term development efforts that span multiple cycles.

These types of projects allow more flexibility to align the start of construction with favorable market conditions. Of the $800 million in new development rights added in the fourth quarter, $500 million came through three new asset densification opportunities located in three different markets. It is also important to note that we are controlling the entire $4.1 billion future pipeline through a very modest current investment of just $125 million, including the land owned and other invested pursuit costs today. And with that, I'll turn it back to Kevin.

Kevin O'Shea -- Chief Financial Officer

Thanks, Matt. Turning to Slide 30. As we've discussed before, another way in which we mitigate risk from development is by substantially match-funding development under way with long-term capital. This allows us to lock in development profit and reduce development exposure to future changes in capital costs.

As you can see on the slide, we were approximately 75% match-funded against development under way at the end of the fourth quarter of 2018.On Slide 31, we show several of our key credit metrics and compare these to the sector average for unsecured multifamily REIT borrowers. As you can see, our credit metrics remain strong in both absolute and relative terms, reflecting our superior financial flexibility. Specifically at year-end, net debt-to-core EBITDA was low at 4.6 times, unencumbered NOI was high at 91%, and the weighted average years to maturity on our total debt outstanding remained high at 9.7 years. Additionally, as a result of our relative balance sheet strength, we enjoy relatively lower cost of debt funding, which is all the more notable because we issue longer-term debt.

Finally, on Slide 32, over time, we have fashioned a debt maturity schedule that enhances our financial flexibility by reducing the capital needed to refinance existing debt over the next decade. In particular, with over 20% of our debt maturing after 2028, average debt maturities over the next decade represent about $550 million per year on average, which is only about 1.5% of our total enterprise value. And with that, I'll turn it back to Tim for concluding remarks.

Tim Naughton -- Chairman and Chief Executive Officer

Well, thanks, Kevin. So in summary, 2018 was better than expected for AvalonBay. We delivered core FFO of $9 per share, which was $0.07 above our initial outlook. We saw rent growth accelerate meaningfully in the second half of the year.

We reduced our portfolio allocation to the Northeast and began to make strides in our expansion markets of Denver and Southeast Florida. And we reduced leverage to a cyclical low of 4.6 times, extended duration and increased unencumbered NOI to more than 90%, as Kevin just mentioned. In 2019, we expect the economy and apartment markets to remain healthy. For us, same-store revenue growth is expected to be 3%, up 50 basis points from the prior year.

Growth from external investment and capital formation will be lower than past years due to a variety of factors mentioned earlier. And we'll continue to manage liquidity, the balance sheet and our development pipeline to pursue growth but in a risk-measured way as we move further into the current economic expansion. And with that, April, we'd be happy to open up the line for questions. 

Questions and Answers:

Operator

[Operator instructions] And we'll first hear from Nick Joseph of Citi.

Nick Joseph -- Citi -- Analyst

Thanks. Has a final decision to do a condo execution on Columbus Circle been made? And where are you in terms of pre-marketing, and how has it gone so far?

Matt Birenbaum -- Chief Investment Officer

Sure, Nick. This is Matt. I can answer that one. It is our plan, and the numbers that were provided are based on the presumption that we do move forward with condos there.

Really, the next step is going to be opening a sales office. And we expect that will happen probably in April, and then we'll see how it goes. If sales go as we hope then we would proceed along that path but probably won't be until the third or fourth quarter before we actually see any settlement proceeds. But that is the plan right now.

We have a thin website up where we're just collecting names of interested parties, but we haven't really started active marketing yet. Again, we expect by April, we will have a full floor in the tower complete with white glove-ready models to show and a full sales office. So that's really when we'll launch.

Nick Joseph -- Citi -- Analyst

Then how's the lease within the retail space going? I think with the last release, you were 45% of total retail revenue leased or in advanced negotiations.

Matt Birenbaum -- Chief Investment Officer

Yes. So there's really no further update since the last quarter. We are -- those two spaces are spoken for, and we're pleased with that. And the retailers in general get pretty focused on sales over the holidays.

So not anything more to report since then.

Nick Joseph -- Citi -- Analyst

So when does the retail NOI begin to come online?

Matt Birenbaum -- Chief Investment Officer

It will start I believe in the second quarter or late in the second quarter when we turn the first spaces over to those first couple of tenants for their buildout.

Operator

Next we'll hear from Rich Hightower of Evercore ISI.

Rich Hightower -- Evercore ISI -- Analyst

Hey, good morning, guys. Yes, can you hear me?

Tim Naughton -- Chairman and Chief Executive Officer

Yes, we hear you fine. Thank you.

Rich Hightower -- Evercore ISI -- Analyst

OK, yes. So a couple of questions here. Can you -- maybe this is one for Kevin. Could you kindly break down -- there's $1 billion here of, it says, new capital sourced from a variety of activities included within guidance.

Can you -- I see $70 million to $80 million of that is the condo proceeds. So it sounds like you're baking in some level of certainty at least with regard to that line item in that $1 billion. But then between other asset sales and then other capital markets activities, can you help us understand the detail behind that number?

Kevin O'Shea -- Chief Financial Officer

Sure, Rich. This is Kevin. There's a -- on Slide 15, you may see a little bit of the breakdown on the external growth. So as you pointed out, on our earnings release, Page 23, we have on the top right some summary information with respect to our sources and uses for the year.

Essentially, there's about $1 billion of external capital. We expect to source a portion of that is -- broadly speaking, there's two pieces of it right now: disposition equity, if you will, which includes a modest amount from condo sales and the balance from wholly owned dispositions primarily; and then unsecured debt. So that's the capital plan. It's just really capital from those two sources, selling assets, if you will, and selling debt.

What we ultimately do, of course, will depend on how the capital markets and the real estate markets and our business needs evolve over the year. But the current capital plan is to a blended mix of debt and equity with the equity coming from asset sales and a little bit of condo sale activity.

Rich Hightower -- Evercore ISI -- Analyst

OK. And then, I guess, maybe on a related note, you tapped the ATM the last quarter roughly around where we are today in terms of the stock price. Can you tell us how that source of equity factors into how you view different sources of capital?

Kevin O'Shea -- Chief Financial Officer

Sure. Well, as you know, we sourced $1.7 billion of external capital last year. A little less than $50 million or 3% was from the common equity market. So it's been a pretty modest source of capital for us lately.

In fact, over the last three years, we've only sourced $150 million of equity out of $6 billion of external capital. So 97% of the activity has been from asset sales and unsecured debt. We're at the part in the cycle where that's a reasonable expectation is that we would be primarily looking at the unsecured debt market and the transaction market for equity. In terms of the ATM usage last year, it was a modest amount.

And essentially what we look at is, among other factors, kind of the liquidation cost of selling assets and what that involves from a liquidation NAV, if you will, relative to the alternative selling common equity. And we, of course, try to be thoughtful and judicious in raising common equity given the sensitivity that some investors have to that topic, but ultimately, we're making a choice on what we think is mathematically the superior choice from a capital allocation point of view, taking into account the alternative selling assets not merely from a going concern NAV point of view but just taking into account the liquidation cost, which from time to time can include property routine costs and tax abatement costs. And going forward, we'll wait and see what the capital markets provide in terms of alternatives and what the real estate markets provide in terms of transaction pricing and what our business uses need. But as I noted before, our capital plan currently contemplates looking to the unsecured debt markets and the transaction markets from a planning point of view.

Rich Hightower -- Evercore ISI -- Analyst

OK, got it. That is helpful, and then one quick last one here. I appreciate the development starts on a trailing three-year average basis are down versus the prior sort of era. But starts are ticking up year over year in '19.

So is there anything specifically driving that with respect to specific projects in the pipeline? Or is there anything that may be characterized as the more macro view on development that's driving that? Just any color around that.

Matt Birenbaum -- Chief Investment Officer

Yes. Rich, it's Matt. It's basically driven by one project, large project, the one I mentioned that -- the one land position we own in Orange County in Brea. We thought that was actually going to start last year.

And if you look back to our guidance for last year, starts volume was higher. That project is now likely to start in the second quarter. So it's just -- basically, you move that one project, and it changes the volume from one year to the next.

Tim Naughton -- Chairman and Chief Executive Officer

Yes. And Rich, just to add to that. This is Tim. I think we've talked in the past that we felt comfortable being in the $800 million to $1 billion range.

So that's a level which we think we can start and basically do it on a leverage-neutral basis based upon what the balance sheet capacity is when you look at combination of free cash flow, additional debt capacity and amount of asset sales that we're likely to do in any given year before sort of having to trigger any tax-related distribution requirements. So it's kind of -- when you look at it over a couple of years, it's kind of consistent with that, that $800 million to $900 million range.

Operator

Next we'll hear from Jeffrey Spector of Bank of America.

Jeffrey Spector -- Bank of America Merrill Lynch -- Analyst

Good morning. Maybe just a big-picture question on strategy, possibly for Tim. Just trying to think about developments and the comments on fundamentals are healthy, yields remain strong on development. Maybe specifically, we can talk about, I guess, rates.

Rates are flattening. Maybe your cost of capital will remain flat, and all the forecasts have been wrong. I guess how do you balance between the healthy fundamentals, again all the forecasts for higher rates or real weakening economy have been wrong. How do you balance that from what you're actually seeing in your markets? And how tempting is it to potentially even pick up development or take on more land? Just trying to get a feel for that balance when it comes to your strategy.

Tim Naughton -- Chairman and Chief Executive Officer

Well, Jeff, yes, thanks for the question. I mean, some of it's strategy, and some of it's opportunity, right? In terms of adding land to our balance sheet or significantly increasing the level of development rights beyond what -- beyond maybe some of the densification opportunities that Matt mentioned, the opportunity set just isn't that compelling to really ratchet that up relative to maybe early in the cycle. I'd say the way we're managing it really is, is really kind of how we think about risks. We still think it's profitable as long as you match-fund it, which we're trying to do.

Even the deals that we're starting this year, we think they're sort of comfortably clear cap rates by 150 basis points plus. And as long as we're match-funding, we're basically bringing that capital onto the balance sheet and then it just becomes a matter of execution. As long as it's match-funded, it shouldn't look that much different than your stabilized portfolio other than the execution risk behind it, which is something, obviously, is a competency of the company. So -- and then lastly, it's just making sure that we maintain as much optionality as we can, not much land, try to really manage pursuit cost carefully.

If we get caught in the downdraft, we'll have some options. And in the last cycle where we had a pretty severe correction, we were -- in many cases, we were able to salvage those development opportunities in part because we didn't own the land, and we're able to go back and, in some cases, renegotiate the basis. But it's really just about maintaining flexibility around the development pipeline. But I think just given where we are from a capital markets standpoint, we're not -- over the next two or three years, it's not our intent to rely on the equity markets to develop.

There may be opportunities from time to time to tap the equity markets and ATM. But late cycle, typically, I don't think it's a good strategy to rely on the equity markets to being open and available and priced at a level where it's going to be -- where you're going to be able to accrete a lot of value to the development platform.

Jeffrey Spector -- Bank of America Merrill Lynch -- Analyst

OK, Tim. That's helpful. And I guess just if we can turn to supply. I don't believe you discussed supply by market.

Could you talk about that a little bit? And again, one of your peers commented that they expect New York City supply to be down 50%. Can you give a little bit more details on supply in your various markets?

Tim Naughton -- Chairman and Chief Executive Officer

Sure. And I'm going to ask Sean to jump in on that. Sean, you want to take that?

Sean Breslin -- Chief Operating Officer

Yes, Jeff. I'm happy to take that one. In terms of the various regions, I can give you kind of a high-level overview and then talk about the distribution in specific markets if you're interested. But in New England, which is pretty much Boston, we are expecting supply to tick down about 40 basis points.

It was 2.9% of stock in 2018. We're expecting it to be closer to about 2.5%, which is roughly a reduction of about 1,100 units. In New York, New Jersey specifically you mentioned, that region overall is expected to be relatively flat at about 1.9% of stock. New York City itself will be also expected to be relatively flat on a year-over-year basis in terms of deliveries being around.

As it relates to the comment you made about reductions in specific parts of New York City, just so you know how we look at it, we look at it in terms of the aggregate amount of supply delivered across New York City as opposed to potentially others may only look at it relative to what they think may impact them. We try to look at it more on an aggregate fashion. So sometimes, that leads to differences in the way people talk about supply. So that's specific to New York just so you know as well.

In the mid-Atlantic, I mentioned in my prepared remarks that we're expecting an increase in the mid-Atlantic. That's all pretty much concentrated in the district where all that supply's coming online. We're pretty flat in suburban Maryland and Northern Virginia. Seattle, Pacific Northwest, so 4% year over year both '18 and '19 pretty much concentrated in the urban infill markets in and around downtown Seattle.

Whether it's First Hill, downtown Seattle or even South Lake Union as an example, that's where the heavy amounts of supply are located in Seattle. There's not as much in places like downtown Bellevue, Redmond in the north end of Seattle, which has been helpful to us. And then in Northern California, we are expecting it to tick up the most in Northern California from 1.6% of stock to 2.7% of stock in 2019. That's all coming, as I mentioned, in both San Jose and in the East Bay.

It's relatively flat in San Francisco in terms of deliveries. So it should be pretty much at par there. And then Southern California, ticking up about 30 basis points from 1.4% of stock to 1.7%, which is about 4,200 units. All of that is in the L.A.

market, primarily downtown L.A. kind of Mid-Wilshire, Hollywood, those submarkets primarily; a little bit in Warner Center, Woodland Hills as compared to Orange County and San Diego, we're expecting supply to come down in actually both of those markets. So that's sort of a high-level overview. And if you want to talk about specific submarkets, happy to chat with you about that off-line as well.

Tim Naughton -- Chairman and Chief Executive Officer

Jeff, just one thing to add, as you can probably hear from Sean's comments, a lot of it continues to be concentrated in the urban submarkets. This is probably the last year we're expecting urban to basically outpace suburban supply by about two times in our markets. That 2.3% basically breaks down to about 1.7% in the suburban markets and about 3.2% in the urban submarkets. So it's almost about twice as much.

Next year, we expect that difference to narrow quite a bit. So.

Operator

Nick Yulico of Scotiabank.

Nick Yulico -- Scotiabank -- Analyst

Oh, thanks. Good morning, everyone. A couple questions on the condo project. On Attachment 14, you give some details there, which is helpful.

I guess question is when you talk about the projected gross proceeds from sales expected to be $70 million to $80 million, is that the total after-tax profit for the project?

Matt Birenbaum -- Chief Investment Officer

No, Nick, I think -- this is Matt. I think that's just the number that we have in our budget for settlement proceeds this year. It's cash in the door basically. And obviously, that's going to vary a lot based on when the settlements actually happen and how sales actually go.

We just had to put something in as kind of an unexpected case for starters for budgeting purposes. If it winds up being more or less, then we may raise more or less capital from other sources as Kevin mentioned.

Nick Yulico -- Scotiabank -- Analyst

OK, yes. I think you said in the past that you expected about $150 million of incremental value above your cost on the project, which is on a pre-tax basis. Is that still a good number to think about?

Matt Birenbaum -- Chief Investment Officer

Yes, that was -- last quarter, that was really about what we think the building is worth as a condo building versus a rental building, not necessarily relative to our basis although we do think it's worth more than our basis. But we're saying that based on where we thought the condo values would settle out, if you looked at what the total sellout would be of that relative to what it would be worth as an apartment building if you leased it up and you put a cap rate on it, we think that, that difference is about $150 million. That is a before tax number.

Nick Yulico -- Scotiabank -- Analyst

OK. So do you have any number you could share on what the ultimate NAV benefit is assuming you hit your sale plans on an after-tax basis?

Kevin O'Shea -- Chief Financial Officer

Nick, this is Kevin. I mean, I think it's all premature at this point; we've yet to even commence marketing. So we'll see over time what happens in terms of the sales we closed, not only this year but in succeeding years when most of the sale activity would occur. If you take Matt's comment about $150 million pre-tax value associated with the residential or condo portion, you just have to apply kind of a tax rate to that which, for rough numbers, assume one-third is taxes and then the balance, call it $100 million, is what we would hope to achieve on a pro forma basis in terms of net profit after taxes to our shareholders when all is said and done when we finally sell everything out.

But we're early days in this, and we'll see what happens when we go down the path and market this and see if this is a path we ultimately want to pursue and then sow what comes from that effort.

Nick Yulico -- Scotiabank -- Analyst

OK. And then in terms of the FFO impact this year, the guidance is assuming that this project is a $0.04 drag on FFO. Is that right?

Kevin O'Shea -- Chief Financial Officer

So just to walk through the pieces for the sake of clarity, if you look at Page 23, Attachment 14, we lay out sort of -- the bottom right, sort of the core FFO adjustments related to Columbus Circle or 15 West 61st Street. So as Matt noted, we only have a modest amount of sale activity in our forecast for this year, $70 million to $80 million, that would generate an anticipated amount of gains of $8 million that would be included within NAREIT FFO but then excluded when going to core FFO. So you see that negative $8 million shown on Attachment 14. There are also two other line items that are worth talking about here.

The first is expense costs incurred related to condominium homes. Those represent basically marketing costs and operating costs associated with selling condominium inventory. We'll incur those. They'll be part of EPS and NAREIT FFO, but -- and they will burden those items but then we will add them back and carve that out of core FFO.

That's $6 million. And then there is the final line, which is the estimated carrying cost of unsold inventory. Essentially, when we complete this project you'll have, call it, roughly $400-plus million of condominium inventory that we will have put onto our balance sheet at a cost. We will continue to carry those costs, and so we will be carving those costs out of core FFO and adding it back.

So essentially, what we're trying to do with these adjustments is recognize that this is a different business line; it's not a traditional REIT activity, and trying to present our core FFO in a manner that shows our operating performance year over year on kind of traditional REIT multifamily rental activities and looking at this Columbus Circle activity as a discrete business and carving those costs and gains out and treating them differently from a core FFO point of view.

Nick Yulico -- Scotiabank -- Analyst

Right. OK. That's helpful, but still all the net result here is it looks like a $0.04 negative impact to your reported FFO in 2019. Is that right?

Kevin O'Shea -- Chief Financial Officer

No, it's just the opposite. Adding it back. So look at those items as being sort of a NAREIT FFO to core FFO reconciliation, with NAREIT FFO at the top. So adding back to NAREIT FFO $6 million of expense marketing costs, reducing $8 million of gains and then adding $8 million in imputed carrying cost for unsold inventory for a net addition to core FFO of $6 million or $0.04.

So the net positive impact going from NAREIT FFO to core FFO when taking into account those three line items is $0.04.

Tim Naughton -- Chairman and Chief Executive Officer

And Nick, our guidance difference was $0.05 between core FFO and NAREIT FFO. So basically, this is $0.04 of that $0.05.

Kevin O'Shea -- Chief Financial Officer

Yes. OK. All right. We have good for both.

Thank you.

Operator

Our next question comes from Rich Hill of Morgan Stanley.

Rich Hill -- Morgan Stanley -- Analyst

Hey, good morning, guys. Wanted to maybe spend just a little bit more time on your development pipeline. Recognize why development might be coming down late cycle, and clearly see it as prudent. But there's still likely some markets that need new supply of apartments.

So I'm curious when you're thinking about your development pipeline, what land you have under option where you're already developing, how do you sort of think about that relative to your existing portfolio?

Matt Birenbaum -- Chief Investment Officer

Rich, it's Matt. I'll try and take a shot at that one. It is somewhat bottom-up as Tim was mentioning. So it really starts with where we're seeing the best risk-adjusted opportunities, where are the economics of development still favorable.

Typically, that's going to be a wood-frame product at this point in the cycle. I don't think we have any -- all of our starts planned for this year are high density wood-frame product, and everything we started last year except one fit that description as well. Typically, they're in kind of infill suburban locations where demand is strong, and there are more supply constraints than the urban submarkets. So it takes a little longer to get through the process, and that tends to meet or out-supply in a more measured way, which is one reason those submarkets aren't necessarily seeing the same pressure on rents although urban markets actually have seen rents rebound here recently a little bit.

But generally speaking, rents have held up a little better over the last couple of years. So we are seeing some of the suburban Northeast deals still pencil out. This past quarter, we added a development right on Long Island. It's probably a two- to three-year entitlement process.

Those types of deals tend to be pretty resistant to the cycles, so would still be favorable. And then we're seeing opportunities in our own portfolio, locations where we already are. And again as I mentioned, we have six densification development rights now, which is $1 billion in locations that we love, where we have the opportunity to do more over time. It's going to take a while to get at those.

They're complicated from an entitlement point of view, but we have one in Redmond, we have one in Mountain View, we have one in suburban Boston. So those are great things where the economics are likely to work through most market cycles. And then we are also trying to find opportunities in the expansion markets, and we started a deal in Florida last year in Doral. We have our first ground-up development right in the Denver market, which is in RiNo, which is kind of a very hot neighborhood outside of downtown there, but it's a wood-frame product that we hope to start this year.

So those are kind of the places where it's still making it through the screen.

Tim Naughton -- Chairman and Chief Executive Officer

Yes, Rich, I think sort of probably the three areas where we probably -- where we haven't been as active because of just cycle dynamics has been the Bay Area. We just haven't -- its land and construction cost generally doesn't make new development feasible from our standpoint. Densifications are different -- different kind of opportunity. So within our portfolio, we've been able to do that.

Seattle, I think, is where we haven't been that active in the land markets for the last three years. And then most urban submarkets, again concrete generally doesn't pencil later in the cycles. So those are -- we try to blend sort of where we want to be from a portfolio allocation standpoint in use development to help us get there. But recognize, there are times in the cycle where something just doesn't pencil or just doesn't make it -- which is not as good a use of capital as other places.

Rich Hill -- Morgan Stanley -- Analyst

Got it. And what I'm ultimately getting at, it sort of sounds like your development pipeline is a nice to have and not need to have. I was struck by your growth being driven by stabilized portfolio with no contribution coming from new investment activity. So it sounds like the development pipeline is a nice to have.

It's in areas that you think really still need supply. But even if the development went away, as we start to think about 2019 and beyond, your stabilized portfolio can grow, consistent with peers. Is that sort of fair in the way you're thinking about it?

Tim Naughton -- Chairman and Chief Executive Officer

Our outlook -- I mean, I think our outlook for this year probably is somewhere in the middle of where kind of our peers are, just glancing at it real quickly. So we're in 20%, 25% of the U.S. where sort of a lot of our peers are in the same markets. So the notion that we might perform similar in terms of a same-store basis I think is a reasonable expectation.

But on the -- I would say on the development, I wouldn't say it's a nice to have, but I think -- we think it's a makes sense to have still at this point in the cycle, albeit at a lesser amount and being judicious about where you're deploying that capital. We think we -- this year is a really -- is an anomaly just for what's happening both on the delivery side and the capital that was raised in 2018. But we still think it's accretive both -- on a go-forward basis, accretive to both NAV and FFO, in particular as you consider sort of reinvesting free cash flow, which doesn't have at least an initial financial cost to it, accounting cost to it. So we think we can still grow accretively, both from an earnings standpoint by continuing with our development pipeline and the opportunity set that we see.

Rich Hill -- Morgan Stanley -- Analyst

Great. Thanks, guys. I appreciate it.

Operator

Austin Wurschmidt of KeyBanc Capital Markets.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Thank you. Good morning. You guys pointed out that your cost of capital in the past year is up at 110 basis points versus 2017, and I was just curious, what are you factoring into guidance for the $1 billion you've assumed in your capital plan in 2019?

Kevin O'Shea -- Chief Financial Officer

Austin, this is Kevin. We've never commented on that before. We actually typically don't comment on capital markets. So by even showing the 50-50 blend of asset sales and unsecured debt, we're doing something we've never done in our 25-year history.

So it'd be tempting to invite you to our budget process, but we're essentially assuming that we're going to achieve kind of market rate execution on transaction activity and unsecured debt issuance over the course of 2019.

Tim Naughton -- Chairman and Chief Executive Officer

Kevin, on the debt, we typically would just look at the forward curve and...

Kevin O'Shea -- Chief Financial Officer

Make some adjustments.

Tim Naughton -- Chairman and Chief Executive Officer

Yes, make some adjustments off that.

Kevin O'Shea -- Chief Financial Officer

Yes.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Appreciate that. And then just curious what the attractiveness today is for redevelopment as you have seen rental rate growth improve, albeit gradually and given the decrease in development starts moving forward.

Tim Naughton -- Chairman and Chief Executive Officer

Yes, thanks, Austin. Sean, you want to take that?

Sean Breslin -- Chief Operating Officer

Sure. Happy to do so. Yes, Austin. I mean, development -- excuse me, redevelopment has been pretty active for us.

We invested almost $200 million in the past year across about 7,300 homes. A chunk of that related to the rebuild of Avalon headquarters about $70 million but still around 7,000 units that we redeveloped last year. And in terms of planning for going forward, I'd probably think about we're going to spend somewhere in the range of $150 million to $200 million a year over the next couple of years on redevelopment activity. And then beyond that, it'll probably thin out a little bit, but the returns have been compelling and the opportunity set has been something that we're comfortable with.

So that's kind of where we are.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

And how do you think about the returns on those, and is the majority moving forward more kitchen and bath-type opportunities versus, I guess, the redevelopment in Edgewater a little bit of a different animal?

Sean Breslin -- Chief Operating Officer

Yes, Edgewater is certainly unique. That was sort of a onetime thing. The rest of it is a combination of either full-scale redevelopments, where we're doing not only the apartment homes, but we're doing the common areas. It includes some projects that are just purely large CAPEXprojects that really that's not generating any kind of incremental return.

It's just CapEx. And then there are other projects, which we call apartment only, which are just touching the apartment homes. And so when you look at the redevelopment activity and the apartment-only activity, typically, we're seeing returns that are sort of in the 10% on capital type range based on the enhancements that are being invested in the building. And again, as I said, the CAPEX side of it is probably something you should just underwrite basically as zero.

But in terms of apartment-only and redev, they generate nice returns.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Great. Thanks for the time.

Operator

Drew Babin of Baird.

Drew Babin -- Robert W. Baird & Co. -- Analyst

Hey, good morning. Presumably looking out to 2020 as more of the condos in Columbus Circle are sold, the gains on sale number will increase. And I think that the positive add-back between NAREIT FFO and core FFO should go negative, I'm assuming. While that -- the apartment NOI that you would have been getting from the project is replaced with these gains, which would be backed out of core FFO, I guess the difference is now you have more cash coming in that can be reinvested.

Do you think the reinvestment of that cash will occur rapidly enough to kind of offset the dilution to core FFO that would be happening in '20 just, say, if you just sold the condos and kind of held that as cash? If that makes sense.

Kevin O'Shea -- Chief Financial Officer

Yes. Drew, this is Kevin. I'll make a couple of comments and then Tim may want to add on top of that. So essentially to the extent we generate gains on selling condominiums that will boost NAREIT FFO and, of course, as it would be true for other real estate gains, we will exclude those gains when computing for FFO.

From an underlying cash point of view certainly, all else equal, we would prefer to sell through the condos quickly and receive the capital back so that we can reinvest it and generate a return on that. And then that return, of course, will flow through naturally as any source of capital would in our earnings. In the meantime, while we have our inventory outstanding in terms of capital; we've created these condominiums, we're marketing them, we're bearing a cost for having created those condominiums, but we've not yet sold them. Essentially, that creates kind of an inventory cost, if you will.

And we are adjusting for that as you can see on Attachment 14, where we have $8 million imputed carrying costs on the capital associated with the unsold inventory condominiums that we're calculating at our corporate unsecured borrowing rate, which is about 3.7% today. So essentially, that's an add-back to core FFO from NAREIT FFO during the pendency of the sale process while the inventory is in our balance sheet and not otherwise earning a return. I don't know, Tim, if you want to add...

Tim Naughton -- Chairman and Chief Executive Officer

Yes. I mean, obviously, as we sell, the amount of unsold inventory goes down and so that carrying cost adjustment would go down with it.

Kevin O'Shea -- Chief Financial Officer

Yes.

Tim Naughton -- Chairman and Chief Executive Officer

Then secondly, Drew, I would just think of this as just more disposition capital. And so it just means we're going to sell less assets than we otherwise would. So in terms of how quickly it gets deployed, it would get deployed presumably as quickly as any other assets that we sell. So I don't know that you need to really think differently in terms of how you model, it's just a source of capital and cash as Kevin mentioned.

Drew Babin -- Robert W. Baird & Co. -- Analyst

That's very helpful detail. The other question I have here is, if you look at, at least on my numbers, total NOI for 2018, not the same-store result, just over 6%. Corporate overhead, property management, investment management expenses all increased, and this is unadjusted for severance and things like that but in the double digits. And then based on guidance for '19, it looks like that rate moderates quite a bit.

So I'm guessing -- were there large investments internally on kind of sourcing some of these development projects or things like that in 2018 that are kind of explicitly going away in '19? Or is there anything kind of going on behind the scenes that are causing that variability?

Kevin O'Shea -- Chief Financial Officer

Well, in terms of 2018, there were a number of factors that kind of drove overhead costs up. You did have, as you may recall, rent advocacy costs that were included in PMOH, which is part of the overhead that's referenced in our Attachment 14 for our outlook. G&A increased for a number of reasons. Compensation was part of it, but there were some settlements in sales/use tax accruals, and then there were some severance costs.

So -- and at the same time there's also been historically some investment in some strategic initiatives, which will certainly -- and are bearing fruit on the operating side, as Sean could speak to. So there's a number of drivers of growth that we've had over the past couple of years that are starting to abate, which is why you're seeing that relative decline in year-over-year growth in overhead, which I think is about 2.7% based on the math in Attachment 14.

Drew Babin -- Robert W. Baird & Co. -- Analyst

OK. That's all very helpful. That's all for me. Thank you.

Operator

John Kim with BMO Capital Markets has our next question.

John Kim -- BMO Capital Markets -- Analyst

Thank you. So you have development starts picking up this year, but there's still a noticeable gap between the construction cost growth rate and rental growth. So I'm wondering if you believe that gap will narrow as you go through the development pipeline. And if not, how will that impact yield?

Matt Birenbaum -- Chief Investment Officer

Sure, John, this is Matt. It's a good question, and certainly one we've been watching. It does feel like construction cost growth in some markets has moderated somewhat. And again, this speaks to the mix of business.

As Tim was mentioning before, we signed very few new development rights in Northern Cal and Seattle over the last three, four years, and we have very few starts in those two regions. In fact, we don't have any in Northern Cal last year or this year. And that's really a function of the reality that that's the market that -- those are the markets that have seen the most aggressive hard cost growth relative to their rent growth. So it does affect the regional mix, and again I mentioned some of these northeastern markets a lot more stable and the gap between construction cost growth and rent growth is not nearly as wide, but it does put downward pressure on margins, and that's one reason the volume is down.

John Kim -- BMO Capital Markets -- Analyst

On your dispositions that you executed last year, it was the highest amount that you've sold, the lowest cap rates but also you had lower IRRs compared to what you've achieved historically. Is there anything unusual in what you sold last year that brought down that figure?

Matt Birenbaum -- Chief Investment Officer

Yes, this is Matt again. It really is kind of a mix from one year to another. So I wouldn't kind of infer anything from kind of the basket that happens to be one year versus another. The one thing that we do tend to see as it gets later in the cycle, there's probably more pressure on us to sell assets with a little bit lower tax gains because we just had kind of a long cycle of realizing gains, and that starts to put pressure on our dividend coverage.

So again, there's plenty of other assets we could sell that would have higher returns, but they might generate enough tax gains that it would require a special dividend, so that's definitely more of a consideration later in the cycle. And then also, to some extent, we started looking for assets which maybe are a little bit more difficult in terms of the execution and culling some of the ones that maybe weren't our greatest successes, where it's easier to do that in a very strong sales market like what we've seen recently.

John Kim -- BMO Capital Markets -- Analyst

OK. And then the final question. I guess, Tim, you mentioned in your prepared remarks at the beginning that you're moving away from quarterly guidance. And I'm wondering if it ended up being too distracting to manage that quarterly number.

And generally speaking, what do you think about quarterly reporting and whether or not that's completely necessary?

Tim Naughton -- Chairman and Chief Executive Officer

Well, I don't have a view necessarily on quarterly reporting as we continue to issue quarterly reports. It's just -- it really comes down to how we kind of manage the business. When we talk among ourselves and to our board, we're not talking about managing the business to what's happening in the quarter and try to minimize variances relative to our budget or explain variance relative to our budget on a quarter-by-quarter basis. When it comes to revenue, we're looking at that daily and weekly.

I mean -- but when it comes to sort of the overall earnings, there's just a lot of noise from quarter-to-quarter and just we don't think it really serves a great purpose ultimately for investors to be trying to -- always trying to sync up and explain and reconcile what we think oftentimes is noise. So that -- as much as anything, that's what's driving it.

John Kim -- BMO Capital Markets -- Analyst

Thank you for that.

Operator

Alexander Goldfarb of Sandler O'Neill.

Alexander Goldfarb -- Sandler O'Neill + Partners, L.P. -- Analyst

Good morning down there. So two questions. Just first on the condo project, Columbus Circle or, I guess, 15 West 61st, just with some of the recent articles about sort of weakness -- I mean, today in The Journal, they have the article on weakness under the $5 million price point. Can you just talk a little bit about how you guys are thinking about pricing for the project now versus maybe last year when you were contemplating switching it to condos? And then how much flexibility do you have once you -- do you set price? Or it's sort of a fluctuating factor as you go forward with the sales process to try and hit that target number of units that you want to sell before fully committing?

Matt Birenbaum -- Chief Investment Officer

Alex, it's Matt. It's definitely a dynamic process, so we can change pricing weekly. You have to file your offering plan with the Attorney General with your initial pricing. But once you've done that, obviously you have the flexibility to meet the market however you choose to do so, and that's just like we change our rents every day.

We'll be watching that very closely once we launch for sale. Yes, the market is definitely -- as we talked about last quarter, it's softer than it was, call it, 18 months ago. And the slowdown had more been at the higher price points. There might be some softness now a little bit more in the moderate price points.

So I think most market experts would tell you if the product had been available to sell and settle in '17, it would probably sell for a higher price than where we sell today. But the price where we believe it will sell today is still very attractive relative to values of rental building. But again, we'll know a lot more in probably four, five months once we actually get some sales activity under way.

Tim Naughton -- Chairman and Chief Executive Officer

Yes, Alex. I don't know if you had this but -- or remember I mean, about -- a little over 80% of the units are actually scheduled to be less than $5 million where, as Matt mentioned, it's kind of the higher end that's been feeling more of the softness. So one of the things that we like about potential condo execution here is we think it's a unique offering particularly in that submarket, where units tend to be larger and much more expensive in terms of total price. So we think we're going to be competing against other neighborhoods that may be offering a little bit larger unit but not near the location and lifestyle amenities that this site has.

So it's -- ultimately, the market will determine whether that strategy is a successful one, but we do think it's positioned relatively uniquely to everything else that's out there. Plus it's going to be available versus buying off a plan. So.

Alexander Goldfarb -- Sandler O'Neill + Partners, L.P. -- Analyst

Right. Tim, yes, and that's why I asked the question because The Journal article referenced that under $5 million price point as being now softer. The second question is on the development. Sort of going back, one of the earlier questions was on sort of the external development is -- the benefits of that are offset by the funding.

So assuming that the economy sort of stays as is, would it make sense to curtail the development pipeline even more? I'm just thinking from a risk-reward perspective if you're not being paid for it as far as boosting earnings growth from a risk perspective, why not curtail the development program even more than where it is right now, if it's not adding to your earnings growth?

Tim Naughton -- Chairman and Chief Executive Officer

Maybe, Alex, I mean, I think I -- I did mention earlier, we have -- this is an unusual year and this is a unique year, and I mentioned that to an earlier question that we do expect it to add to our earnings growth and NAV growth that we do see it as accretive. And there are just some unusual things about the cadence of deliveries this year. It's only generating, the midpoint of development NOIs is $27 million, which is half of what was generated the prior year. And a lot of that has to do with the combination of Columbus Circle, but mainly the cadence of deliveries this year, which is largely back-half weighted.

So a lot of that capital was already raised, it was raised in Q4, it was raised in the form of dispositions, it was raised at...

Kevin O'Shea -- Chief Financial Officer

Yes.

Tim Naughton -- Chairman and Chief Executive Officer

As I mentioned, sort of at a 5%. So I think there's some unique things happening. And then if you look at what "unfunded or not match-funded," it's pretty small relative to our remaining liquidity where we have zero out on $1.5 billion line. So we think from a risk standpoint, it's pretty -- it's already pretty measured.

Matt Birenbaum -- Chief Investment Officer

If you look at Attachment 9, the development attachment, I don't remember the last time only three of those deals are basically in lease-up right now. And the fourth's just starting out of 21 deals. It's just an odd coincidence of the schedule.

Alexander Goldfarb -- Sandler O'Neill + Partners, L.P. -- Analyst

OK. Thanks.

Operator

Hardik Goel of Zelman & Associates.

Hardik Goel -- Zelman & Associates -- Analyst

Hey, guys. Thanks for taking my question. Just on The Meadows acquisition, I see that's a 2018 build in a relatively suburban sort of area. Do you see a situation in the future where there's a lot of merchant-built sort of product coming on the market that you could acquire at a small premium to replacement cost, and you would rather do that than develop ground-up if it's in the right area?

Matt Birenbaum -- Chief Investment Officer

Yes, Hardik, it's Matt. Definitely we're doing that. If you look at what we've been buying in Denver and in Florida and even the one deal we got last year near BWI Airport, they all fit that description. They were brand-new assets built by merchant builders where the premium to replacement cost was pretty modest.

I don't necessarily view it as an either/or, I think it's kind of an and. But those are deals where certainly on the development deals we're doing in those markets, we're looking for a bigger margin, obviously, because there's more risk involved. But we think that's a great way to add to our portfolio and certainly, we're doing more of that than we are of development in those markets. But we're doing some of each.

Hardik Goel -- Zelman & Associates -- Analyst

Could there be a trade-off though in the future where you see more of these opportunities come up and you pare back development and maybe put that capital in acquisition? And I understand the cadence is different because with development, it's more a little bit at a time; whereas in acquisition, you need to come up with the capital right away.

Tim Naughton -- Chairman and Chief Executive Officer

Yes, I think it's a hard one to answer. Not every cycle is the same. This cycle was particularly attractive from a development economic standpoint. Some cycles may not yield quite the development opportunity as others.

And therefore, you might be inclined to allocate more capital to acquisitions on a risk-adjusted basis. So if the returns aren't there on a risk-adjusted basis, then we're not going to allocate capital toward that activity. We'll allocate it somewhere else or not deploy it, raise it in the first place.

Hardik Goel -- Zelman & Associates -- Analyst

And just lastly, thanks for indulging me, on the Harrison deal, could you highlight how you found that deal and like what the process was like, and why you picked that specific location?

Matt Birenbaum -- Chief Investment Officer

Sure. That was actually a public-private partnership. We broke out the dev rights that way. Of course, for the first time that, that would have been in the public-private partnership bucket...

Tim Naughton -- Chairman and Chief Executive Officer

With MTA.

Matt Birenbaum -- Chief Investment Officer

We've been showing it that way for the last couple of years. So it was -- with the MTA, it's literally at the train station in Harrison. It was a long process. I think we've been working on that deal for at least five years.

And there's significant amount of retail there as well as residential, very infill, very high barrier-to-entry location in Westchester County. Honestly, we had hoped that there might be more of those at those train stations, but it's just a very, very difficult process between the state and the local jurisdictions. So I'm not sure how many more of those we're going to see.

Hardik Goel -- Zelman & Associates -- Analyst

Perfect. That's all for me. Thanks.

Operator

[Operator instructions] Next we'll hear from Tayo Okusanya of Jefferies.

Tayo Okusanya -- Jefferies -- Analyst

Yes, good afternoon. Question, do you guys put any impact of Amazon's HQ2 into your numbers for 2019 guidance? And if you don't, can you just kind of talk generally about how you think about how that could impact numbers?

Tim Naughton -- Chairman and Chief Executive Officer

Yes, Tayo, this is Tim. I mean, certainly, when we look at sort of job growth projections, we rely a lot on third parties. And certainly, to some extent, they're incorporating a little bit of Amazon, the Amazon effect. I think -- honestly, I think potentially the opportunity may be more in Virginia than the -- may be more in Virginia than D.C.

proper as maybe some of the knock-on effects of just Amazon coming in, like a lot of other technology companies that are already doing it, whether it's Apple or Google, Facebook, are looking well beyond Seattle and Silicon Valley for talent and establishing beachheads in other markets where there's a depth of technology talent. So I think the HQ decision just sort of validated -- and when you look where the finals were and ultimately what they chose, where they thought there was depth of talent and ultimately, it would be more of a magnet I think for potentially other technology companies. So we'll see. I think Nashville is a huge winner in this as well, by the way.

It's only 5,000 jobs, but I think it might have as big of an impact, maybe even bigger in that market, just given the size of the market.

Tayo Okusanya -- Jefferies -- Analyst

Got you. And then 2019 guidance, while you don't explicitly talk about acquisitions, could you just talk a little bit about kind of what you may expect to see? And then two, if the focus is still on building your presence in Denver and Florida?

Matt Birenbaum -- Chief Investment Officer

Yes, Tayo, it's Matt. Exactly. We'll see. We don't specifically include any number for acquisitions in our guidance just because it's so unpredictable.

To the extent we find deals we like, then we will fund that likely with incremental dispositions, which is what we've been doing in the last couple of years, and sometimes we do that through tax-free exchanges. So neither acquisitions or dispositions are reflected in the capital plan per se, but our primary focus is going to continue to be Denver and Southeast Florida.

Tayo Okusanya -- Jefferies -- Analyst

Gotcha. So the $1 billion you have, is that all in guidance for sources of funding? That's all just condo sales?

Kevin O'Shea -- Chief Financial Officer

No. So Tayo, this is Kevin. So essentially conceptually, we sell assets for one of two reasons. One is to fund development; and the other is, as Matt related to kind of an impaired traded basis, to help fund acquisition activity.

We don't have any acquisitions in our budget for the year, and so correspondingly, we don't have any related disposition activity paired with acquisitions in our capital plan. However, the external capital of $1 billion, which represents roughly a 50-50 blend of disposition equity from selling wholly owned assets to fund development and unsecured debt is what you see there. So we do have disposition activity related to funding development.

Tayo Okusanya -- Jefferies -- Analyst

OK, perfect. And then one more if you could indulge me. The joint venture, could you just talk about the fee structure associated with that? Just trying to get a sense if we should be building any meaningful fee income into our numbers for 2019.

Kevin O'Shea -- Chief Financial Officer

There are fees, primarily it's a property management fee. There are some other minor fees around kind of deploying renovation capital. But I mean, the way to think about it is there's a kind of a market-rate property management fee that will be added in.

Tayo Okusanya -- Jefferies -- Analyst

And I guess, around guidance how do we kind of think about how much you could be -- forecasting that?

Kevin O'Shea -- Chief Financial Officer

I'm sorry, in terms of -- what was the question again?

Tayo Okusanya -- Jefferies -- Analyst

In terms of 2019, how we should kind of think about quantifying just how much fee income could be coming from that?

Kevin O'Shea -- Chief Financial Officer

So essentially, we sold 80% of $760 million or $610 million, which will generate a certain amount of revenue and against which we'll generate a property management fee of call it 3%. So that's one way to think about the incremental fees associated with the New York City joint venture. It's a moderate amount of fees, but it's not akin to the asset management platform that we had where we had a full suite of fees that were property management, asset management and so forth. But it does provide good economics for the activity we expect to do for this venture.

Tayo Okusanya -- Jefferies -- Analyst

I guess. Yes, that makes sense. Thank you.

Operator

Next we'll hear from John Pawlowski of Green Street Advisors.

John Pawlowski -- Green Street Advisors -- Analyst

Thanks. Kevin, just two quick ones for you. Your comments that lenders are becoming more cautious on the sector, could you provide more details? Because everything we heard at the NMHC meeting was that lenders love multifamily.

Kevin O'Shea -- Chief Financial Officer

I think on a relative basis, you're right. I think probably both comments are probably true. It's just -- I think there's increased caution in the later stages of the cycle that you want to make sure that -- with respect to non-recourse financing, that you're not over-levered, that there's appropriate equity support, that there's not a lot of flexibility on terms. I do think there's -- while there is cautiousness around structuring, to your point, there is relatively higher interest by construction lenders in multifamily.

And pricing is relatively competitive from what we hear. And though we're not in the market, as you're well aware, because we don't fund our construction from the construction market but rather on our line, but we understand as pricing for construction financing on non-recourse basis is 55% to 60% LTC, it's kind of more in the L plus mid-200 basis points range.

Tim Naughton -- Chairman and Chief Executive Officer

And John, just to be specific -- this is Tim. Just refer to Slide 23, we provide that one chart to the right, which speaks to senior loan officer sentiment.

Kevin O'Shea -- Chief Financial Officer

So there's interest, but I think that lenders are just being a lot more judicious, which is probably a good sign for the markets overall. Good discipline.

John Pawlowski -- Green Street Advisors -- Analyst

OK. On the expense guidance, can you provide the property tax and payroll growth assumptions that are baked into 2019 guidance?

Tim Naughton -- Chairman and Chief Executive Officer

Sean, you want to handle that?

Sean Breslin -- Chief Operating Officer

Yes, absolutely. John, property tax growth we're expecting is about 3%, and then payroll is 2.4%. Just to give you some perspective, about 60% of the total OPEX growth we expect for 2019 is coming from property taxes and insurance. Controllable OPEX growth is really projected at 2% for payroll, utilities, R&M and everything else.

Operator

At this time, there are no further questions. I would like to turn the call back over to Tim for any additional or closing comments.

Tim Naughton -- Chairman and Chief Executive Officer

Thanks, April, and thanks, everyone, for being on today. And we look forward to seeing many of you in the coming months over the course of the spring. Thank you.

Operator

[Operator signoff]

Duration: 66 minutes

Call Participants:

Jason Reilley -- Vice President of Investor Relations

Tim Naughton -- Chairman and Chief Executive Officer

Kevin O'Shea -- Chief Financial Officer

Sean Breslin -- Chief Operating Officer

Matt Birenbaum -- Chief Investment Officer

Nick Joseph -- Citi -- Analyst

Rich Hightower -- Evercore ISI -- Analyst

Jeffrey Spector -- Bank of America Merrill Lynch -- Analyst

Nick Yulico -- Scotiabank -- Analyst

Rich Hill -- Morgan Stanley -- Analyst

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Drew Babin -- Robert W. Baird & Co. -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Alexander Goldfarb -- Sandler O'Neill + Partners, L.P. -- Analyst

Hardik Goel -- Zelman & Associates -- Analyst

Tayo Okusanya -- Jefferies -- Analyst

John Pawlowski -- Green Street Advisors -- Analyst

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