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Apartment Investment & Management Co (NYSE:AIV)
Q3 2020 Earnings Call
Oct 30, 2020, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Aimco Third Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Lisa Cohn. Please go ahead, ma'am.

Lisa R. Cohn -- Executive Vice President, General Counsel and Secretary

Thank you and good day. During this conference call, the forward-looking statements we make are based on management's judgments, including projections related to 2020 and 2021 expectations. These statements are subject to certain risks and uncertainties, a description of which can be found in our SEC filings. Actual results may differ materially from what may be discussed today. We will also discuss certain non-GAAP financial measures such as AFFO and FFO. These are defined and are reconciled to the most comparable GAAP measures in the supplemental information that is part of the full earnings release published on Aimco's website.

On today's call, we will provide information during our prepared remarks related to our prepared -- to our planned business separation. Given the focus of this call, our ongoing shareholder outreach and our anticipated public filings expected next week, we are not going to hold -- not going to comment on and not respond to questions related to the planned separation for the shareholder solicitation. Prepared remarks today come from Terry Considine, our Chairman and CEO; Keith Kimmel, our Executive Vice President in charge of Property Operations; Wes Powell, our Executive Vice President in charge of Redevelopment; and Paul Beldin our Chief Financial Officer.

I will now turn the call to Terry Considine. Terry?

Terry Considine -- Chairman of the Board and Chief Executive Officer

Thank you, Lisa, and thanks to all of you in this call for your interest in Aimco. We have a lot to talk about. Third quarter was filled with unusual challenges and a great many successes. Here are three headlines. Aimco operations does well in difficult times. Aimco reduces leverage by a $1 billion. And Aimco unlocked shareholder value, reducing risk, leverage, and costs by separating into two entities. Here's the rest of the story. The challenges were the continued effects of the pandemic. Following the second quarter collapse of the economy, third quarter GDP rebound strong but uneven. Many sectors remain at historic lows. For example, many universities are now virtual and many office buildings stand empty as workers now work from home.

For apartments, we are now subject to unprecedented government regulation of rent setting and rent collections. In many of our markets, we've experienced rioting, violence in camps for the homeless, targeting of police, and a general challenge to public order. And the public health outlook continues uncertain with COVID-19 cases spiking across the country, including several of the markets in which we operate. Through it all, Keith and his team worked hard and successfully to provide homes for the individuals and families who live in Aimco apartment homes. They provide safety and refuge from the virus, good neighbors, respectful treatment for all and a helping hand to those in need. As Keith and Paul will discuss later in detail, the economy took its toll.

As in previous recessions, some residents could no longer afford their rent. With their departures, occupancy dropped and bad debt increased. In other instances, and this is unprecedented, local ordinances gave residents the option to live rent free. Two-thirds of Aimco bad debt in the third quarter is owed by residents who've lived rent free for the past six months. While cautious about a second spike in the pandemic, it seems that the worst is behind for Aimco. Our forward-looking metrics have been steadily improving since midsummer. For example, lease space is up and available to let is dramatically down. Occupancy has bottomed. The rate of new delinquencies has been steadily declining. Some important properties in urban settings remain impacted but the largest portion of our portfolio is returning to its normal performance and steady improvement.

As we move forward, we'll benefit from Keith's disciplined adherence to providing world-class customer service as graded by our customers and maintaining this customary high standards for selecting customers who will be good neighbors and stay longer. Notwithstanding the turbulence, Wes and his team advanced our long cycle redevelopments and found a few new opportunities for future growth including acquisition of a bayfront community in Miami and formation of an interesting venture with IQHQ, a dynamic life science campus developer. Patti Fielding sold a minority joint venture stake at a portfolio of 12 California properties to a passive institutional investor. The $2.4 billion joint venture was priced in September at 4.2% cap rate equal to 97% of Aimco's pre-COVID estimated value, validating Aimco's published net asset value and taking an important step to rebalance the Aimco portfolio.

The same JV was also the source of funds to reduce leverage by a $1 billion, significantly improving Aimco's strong and flexible balance sheet. With personal and family concerns from the pandemic in school closings and with the business challenge of difficult markets and changing regulations, the Aimco team maintained their focus and did excellent work. I'm proud of their successes and grateful for the chance to work together. The Aimco board of directors was, as always, highly engaged. While total shareholder returns for past one, three and five years have been competitive with coastal peers, the board would like them to be better and seized the share price discount to net asset value is offering the opportunity for outperformance. The board goal is to create a simple, transparent and low-cost public vehicle to invest in stabilized multifamily properties.

The board plan is to simplify the business and reduce execution risk, allocate to a second entity roughly 10% of total capital for development, redevelopment and nontraditional assets, and hold 90% of Aimco capital in the high-quality diversified portfolio of stabilized apartment communities, to reduce financial risk, by lowering leverage by $2 billion sourced from the joint venture and from the separation, to increase FFO and dividends per share by substantial reductions in vacancy loss and G&A costs related to redevelopment, and to replenish the tax bases to reduce the need for future stock dividends and enhance our flexibility in capital allocation.

After the separation, shareholders were on the same asset before and after. But shareholders will then have the ability to make individual allocations to the entity owning only stabilized apartment communities to be known as AIR and to the entity with more complicated longer cycle development and redevelopment and nontraditional assets to be known as Aimco or New Aimco. Full SEC descriptions of these plans are expected in Form 10 filings expected to be published in the next few days. Until then, I'll not be able to add much on this subject beyond what I've already said.

With that, I'll turn the call to Keith Kimmel, Head of Property Operations. Keith?

Keith M. Kimmel -- Executive Vice President, Property Operations

Thanks, Terry. The third quarter brought in mix of challenge, uncertainty and promise. Encouraging signs make us highly optimistic about recovery and the long-term outlook for our business. New leasing pace rebounded and was up 20% year-over-year. As a result, lease percentage, our best forward indicator of occupancy increased by more 6% from July 1 to today. And our units to lease have been cut in half. Our high standards for resident selections are paying dividends, as collections have been consistently high since April. Our customer service remains world-class with residents giving its 4.3 stars on 19,000 service. Thanks to that level of satisfaction, turnover was 280 basis points better than 2019 at 41.9%. And at the same time, we achieved 2.6% rate growth on renewals, this all despite an environment with constant changes in employment, schools, courts, and regulations.

One measure of the health of our core businesses is residential net rental income. Simply put, this is our occupancy in average rate of apartment homes, which was down 2.5% in the third quarter. Average daily occupancy was 93.9%, down 280 basis points from last year, blended lease rates were down 3% with new lease rates down 7.6% and renewals up 2.6%. Bad debt expense was 190 basis points, including 130 basis points attributable to court closures in recent Los Angeles regulations. Same-store revenues declined 4.9% in the third quarter, while expenses were down 1.3% due to increased efficiencies from our team and lower net utility costs as our energy initiatives drive value. As a result, same-store third quarter net operating income decreased 6.3% year-over-year.

With that said, results in the quarter depended on geography. In our stable suburban markets, operations were largely business as usual. These communities distributed across the country totaled 19,100 units. Our occupancy was 95.7%. Turnover was 39.6%. Blended rates were nearly flat. And residential net rental income was up 60 basis points. In our 8,500 units located in urban areas, demand was down and lease rates were more frequent, leading to turnover of 47%. Occupancy of 89.5% and blended lease rates were negative 6.7% and residential net rental income was down 7.1%. In each urban neighborhood, cumulative local conditions led to this performance and the reversal of those conditions will fuel growth next year. In Philadelphia, University City felt the impact when new UPENN and Drexel announced the fall semester was virtual.

In Center City, many offices were empty including both Comcast Towers. We expect Philadelphia to turn around shortly when students return to class and employees return to their office. In Mid-Wilshire in West Los Angeles, the interruptions to the entertainment industry and shutdown of the city nearly eliminated demand in the spring. While rate remains pressured and losses were compounded by local laws allowing residents to live rent free, we see blue skies coming with leasing up 44% year-over-year in the third quarter and up 150% in October. Occupancy is anticipated to fully recover by year-end. On the Peninsula in Northern California, work-from-home policies of tech companies changed the demand for apartments. The Pacific neighborhood weakened and has since stabilized while San Mateo and Redwood City continue to face challenges with demand and rate and will likely remain tough in 2021.

Our exposure to these submarkets is limited and our diversified portfolio in Northern California includes solid performances in San Jose, Marin and East Bay. In October, business continues to improve, leasing pace is still running ahead of last year, average daily occupancy for the month is 94.2% and we expect further increases through the end of the year and into 2021. Pricing remains challenged with new lease rates down 10%, renewals up 1.4% and blended lease rates down 6.7%. For some context on new lease rates, we've signed 95% of our leases for the year and in our suburban market rates are healthier and improving. In our urban markets, rates have been tough but we've also seen them stabilize. And with our suburban markets full, urban leasing has made up an increasing share of the transaction dollars each month since July.

We anticipate that these three trends will hold through the winter months as we believe we've reached the bottom. Lastly, October collections were consistent with recent months. New delinquencies are slowing with more of our accounts receivable growth coming from residents who have been delinquent since the beginning of the pandemic. We anticipate an improvement in bad debt once local emergency ordinances and closures unwind sometime next year. In a moment Paul will provide more details on our collections and bad debt. We continue to focus on the long game, keeping a steady hand on the wheel and building sustainable revenue growth for the coming year.

We have a strong operational architecture in place today with smart home technology in every unit. Artificial intelligence is delivering productivity and improved results, a centralized team driving consistent execution, relentless innovation enabling us to hold our expenses flat, in-depth analytics guiding our decision-making, and most importantly our field team members that consistently deliver exceptional service and outstanding results. My thanks to each of you and your continued energy, innovation, and dedication to serving our residents.

And with that I'll now turn the call over to Wes Pough, our Executive Vice President of Redevelopment. Wes?

Wes Powell -- Executive Vice President, Redevelopment

Thank you, Keith. Amid this year's challenges, the Aimco team has sourced new investment opportunities, advanced construction on our major projects, and worked hard to fill newly delivered apartment homes with high-quality residents. First, I'll touch on new investments made during the quarter and we'll then turn to our redevelopment and development activities. In August, Aimco acquired Hamilton on the Bay located in Miami's Edgewater neighborhood for a price of $90 million. The acquisition included a waterfront apartment building containing 271 units averaging over 1,400 square feet plus an adjacent development site. Combining the parcels will allow for more than 380 additional residential units under the current zoning.

We are planning to invest as much as $50 million and a substantial redevelopment of the existing building and the second phase focused on unlocking the value of the available development rights is being explored. Also during the quarter, Aimco made a $50 million commitment to invest in IQHQ, a premier life sciences real estate development company. In addition to our investment in the company, Aimco secured the right to collaborate on the multifamily portions of future IQHQ development sites. Post-separation, we expect these new investments will be strong contributors to the growth of Aimco's development business, and we are actively pursuing additional opportunities with plans to further grow our pipeline.

Now, turning to our ongoing redevelopment and development projects; here are some highlights as of the end of October. At Parc Mosaic in Boulder, Colorado, where construction was completed earlier in the year, Keith and his team have leased 97% of the apartment homes. Our townhouse project in Elmhurst, Illinois is now substantially complete, with all 58 homes delivered and 57 of those being leased. At 707 Leahy in Redwood City, we've delivered 60 homes, over 80% of them leased, and the remaining 50 are scheduled to complete before year-end.

At The Fremont on the Anschutz Medical Campus, just over 100 homes have been delivered, here too, 80% have been leased and the remainder will be completed in the coming months. Our final two long cycle projects, Prism in Cambridge, and the North Tower at Flamingo in Miami Beach, remain on track for initial delivery in early and mid-2021 respectively. Initial rental rate performance on those projects currently in lease-up has averaged 98% of our original expectations. However, we believe that NOI yields will meet or exceed our underwriting as the impacts of continuing onsite construction and strained local market conditions lift. With that, I would like to offer a special thanks to my Aimco teammates for their continued dedication and positive results over these past few months.

I would now turn the call over to Paul Beldin, our Chief Financial Officer. Paul?

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

Thank you, Wes. Today, I will discuss Aimco's balance sheet, third quarter financial results, rent collections and bad debt, and then wrap up with a brief discussion of Aimco's previously announced special dividend. As Terry mentioned, in 2020, we expect to reduce leverage by $2 billion, $1 billion from the September closing of the California joint venture and a $1 billion from the separation transaction. The $1 billion leverage reduction reduced third quarter leverage-to-EBITDA on a trailing 12-month basis to 7.0 times. Now, on the Aimco financial results; third quarter pro forma FFO of $0.61 per share was down $0.03 or 5% year-over-year.

We estimate lower occupancy and other COVID-related impacts reduced third quarter FFO by $0.09 year-over-year. Offsetting the COVID-related impacts was $0.04 of increased interest income associated with the Parkmerced mezzanine loan and $0.03 of lower offsite costs. The remaining $0.01 decline is attributable to the net impact of property sales and lower interest expense. Next, I'd like to spend a minute discussing Aimco rent collections and bad debt. Residential revenue includes apartment rents and also such items as storage rents, parking rents and related fees owed by residents. In the third quarter, Aimco recognized 98.1% of all residential revenue. Of the 98.1%, 96.7% was paid in cash, 30 basis points better than the second quarter's collection percentage as of the same date.

60 basis points is subject to recovery by offset against security deposits and $1.6 million or 80 basis points is considered collectible based on Aimco review of individual customers' credit. Aimco does not expect to collect, and therefore did not recognize revenue on 190 basis points of third quarter billings. These amounts are reflected as bad debt in our quarterly financial statements. The majority of this amount, approximately 130 basis points, is attributed to residents who have not paid April and subsequent rents. Prior to the enactment of restrictive city ordinances and closed courthouses, these residents would have been evicted in ordinary course, and therefore the bad debt would not have continued for the past six months.

The remaining amount, approximately 60 basis points, reflects residents, whose initial delinquency occurred during the third quarter. This is elevated reflecting stress in the economy, but the rate of initial delinquencies has been steadily declining since July. We expect the decline to continue until reaching a more normal 30 basis points in 2021. As we look forward, we also expect the emergency ordinances that allow residents to live rent-free to unwind, providing us with the opportunity to rerent these apartments to rent-paying residents. Lastly, as previously announced, the Aimco board of directors declared a special dividend on October 21 to distribute the taxable gains resulting from the partial sale of assets in the California joint venture and other 2020 dispositions.

$8.20 per share dividend consists of 10% cash or $0.82 per share, which covers Aimco's regular scheduled quarterly dividend and the acceleration of the next dividend typically paid in February. The remaining 90% will be paid in common stock. Shareholders of record on November 4 allowed the option to elect to receive either cash or shares of common stock. If either option is oversubscribed, the shareholder will receive a prorated amount of cash and common stock. Special dividend will be payable on November 30, concurrent with the reverse stock split effectively neutralizing the per share impact of the additional common shares issued in the dividend. Post-separation, it is expected that the need for special dividends to distribute taxable gain on sale at AIR will be reduced or eliminated due to the refreshed tax basis.

With that, we will now open up the call for questions. Please limit your questions to two per time in the queue. Rocco, I'll turn over to you for the first question.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And today's first question comes from Rich Anderson of SMBC. Please go ahead.

Richard Anderson -- SMBC Nikko Securities America, Inc. -- Analyst

Thank you. Can you hear me?

Terry Considine -- Chairman of the Board and Chief Executive Officer

We can.

Richard Anderson -- SMBC Nikko Securities America, Inc. -- Analyst

Okay.

Terry Considine -- Chairman of the Board and Chief Executive Officer

Good morning, Rich.

Richard Anderson -- SMBC Nikko Securities America, Inc. -- Analyst

Good morning. So, Terry, I think I met you in 1997 and the first thing you said to me was -- and I went up to them and you said, don't judge us so much on other multi-family companies, but don't judge us on GE. And I don't think you're going to buy or sell refrigerators. But the point was well taken that you were going to look outside the box to create output, tax credit redevelopment, asset management, property management, affordable housing, all that stuff. And it all made sense back then. What has changed over the course of time to make you do a complete bounty? Has it been the public markets not valuing or did those businesses just no longer work? Like what has given you such a change of perspective as it relates to the multi-family industry?

Terry Considine -- Chairman of the Board and Chief Executive Officer

Rich, that is an excellent question and it does reflect a change in the public markets that increasingly the public markets seems to me the marginal price setter, values FFO and many of those more complicated transactions are better measured by net asset value. And so as we pursue alpha, as you called it, in those -- in that category we would be in competition with and undermine our FFO business. And so I think the separation allows the market to see the benefits of both or each.

Richard Anderson -- SMBC Nikko Securities America, Inc. -- Analyst

Okay. What happens when we get past this pandemic and we're past the recession and the time is now to be a developer and to develop under one roof, under one umbrella? Is there a risk now that, although I recognize the motivation behind the separation that you could be a step behind everyone because the time will be right to be a developer in a manner that is sort of again under one umbrella?

Terry Considine -- Chairman of the Board and Chief Executive Officer

I think the -- my opinion is that there will be a long term demand for stable predictable cash dividend and that -- if you will, vanilla business will always be in demand and it will have opportunities from growth by just the superb management of Keith and his team and buying stabilized properties with FFO in place and adding to [Indecipherable] example of Bent Tree would be a recipe for the future.

Richard Anderson -- SMBC Nikko Securities America, Inc. -- Analyst

Okay.

Terry Considine -- Chairman of the Board and Chief Executive Officer

Thank you. Thank you, Rich.

Operator

And our next question today comes from Alexander Kalmus with Zelman Associates. Please go ahead.

Alexander Kalmus -- Zelman & Associates -- Analyst

Hi. Thank you for taking my question. So, you provided the urban versus suburban breakout there, but I'm just curious how are you coming to the demarcation of those properties that you classify?

Keith M. Kimmel -- Executive Vice President, Property Operations

This is Keith. I'll take it. The way that we're getting there is, sort of, where the geography is and where they're physically located. So, I emphasized Philadelphia, Northern California and Los Angeles in my prepared remarks. But I'll give you a couple of one-off examples that would be different. So, in Washington, D.C., as an example, we have a lot -- most of our portfolio there is in -- in our suburban markets, but we have Latrobe that's in the district. So, it's a one-off that we would categorize that as an urban location. Similarly, in San Diego, we have lots of suburban locations that are in North San Diego, but we have -- our Broadway Lofts property that's in the Gaslamp District in the middle of the city. So, really the way that we've separated these is physically where they're located and how they're performing.

Alexander Kalmus -- Zelman & Associates -- Analyst

Got it, got it. Thank you. And after post-spin, you'll have your tax basis there, but when you think about the potential 1031s getting eliminated, your transaction partners won't have that basis. What do you think that will do to the transaction market overall for multifamily?

Terry Considine -- Chairman of the Board and Chief Executive Officer

Alex, if I could take this, Terry. I think that the tax -- increased taxes reduce activity. It's as simple as that the profitability of exchanges or transit transactions will be reduced.

Alexander Kalmus -- Zelman & Associates -- Analyst

Makes sense. Thank you.

Operator

And our next question today comes from Alua Askarbek with BofA. Please go ahead.

Alua Askarbek -- Bank of America Merrill Lynch -- Analyst

Hi, everyone. Thank you for taking my questions today. So, I was just wondering if you guys can talk a little bit about the -- your New York City properties. I believe this time you guys put it under other markets. I just want to see how those assets are performing? Those are, I believe mostly urban, how occupancy is there?

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

Hey Alua. This is Paul. Thank you for your question. Just on your comment about the combination of the New York City properties, we did move those into other markets this quarter. And the rationale for that was that we have our River Club property, which has been -- it's in Edgewater, New Jersey but has been classified in New York from day one. That is under contract to sell. And that contributed over 30% of our New York operations. And so with that being gone, we didn't think it made sense to separately present New York. But in response to your question, Keith, do you have some additional color you would like to add on New York?

Keith M. Kimmel -- Executive Vice President, Property Operations

Well, Alua, the main thing I would say is we have less than 500 units that's in that other markets in New York City. And there are walk-ups. They've definitely been impacted by what's going on in the city. But it's really a small fraction of the contribution here.

Alua Askarbek -- Bank of America Merrill Lynch -- Analyst

Got it. Okay. Thank you.

Operator

And our next question today comes from Haendel St. Juste with Mizuho. Please go ahead.

Haendel St. Juste -- Mizuho Securities USA LLC -- Analyst

Hey. Good morning out here. Terry, a question for you. I know it's not a lot of money mostly, but maybe you can help us understand the decision behind making the $50 million investment in the life sciences development company, especially given the prior Aimco march toward simplification? How did you weigh the pros versus perhaps the skepticism or pushback from investors who may not want you to go down path? And then, maybe you could talk a bit more about the expected returns or potential scope of the opportunity? What specifically makes you excited enough here to make you withstand any skepticism or pushback here? Thanks.

Terry Considine -- Chairman of the Board and Chief Executive Officer

Haendel, as to the first, I would say that this is an investment in the future of the development, redevelopment company and that as we discussed with Rich earlier on the call, we have really these two different businesses. You're exactly right that they're in conflict with each other in many ways. The stabilized apartment communities are best measured by FFO and predictability and the development business is best measured by net asset value creation. And it's lumpier and riskier. And so, this is an investment in that second business. And the issue for shareholders is that, they'll soon be able to choose which business best suits them or what their allocations might be. So that's how I would address the question of how to serve shareholders. The second question is the $50 million was an expression of commitment to Allen Gold, a very talented entrepreneur whom you must know, who's had great success with Alexandria and Biomed and other such, and is going to do it again. And we think the opportunity to invest in a collaborative way with him, will bring with it opportunities that we cannot quantify today. But we would expect would be quite substantial.

Haendel St. Juste -- Mizuho Securities USA LLC -- Analyst

Got it, got it. Certainly sounds like that's going over on the pro forma Aimco side then. And maybe you could talk a bit more about the acquisition and I think it was Miami here talking about perhaps not only asset pricing there, potential IRR but what you're seeing more broadly in the market today in terms of competition in a market like Miami or just broadly as you look across perhaps part of the portfolio where you would be inclined to add some exposure? I have heard one of your peers only today talking about cap rates in some of these markets maybe into the high 3s. So just curious on not only what you'd pay for this asset, what intrigued you about it but broadly what else you're seeing out there? Thank you.

Terry Considine -- Chairman of the Board and Chief Executive Officer

Well, Haendel, I'll start and then I'll turn it over to Wes whose deal it is and it's a wonderful deal. But I'd make two points. First of all that this deal was under contract for I think seven or eight or nine months or a year maybe. So it is a long transaction in closing. And second that in the market today, the most important fact is volumes have collapsed, that there's much, much less liquidity today than there would have been a year or two or three ago. So I don't know that we can take an example of something that traded a year ago and use it as representative of what you'd find today. But it's a terrific deal and, Wes, do you want to speak to that?

Wes Powell -- Executive Vice President, Redevelopment

Sure. Thanks, Terry. You're exactly right. This is an opportunity that we have been engaged in since late 2019. We had the opportunity to work with the seller through the events of the spring and come to a price that made sense given all that was going on in the world in August and close on the transaction. Haendel, we've talked before about why we like South Florida, a number of factors but they all translate into increased population growth and long-term demand for housing. Of course waterfront land is scarce and so we like that. And the location is one we know pretty well. It's about a mile north of a property Bay Park that we own and operate today.

It's just north of a successful condominium development that Related did and has sold out at high prices. The existing asset itself has great bones, large apartments that we plan to renovate. The views are terrific so that one is right for redevelopment. And then, as you also know, we like the optionality to have future investment in ground-up development. And so, it comes with a -- an adjacent waterfront parcel and the ability to add almost 400 apartment homes on that site when the timing makes sense. So, overall, it kind of fits the playbook well. And we think it's going to be a good opportunity over the long haul.

Haendel St. Juste -- Mizuho Securities USA LLC -- Analyst

Got it. And one follow-up and if I may. Anything you could share perhaps on how the pricing here ultimately concluded versus perhaps where you started nine months ago? Thank you.

Wes Powell -- Executive Vice President, Redevelopment

Yeah, Haendel. The pricing was better than it was when we first engaged. But I'd say that's also as much a reflection on the seller circumstances as it is on the general market conditions. As Terry mentioned, transaction volume was down significantly especially in locations like urban Miami. So it's hard to have a real good feel for what an asset like that would trade at. But again, we feel like we bought it at a good basis. Again, just keeping in mind that it's 270 apartments, but they're about twice the size of what a normal building might have. So, when you think about it on that way, we think it was a pretty good buy.

Haendel St. Juste -- Mizuho Securities USA LLC -- Analyst

I do appreciate that, you guys. But any way you can quantify that maybe on a cap rate or any other quantifiable measure? Just curious what type of asset values and repricing has occurred in the market today?

Wes Powell -- Executive Vice President, Redevelopment

We saw pricing come off about 10% or 15% from when we first engaged in the deal.

Haendel St. Juste -- Mizuho Securities USA LLC -- Analyst

Got it.

Terry Considine -- Chairman of the Board and Chief Executive Officer

But Haendel, that is also typical of many negotiations and that isn't all in the market, I would add.

Wes Powell -- Executive Vice President, Redevelopment

Yeah. And Haendel that's exactly right and the point I was making is that I wouldn't read through that to the values in the market but again this particular transaction and the particular seller and their circumstances as we went through the events of the spring.

Haendel St. Juste -- Mizuho Securities USA LLC -- Analyst

Got it, got it. Okay. Thank you.

Operator

And our next question is John Kim with BMO. Please go ahead.

John Kim -- BMO Capital Markets -- Analyst

Thanks. Good morning. Earlier today, ISS announced its support for the special shareholder vote. And I just wanted to ask what your thoughts are as far as the timing of when this may occur and also the timing of any next hurdles that we should be looking for as far as your move forward with your split?

Terry Considine -- Chairman of the Board and Chief Executive Officer

John, I think I think it's an important question. I have had a chance to read it. We did have a meeting with ISS. They were completely helpful and thoughtful and we enjoyed a chance to discuss it with them. But we're not prepared to discuss it today. But this will all be part of the public filing that is being reviewed by the SEC. It'll be public I think sometime next week. And perhaps, we'll invite all of you to come back or we'll be in touch one way or another to discuss it at that time.

John Kim -- BMO Capital Markets -- Analyst

As far as you know, are you still on target to complete the split this year?

Terry Considine -- Chairman of the Board and Chief Executive Officer

John, I really do want to be both courteous but also clear. We really want to have this conversation focused around the third quarter. This is a very important issue. You're really right to raise the question. But I think it's going to be better addressed next week when we have all the facts transparent to everyone.

John Kim -- BMO Capital Markets -- Analyst

Okay. That's fair. Given cap rate compression that has been occurring and some of you peers have been talking about, are there any additional dispositions that you're contemplating including potentially the separate portfolio that's going to the New Aimco?

Terry Considine -- Chairman of the Board and Chief Executive Officer

John, again this is Terry. I think the cap rate compression is something that you have to look through carefully. One is of course the transaction volumes are down so you have to see what's being sold and what's relevant. Second of all, incomes are down and so that gives you a lower cap rate if values are steady and you have to kind of filter through that. But I think the biggest fact is the market's relatively illiquid right now. For us, we are interested to sell more and that the timing of the liquidation of the separate portfolio will be a function of the separation of the companies, which is the conversation we're going to have later. But independent of that, at Aimco we're probably more interested to pursue joint ventures and that the -- something along the lines of what we've -- where Patti Fielding was very successful in California would be a wonderful second act.

John Kim -- BMO Capital Markets -- Analyst

Yeah. Thank you.

Operator

And our next question today comes from John Pawlowski with Green Street. Please go ahead.

John Pawlowski -- Green Street Advisors -- Analyst

Thanks. Terry, maybe following up on your point there. Did I hear you right that the plan is to still liquidate the separate portfolio post-spin?

Terry Considine -- Chairman of the Board and Chief Executive Officer

John, I really want to talk about the companies post-spin and so forth at another time, perhaps next week, but that is -- the intent of that is to have a -- to complete the liquidation and the delevering of AIR. But let's talk about that next week.

John Pawlowski -- Green Street Advisors -- Analyst

Okay. I would like to talk about things involving the spin that you've talked about before. One is what I struggle with of just independence. In my mind, if the same CEO and Chairman is at the helm and your colleagues in the same shared office space, maybe its skeptical analysts but I think in no world where Aimco and AIR be truly independent. I think if Green Street got split into two and my boss was the boss of the new entity, I'd be partial to that new entity and the colleagues, my former colleagues in that new entity. So, how are you going to make sure that this is not a convoluted non-arm's length period that is coming here between Aimco and AIR?

Terry Considine -- Chairman of the Board and Chief Executive Officer

John, I'm going to talk about it next week, but I hope -- I think you'll be satisfied. We've been out talking to shareholders. We recognize that many of have concerns in this area. The board is focused on it at great length. And we hope to report next week, something that I hope will be satisfactory to you.

John Pawlowski -- Green Street Advisors -- Analyst

Okay. Thank you.

Operator

And our next question today comes from Austin Wurschmidt with KeyBanc. Please go ahead.

Austin Wurschmidt -- KeyBanc Capital Markets Inc. -- Analyst

Yes. Thank you. So, with -- you talked a lot about leverage coming down post-spin by another $1 billion. Obviously, AIR will no longer be focusing on development or complicated redevelopment. So that acquisition piece becomes important leg in the external investment opportunity heading into the next cycle. So, I guess given the greater aversion to markets with high regulation, I mean, what markets are attracted to you including any potential new markets?

Terry Considine -- Chairman of the Board and Chief Executive Officer

Austin, you're exactly right. Our analysis is to reallocate capital, including new capital to markets that are faster-growing and have freer economies. Wes has already spoken about our appetite for Florida, not just South Florida but Florida in general. But that will be true in Georgia, Tennessee, North Carolina, a market such as that and perhaps, additionally, in the Rocky Mountain West.

Austin Wurschmidt -- KeyBanc Capital Markets Inc. -- Analyst

That's helpful. Appreciate the thoughts. And then, switching over on the capital commitment, IQHQ, just curious how big of a pipeline is it that you foresee there? And what are sort of the funding options I guess for new Aimco to build out that -- those multifamily properties associated with the life science development?

Terry Considine -- Chairman of the Board and Chief Executive Officer

I think, Austin again, that's something that we will be prepared to discuss at length next week. But again, just for clarity, I think the pipeline will be -- one that will be many multiples of the investment because the scale of activities inside IQHQ or the expected activities is quite substantial. And so, if a typical apartment building in that context was $100 million or $200 million or $300 million, it'll -- and there are multiple buildings, then you can see it's a levered investment. And the second thing would be that that company is more likely to be funded with project financing and private equity.

Austin Wurschmidt -- KeyBanc Capital Markets Inc. -- Analyst

Got it. Are any of these assets or locations ones that AIR would be interested in owning overtime?

Terry Considine -- Chairman of the Board and Chief Executive Officer

My dear friend, I really do want to talk about that next week. But again, let's talk about it next week. I think that it's a road that's going to lead down and eventually we're going to be ahead of ourselves.

Austin Wurschmidt -- KeyBanc Capital Markets Inc. -- Analyst

Okay. Fair enough. Thanks for the time.

Terry Considine -- Chairman of the Board and Chief Executive Officer

You bet.

Operator

And ladies and gentlemen, the next question is follow-up from John Pawlowski with Green Street. Please go ahead.

John Pawlowski -- Green Street Advisors -- Analyst

Just maybe we could talk operations then, Keith. In terms of the positive inflection points and the bottoming and the blue skies you refer to, curious what gives you confidence today on that stability and bottom because yourselves and a lot of peers have used the term bottoming before. And I'm not trying to hold you to a prior comment because we've been wrong on plenty of forecasts internally. Nobody can predict the future right now. But just curious on the ground trends what gives you a little bit more confidence today that these markets have bottomed versus three months ago.

Keith M. Kimmel -- Executive Vice President, Property Operations

John thanks for the question and thanks for the caveat. There's obviously a lot of unknowns still in front of us. But let me give you some insights of what we're seeing and what makes us think that. So when we look at our third quarter and our -- looking at suburban and urban type of situations, our suburban portfolio was running in the mid-95s. And now as we finish up October we're seeing it in the mid to high 96s. We also see the rates in that same portfolio that have increased in and have gotten stronger. When we look at our urban areas, while occupancy has held relatively flat in the 90s. What we've seen is it started to tick up.

And I'll use a very specific example in Los Angeles. And so, when we look at Los Angeles in the third quarter, we were running in the 92s, and now we're going to finish in the mid to high-94s and we see a path that starts getting us in 95% and 96% by year-end. So, there's a series of things that we start seeing across the country that are starting to show us that there are some blue skies coming. Now, I'd point out that Philadelphia is one that will be on a switch that says, does UPENN come back and Drexel come back, does Comcast in the cities come back? In Philadelphia, we have administrators that live with us that work at some of those institutions who have given us an indication they are working hard to find a way that could they open in January and they would like to open in January.

Whether that happens or not? I don't know. There's not any public statements around that, but it gives us optimism. And another thing that we know is that -- I'll give you an example, in Evanston, Illinois, we have a property there right next to Northwestern University. When they came back, we went from struggling in occupancy to nearly 100% in a matter of a week. And so, we know that if these come back there will be an opportunity, particularly in Philadelphia, for a switch type of opportunity, not a dial but we think it'll come back strong. That's what we're looking forward to. But there's plenty of other things that are -- green shoots that are coming up in other markets that give us indication that we've hit the bottom, it's market-by-market, there's plenty of different variables, but we're optimistic that we'll start seeing some benefits of those things.

John Pawlowski -- Green Street Advisors -- Analyst

Got it. Thank you for the details. Did that -- on the non-binary, non-university markets, has that improve in occupancy come through pulling the concession lever harder than you did three months ago?

Keith M. Kimmel -- Executive Vice President, Property Operations

John, it's been -- first of all, when we think about concessions, we think about them as -- it's a marketing tool. And we solved to total revenue. And so, it's been a combination of both retention of customers, it's been a combination of when appropriate and what's happening in the markets around us that there has been some concessions. But it's also ultimately that we think that we are making a long-term decision-making around things that will pay dividends in 2021. There's a lot of ways to make decisions that you would lower your resident quality, as an example, or you would give more concessions to somebody who maybe isn't the person that will pay in the future. And we've tried to have a steady hand. Our occupancy has been lower than others, but we're building it in a very steady way in which we believe will pay dividends in 2021 and beyond.

John Pawlowski -- Green Street Advisors -- Analyst

Thank you. Thanks.

Terry Considine -- Chairman of the Board and Chief Executive Officer

Yeah. John, if I might add to what Keith said so well, Aimco because we have residents that live with us for a longer period of time, it's particularly important to select consistent residents, so that you have a contribution not just today but for the next two or three years. And so, I think one of the great things I think Keith has done that I tried to cite in my remarks is to be disciplined about picking neighbors for our existing customers, but also residents who will be contributors over the next several years.

John Pawlowski -- Green Street Advisors -- Analyst

Understood. Thanks for the time.

Operator

And the next question today is a follow-up from John Kim of BMO. Please go ahead.

John Kim -- BMO Capital Markets -- Analyst

Thanks. Keith, you just mentioned the weakness in Center City being at least partially driven by Penn and Drexel going virtual. Can you just remind us how many of your residents in Philly are students? And if there are any -- are any other markets that you have that have a pretty sizable university student population?

Keith M. Kimmel -- Executive Vice President, Property Operations

So thanks for the question, John. We have about -- I would call about 1,000 residents that would be direct students. And we have one particular building [Indecipherable] is a student building. And then, we have some influence that goes to our Park Towne community. But really, more importantly, what happens is it creates life and vibrance that comes to the city with those folks being in place. And so, think about businesses, think about restaurants, think about all kinds of other things that are happening. Those things also will be impacted by the -- in Center City, The Comcast Towers, and the other buildings there. And so, we know that there's -- the heart and soul of that city comes through those wonderful universities and, ultimately, feed the vibrance to the rest of the business.

John Kim -- BMO Capital Markets -- Analyst

Would you say Philly is your only market where you have such a strong dynamic like this?

Keith M. Kimmel -- Executive Vice President, Property Operations

In which context, John?

Terry Considine -- Chairman of the Board and Chief Executive Officer

I mean students are an important part of demand across the country. And because all markets are interrelated, it's going to be very hard, John, to say whether it's limited to one area or another. But it's certainly true that just top of mind, North Andover, Merrimack College in Chicago or in Evanston, Illinois. Keith's already mentioned Northwestern University in Philadelphia. We've talked about Drexel and Penn. In Miami, you're going to have an influence from University of Miami and so forth. So, it will -- it'll show up throughout the portfolio as it does through apartment demand across the country.

John Kim -- BMO Capital Markets -- Analyst

Great. Thanks for the color.

Operator

Another question today is a follow-up from Austin Wurschmidt with KeyBanc. Please go ahead.

Austin Wurschmidt -- KeyBanc Capital Markets Inc. -- Analyst

Thanks, guys. Appreciate you taking the follow-up. Terry, referenced how lower cap rates may reflect the lower income streams and perhaps values are stable versus pre-COVID levels. And I recognize there hasn't been a tremendous amount of transactions. But you just completed a sizable JV in a coastal market and you mentioned you're pursuing additional sales. So just curious what your view is toward values for multi-family properties.

Terry Considine -- Chairman of the Board and Chief Executive Officer

Austin, thank you for the follow-up. I think that values are affected by alternatives and the price of one thing is the cost of the alternative forgone. And so if we look at apartments as a relatively predictable, it's hard to say during 2020, but over time a relatively predictable cash flowing asset class, that if it can be simplified as we're seeking to do with low leverage and measured by current return, in a world of very low interest rates, that's a positive in terms of demand for pricing. But as I say, there are many other competing factors including most -- in an unprecedented way government intrusion. So those are the factors that are being worked out. I don't think they've been worked out which is why you see this reduction in valuation. And I think that it would be logical to think that there probably has been some reduction in value. But I think that that's probably as much due to -- as I say, to the regulatory intrusions of being in a recession which I think seems to be recovering and offset by low interest rates.

Austin Wurschmidt -- KeyBanc Capital Markets Inc. -- Analyst

Got it. Appreciate the thoughts. And then just one last one. You also referenced the attractiveness of a second act on a potential joint venture. Clearly that seemed well received by the market during the first act. But I'm curious how you balance your focus on simplicity going forward and then adding on another joint venture along with sort of the ongoing relationship that you're planning to have with new Aimco over time.

Terry Considine -- Chairman of the Board and Chief Executive Officer

Well, I think you're right. Life is all balance. And we would have to ask ourselves and our shareholders whether they would be interested to see an incremental billion dollars, let's say, raised if we are talking about a second act, that kind of pricing. And their natural question might be, well, what would be the use of the proceeds. And if that were to be applied to repurchase stock in scale, they might like that. But you're right it's all a question of balance.

Austin Wurschmidt -- KeyBanc Capital Markets Inc. -- Analyst

Thank you very much.

Operator

And our next question today comes from [Indecipherable]. Please go ahead.

Sumeet -- Analyst

Hi, guys. This is Sumeet [Phonetic] in for Nick. Really a question about one of the things we saw earlier this quarter on one of you properties or actually quite a few of your properties around pay no rent for -- or rent does not increase for a long time to come. So it seemed to imply that there were certain leases that you were ready to sign with tenants who are going to be longer term with no rent increases. Just one, trying to figure what sort of tenant profile are you trying to attract there and what's the sort of market vacancy profile that's driving this kind of a concession or as in your words, Terry, a promotion. And second whether these assets or these programs are part of the entity that remains or the entity that is going to be the development-focused entity. Now, you can defer the second part to next week. That's totally fine. I was just [Indecipherable].

Keith M. Kimmel -- Executive Vice President, Property Operations

No. Thank you. Thank you. This is Keith, I'll take it and I I'm not sure whether it's exactly what you're looking up but I'm guessing it's something that's on one of our websites or some sort of promotion. What you're likely seeing there is that we will do long-term leases in certain circumstances. And so, what it is, is it's a tag line for an inquiry about how we will sign 24-month leases, things like that, in which we will have an agreed upon rental rate over a longer period time that what may be traditionally the way that some people do write leases that being only 12 months.

Sumeet -- Analyst

Correct. And any color on how that program has been received and whether we should see more of it across other assets of your portfolio?

Terry Considine -- Chairman of the Board and Chief Executive Officer

So, this is -- without getting into a lot of our secret sauce, it is something that is not a reflection of the pandemic, let's put it that way. And it's part of our toolkit and how we think about unit types, market conditions and a variety of other things in which we will offer different lease terms.

Operator

All right. Thank you. Ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.

Terry Considine -- Chairman of the Board and Chief Executive Officer

Well, thank you, Rocco, and thank you everyone on the call. I know many of you had very long weeks with so much reporting both in the apartment sector and in other companies you follow. And I appreciate your endurance and making it through to Friday. Wish you a happy weekend and I look forward to chatting with you next week as we talk about this very interesting opportunity of the separation that we have proposed. So, thanks again and have a great weekend.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Lisa R. Cohn -- Executive Vice President, General Counsel and Secretary

Terry Considine -- Chairman of the Board and Chief Executive Officer

Keith M. Kimmel -- Executive Vice President, Property Operations

Wes Powell -- Executive Vice President, Redevelopment

Paul L. Beldin -- Executive Vice President and Chief Financial Officer

Richard Anderson -- SMBC Nikko Securities America, Inc. -- Analyst

Alexander Kalmus -- Zelman & Associates -- Analyst

Alua Askarbek -- Bank of America Merrill Lynch -- Analyst

Haendel St. Juste -- Mizuho Securities USA LLC -- Analyst

John Kim -- BMO Capital Markets -- Analyst

John Pawlowski -- Green Street Advisors -- Analyst

Austin Wurschmidt -- KeyBanc Capital Markets Inc. -- Analyst

Sumeet -- Analyst

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