Walker Webcast: AvalonBay’s Ben Schall on the Company’s Constant Evolution

In comparison to the senior leaders at some of AvalonBay Communities’ peers, Ben Schall is a relative newcomer to the multifamily sector. He joined the company as president in late 2020 and a year later became its CEO as well, formalizing a pivot from a retail-oriented background at companies such as Rouse and Seritage Growth Properties. A key factor in drawing Schall to succeed Timothy Naughton at the helm of AvalonBay was its longstanding core values, he told Walker & Dunlop CEO Willy Walker in this week’s Walker Webcast.

“The three lead cultural values are a spirit of caring, integrity and continuous improvement,” Schall said. “If you focus on those three items, you’ll get to the right place. They’re also three items that really spoke to me as a leader. And this goes back to the culture I built at Seritage,” which he led as CEO before joining AvalonBay.

Walker pointed out that at the time Schall joined AvalonBay, the multifamily sector was in a period of post-pandemic flux. But the company’s push into gateway suburban markets was already underway, said Schall.

“So what I focused on and what we focus on as a team is, how do we need to continue to evolve our business given the changing environment,” he said. The push into what AvalonBay views as expansion markets represents “a continued evolution of our business that we think will better position us for superior growth in the years ahead.”

Those gateway suburbs weren’t necessarily the Sunbelt markets where much of the industry has concentrated its buying and building over the past few years. Yet time has proven out AvalonBay’s thesis. “Our suburban coastal portfolio is better positioned to capture rental demand over the next 10 years than it was over the prior 10 years,” said Schall. ‘We’re going to continue to see that be the core of our portfolio.”

Even so, Schall said the company wants its portfolio composition to evolve. “Today we have about 90% of our portfolio in those suburban coastal markets and 10% in our expansion markets,” he said. “As we think about optimizing that portfolio, we want to get that 10% to about 25% as we’re making that shift and we pursue that growth. It’s through multiple channels, acquisitions, development and then also funding of other developers.”

On AvalonBay’s most recent earnings call, Schall said for the first time that the apartment REIT would make its first foray into the build-to-rent market. “In the near term, it’s going to be both buying BTR product as it’s completed and then funding BTR developers,” he told Walker. “We have a program that we use on both multifamily and now in the BTR space; we call it our developer funding program. We provide the full capital stack to third-party developers. They’ve got sites ready to go. We buy the land, we fund the entire project,” with the developer involved on a limited-partner basis but not putting in the upfront capital.

“They do get to participate in the value creation and earn a typical type of promote,” said Schall. “So we’ve taken that program, which has been successful for us on the apartment side, and now we’re bringing that over to the BTR side.”

A key area of evolution at AvalonBay is its operating model, which increasingly has shifted to technology-oriented solutions. “If you’re a customer of ours, we want your first interaction with us to be AI-based,” Schall said.

The company was an early adopter of what is now EliseAI, which Schall noted “started very small.” The startup recently completed a funding round north of $1 billion. “So it’s worked for them by getting a strategic partner like us involved early,” he said.

AvalonBay has sat at the table with EliseAI, providing feedback all along. “We’ll tell them, ‘We need you to tailor the product in this way,’” Schall said. “We do a decent amount of proptech investing. Those are the types of relationships we try to find, where we can have both the strategic benefit and the financial benefit.”

On-demand replays of the Dec. 11 Walker Webcast are available through the Walker Webcast channels on YouTube, Spotify and Apple. Subscribe to get invites, replays and articles for new Walker Webcast episodes every week.