AvalonBay Communities and Equity Residential, two of the largest apartment owners in the United States, are nearing an agreement to merge, according to people familiar with the matter.

The potential combination would create a major multifamily real estate investment trust with significant market presence across key metropolitan areas. Both companies are publicly traded REITs that own and operate apartment complexes in high-growth markets.

AvalonBay Communities, based in Arlington, Virginia, operates apartment communities primarily in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California. Equity Residential, headquartered in Chicago, owns properties in Boston, New York, Washington D.C., Seattle, San Francisco, Southern California and Denver.

The discussions come as the multifamily housing sector faces evolving market conditions, with rental demand remaining strong in many metropolitan areas while development costs and interest rates have created challenges for new construction.

Neither company has confirmed the talks, and there is no guarantee the discussions will result in a completed transaction. The timing and terms of any potential deal remain unclear.