JBGS - JBG Smith

[thepupil]

I know, I know, there are enough threads about urban office buildings, urban multi-family, the future of working, living etc.

 

But I think JBG Smith deserves its own thread as it's a pretty unique opportunity to own one of the largest portfolios of DC metro real estate, with a large long-term development pipeline, concentrated in what I'd consider to be one of the healthiest economies in the United States (Northern Virginia) adjacent/surrounding to the HQ2 of one of the country's most successful companies (Amazon)

 

For some background, JBG Smith represents the combination of Charles Smith (which was purchased by Vornado a long time ago) and JBG. JBG was a highly successful real estate private equity firm with a laundry list of blue chip endowment LP's. Back before the apocalypse, it was thought that Vornado traded at a discount because of its exposure to one of the worst office markets in the country: Washington DC. Washington DC has had a bad office market for a while. Lots of feds have been encouraged to telecommute long before it was cool, there's a ton of supply, feds had been cutting footprint, etc. Just drive from DC to Dulles and gaze upon all the glassy empty office buildings. DC was dragging down VNO's metrics and it was thought (hilariously in retrospect) that becoming a more pure play NYC company would help

 

To highlight the high quality of its NYC assets, Vornado contributed its DC assets to a new venture with JBG's assets and JBG Smith (adding the smith to pay tribute to Charles) came to be. so JBG LP's who previously owned interest in a PE fund got a stock, and Vornado shareholders got distributed RemainCo (VNO today) and SpinCo (JBGS).

 

This all happened in 2017. Here's the 2017 presentation

https://s1.q4cdn.com/569464730/files/doc_presentations/2017/06/1/Investor-Presentation-June-2017.pdf

 

I think understanding the history / DNA of the company is important. Most of the head honchos came from JBG, a PE firm that had a 17 year history of generating high IRR's gentrifying DC, and obviously REPE pay their people well. Vornado is development oriented, high G&A, not a smooth FFO / share type. If you want low leverage metrics, low g&a, a smooth ride, look elsewhere.

 

If you want to be the biggest landlord in the capital of the US of A in 10 years and own all the land around Amazon HQ2, read on.

 

JBGS started its life as a new company in 2017 at about $35; they claimed a NAV of low $40's at the time w/ a "near term development pipeline" to get to $50 and a long term outlook to create $30+ through development since they own the biggest land bank in DC.

 

What's happened since 2017, other than the stock has declined from $35-->$27

 

Most importantly, JBGS successfully courted Amazon and the Virginia Tech Innovation campus to its backyard. What was an extremely tired and ugly expanse of crappy office, known as Crystal City, became National Landing, future home to 25,000 well paid Amazon employees and (hopefully) a bunch of other tech companies office space and their employees. There are only 1,000 of them there right now and to be clear JBGS made a little dough on selling AMZN some land, but the immediate effects of this aren't that big. The long-term effects are big though.

 

On the single family side, the NoVa market has been on fire, pre-covid, during covid, blah blah blah. Try to buy a house in NoVa and you better come with cash, no contingencies, escalation clauses and be prepared to pay more than you'd ever thought you would for a 1960's rambler of minimal aesthetic appeal. There was a bit of a post Amazon craze. Talks of international buyers calling brokers and buying crappy condos in crystal city sight unseen. I don't really know if that's still going on (doubtful) but the overall point is that its a very hot residential market.

 

As it relates to DC and National Landing multifamily:

Downtown Class A trades were rare and competitively priced, with average cap rates of 4.4% over the past 12 months. According to CoStar, National Landing is an even more competitive environment with trailing 12-month cap rates averaging 3.7%

 

Amazon cemented the quality of JBGS's multi-family assets and transformed their concentration in Crystal City office from a weakness to a big strength. DC without Amazon is a pretty healthy economy to start. There's law, think tanks, lobbying, the data center industry, defense, biotech/NIH, great public schools in select districts, some of the country's best private schools. It's a pretty good cocktail of the one of it not the nation's best educated workforces, very high median incomes. Within DC metro, Virginia is a top state for fiscal health, has a decently low (5%) income tax rate, and is more business friendly than DC or the PRMC (People's Republic of Montgomery County), where I live. the overall point is DC is a good economy. National Landing w/ Amazon has the potential to be a decent little tech hub.

 

So that's all the soft stuff. Next post will where JBGS is today and where they might be going.

 

 

 

 

 

[LearningMachine]

Seeing how much Amazon impacted Seattle real-estate over a decade, and looking at the history of founding lawyers, and how they instilled in the company the DNA to sell the buildings when market is high, to keep operating the buildings when market is low, and to buy land for low prices around metro stations and work on it for years to get entitlements and develop buildings and "place-making" themselves, I invested in this last year sometime after the Amazon announcement.

 

Those founding lawyers really achieved an amazing result over the decades with this strategy, starting with almost nothing.

[thepupil]

So now for some numbers.

 

First, I always start with the corporate debt:

 

As of Q2 2020:

$500mm credit facility

$400mm Term Loan

$900mm corporate debt

 

$710mm of cash.

 

So as of Q2 end, JBGS had little corporate net debt. Subsequent to Q2, JBGS borrowed $385mm of Freddie K paper (low cost non-recourse multifamily) against 3 buildings and paid off their credit facility, so we need to deduct $115mm from cash + $385mm to mortgages and get rid of the $500mm credit facility, so now the corporate balance sheet looks like this:

 

$600mm of cash

$400mm term loan

$200mm of net corporate cash (+ $1 billion of completely undrawn credit facility for liquidity)

 

$1.7B of mortgages from consolidated assets (including the new Freddie K borrowings)

$0.4B of mortgages from unconsolidated JV's

 

So all in they've got just under $2 billion of net debt, all of which is non-recourse mortgages. Their most recent letter notes they estimate an additional $400mm of borrowing capacity from their multi-family / development portfolio.

 

~134mm shares out that own 90% of the OP Units = 148mm shares @ $26.7 = $3.9B of equity

 

In sum:

$1.9B of debt

$3.9B of equity

$5.8B EV.

 

For $5.8B we get the operating portfolio + the near term and long term development pipeline.

 

Office

11.2mm sf, 90% occupied, $230mm annualized NOI.

 

Multifamily

5600 units, $76mm NOI, 86% /82% because they just contributed some non-leased up assets to this, 93/90% without those.

 

So ignoring the development pipeline and the high G&A, you are creating the company for about a 5.1% cap rate (300 / 5800 = 5.1%). this isn't that exciting, it's too tight for office and probably too wide for the multi-family (but a value investor wouldn't pay fair market 4 cap for the multi-family). If JBGS only owned its operating portfolio, it'd be like "who cares".

 

For the development portfolio, I'm just going to quote the company

 

Development Portfolio

As of June 30, 2020, our development portfolio consisted of three assets under construction totaling 777,000 square feet and a Future Development Pipeline totaling 16.6 million square feet. Excluding the land at Pen Place held for sale to Amazon, our pipeline was 14.5 million square feet. Of the 777,000 square feet in our Under Construction portfolio, 503,000 square feet is multifamily and 274,000 square feet is commercial, the latter of which is 97.8% pre-leased, primarily to Amazon.

 

Under Construction

At the end of the second quarter, our three assets under construction had guaranteed maximum price construction contracts in place. These assets have weighted average estimated completion dates of the fourth quarter 2020 and estimated stabilization dates of the fourth quarter of 2021, with a projected NOI yield based on Estimated Total Project Cost of 6.3%. When stabilized, we expect these assets to deliver $22.9 million of annualized NOI.

 

During the second quarter, we completed 965 Florida, a 433-unit multifamily asset located in the U Street/Shaw submarket, ahead of schedule and under budget. The Whole Foods located on the ground level of the building opened in July. In addition, during the second quarter, we completed the base building work on 1770 Crystal Drive and turned the space over to Amazon to commence its buildout.

 

Near-Term Development

We did not have any assets in the Near-Term Development pipeline at the end of the second quarter. As a reminder, we only place assets into our Near-Term Development pipeline when they have completed the entitlement process and when we intend to commence construction within 18 months, subject to market conditions.

 

As discussed last quarter, we obtained the final entitlements for 1900 Crystal Drive in March, securing development rights for approximately 820,000 square feet, including approximately 800 units and approximately 30,000 square feet of retail. We expect to complete design documents in the second half of 2020, at which point we will have a clear sense of expected pricing and the timing of construction commencement. While we are committed to building his asset as part of our National Landing repositioning, we intend to time construction to capture the benefit of an expected, downturn-induced, decline in construction costs.

 

We are continuing to advance the approximately 2,100 units in the next tranche of multifamily development opportunities in National Landing, all of which are within a half mile of Amazon’s new headquarters. These entitlement processes have continued to move forward in Arlington County during the pandemic, and we expect the first of these developments to receive final site plan approval in late 2020 or early 2021. The commencement of construction on these opportunities will be subject to the same capital allocation discipline governing all our new investments.

 

Future Development Pipeline

As of June 30, 2020, our Future Development Pipeline comprised 16.6 million square feet, with an Estimated Total Investment per square foot of approximately $44.92. Excluding the land at Pen Place under firm contract to Amazon, our Future Development Pipeline was 14.5 million square feet with an Estimated Total Investment per square foot of approximately $46.37. At the end of the second quarter, 54.5% of this pipeline was in National Landing, 20.9% was in DC, 15.6% was in Reston, and the remaining 9.0% was in other Virginia and Maryland submarkets. Our DC holdings are concentrated in the emerging growth submarkets of Union Market and the Ballpark, and our Reston holdings include what we believe is one of the most attractive development sites on the Metro, adjacent to Reston Town Center.

 

Over the course of 2020, we expect to continue to advance the entitlement and design of approximately 10.2 million square feet, which represents approximately 70% of our Future Development Pipeline. This includes 6.5 million square feet in National Landing, representing approximately 93% of our Estimated Potential Development Density in the submarket. We continue to seek opportunities to monetize our Future Development Pipeline, either through internal development, land sales, ground lease structures, and in cases where continued control is important, recapitalizations with third-party capital. These potential structures would be most applicable to opportunities where we can achieve mark-ups on our land, thereby preserving our own capital capacity for other, higher-return opportunities.

 

 

 

 

 

[thepupil]

So what's it worth?

 

The short answer is I don't really know.

 

I know that

 

- they have tons of liquidity to self-fund development or make acquisitions.

- they were pre-covid putting forth a $550mm 2024 NOI target, haircut that, push it back, do whatever

- they will likely generate lots of low-cost non-recourse multi-family debt ($400mm), multi-family financing rates are at all time lows

- they would probably claim a mid $40's NAV, which is consistent with their decision to issue $500mm @ $42 to further build their war chest.

- they've been net sellers for most of their public life and achieved NAV or NAV+ on asset sales

- they have started buying back stock.

 

I don't view this as deep value, so much as I view this as a long-term bet on DC/National Landing.

 

I would note that my largest asset (my house) is also a long-term bet on DC, so that is a factor for me in terms of personal sizing.

 

I think one has to be patient, there will be shitty headlines, it trades at like 27x FFO and has a 3.5% divvy yield so it's not like it's an income play.

 

I just think in 10 years you're going to have

more sf / share

more units / share

more scale / g&a leverage

the mix will shift toward multi-family vs office

 

I am not too big into JBGS but expect it to take share over time in the pupilpropertyportfolio.

 

[CorpRaider]

Seeing how much Amazon impacted Seattle real-estate over a decade, and looking at the history of founding lawyers, and how they instilled in the company the DNA to sell the buildings when market is high, to keep operating the buildings when market is low, and to buy land for low prices around metro stations and work on it for years to get entitlements and develop buildings and "place-making" themselves, I invested in this last year sometime after the Amazon announcement.

 

Those founding lawyers really achieved an amazing result over the decades with this strategy, starting with almost nothing.

 

Yeah I found that focus on the walkability/transit/place making and the use of the touchstone of replacement value and focus on long-term NAV growth attractive as well. 

 

Thanks pupil.  As u noted they bought back some stonk earlier this year at ~$29 avg price.  The already showed some (imop) unusual capital allocation acumen (or at least effort) by issuing at $42 and buying at $29, in the last ~18 months.  Very much not behaving like a "we like our stock at any price" type outfit. 

 

That's what I kind of mentally derived:  we're looking at 500/6000 in a few years "and it should grow over time" and should get some premium/lower cap rate b/c of the DC market/exposure to amazon and transition from looking like an office developer to more like EQR (high end multifam) + getting it for less than they were buying back during covid crash = buy some.

[lnofeisone]

Pupil - thanks for sharing. I've had 1 share of JBG since they went public but never got comfortable buying it. And now I'm trying to sort through the whole death of the office. My (very much anecdotal) observations:

 

1) One thing that really attracts me to JBG is the fact that most of the things that they own outright are on the metro lines (including National Landing and McLean). Some of the things they manage aren't exactly on the metro line (e.g., Georgetown - The foundry and the CW office on Wisconsin) but that's not a deal breaker.

2) I work(ed...before COVID) in one of the buildings that's managed by JBG for a bit. Of the times we had to interact with JBG, everything was flawless and frictionless. They understood what the ask was and really worked with us to get it done. Totally different experience than what we endured with another large DC operator.

 

One item that (minorly) concerns me is the speed of their shift towards multifamily. It looks like National Landing is their crown jewel and just needs time to work out. The other parts of their portfolio are in very much areas of gentrification (just look across the street at 965 Florida Ave and I get that Howard is right there too but the area isn't exactly inviting to everyone) so the opportunity is there but might take a while to work out. So basically, sit and wait type of thing.

[thepupil]

Good point, what JBGS calls “growing emerging sub markets” is real estate speak for “risky” gentrification development.

 

I think the scale and balance sheet are a helpful risk mitigant. Compared to, for example, what FRPH is doing at Rhode Island Avenue where they are mostly in the common/pref and concentrated in that project and their stable asset base is concentrated in Dock79 (fully levered) and the Maren (just coming online). It’s hard to see owning 400 units above a new Whole Foods, goes completely terribly.

Not hating on FRPH and they mitigate risk with their huge cash pile.

 

One note on the valuation above, they’re set to get $150mm for their second AMZN site in 2021; decent chunk of cash relative to market cap/EV; It’s on the books for $75mm; so you convert $75mm of land to $150mm of cash which then goes to develop, at a conservative leverage level at least $300mm of property (likely more). That’s basically JBGS in a nutshell, capital recycling and upgrading assisted by AMZN/ general DC economy over the next 5-10 years.

 

Let’s put on my compounder bro hat and throw out a 2030 projection. $600mm NOI at 5% cap rate $12B EV with not too much share growth, maintaining the dividend, $4B net debt, $8B equity, 7%/ year appreciation, 3% carry= 10% / year without taking a huge amount of risk. Considering they were shooting for $550 NOI in 2024, $600 in 2030 doesn’t seem super crazy. I ultimately think they’ll do better, but just throwing out a straw man. I haven’t quite formed an asset by asset view here and plan on just kind of watching how it develops as projects come on line.

 

Also, on the anecdote side, I had  a consultant friend who said that JBG Smith was a great landlord and really went out of their way with respect to service. All that g&a is going somewhere! Lol.

 

 

[LearningMachine]

Also, on the anecdote side, I had  a consultant friend who said that JBG Smith was a great landlord and really went out of their way with respect to service. All that g&a is going

 

Beyond location for new buildings and existing buildings there, this is why Amazon picked them to build and manage their buildings after they are built as well.

[lnofeisone]

Also, on the anecdote side, I had  a consultant friend who said that JBG Smith was a great landlord and really went out of their way with respect to service. All that g&a is going somewhere! Lol.

 

Am I that friend?  ;D

[BG2008]

Also, on the anecdote side, I had  a consultant friend who said that JBG Smith was a great landlord and really went out of their way with respect to service. All that g&a is going

 

Beyond location for new buildings and existing buildings there, this is why Amazon picked them to build and manage their buildings after they are built as well.

 

My experience has been that NYC landlords are generally asshole because they can get away with it.  I have been flabbergasted by the "conciergeness" of DC's multi-family buildings.  It's quite heavy on the service, amenities, in addition to the location and shelter.  In NYC, we basically tell our tenants to take a hike if they want.  If you want concierge level service, you are looking at paying more than $5,000-6,000 in Manhattan and over $3,500 in Queens, and over $4,000 in Brooklyn for that type of product. 

[thepupil]

Info, unless we went to college together and you work in political polling analytics, no you are not that friend lol.

 

BG, I was referring to JBG’s office side of things but yes DC offers a better value proposition, from a “niceness of space/ service” on the multi-family side and offers NYC/SF level pay in a lot of fields. For example I think a first year big law associate makes $180-$200k in both NYC and DC. I imagine it’s better to be in NYC for some fields and better to be in DC for others.

 

Of course DC does not offer quite the same “culture” diversity of restaurants, sheer size / density, but I think it’s hard to dislike DC and NoVa in particular long term. I mean AMZN ran a nationwide beauty contest where they got a massive amount of free data and incentives and chose where they chose for a reason.You can definitely have a very nice urban lifestyle here, particularly if you have 2 incomes Or 1 in a very good field. , and the suburbs are close to the city (and in some cases within it).

 

That’s all very soft. On a more data based approach, I forgot to mention that run rate NOI is down a lot because of their retail which is collecting at about 60% and the near term covid disruption in multi family.

 

Stabilized NOI was $330mm at the beginning of the year. 400K of commercial and 250 units have been added but NOI has fallen to $307mm then there’s about $25mm in the near term construction pipeline, so 2 years out you’re probably in the mid to high $300’s on NOI plus AMZN land sale and your getting into the low to mid 6’s cap rate, with plenty of more developments/ recycles in the hopper.

 

Given all the uncertainty in office that probably doesn’t seem super cheap, but I think all the non earning cash, land, long term development pipeline will cheapen your basis with time. And I actually don’t think being Lockheed Martin’s landlord next to Reagan National or AMZN’s or the federal governement’s landlord is all that scary.

 

Basically I see the effective cap rate of purchase steadily going up as assets come on line (with no additional shares required).

 

 

[Gregmal]

Form 4 City over here lately.

 

Been buying a good bit of this and will continue to recycle capital/add into it. Thanks for bringing this one up. It is a gem.

[CorpRaider]

Form 4 City over here lately.

 

Been buying a good bit of this and will continue to recycle capital/add into it. Thanks for bringing this one up. It is a gem.

 

Man these guys are directors writing actual checks too. Right?  You love to see it. 

 

I was looking at ICE and bunch of other stonks last night and there's not one damn purchase in 2 years.  Even SLG...THE SLG sold a bunch in June in the mid 50s...no buys (other than company buybacks...which is good but directors writing checks is another level). 

[thepupil]

BB article today, talking multifamily rent trends

 

Summary: NYC bad, Boston better than NYC, DC better than Boston, Northern Virginia best within DC.

 

It's not like the market doesn't know this, and JBGS trades tighter than most office REITs and it is still an office REIT with multifamily rather than multifamily with office.

 

I know I make this point too often, but I took the time to go over JBGS's balance sheet and it really is pristine and I would say a problem is that they should have a lot more leverage, but that pesky debt to EBITDA metric would be out of wack with what folks want. I think they'll be able to take on a lot more debt on these builidngs as they are redeveloped. I think they are way underselling the amount of capital they can pull out as these assets come online/AMZN moves to town. If AMZN fails to revitalize Crystal City, it's not like you're going to lose a bunch of properties and there's huge downside risk. 

 

6.5mm square feet of office have no debt and 2200 units apartment have no debt. For perspective, on the low end, JBGS could easily put on $150K / unit of debt, and their higher end $300K

 

the unencumbered buildings include basically all of National Landing and the very nice and fresh brand new 4747 Bethesda Avenue (pre-leased by Booz Allen, Host Hotels, JBG itself) which is located adjacent to FRT's Bethesda Row which is one of the better mixed use developments owned by FRT which owns like the best retail/mixed use developments). this is a super high quality building that i see a lot, Host is paying $68/foot for example.

 

Corona bedamned, owning this with (mostly) no debt is low risk.

 

https://nationallanding.org/our-downtown/national-landing

 

unencumbered Office

Universal Buildings

2345 Crystal Drive

2231 Crystal Drive

1550 Crystal Drive

2011 Crystal Drive

2451 Crystal Drive

241 18th Street S.

1215 S. Clark Street

4747 Bethesda Avenue

2200 Crystal Drive

1225 S. Clark Street

1901 South Bell Street

1770 Crystal Drive

7200 Wisconsin Avenue

Crystal City Marriott (345 Rooms)

2100 Crystal Drive

1800 South Bell Street

One Democracy Plaza* (4)

Central District Retail

2001 Richmond Highway (6)

Crystal City Shops at 2100

Crystal Drive Retail

1700 M Street (5)

4749 Bethesda Avenue Retail

 

Unencumbered Multifamily

West Half (7)

965 Florida Avenue

Fort Totten Square

F1RST Residences (4)

Atlantic Plumbing C

2221 S. Clark Street

Falkland Chase-North

 

NYC Apartments Feel Most Rent Pain From Plunging Urban Demand             

 

New York metro apartment rents could fall more than twice as much as the East Coast average in 2020, as work-from-home trends and mandated shutdowns have led residents to relocate to more affordable and less-densely populated areas in the suburbs, at least temporarily. Landlords are being forced to offer discounts and concessions to keep occupancy from falling....the Mid-Atlantic region's exposure to federal government jobs has helped keep unemployment below New York and Massachusetts, resulting in better apartment fundamentals in 2020. Washington rent is expected to drop 2.9% in 2020, based on Moody's Analytics REIS forecasts, a smaller decline than expected for the New York metro area and below the average Northeast decrease. The Northern Virginia suburbs, where many REITs own assets in the region, are holding up even better, with rents on pace to fall just 1.3%.

[BG2008]

BB article today, talking multifamily rent trends

 

Summary: NYC bad, Boston better than NYC, DC better than Boston, Northern Virginia best within DC.

 

It's not like the market doesn't know this, and JBGS trades tighter than most office REITs and it is still an office REIT with multifamily rather than multifamily with office.

 

I know I make this point too often, but I took the time to go over JBGS's balance sheet and it really is pristine and I would say a problem is that they should have a lot more leverage, but that pesky debt to EBITDA metric would be out of wack with what folks want. I think they'll be able to take on a lot more debt on these builidngs as they are redeveloped. I think they are way underselling the amount of capital they can pull out as these assets come online/AMZN moves to town. If AMZN fails to revitalize Crystal City, it's not like you're going to lose a bunch of properties and there's huge downside risk. 

 

6.5mm square feet of office have no debt and 2200 units apartment have no debt. For perspective, on the low end, JBGS could easily put on $150K / unit of debt, and their higher end $300K

 

the unencumbered buildings include basically all of National Landing and the very nice and fresh brand new 4747 Bethesda Avenue (pre-leased by Booz Allen, Host Hotels, JBG itself) which is located adjacent to FRT's Bethesda Row which is one of the better mixed use developments owned by FRT which owns like the best retail/mixed use developments). this is a super high quality building that i see a lot, Host is paying $68/foot for example.

 

Corona bedamned, owning this with (mostly) no debt is low risk.

 

https://nationallanding.org/our-downtown/national-landing

 

unencumbered Office

Universal Buildings

2345 Crystal Drive

2231 Crystal Drive

1550 Crystal Drive

2011 Crystal Drive

2451 Crystal Drive

241 18th Street S.

1215 S. Clark Street

4747 Bethesda Avenue

2200 Crystal Drive

1225 S. Clark Street

1901 South Bell Street

1770 Crystal Drive

7200 Wisconsin Avenue

Crystal City Marriott (345 Rooms)

2100 Crystal Drive

1800 South Bell Street

One Democracy Plaza* (4)

Central District Retail

2001 Richmond Highway (6)

Crystal City Shops at 2100

Crystal Drive Retail

1700 M Street (5)

4749 Bethesda Avenue Retail

 

Unencumbered Multifamily

West Half (7)

965 Florida Avenue

Fort Totten Square

F1RST Residences (4)

Atlantic Plumbing C

2221 S. Clark Street

Falkland Chase-North

 

NYC Apartments Feel Most Rent Pain From Plunging Urban Demand             

 

New York metro apartment rents could fall more than twice as much as the East Coast average in 2020, as work-from-home trends and mandated shutdowns have led residents to relocate to more affordable and less-densely populated areas in the suburbs, at least temporarily. Landlords are being forced to offer discounts and concessions to keep occupancy from falling....the Mid-Atlantic region's exposure to federal government jobs has helped keep unemployment below New York and Massachusetts, resulting in better apartment fundamentals in 2020. Washington rent is expected to drop 2.9% in 2020, based on Moody's Analytics REIS forecasts, a smaller decline than expected for the New York metro area and below the average Northeast decrease. The Northern Virginia suburbs, where many REITs own assets in the region, are holding up even better, with rents on pace to fall just 1.3%.

 

The thesis boils down to bet on "bigger government and Amazon" over "capitalism"

 

Pupil, you never answer my request to get matching tattoos that says "Bricks over Chicks".  Are you in? 

[thepupil]

yes, I am most definitely in.

 

considering the federal government is 24% of rent and government contractors are 16% of commercial rent, I'd agree!

 

what a wonderful way to ride out the death of office: own a bunch of 1980s unlevered buildings rented to the feds and lockheed while $5B+ billion of private (some of which is yours) and public infrastructure spending pour into National Landing.

[CorpRaider]

I really like the letters (even the fact that they do one), particularly the way they walk through their thoughts concerning capital allocation.  They are definitely capitalists with an eye on the horizon (or at least they write like it).

 

I find it amusing that Yale owns it.  It's like, "We own index funds + private RE, VC, PE, etc., Slack and Zoom and.......JGBS."

 

Pupil it sounds like Dr. Malone would recommend correcting this lack of appropriate leverage via some reg. u loans (haha).

[thepupil]

I really like the letters (even the fact that they do one), particularly the way they walk through their thoughts concerning capital allocation.  They are definitely capitalists with an eye on the horizon (or at least they write like it).

 

I find it amusing that Yale owns it.  It's like, "We own index funds + private RE, VC, PE, etc., Slack and Zoom and.......JGBS."

 

Pupil it sounds like Dr. Malone would recommend correcting this lack of appropriate leverage via some reg. u loans (haha).

 

Yale owns it because they were JBG's largest LP. Note that Yale Investment Office RE guy is on the board of JBGS and Ellen Shuman is as well (Yale Investment office alum who then ran Carnegie Foundation who then started an outsourced CIO).

 

I believe most of the endowment types sold after the spin-off/going public, including the bulk of Yale's stake.

 

See Page 141 of the 2017 document where all the JBG LP's registered to sell their shares. It gives you a sense for how "blue-chip" these guys were in intstitional investment world.

 

https://www.sec.gov/Archives/edgar/data/1689796/000110465917057460/a17-21556_1s11.htm#SELLINGSHAREHOLDERS22_100426

 

EDIT: it looks like Princeton still owns $50mm of it, not very material, given their $26B endowment. 

 

 

 

[Spekulatius]

I like it better than VNO quite frankly, despite the discount to fair value being smaller and I think the thesis that DC real estate beats NY real estate in the next decade is correct. I bought a few shares this Friday.

[thepupil]

Buying spectrum to make National Landing the "first 5G city".

 

I don't know how unique this is, but seems like a smart move.

 

I had not heard or thought of a developer doing this.

 

 

JBG SMITH Awarded CBRS Spectrum in National Landing Through FCC Auction

Spectrum acquisition is part of a broader initiative to establish National Landing as one of the Nation’s first 5G cities

Business Wire

BETHESDA, Md. -- September 21, 2020

JBG SMITH, a leading owner and developer of high-quality, mixed-use properties in the Washington, DC market, announced today that it has acquired seven blocks of Citizens Broadband Radio Service (CBRS) spectrum stretching across Arlington County and the City of Alexandria through a national FCC auction that concluded in late August.

JBG SMITH’s investment in CBRS spectrum is part of a broader effort to develop National Landing into a world-class innovation district. The acquisition of spectrum accelerates JBG SMITH’s ability to partner with leading service providers to bring 5G and other technology infrastructure to National Landing. JBG SMITH envisions the area as a canvas for innovation in industry clusters such as defense and cybersecurity, cloud/edge computing, internet of things (IoT), and artificial intelligence (AI). This robust technology infrastructure will allow enterprises to connect everything and everyone in real time and transform customer engagement and experiences in National Landing.

JBG SMITH acquired four Priority Access Licenses (PAL) totaling 40 MHz in Arlington (the maximum allowed in one jurisdiction for a single entity) and three PALs (30 MHz) in Alexandria. A JBG SMITH subsidiary, SEAD LLC, purchased the seven licenses for $25.3 million. The licenses will span over 16.2 million square feet in National Landing and Potomac Yard, where JBG SMITH is the largest holder of existing and developable real estate. The submarket is also home to Amazon HQ2, the Virginia Tech Innovation Campus, and a diverse array of offices, apartments, retail, and open space.

“JBG SMITH recognized that the FCC’s CBRS spectrum auction was an opportunity to align National Landing with the needs of cutting-edge tenants, while significantly enhancing our broader smart city and digital placemaking plans throughout the neighborhood,” said Evan Regan-Levine, EVP Strategic Innovation and Research. “Our investment in next-generation connectivity infrastructure will further cement National Landing as a premier global destination for entrepreneurs, universities, and global technology companies to ideate, innovate, and scale globally.”

Matt Kelly, CEO, added, “We pursued ownership in spectrum to accelerate the roll-out of a ubiquitous 5G network in National Landing. We are eager to attract best-in-class service providers, so that our customers – the people that live, work, and play in National Landing – have the connectivity tools needed to innovate in an increasingly digital and flexible post-COVID economy.”

[thepupil]

In case AMZN's committment to National Landing was in doubt, they are buying and demolishing a hotel (for $150mm) next to HQ2 to make it bigger.

 

The site was always part of Amazon’s HQ2 plans, but the hotel remained the last holdout, and it appeared the company would just build around it......

 

Amazon’s HQ2 is currently in the midst of its 2.1 million-square foot Phase 1, which consists of two 22-story office towers plus retail, and is situated to the south in Metropolitan Park, land that Amazon acquired earlier this year from JBG Smith for a little under $155 million. The project is projected to deliver by 2023.

 

https://commercialobserver.com/2020/09/amazon-acquires-pentagon-city-hotel-for-148m-setting-stage-for-next-phase-of-hq2/

[bizaro86]

$100MM per acre...

[thepupil]

https://www.bisnow.com/washington-dc/news/office/walmart-labs-putting-full-herndon-building-on-sublease-market-as-it-shifts-to-remote-work-106189?utm_source=outbound_pub_7&utm_campaign=outbound_issue_42573&utm_content=outbound_link_10&utm_medium=email

[LounginMKL]

Pupil- thank you for the write-up.

 

I wonder if the recent Big Tech land-grab in NYC would pull the demand away from National Landing.

 

Excerpt:

After Amazon bought the Lord & Taylor building, it announced in August that 2,000 employees would eventually work there, increasing by half its current tech work force of 4,000.

 

Amazon now has eight office properties in New York, most of which are clustered in Midtown. The company recently expanded outside Manhattan, leasing space on the Brooklyn waterfront for its Amazon Music team.

 

“We know that talent attracts talent, and we believe that the creative energy of cities like New York will continue to attract diverse professionals from around the world,” said Ardine Williams, Amazon’s vice president of work force development.

 

Source: https://www.nytimes.com/2020/10/13/nyregion/big-tech-nyc-office-space.html

 

I know a few software engineers in NoVA. When I asked them whether they are interested in working for the Big Tech (albeit 7-10 years ago), they gave me blank stares. I'm under the impression that once you have a Security Clearance, there is little incentive for them to leave the gov't/ gov't contracting ecosystem. They are well-paid, have job security, good work-life balance. I wonder if National Landing HQ2 will be limited to initiatives that sell AWS to the federal government.

[thepupil]

I don't really see it as zero sum. AMZN has committed to 25,000 jobs there (there are only at 1,000 now) and has demonstrated that commitment very recently by voluntarily expanding the campus by paying up for some very expensive dirt (the hotel). Virginia Tech's campus was just approved. I see no evidence of AMZN pulling back from their commitment. 

 

I think it's hard to argue that having 25,000 people making an average of $150K, working (at least part of the week) next door to your asset base / development pipeline won't be a good thing. there's also lots of public $ going into the area for infrastructure, metro, stuff, making it less damn ugly, etc. 

 

National Landing/DC area will be a metro-connected dense millennial gen z or whatever playground where you can code to sell cloud services, lobby, lawyer it up, kill people with drones, save the world working at a non-profit, etc. and JBGS will probably benefit from that...eventually.