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Will JBG Smith End Up as the Winner in the Amazon HQ2 Race?

Amazon would help JBG Smith create a new image for its Crystal City office portfolio.

As commercial real estate professionals, economic development officials and others eagerly await Amazon’s decision about which place will snag the e-commerce giant’s second corporate headquarters, more eyes are turning to one East Coast REIT as a potential winner of the $5 billion, 50,000-job prize.

At this point, no one knows where Amazon HQ2 will land, but rising speculation centers on one candidate—Northern Virginia’s Crystal City neighborhood, just south of Washington, D.C. And JBG Smith Properties, whose headquarters is in nearby Chevy Chase, Md., stands to benefit tremendously if Amazon selects Crystal City, as the REIT owns more than 20 properties there comprising over 7 million sq. ft. of office, retail, multifamily and hotel space.

JBG Smith is at the forefront of a massive revitalization of Crystal City, dominated by outdated office buildings, into a “more vibrant” mixed-use center—the sort of place that might appeal to Amazon. The Crystal City makeover plan envisions 5.3 million sq. ft. of net new office space, 7,600 net new housing units and 650,000 sq. ft. of net new retail space. The REIT has 17.2 million sq. ft. in its development pipeline, primarily in Crystal City.

Given that the D.C. area has emerged as an Amazon HQ2 favorite, JBG Smith’s Crystal City stronghold appears to be a key contender for the 8-million-sq.-ft. Amazon project, says Danny Ismail, office analyst at Green Street Advisors LLC, a real estate research and advisory firm based in Newport Beach, Calif.

Crystal City checks off a number of the attributes Amazon is seeking for the HQ2 site, Ismail says, including:

  • Urban infill location.
  • Proximity to public transit and an international airport. Crystal City has a commuter rail station and is within a mile of Reagan Washington National Airport, which has limited international service, and within 30 miles of Dulles International Airport, a major global hub.
  • Space for a campus-like environment.

Noting that JBG Smith canceled its October investors’ day, pending the HQ2 verdict, Ismail says that “the near-term direction of the company is highly dependent on Amazon’s decision.”

Even if the online giant bypasses Crystal City, JBG Smith could still end up a victor. That’s because it’s the largest corporate landlord in the D.C. area, which is home to its entire 20 million sq. ft. mixed-use portfolio—and where three of the 20 Amazon HQ finalists are located.

JBG Smith isn’t commenting on the recent buzz about HQ2. But in a second-quarter report to investors, the REIT said its footprint “presents a compelling opportunity for any large employer, especially one seeking a deep pool of educated workers with a large inventory of affordable housing and office stock.”

“Until the process is concluded,” JBG Smith said of HQ2, “we will repeat that our focus is to put our best foot forward, expect nothing, and hope for the best.”

Fueling speculation about JBG Smith’s potential windfall from Amazon HQ2 is a July 2018 media report conjecturing that Amazon CEO Jeff Bezos, the world’s richest person and owner of The Washington Post, might have his sights set on buying the REIT.

JBG Smith was spun off from New York City-based REIT Vornado Realty Trust in July 2017. Later that year, the Third Avenue Real Estate Value Fund snapped up $10 million in JBG Smith stock in a bet that the REIT’s fortunes will rise if Amazon picks Crystal City. On Oct. 25, JBG Smith’s stock was trading at around $37.50 per share, down slightly from its all-time peak of $38.55 in June 2018. Some analysts say the stock is currently overpriced.

In terms of the D.C. market, JBG Smith is the most “direct” way to “play the Amazon HQ2 lottery,” Ismail says, but two other REITs—D.C.-based Washington REIT and Boston-based Boston Properties—could have an edge as well, thanks to their D.C. exposure.

“It seems only logical that Amazon coming to Crystal City has excellent benefits to JBG Smith and the entire Crystal City submarket,” says REIT analyst John Guinee, managing director of St. Louis-based brokerage and investment banking firm Stifel Nicolaus.

But Guinee wonders whether JBG Smith has been negotiating with Amazon from a “position of strength” or whether it’s going to give office space to Amazon to boost its Crystal City land holdings and multifamily properties.

“JBG Smith inherited a very tired, old office portfolio from Vornado,” he notes. “Without Amazon, they have a tired, old office portfolio and a lot of land in secondary locations. With Amazon, they still have that old portfolio, but somehow it doesn’t seem as old, and they have a much better land position.”

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