The Shifting Landscape of Office Districts with Evan Regan-Levine​

Speaker 1 (00:01):
Hello, and welcome to In The Loop, the podcast series by LoopNet, where we explore some of the stories, ideas, and the people behind the world of commercial real estate. I'm Phil Hazelhurst, and today I'm here in Northern Virginia, in Arlington, or more specifically, I'm actually right in the middle of, uh, an exciting new project called National Landing. Uh, and what's happening here at National Landing, it's really fascinating. Effectively, uh, an entire district or kind of town zone has been, uh, reimagined, rethought and is being, uh, redeveloped from the ground up at times. Uh, and all of that's being done with modern principles, uh, in terms of the workplace, but also the way that people live and relate to their work in the towns and the spaces that they occupy. So, I'm here today to meet with Evan Regan Levine, and he's the Chief Strategy Officer at JBG Smith. JBG Smith is the company behind all of this regeneration and redevelopment. And so I'm really interested to meet with Evan and find out more about the ideas behind this place and, uh, what it takes to think about a project of this scope and of this scale. So, uh, I'm gonna head inside meet with Evan, and we'll get started.

Speaker 1 (01:23):
Welcome to In The Loop. Thank you. Um, I'd love for you to start by telling us a little bit about this place. Where are we? And, uh, what's the story of what's happening, uh, here all around us?

Speaker 2 (01:34):
Sounds great. So we are sitting in the, what we call our experience center, which is really a storytelling room and space that we have at the center of the neighborhood called National Landing. National Landing is the neighborhoods of Crystal City, Pentagon City, and Potomac Yard, together as one large market. It's a pretty much a city scale real estate project

Speaker 1 (01:51):
For somebody like me who's not in in that world in the same way that you are, can you just describe some of the, uh, some of the things that go on behind the scenes when it comes to approaching a project like that? How does it work and what are you doing?

Speaker 2 (02:02):
I think the reason it works is because it's that scale, and I think this is a, a fascinating one, but just to understand a little bit of background. You know, we're sitting, you know, Arlington, Virginia, and part of the project actually sits in Alexandria. So we straddle two different jurisdictions, a county and a city, and we are immediately adjacent to Washington DC so right across the river. And this was a project in a place that had its genesis in the 1960s with the idea of expanding federal government, taking and building out new low cost spaces and land that had largely been industrial, we're next to Reagan National Airport, which was built and expanded on fill into the water. So this was a place that was sort of this interstitial place between, you know, old town Alexandria and Mount Vernon and the city. And it had its evolution, but its evolution was really around this notion of 1960s Euclidean planning principles.

Speaker 2 (02:49):
So people said, I'm gonna get in my car, I'm gonna drive to the office zone environment, and I'm gonna actually, and we'll talk about this a little bit later. I'm not gonna even leave the conditioned spaces to do my shopping, to do, go to restaurants, get launched, do anything. And so it evolved over time to be this effectively sort of office park outside the Pentagon, which we're also next to, next to the Potomac near the Centers of Power. But it was never really designed around people focused planning. And so the reality is that worked really well up until the base realignment and closure process, uh, which really impacted a lot of military facilities, DOD facilities, where they moved the military out of leased space and into own space. And that created both an opportunity and a challenge for this market, which had historically been home to groups like Patent and Trademark Office, and largely Department of Defense and others, that it had to be reinvented and reimagined in many ways.

Speaker 2 (03:37):
It was a shock to the system that was similar to what the rest of the world would go through with the COVID to 19 pandemic later on. And it created an opportunity because it created a lot of distress in this place. It was an office market that just didn't have anything else to offer. It didn't have residential, it didn't have retail. It needed to be reinvented, but it had extraordinary bones. And it's hard when you think about, as a real estate investor, targeting a single asset in a place like that where you can't change the tenor or the character of the place because you control one asset. You had to be able to have this unique scale and control position to be able to change that neighborhood, which was this struggling office park in the Potomac into something that would be viable for the future.

Speaker 2 (04:16):
And that's where when we had the opportunity to come take this project as a whole, through this merger that we did the spin merge with RNA in 2017, we jumped at the chance to have the control because we could take a whole city. And that wasn't just Greenfield, by the way. It wasn't saying, oh, we'll go develop the perfect city from scratch. It was, how can we reimagine this place that's embedded in the core of the nation's capital or the capital of the free world? However you wanna think about it. That was a really exciting challenge.

Speaker 1 (04:42):
And, and so, um, when you, uh, when you approach that reimagining process, uh, going from, as you were describing it, a ki a kind of a one purpose zone into something new, what are the considerations? What are the trends, the, the, uh, the, the influences, uh, on the decision making process around those plans?

Speaker 2 (05:07):
So the first thing we knew we had to do when we started looking at this was it had to go from being a strictly office environment to a mixed use environment. And that today sounds, you know, very straightforward. That's the simplest thing that you'd wanna do. But it was challenging in that we had to find ways to blend that with an existing urban core and urban fabric. And so the first thing that we did is we figured out where can we take our office inventory, which was pretty massive. It was over 7 million feet that we controlled the loan over 65% of the market, I think, at the time. And we figured out which buildings are functionally obsolete, which can we take offline and reduce that office inventory, which is, by the way, something that we've been doing steadily that the pandemic, I'd say accelerated. But at the same time, we'd always had this view that this place had too much office, not enough of other uses.

Speaker 2 (05:49):
So we took some office offline with the goal of creating multifamily first. We knew we had to have people live here. Then we knew that if we were gonna have people live here, we had to replan the retail environment. One of the challenges in this place was that a lot of the retail was below grade, and it was sort of a fad, obviously, from the sixties into the nineties, not only to sort of emulate the idea of an enclosed mall, but to do these kind of underground shopping complexes. And over time, it really hadn't worked. It was an idea that it was interesting. And it's interesting in places like, you know, Toronto where it's cold Yeah, more of the year. But here we generally have four seasons. People

Speaker 1 (06:20):
Don't really wanna be underground .

Speaker 2 (06:21):
They wanna walk around, they wanna be outside. It wants to be a real city. And so that had largely failed by the time we got here, but it was the idea of saying, how do we bring that retail to the street level and pair it with this new concept of adding housing into the market and do it largely on office sites or in front of office buildings, and in that existing fabric, because we knew that for the retail to be successful, not only did it have to have anchors like grocery that could serve the neighborhood, but it had to be anchored by a retail main street. And that was another hierarchical challenge for us in understanding. And you look at the floor map, you know, most office parks don't have main streets. It's really challenging. They were built, you know, with this sort of Corbusier idea of these, you know, garden cities and these like perfect functional machines for living that were really designed around, again, how do you move cars efficiently outta spaces?

Speaker 2 (07:04):
It wasn't about where do you need to create that main street. So we targeted one street, and we focused very heavily on that street, and a couple that sort of branched off of it to create that main street density and fill in what we called missing teeth in the streetscape, where there were holes, whether it was for loading docks or office buildings. And we found ways to introduce, in our plan, new multifamily housing, new retail that was in front of those buildings, or reconfiguring building lobbies. So they weren't set back in these big suburban drop offs, but instead came out to the street. And that's the plan that we've largely followed. But it was important for us to have that plan in place so that when an anchor like Amazon came along, they could see that there was a vision for this that was more than an office park.

Speaker 1 (07:42):
In a way, this is a, it feels like a kind of reversion to an older way of, uh, planning, uh, a a town or a place where people live and work. You think about, um, European cities and, um, this kind of mixture of, uh, workplace and retail place and, and leisure all being blended into one. It's quite common, and it feels like this is in a way like a a a kind of return to that, but obviously with new and modern ideas. So tell me about some of the modern and kind of future forward influences on, on planning, um, on planning spaces and places like this.

Speaker 2 (08:17):
I think first, you know, one, I would just wanna comment on your initial sort of remark there. I think you're totally correct, and I think that we have gone through a period, and this is just sort of stretching back of embracing humanity and design

Speaker 2 (08:29):
And making human-centered design important. And there was a period where we wanted to force, you know, following the industrial revolution, we had a lot of sort of planning and architectural design principles around optimization, around optimizing humans as components of a machine. And that machine really lent itself to productivity and to the sort of embracing the factory model and applying that not only to office space, but to entire neighborhoods. And this was a place that was built for efficiency, for cost, for speed. It was a machine. And that machine worked for a number of years, but it, its flaw was that it lacked the humanity that informed earlier iterations of, you know, city planning, design, architecture, and the opportunity here, and which I think you're seeing obviously permeate our space in general as real estate developers and planners and designers, is that you have an ability to bring that humanity back in.

Speaker 2 (09:11):
And so a lot of the, what we would consider now, future looking, future, you know, proofing types of design, we do things like one of our multifamily towers that's sitting right of the window outside us embraces biophilic design. It has a terracotta facade. We have extensive planting, network irrigation, et cetera. The biophilic design, by the way, tested. We do focus groups, research, things like that on design tested better than anything we had ever seen. Wow. And we took that super block that was a very efficient block where that building is built. It was an old government office building. It took up a huge street with no breaks in the street at all. So if you're a pedestrian and you're walking, you go past this big unbroken, flat facade of a government building because all the life was meant to happen in the building or, and afterwards at a differently zoned place that you would leave this place to get to. And so we split that block in two, we created a curbless street in between the buildings, and we embraced the alley condition that largely in this place had been kind of subsumed into its underground mall condition. Instead, we broke that up and we created these shorter, smaller blocks, and we actually put a lot of that neighborhood serving retail into the alley. And we created this condition where it felt much more livable, much less efficient,

Speaker 2 (10:19):
But it was trying to reduce the scale of a place like this, while at the same time at making a 300 foot tall tower with a view of everything around DC feel like something that was manageable for a person to interact with. And I think as we talk, you'll hear that as sort of a recurring theme of our job, was to take this really efficient machine and break it a little bit Mm. To make it a little bit more relatable and

Speaker 1 (10:39):
Human. If we zoom out and we think about the broader picture, uh, not just in this place, but in general, um, it strikes me that, um, many, um, urban places, um, will, uh, identify with some of the things that you, you've been talking about very large scale buildings, um, that are designed with the inside in mind rather than, you know, the gaps in between. What do you think, uh, how do you feel about the future of, um, of downtown office districts in general, you know, business parks? Do you, do you feel like this kind of transformation is scalable and can happen nationwide or, or globally? How do you, how do you see that?

Speaker 2 (11:20):
I do. I, you know, I think that we were lucky in a way that this place, like I said before, had already been through that demand shock. And so it gave us a headstart on trying to figure out how we could remake it. But I think there are some key ingredients that are challenging for a lot of these places, and challenging to make the model scalable. The first is you have to have a lot of scale and control. I mean, we could not do, like I said, what we were talking about here without lots of different control. And we did things like I'll, you know, we'll talk about, there's a, a place called the Waterpark, which was an underutilized public space that we, it was privately owned and it was a fountain and some hardscape, and it was not an appealing or attractive place. It was a lot of concrete aggregate.

Speaker 2 (12:00):
And we said, how do we introduce these little kiosks for retailers? And they were retailers who typically you wouldn't get in a big new development because they typically were local operators, a lot of women, minority owned, you know, smaller groups who had trouble getting access to capital. We looked at this and said, let's create an incubator and let's make that incubator for all these kind of local, interesting businesses, and let's put that in the park. Well, that's something that, you know, at best, that's gonna be break even. You know, people pay us, they don't pay any fixed rent, they pay a percentage of their sales. So it's a place that can help people get their start. But that's very important for making it feel like a neighborhood, but it's not gonna make a lot of money.

Speaker 3 (12:32):
Mm.

Speaker 2 (12:32):
Same thing when we were doing our, you know, we put a movie theater in an Alamo theater. We tore up a deal with another nationally known, you know, cinema chain. We had a national coffee shop in place. We went to a smaller operator. And the reality is, those operators typically don't have the same credit. They don't pay the same rent. Oftentimes they'll fail and you'll have to replace them. And we learn those lessons. But without that scale and control, it's very hard to make those kinds of decisions, because if I just own that park, that would be a terrible economic decision. I have to own a lot around it to say, I have to bet on the uplift of the entire place, and I can make those decisions for a neighborhood. And that's where a lot of big downtowns in other districts, you don't have that control player who says, I can make these calls.

Speaker 2 (13:10):
I can make these decisions, these economic choices. Because if you're a city, you can't force the owners to do it. And if you're owners, you say, well, why am I gonna be the one who takes that economic hit? And I look at, you know, one project I really admire that's local is the union market district that Eden's did. They were, AMA is amazingly able to build out a food hall, but they also bought up a lot of density and development rights around it. They created the retail place, they sold the density off, but they now, there are a lot of different owners, but they controlled enough to shape the place and add that value early. I think that's a trend that you're gonna have to see. So the business park has to be, have that concentrated ownership at scale to really see a transformation that can happen at that city level. So I think there's hope. I think there's a playbook. I think we've shown in some ways, without being arrogant about it, that you can reimagine these places and have success with attracting office tenants and apartment tenants and retail. But it has to be something that's done really intentionally, because it's not as simple as let's just do surgery on one building.

Speaker 1 (14:07):
And it requires some bold decisions because some of the things that you just described there, they may feel counter, uh, to the kind of usual business logic or kind of economic logic of, um, of monetizing real estate. Right. So, um, JBG Smith is a reit, you know, you're investing in this place. Tell me about, um, uh, the broader strategy for JBG Smith and, uh, and how this approach, uh, uh, uh, is being implemented across the whole portfolio.

Speaker 2 (14:34):
Sure. So, you know, people are often curious if we say JBG Smith is a reit. Well, JBG has had so many different iterations. It was founded, ironically, it was a law firm that then started doing syndicated real estate deals. And then in the nineties raised closed-end private equity funds. We raised nine closed-end private equity funds before going public. And to us, we're largely capital agnostic. You know, you'll still see us do a lot of joint ventures or syndicate a equity. We're not strictly oh, a re in the REIT sense of that's what we are. That's what defines us. I think what defines us is we're very skillful allocators of capital. You know, my partner George Xers, our chief investment officer, talks about this approach a lot. But, you know, we've not been afraid to recycle out of an asset class when it's, we think it's fully priced and into something that's on its face a lot riskier.

Speaker 2 (15:15):
You know, you see us right now acquiring office buildings because we think we can implement plans like this and change places. Well, a lot of people don't wanna acquire office buildings right now, but we're out doing that. And we're selling apartments where we feel like we've added a lot of the value, and now we can have an opportunity to exit those decisions strategically come back to that DNA of being capital allocators and being disciplined about values, about economics. And so, even when you see us take a project like this, this was a great fit for REIT permanent capital because it gave us the time horizon we needed, you know, our funds were 10 year closed-end funds with extension options, but we had a really defined period of when we had to get in, develop, improve, do whatever to add the value and then get out.

Speaker 2 (15:55):
This was something that because of its scale, that permanent capital structure of a REIT gave us the flexibility to do a project like this, take it on in its size, and really make those commitments. But every decision we make is still economically motivated. And that's, I think, where a lot of people get lost on projects like this. Just because I'm talking about a break even, you know, waterpark incubator doesn't mean that I'm not concerned with extracting the best development yield possible out of our apartment buildings. In fact, that's why I do it. Mm. So every time we do a project that on its face is placemaking focused, that is important because if I can place, make in 5,000 square feet, but add, you know, 25 cents of rent or shave six months off of downtime for 6 million feet, I'm gonna go do that because I know it's the right investment. But everything has to be justified at an economic level, not an emotional level. Mm. And that discipline is something that's helped us, I think, be really successful in these kinds of projects.

Speaker 1 (16:42):
And that's where that breadth in the project, the, and the control that you talk about, really starts to yield a huge benefit because you can make those balancing decisions, you know, break even here, but it drives great value over here. Mm-hmm . Because of the, the overall effect that you are, you know, the, the place that you are creating. Exactly. So, uh, something you mentioned, um, uh, just now was, uh, about, uh, acquiring office buildings and of course, a, a big story in, uh, office at the moment is, uh, repurposing, you know, taking office buildings, turning them, turning them into something else. Tell me about, um, how you see that and um, uh, and what you think is going on in that, in that space right now.

Speaker 2 (17:22):
Sure. So I think that, you know, again, if you bring it back to the neighborhood for a second, just 'cause we can actually point at some of these examples. Think of this as a lab. We started out with all office over 7 million feet of office today on an effective actively leased basis. We're around four and a half million feet of office. So we've taken a lot of office and taken it offline and converted it to other uses. And I think it's one of the benefits of our firm that I talk about a lot is our vertical integration. We have our own development team, our own construction management team, our own office leasing and management investments group. We understand every aspect. We can look at a lot of different optionality. And for us, optionality is always the buy word. We wanna make sure that we can really think about each project and, and think about all the different directions it can go.

Speaker 2 (18:00):
And in this neighborhood, again, coming back to that point, we had so much office that some office buildings we knew were there, were unsavable. And I think you see a lot of people convert buildings and it makes no sense to convert them because they don't work well as conversions. They're economically sort of, let's call it marginal at best or at worst, they don't work. The floor plate's too deep. The building presents, you know, the wrong ceiling heights, the wrong, uh, you know, challenges with a lot of excess space. You can't figure out what to do with. Those are real problems with doing that. And I think where we looked at some of the buildings that, that were, that fit that profile, they became land and we underwrote those as, as developed land with some, you know, interim cash flow, basically scraped the cash flow, get the building entitled and develop it.

Speaker 2 (18:38):
And that's what happened with, you know, buildings like our 1900 apartments right outside the window there. That was an obsolete building that we scraped next building, sitting right behind us. That was a building 1770 crystal drive that had really good dimensions. We were actually studying it for a multifamily conversion. It had a great quarter perimeter depth, it had good glass line, very regular floor plate. But um, when Amazon came along, they said, we need a building up and running in 18 months. We said, okay, great. That's an area where we had savings from using that structure and the building was good enough that it could be converted. And so we re-skin that released at his office. We just about two weeks ago got approval to, um, take two other office buildings that were functionally obsolete, but that were long and narrow skinny floor plates. And we entitled those one for a conversion to hotel, the other for conversion to multifamily.

Speaker 2 (19:22):
And so we're out getting those projects ready to go right now, and we're starting on that process. So I think we look at this from a couple different lenses of one, what can you do with the structure B? Where does that structure yield actual savings? Can you use the parking? Can you salvage the structure? Is there value in that? But also it'll come back like everything else to economics. And here, you know, we have the ability to really be flexible in thinking about our basis just given how the acquisition happened. But when we're doing new acquisitions, you know, we bought an office building an office park for the first time in 13 years, you know, absent this merger deal. And that was in Tyson's Corner, a place called Tyson's Dulles Plaza. That's a three building complex. And one of the things we like about multi-building complex is what we like here can control the inventory, control our own supply.

Speaker 2 (20:04):
So we realize, and I think this is a realization that a lot of people took a long time to come to office. Demand is not returning to where it was pre COVID. It probably wasn't. And we can talk about this ad nauseum. It probably was never there for the past decade even leading up to COVID. And so that realization that there's probably a smaller net demand pool means that you want to be able to have some office that works, but also create that optionality for where it doesn't. And we can control a multi-building complex. We can shift tenants, we can move them around, we can create development opportunities, but you can't do that unless those buildings are really, really, really inexpensively priced. And that's, I think, been the big change that we've seen really over the past, call it 18 months, I think, is that you've finally seen between a realization that, you know, rates have been higher for longer, banks have a lot of underperforming, um, office assets that they've taken back from their sponsors. They need to get outta the system. And that office values may not ever rebound at the same level. There's a finally a movement at a low basis to sell some of these assets that actually opens up that optionality. We talked about if the building has the right physical characteristics,

Speaker 1 (21:04):
Amazon, of course is a key part of, uh, of this, uh, of this place, of this neighborhood. Um, and it, it seems like having, uh, an employer, an organization like Amazon on board, uh, in a place like this would be a huge part of the recipe for long-term success. Um, one of the considerations when it comes to attracting a business like Amazon to get involved in a project like this, what are they looking for? What do you need to offer to them? What's their vision and how do you align yourself with that?

Speaker 2 (21:34):
Um, you know, it's funny, I'll never forget first, um, meeting we had with Amazon, John Sher's, their retired, now retired head of global real estate. John is an incredible visionary. And even with that, John walked in and I'll never forget, he looked at me and Matt Kelly and Kai Reynolds of, and he said, alright, I get it. But this place, it has access to talent, it has infrastructure, it there's, but it has no soul. It's like, it is tumbleweeds. What are we gonna do with this? And having that plan that we talked about helped get 'em there. But I think the first part is having a vision that you can actually convince someone is real. And that comes back to sort of again, the economic health of the sponsor. Your good partnerships with jurisdictions. I mean Amazon, we talk about bringing them here. That was something that we did in conjunction with Arlington County, the city of Alexandria, the commonwealth of Virginia.

Speaker 2 (22:22):
Having those economic development relationships, know your economic developer, those are the relationships that will go massively far and away to advancing not only being able to win those anchors, but also to leverage their impact. Because while Amazon brings, you know, 25,000 plus jobs into this market and a lot of growth and an amazing Marques name, and they were a credible catalyst early in our project's history, they were just that it was a catalyst because they also brought with them state investment in building out a major research university. We have the first, um, building in the Virginia Tech innovation campus. The southern end of the market just opened up unbelievable facility focused on masters and PhD level computer engineering, STEM fields, advanced computing. They're really also focused on creating clearable talent. We'll talk about defense tech in a little bit, but the idea is that they brought investment in that university. They also brought investment in building a pedestrian walkable bridge from this market into Reagan National Airport, a new train station for Amtrak and VRE, new metro entrance under construction right outside. Those are impacts that, you know, I think if you were, when we, we sat down and looked at this, we would say, alright, state, city, et cetera, you should do all these things to enable our development because they're really fundamentally good infrastructure things to do.

Speaker 2 (23:30):
But in the list of priorities and talking to officials, it's always hard to say, well do it for my project when there's a need for those kinds of investments everywhere. Amazon was able to come in and say, we want this. It's part of our deal. Don't give us a bunch of, you know, money. Like a lot of jurisdictions throwing at a company that's one of the most valuable companies on earth. They said, invested in the infrastructure, make the place better. Let us be a catalyst for positive change. That's why that's so important. And they brought with them some pretty extraordinary infrastructure investments.

Speaker 1 (23:58):
Those must have been nerve wracking meetings for you meeting with Amazon and talking to 'em about that vision. Um, uh, there's only a handful of businesses around who have that kind of influence and that kind of pull, um, uh, what's the backup plan? If you don't find someone like Amazon, what do you do instead?

Speaker 2 (24:16):
Our original anchor plan was actually to go get Virginia Tech. It was to get a university Yeah. Of some kind, because we thought that, you know, neighborhoods like this. I think you have to think about it in two ways. One is that the anchor can take multiple forms, especially today. It doesn't have to be a large employer. It can be a cultural venue, it can be a university.

Speaker 2 (24:32):
And you should be really active and thoughtful about how you get creative to enable those uses. And that's an area where if you're going apply subsidy to something and you have a project that's of sufficient scale to warrant some kind of either internal subsidy from a company perspective or external from a municipality or the state or some other entity leveraging that, I mean thoughtful and creative about, hey, it's not just about an employer in an office building. It could be about a research university, a cultural facility or venue, some kind of transit use. Anything that differentiates that place that was always kind of plan a Amazon was not in our plan when we acquired this. They showed up and it worked because we had continue consistent ownership and a good vision and a plan and whatever else, and great partnerships. But we were always going to go get some kind of anchor and find a way to drive subsidy to that anchor to help reinvent the place.

Speaker 2 (25:17):
And the other reality is that honestly, some of it was about demand for housing. When we talk about the fact that, you know, we as a nation are underbuilt from a housing perspective, we have a massive housing production crisis in this country. And having the ability to take projects offline, reduce that denominator of office inventory to shrink that vacancy rate, it's all about that. Then taking that and creating housing or other uses. So that was our other big plan of just saying, look, there's a need for housing. There's not as much of a need for office. Let's go create housing and let's try and anchor it. And that's, I think you could have done those things and can do those things even in places where you're not gonna be able to attract an Amazon to be able to launch like transformation.

Speaker 1 (25:55):
I'm very interested in what you were just saying about, uh, about housing demand and um, and kind of that market being underserved, I suppose through the lens of, um, of building mixed use developments of creating mixed use, um, places. It, what, what are the, what's the changing relationship between, uh, where people live and where people work and how's that influencing, uh, how you develop in a, in a place like this?

Speaker 2 (26:19):
Absolutely. You know, I think about a lot of office parks when you approach that vision of sort of what do office parks wanna be? Well, they were built in places that had good accessibility because you had to get people to them. They were generally built for a long time in these very park leg bucolic settings. And they were generally built, even if they were not mixed use in their character, they are in areas that, from a Euclidean zoning perspective, are somewhat mixed because they're often in those residential nodes. And so I think the housing demand for infill housing, you know, we can't sprawl forever. We can't continue to just sprawl until, you know, you look at cities like Dallas, which has been very successful in many ways because it has produced housing. But Dallas has sprawled to the extent that it's almost reaching the border of Oklahoma.

Speaker 2 (27:00):
And at a certain point that means you have to create other nodes closer in and it becomes, instead of a city, think of it as, you know, the city is the sun and the planet's orbit. It's really these constellations where you have a bunch of different suns and you have lots of smaller orbits around them because the cities have gotten so large. I think the potential with office parks and reimagining them is that you have the ability to add that housing near continued commercial uses, but in infill types of environments. And we think about, you know, the demand for shorter commutes for the 15 minute city. There are ways to accomplish some of that in existing office buildings that exist in those kinds of settings already. And it's not just about, imagine the New York high rise that you can convert into apartments or condos. It's saying let's look at a suburban park and figure out, can I take one of the buildings down?

Speaker 2 (27:43):
Let's say it's a five building park. Let's keep three of them as office. Let's take one of 'em down and build town homes. Because there's tremendous demand demographically for an own front door experience. And those low density, multifamily or townhome forms or single family, even those generally pencil today, they work in an environment where it's more challenging to make other kinds of development work. Then can you add some denser multifamily to the mix on that fourth building in the five building park? And suddenly you have something that looks a little bit more like a real city where those town homes might border other town homes or single family houses and they help transition that density up to then the wood frame in a modest multifamily building all the way up to the concrete office building, which at some point can either stay office, those three or one of them might become a conversion. But you can create that sort of environment in places that are desirable. Those are the places, you know, most of those office parks that are now struggling aren't really good suburban locations that are close to amenities, close to schools in good neighborhoods, but they need to be reimagined. And that's, by the way, not just a capital or development problem. That is also a jurisdictional problem. And you need to have jurisdictions and authorities and who are willing to be flexible

Speaker 2 (28:45):
And allow for that transformation to happen because they can't stay off as buildings forever and they're not just gonna revert to the earth. So there has to be some great middle ground at some point where you can have supportive jurisdictions to help create that change.

Speaker 1 (28:57):
So let's talk more about supportive jurisdictions and policy and, and its influence on, um, on, on commercial real estate and placemaking. Tell me about, um, what, what a partnership between a business like JBG Smith and um, uh, an end user like Amazon and uh, uh, uh, policy makers. What does that look like when it's working at its absolute best?

Speaker 2 (29:20):
When it works at its best, it delivers the most important thing possible in that kind of relationship, which is clarity and certainty. It's all about if I'm a business like Amazon and I need to grow and I need to have space for my employees and I need to move at a very fast pace, I need to know that there's a certain process that yields clarity. If I start a planning exercise five years out, I mean, the reality is our business is a business that moves in increments of years. It doesn't move in quarters, it doesn't move in weeks. But to make those decisions the right way, you have to have a lot of certainty because you're investing massive amounts of capital. And so when that relationship works, and then it always provides clarity of process, it's not, well you could be approved in four weeks or you could be approved in four years.

Speaker 2 (29:59):
It has to be this is the process, this is what you can do and that there's flexibility built in. So that's kind of the number two thing, is that you have to have the clarity and certainty that there is a process that will yield a result, but that you can be flexible around the edges and saying things like, Hey, let's take this building behind us that we were exploring for multifamily conversion, but we're gonna change it back to office because Amazon needs that. But we're still adding, you know, dollars and time to repurpose that building. We're still helping to build up economic vitality and vibrancy. Or it's things like examining our work at Potomac Yard where we were saying, look, we need to create some lower density forms that we can build now that can get housing into production that can create critical mass and support retail around this Virginia Tech innovation campus. It's not being locked in where it doesn't work as saying there's gonna be this massively uncertain years long, millions of dollar process that is subject to massive amounts. I'm not against public input, but subject to massive amounts of public input that put a lot of dollars and time at risk. Mm-hmm

Speaker 3 (30:51):
.

Speaker 2 (30:51):
You wanna have defined process, but you also have to have one that says, look, the economic reality has changed. Let's explore converting that building instead of tearing it down. Or let's look at reducing something that I know in the grand plan was a 30 story tower to be a seven story tower because it's something that we can use to deliver housing and retail today and move that 30 story tower around the corner. That kind of flexibility and, and certainty and clarity or the sort of three hallmarks of really successful relationship with local government.

Speaker 1 (31:17):
So, um, imagine, uh, you are the mayor of a, a city or a town for a day and you have a chance to implement some changes. What would be one of the kind of first zoning laws or planning rules that you would, uh, you would change?

Speaker 2 (31:31):
I would have, I would, I would define timelines. I think it's really important. I would define timelines to say this is your process and I would make the it very call it very form-based in a lot of ways is the right way to think about it. But also to say if you build housing and it fits these general characteristics,

Speaker 2 (31:49):
That's a public policy priority. I wanna see that housing production is the only way to drive down housing costs. It's not stopping housing, it's not freezing housing, it's not putting rent control on. It's saying we need production. It's supply and demand like anything else in the world, it's OPEC pumping oil, it's, you know, Porsche making cars. It's whatever you think about in any business. It comes down to that. So if I'm the mayor, I wanna make sure I can produce housing and I can make it flexible to do that within the right bounds of code and planning and everything else that I wanna see in the city. So I would say flexibility around housing production. And I would demand at a certain point that there is a very defined review process and it's speedy to get to that production point. And I think you look at one of the real success stories here, this crystal city sector plan was designed to be very flexible.

Speaker 2 (32:28):
It gave us faith that we could go from office to residential to hotel and other uses all within this neighborhood. As long as the general planning goals were met, it set out really specific guidelines about what we could do on individual. It brought clarity, but then the county also stepped up in partnership with Amazon and said, we can give faster review to these projects. If Amazon needs to get people in buildings quickly, we can review it. And you still go through a rigorous code review process, zoning review process, et cetera. But it's set to a time it doesn't drag on because someone says, well I would actually like to move the open space to this side. It's bringing that clarity and certainty. That's what I would do if I were the mayor of a town. And I think it will work because it has worked where cities prioritize housing construction. Housing construction is economic development. No company, I used to do site selection work at JLL years ago. No company looks at a market and with expensive housing and doesn't factor that into their analysis. Mm-hmm . They have to see that there is housing for the people they employ at wages they pay that is abundant and delivers good quality of life. That would be my number one focus.

Speaker 1 (33:26):
Well that's your ticket then when the next election cycle comes around ,

Speaker 2 (33:30):
I think I'll stay where I am. But I do appreciate.

Speaker 1 (33:33):
So Evan, you have described, uh, the the broad plan for, uh, this site, for this place. Um, you had, you had that plan, you attracted Amazon, brought them to the table. Tell me about what happened next.

Speaker 2 (33:49):
So we um, announced our deal with Amazon in November of 2018. Incredible catalyst. And we started our plans to actually put a lot of that planning into effect into action. So that meant not only building out spaces for them, but also building out apartments and retail and doing everything we talked about. And so that was going great until March of 2020. Right. Uh, big , big change in the world. And I think, you know, we felt, although we couldn't have predicted it, we had been active sellers of office. We had been reducing our office inventory here, but it really pushed us to rethink what we were offering in the neighborhood and how that would function and work. We are always still firm believers that people would still want to gather, they would still wanna be together. And that really shaped our thinking because we'd had this plan, which we were putting into effect to build all this housing.

Speaker 2 (34:33):
We built the first two multifamily towers. We started construction on the next two, which just delivered. So we have about 1600 new multifamily units. We took the balance of the plan through entitlement to get all the sites ready to go. We started thinking about what was the next line wave of office that would come offline. But we also looked hard at our remaining office and our remaining office vacancy and asked ourselves, what do tenants want in a post COVID environment? And so we spent a lot of time back to kinda my research background researching that, asking questions, trying out ideas and thinking because people were really trying to understand it's not just about removing office inventory, there was still gonna be a need for office, just not as much as there was before. And so we took a look at our biggest kind of concentration of vacancy, which was in a building called 2011 Crystal Drive. And that building, um, was really kind of archetypal 1980s big floor plate, ugly aggregate concrete building and said, let's take some ideas from what we're hearing about what people will want. And we heard a couple things. One is beating space. You know, one, one of the coolest conversations I had through this process was with actually Cisco Systems head of real estate

Speaker 2 (35:34):
And Cisco's head of real estate gave me this great phrase. He said that offices are not warehouses for people anymore. And I thought that was really cool coming from a company that makes a lot of data center equipment and things like that. But he really had some incredible data because they, because of what they do, were able to track how people actually used office. And he said people never used it as much as he thought they actually did. He showed me all this incredible data that looked at actually we have distributed sales teams, we have engineers, people coming and going and doing client meetings who said the the office, the time the office is most used is actually when people are there meeting. So we started to examine and dig in what does that meeting look like? And it was all about companies shrinking their footprint, not having that warehouse, but they had these need for these big gathering spaces.

Speaker 2 (36:11):
Sometimes, you know, you had the big, use the big conference room three times a year. You need a hotel barroom once a year, but the rest of the time you need these other smaller meeting rooms. And so we imagine how can we take those big meeting rooms out of the office but keep them in the office building? And look, that's a really fancy way of talking about a conference center in a building. But what we heard from tenants and tenant brokers and others is that a lot of those check the box conference amenities, nobody uses them. They don't like them, they're not serviced. And we heard you need people because you know, when a screen breaks or when you need to have, you know, food brought in. It's a challenge. It's hard to do that when you go to a hotel. Someone takes care of all that, but you don't want to go to a hotel 'cause you don't need room nights.

Speaker 2 (36:47):
It's outta your office. You don't need to maybe have people stay there. So we built and are about to deliver in January this really big meeting space. And we said this big meeting space has to have small breakout rooms. It has to have really good food. So it has its own kitchen that serves it. It's gotta have professional management and staffing. We ran a procurement process to do that. But the idea was how can you have the three big 300 person meeting but also have the breakout of a hundred people into small groups? How can you have the little rooms? How can you have the private dining room? Because we heard over and over again, it's not about having the big space that's empty and not managed in the building. It's having managed high quality meeting space. That was one big one. And we put that into effect. The other one was people wanted outdoor space. They said, within my space, if it's really about convening, I wanna work and have some access to the outdoors. You know, I've come from maybe working outside beside my pool or on my apartment balcony for a couple years when I go back to the office, I don't wanna sit in this thematically sealed box that meets every kind of green rule. And it's funny, Amazon, one of the most sustainability, sustainability focused companies on the planet was insistent that they have operable windows in their space.

Speaker 3 (37:47):
Mm.

Speaker 2 (37:47):
And this is before any of this happened. And we looked at that and said, well that's gonna impact your lead scores and it's gonna be energy inefficient and challenging. And they said, we'll figure it out. We'll design these systems to make it still sustainable and work. We have to have opening windows. And that goes all the way to the top to Jeff Bezos who wanted to do that. And I thought that was so cool. And we took that learning and that lesson and combined it. So we said, how can we add outdoor spaces? The other thing is, no matter how good your office cafeteria, you know, or the coffee maker is, or you know, bar, we saw all this investment inside the space, it really kind of came back to that same theme of we need to have places, third places outside of the office, but proximate, when I meet you for a drink, I don't want you to come up to my office and meet me for a drink in my office.

Speaker 2 (38:24):
That just feels weird. And we found that that was a very human back to our point before tendency. And so we learned that if you could provide the third spaces, the meeting places, the f and b, the outdoor spaces, most tenants would drink their footprint, but they would pay more for that kind of access. They wouldn't want to be closer to it. And so we reimagined this building. We have this big meeting facility, we have a kitchen, we have two restaurants, a really intimate, you know, wine bar, Italian restaurant, that's kind of the fun place to meet for a drink after work. Coupled with a much more casual, you know, all day cafe, coffee shop, prepared food, sort of grab and go location that sits right at the foot of the pedestrian bridge to the airport. And so we took a lot of that office building offline to provide those amenities and we said, let's reimagine everything above it.

Speaker 2 (39:05):
What we didn't hear was, oh, it needs to be re-skinned and we need to do major surgery on the floor plate. Yes, there are some ideal rules around planning depths, et cetera. People were willing to compromise on that for the other amenities instead. And so what we've been able to do is we really reimagine the first three floors to create these 10 and outdoor spaces. Bitter glass, you know, newer environments for meeting, et cetera, but then keep the rest of the building largely as is. And I think that's the theme that you're also gonna see. It is literally too expensive to take entire buildings and just fully re-skin them. You at some point get to a point where the structure is not even worth it. You're really just doing it for the parking. So you may as well just build a new building. It's more about if you can surgically make these interventions deliver the amenities tenants want. And that's been very successful because not only has it helped us shrink the building from an office perspective consistent with our theme of reducing office inventory, but it's also allowed us to deliver new amenities and services into the neighborhood that line up with all the retail, all the apartments, all the, you know, grocery store, hardware store, all the things we're doing to make it a neighborhood. We're now introducing that transformation of office without fundamentally changing the office space itself.

Speaker 1 (40:07):
You mentioned about sustainability while, while you were talking there and, uh, what something that um, developers, investors, uh, owners, occupiers, everyone's gonna have to wrestle with moving forward is developing for a sustainable future, um, and designing places for a sustainable future. Um, how do you see that, how does that impact on, on a plan, uh, for a place like this?

Speaker 2 (40:30):
I think it, the core of this place is the sustainability blueprint because you can build a brand new energy efficient building and it can be amazing. But the reality is most of the built environment isn't like that.

Speaker 2 (40:40):
And I think if we think about things in notions like embedded carbon and the ability to sort of reuse all of the energy and resources that were put into building these buildings in the first place, that needs to continue to get more credit. Because I think we need to find ways to recycle, reuse and adapt versus taking buildings like these totally scraping them, demolishing them, and yes, building a brand new super energy efficient building that can happen. But we also need to make sure we think thoughtfully about how these buildings can be repurposed and reused and that, that becomes a big component of sustainability. Because the reality is we've gone through massive processes that are, you know, incredibly extractive to go build these things in the first place. It it's wasteful to get rid of

Speaker 3 (41:16):
Them. Mm.

Speaker 2 (41:16):
I think that's a incredibly simplified way of talking about the notion that I think sustainability in a lot of ways gets portrayed as ogo build the most energy efficient thing possible. It should also be portrayed as finding ways to adapt and reuse and also do things in the infill environments where people's commutes are shorter and they have access to public. There are a lot of different components to sustainability that I think get ignored sometimes when talking about new development, when infill development can really deliver on those promises.

Speaker 1 (41:43):
Um, talk to me about, uh, economic transformation, uh, and what that means to you and what that means here in Crystal City.

Speaker 2 (41:51):
Sure. So I think, you know, this neighborhood, like we talked about, had gone through this shock with, with base realignment en closure. And when we came here we said, well, we need to diversify the anchor away from just the Pentagon. And what's been fascinating is we've seen this shift now where we did that. We brought Amazon, we brought Virginia Tech, we now just given the global security environment, the defense base is growing. Defense industrial base is becoming incredibly important. But also there's been this seismic shift of defense from legacy technologies like ships and aircraft carriers to really be defense tech focused.

Speaker 3 (42:22):
Hmm.

Speaker 2 (42:22):
And so you think about the growth of companies like Andel or Palantir, you know, the shield, ai, ic name, any of these really advanced, exciting companies at the forefront of defense technology, national security technology. And we found ourselves at an interesting economic crossroads here where our neighborhood has really become a hub in many ways for defense tech. Well, why, because we have a major research university that focuses on that. We have six of the 10 largest recipients of federal defense spending in the neighborhood. The big legacy primes, the Boeings, north Ripps Lockheed, who do incredible engineering work. But then we also have Amazon. So the mixing of those things, you know, we think about this neighborhood becoming in many ways as Kendall Square is to life sciences. This is to national security and national security technology and defense technology. And that has been an economic macro shift that's happened especially in our, in our market here in Northern Virginia.

Speaker 2 (43:10):
But it's something that we found ourselves well equipped to embrace, whether it was through digital infrastructure investments here to create secure fiber networks and public 5G and things like that to have, um, provisions for onsite compute that's OnPrem that you can do in a secure way. To also having partners like this incredible company Nooks who delivers skiff f as a service, you know, secure spaces as a service. The ability to sort of, um, cater to that audience in terms of their need to do demos to meet, to do r and d, which is kind of the next future of what we're trying to think about here has been really exciting. And it's been an economic transformation that we couldn't have predicted, but that we were willing to adapt and lean into to help shape this place for that economic nexus of defense and tech that we were perfectly positioned to capture.

Speaker 2 (43:51):
And I'd say that while you can't do that everywhere, being flexible and leaning into and understanding the needs of customers at the forefront of those kinds of economic transformations, that's the way to be really successful. You might be in a market that has historically been really good at doing one thing overnight. It will have to be good at doing another. And I'd point at, you know, one of my favorite examples of that is I think one of the coolest cities in the country that has done a ton to reposition, reimagine is a place like Columbus, Ohio that's leaned into it's manufacturing past and bringing, you know, Andels, you know, new Forge, bringing Intel's chip fab, bringing massive data center construction, but also improving the place in places like Short North through infrastructure investments to link the university to the economic engine of downtown. They've been really thoughtful and they've reinvented themselves in life sciences, defense, data center, advanced manufacturing. They've done it in a city that was, many people had written off entirely. And I think it's incredible to see that. And I think that there are lots of examples where through smart infrastructure investments and agile pivoting and willingness to, you know, back the right groups and users and big bold transformation projects, you can pivot to these economic transformations and get ahead of them.

Speaker 1 (44:53):
Uh, as you travel around and, and visit cities and towns, do you find yourself kind of consistent or continuously, um, analyzing them through the lens of the kind of long-term strategy of, of the real estate and the place you able to switch that off? Or is that kind of how you see

Speaker 2 (45:11):
The world? No, I, I drive poor Caroline comes with me. She's always driven a little bit crazy by me talking about, you know, block length and the 20 by 20 vision and well, what if we could just

Speaker 3 (45:19):
Pivot

Speaker 2 (45:19):
This part? So no, I never turn that part entirely off. I, I try to do that when I can, but I just, I love cities, I love design, I like thinking about these things and I just, sometimes I get frustrated when things are done wrong. Yeah. Or I feel like there's a missed opportunity and I think that, you know, no, I, I can't turn it off.

Speaker 1 (45:36):
Um, it, and your passion for the subject really comes across. It's absolutely fascinating. I wonder, um, by way of a kind of final thought, um, uh, what, what ideas, what concepts in are inspiring you today that you, you think will inform your decisions that may come to, to fruition in five years, 10 years, even further down the line? What are you seeing out there that's inspiring you?

Speaker 2 (46:00):
You know, I think, um, one of the things that really inspires me, and this is sort of a strange one in a lot of ways, is how to rethink suburbs. Mm-hmm . You know, for a long time I devout urbanists like a lot of people in my field, and we were so focused on, you know, what can happen in the city. And I, I love that. I still always love that, but I think that, you know, we talked about it a little bit, but what can you do with lower density forms? Everyone says, well, it's the big towers and it's the glittering skyline and it's the urban density, and that's great, but most of our country is not covered in, you know, high density cities. So where I draw a lot of inspiration right now, or we're really fascinated, is how can you bring components of the 15 minute city, of the urban grid, of the urban format, the things people like the gathering places, the third places, how do you take that into the mass produced American suburb?

Speaker 2 (46:44):
And I think there are really interesting ways where when you think about some of these lower density master plan developments that they're introducing more town home forms, more multifamily forms, but they're trying to learn how to do retail in a way that translates that urban character into the suburbs. And I think, you know, you see a lot of attempts to do that and little fits and starts over the past 20 years. I think it will be fascinating to see as we reimagine some of these business parks in particular, how we take the best lessons and learnings of reimagining urban neighborhoods and take that into the suburbs. And that's something that I spend a lot of time thinking about how to bring that quality of life.

Speaker 3 (47:18):
Because

Speaker 2 (47:18):
For years we had the great small towns, whether it was here or in Europe, you see amazing little town centers that in many ways struggled and were bypassed that are now having these resurgences as people have basically diffused across the landscape and choose other places to live and wanna bring some of that same energy or want to access lower housing cost markets. How do you do that in a way that sort of breaks the rules of how a lot of the suburbs have been built for the past 70 years, but embraces some of that human scale thought process around the small town and that ethos in a way that kinda merges with new development, a lot of different things. But that's an area I'm spending a lot of time thinking about.

Speaker 1 (47:53):
So, um, couple of quick fire questions. Sure. Just to close out, um, I'm, I'm asking every guest on the, on the show about these three questions. So question one, what's your favorite city or built place on the planet?

Speaker 2 (48:07):
Oh man. My favorite city built place on the planet. I'm gonna have to go. I love London.

Speaker 1 (48:11):
London,

Speaker 2 (48:12):
I'm not pandering to you.

Speaker 1 (48:13):
I do love it. No, I'm delight to hear it. What an honor. And, and, uh, question two is why, tell me about what makes London so special. What, what compels you about

Speaker 2 (48:20):
London? I think what's amazing about London is the evolution and the different components of being a, like, it's, it's such a, it's a city that's reinvented itself in so many ways and changed. Its, its urban form, and you can find such sort of small, intimate environments that are sort of very neighborhood focused and scaled. And having a city of neighborhoods is what a lot of the way I think about DC but also with the really extraordinary historical core.

Speaker 3 (48:43):
Mm.

Speaker 2 (48:44):
And it's trite and cliched as that sounds. It's that mixing and that evolution, that constant reinvention. London feels like a lived in thing that has changed and adapted, but it has never not been relevant. And I think that's what's so extraordinary. World capitals come and go, but London has never not been a relevant place, whether it's a financial markets to politics, to history, there's always some way that it's managed to stay relevant, but also stay very personal and very human for so many people. So I love that.

Speaker 1 (49:09):
And so the final question is, and I'm really interested to hear your response to this question, given what we just talked about, about how you, you see urban places, um, what would you do to improve London? If you could change any one thing about it, what would it be?

Speaker 2 (49:23):
Oh, um, hmm. This is an interesting one for sure. Uh, what would I do to improve it? I, I think that I would really think about this from the perspective of taking some of the smaller neighborhoods and improving the quality of access to those places. And I say access, I mean, thinking about housing cost with housing production. How do you add some density to those neighborhoods? How do you bring them to be sort of, they've gotten very expensive in many cases. Yeah. How do you bring more housing production into those places without shifting their urban character and core? And that's one of the things that's hard to think about

Speaker 2 (49:57):
Because London has adapted itself and changed so much, but how do you bring maybe more housing or less expensive housing to really make sure that those places stay sustainable over time, but that doesn't shift their fundamental character. And that's an almost impossible challenge in any city. But I think it's especially hard in London in so many ways because it's not just about scrape a couple office towers and put in some housing or do some conversions because there are so many amazing residential neighborhoods that are in many ways their own little microcosms of London that have their own distinct cultural characteristics. I think that's what's so fundamentally hard. And what I would wanna improve is making those places more accessible and more vibrant. But at the same time, I don't know how you do that without fundamentally altering their character. I think that's one of the things that'd be so difficult and challenging to sink your teeth into.

Speaker 1 (50:39):
Well, Evan, um, it's been fantastic to speak with you. I really appreciate you taking the time to, to share your vision for this place and the story so far. And I just think it's absolutely, uh, fascinating stuff. So thank you so much for taking the time.

Speaker 2 (50:51):
Thanks for joining me. Thanks for being a great host.

Speaker 1 (50:54):
Um, so, uh, thank you also to you, uh, our viewers, our listeners, uh, for joining us, uh, on another episode of In The Loop. Uh, and a big thank you to our guest today, Evan Regan Levine, chief Strategy Officer at JBG Smith. Uh, do join us again next time for another episode. See you then. We don't want you to miss an episode, so don't forget to subscribe to our YouTube channel or follow in the loop on Apple Podcasts, Spotify, or wherever else you listen to your podcasts. And while you are there, leave us a review and a rating. And don't forget to recommend the show to a fellow commercial real estate. Gee.