Developer of the Year: The JBG Companies - Building a Sustainable Advantage
By: Ron Derven, contributing editor, Development
300 New Jersey Avenue, N.W. is a new, 10-story structure of floor-to-ceiling windows married to the stately Acacia Building, a 1935 classic.
The ability of The JBG Companies to analyze and understand dynamic market trends and conditions, as well as its state-of-the-art design and planning processes, have helped it achieve tremendous investment success. Focusing exclusively on the Washington, D.C.-Maryland-Northern Virginia metropolitan area, JBG has developed and invested in urban-infill, transit-oriented projects, strengthening the communities in which it works.
Its performance and results have been outstanding. To date, JBG has developed, owned or managed over 30 million square feet of office space; 15,000 multi-family residential units; 5.5 million square feet of retail space; and 15 hotel properties, totaling more than 4,500 rooms. In addition, the company is currently involved in development/redevelopment opportunities totaling approximately 8.5 million square feet of office space; 13,200 multi-family residential units; 2.2 million square feet of retail space; and 2,500 hotel rooms throughout the D.C. metro area.
As the spry, 52-year-old Chevy Chase, Maryland-based company moves into its second half century, the investor, owner and developer will continue its thrust into the Washington area’s key submarkets. JBG is set to deliver quality projects, with a rich array of amenities, to gain and maintain a sustainable advantage over its competitors, please its investors and leave an indelibly positive mark on the communities it touches.
Due to the outstanding quality of its products and services, active support of the industry through NAIOP, support of local communities, financial consistency and stability, demonstrated ability to adapt to market conditions, and leadership in the real estate and general business communities, NAIOP has selected The JBG Companies as the 2012 Developer of the Year.
Waterview is located at the foot of the Key Bridge in the Rosslyn submarket of Arlington, Va. The project’s two towers comprise luxury condominium homes above a boutique hotel and trophy-class office space above street-level retail.
“Being named Developer of the Year is the highest award that a firm like ours can achieve,” said Brian P. Coulter, managing partner. “What makes it even more exciting is that we are regionally focused in the Washington, D.C. metropolitan area, and yet have won a national award. It’s also a great honor to receive this kind of recognition from our peers. JBG has worked hard over the years at executing projects, contributing to the community and making The JBG Companies a great place to work, while simultaneously doing a good job for our investors.”
Rodney A. Lawrence, a partner in the development division, concurred. “JBG has been involved with NAIOP for many years, and a significant number of our people are active in the association. Winning local chapter awards in the past has been a great honor, considering the stiff competition in our marketplace. To receive this national award is an exciting, but humbling, experience.”
Growing a Company
JBG is no newcomer to the commercial real estate business. Its beginnings date back to the 1950s, according to Coulter. Donald Brown and Joe Gildenhorn founded the original company, a law firm that was the precursor to The JBG Companies. In the 1960s, that firm was transformed by Brown, Gildenhorn and Ben Jacobs into JBG Associates, which became active in real estate syndication and multi-family development. By the 1970s, these three founders brought in Bob Braunohler, Lew Rumford and Mike Glosserman, the next generation of JBG leadership. In the 1980s, JBG expanded its focus, acquiring and redeveloping existing assets. In a strategic move to raise capital but remain privately held, the company sold the bulk of its properties to TrizecHahn Corp, in 1998.
“After the sale,” said Coulter, “because we sold our commercial management company and leasing company as well as the portfolio, JBG shrank in size, down to 15 people, but this is when the next phase of life started.”
Prior to the portfolio sale, high net-worth individuals invested in real estate projects through JBG. After the TrizecHahn transaction closed, these investors, who had sold their interests to TrizecHahn, were looking for new real estate investment opportunities. “We raised money for several smaller funds, but then decided to try to raise money for a larger fund,” Coulter explained. “That began our relationship with the Yale University endowment fund and the entree into bigger funds. JBG has created several funds with Yale where it was the only institutional investor. Yale continues to invest with us and be one of JBG’s most significant investors. Other endowments, as well as some foundations, have been added to our investment pool.”
Today, that 15-person company has grown to almost 500 employees, with 175 located at its Chevy Chase headquarters. JBG continues to be privately held, among 15 owners. Because the firm has been around for more than 50 years, it’s no longer defined by one or several people. “We are quite proud of that and want the company to be a legacy firm here for a long time,” said Coulter.
A one million-square-foot, mixed-use project over the Rosslyn Metro station, Central Place will feature grand views, a companion residential tower and a large retail plaza.
Coulter said that JBG is quite integrated in the way it operates, resulting in a collegial atmosphere. It is a meritocracy and the compensation structure is based on value creation for the overall firm. That is, investment teams are not compensated solely on how much capital they place, and development personnel are not rewarded exclusively on their ability to deliver a building.
Maximizing Sustainability as a Business Strategy
Long before most of the industry was aware of sustainable design and development concepts, JBG was busily making a company-wide commitment to environmentally responsible and energy-efficient practices. JBG has been a long-time member of the U.S. Green Building Council (USGBC), and helped pioneer and popularize the council’s Leadership in Environmental and Energy Design (LEED) program. JBG’s portfolio features a large number of LEED and Energy Star projects as follows:
Energy Star Label
4.8 million square feet
11.450 million square feet
28.631 million square feet
JBG’s corporate philosophy is “building smart, thinking green.” Coulter said that developing green buildings and sustainable communities is not only good for the environment and communities, but also good for business.
“We consciously focus on design and work with some of the best planners and architects in the business,” said Coulter. “JBG feels that if we are going to do a project, we need to make it as good as it can be. One of the processes put in place is an internal design review committee. JBG develops a visioning statement for every project. Its focus on the design doesn’t stop with the obvious like the exterior look of a building. The committee digs deeper into elements such as pedestrian and vehicular circulation, asking questions like: What will be the quality of the pedestrian experience; how will a person move from one place to another; and how will they transition from the parking garage to the building entrance?
For JBG, creating a successful project involves more than a well designed building; it requires connections with the surrounding community. “Improving the community around us means improving pedestrian experiences, access to transit and offering the right amenities,” said Lawrence. “In some cases, the areas we are moving into do not have community improvement districts, so we create our own.”
JBG focuses on specific submarkets in the Washington, D.C. region, in order to make a significant impact in a concentrated location. Lawrence explained: “JBG is a passionate believer in transit-oriented, mixed-use locations, and whenever possible, developing significant [large] scale in a submarket.”
Large-scale development opens new opportunities, according to the company. For example, JBG said one of the more difficult, but highly beneficial product types to include in a mixed-use setting is the full-service hotel. “Depending on the submarket, JBG finds that adding a full-service hotel has a dramatic, positive influence on the other uses — office tenants, residents and retailers. When there is a larger canvas to work with, it provides opportunity to look at different uses and evaluate the right mix,” said Lawrence.
JBG finds that one of the biggest challenges of mixed-use development is the trade-offs involved when putting two or three uses together, especially when there are different ownership entities involved. Some of the trade-offs noted by Lawrence are shared parking, loading docks for retail and office tenant access. “To execute a mixed-use project, trade-offs are made all the way through a project and beyond,” he commented.
NAIOP Support and Involvement Contributes to JBG Success
JBG’s commitment to the industry ranges far beyond developing great projects. It has been active in NAIOP through both the Maryland/D.C. and Northern Virginia Chapters, involving about 25 members of the company. Rod Lawrence, for example, has been a NAIOP member since 1996, holding a variety of local and national positions, including president of the Maryland/D.C. Chapter. Lawrence has also served on the Maryland/D.C. Board of Directors, the National Industry Trends Task Force, and as vice chair of the Sustainable Development Committee. He is currently active on the NAIOP Corporate Board of Directors, National Business Development Committee and the Office Development II Forum.
North Bethesda Market features onsite retail and high-end residences in two distinct buildings, helping to re-energize the Wisconsin Avenue corridor which connects Washington, D.C. to close-in suburbs.
“NAIOP has been great for us in terms of meeting people from around the country and seeing how they do things differently, given JBG’s focus on one market. Being personally involved in NAIOP’s Forums program, I have made excellent connections with others. Encouraging folks to get out there and really participate has been meaningful for us,” said Lawrence.
Lawrence said that JBG is excited about NAIOP’s under-35 Developing Leaders (DL) program. “The program has allowed us to bring new development analysts and associates into the association and get them involved.”
One of JBG’s biggest contributions to NAIOP was its sponsorship of the University Challenge program through the Maryland/D.C. Chapter. The program involves five universities in the Washington, D.C. area. Students participate in an annual competition in which they analyze the feasibility of developing a real-world project, given current market conditions — no easy task for even today’s most skilled and experienced developer. “There have been quite a few students hired out of this program,” noted Lawrence.
At both the corporate and employee levels, JBG is committed to helping communities in the D.C. region, by furnishing time, expertise and funds to support worthy local, regional and national organizations. The company’s most outstanding effort is its JBG Cares program. “Formalized in 2007, it was intended to focus company efforts on how we involve JBG employees in community service as we’ve grown. Many were already working with various charities, so we chose to fund those organizations in a more strategic way,” said Coulter.
Two years ago, JBG celebrated its 50th anniversary and created the JBG Days of Giving program to commemorate the milestone. Over 50 days, people in the company would participate in a volunteer program for one day. Ninety percent of JBG’s employees volunteered with such groups as Habitat for Humanity, the Capital Area Food Bank and many other organizations. “This has become an annual company-sponsored event, which allows people to give back to the community during the work day,” said Coulter.
Creating Financial Consistency and Stability
JBG has had a remarkable record of financial consistency and stability through both the ups and downs of the real estate cycle. Coulter said that 50 years of success doesn’t happen by chance. JBG maintains its financial consistency through a talented and focused organization.
He noted that the company has focused on submarkets with high barriers-to-entry, measured downside and significant potential for value creation through entitlement, repositioning and marketing, vertical development and redevelopment and capital restructuring. This approach has proven sound and apparently earned the loyalty of a group of core investors.
When market conditions in 2008 did not support moving forward with the development of 800 North Glebe, JBG took advantage of competitive construction pricing and efficiencies to build only the garage portion of the project. The ability to quickly recognize and adapt to changes in the market has been vital in achieving above-market returns for investors.
In 1999, JBG created its first discretionary opportunity fund. Since then, it has raised approximately $5.5 billion in equity and made more than 130 investments. JBG affiliates have sold or recapitalized assets representing a total value of nearly $5 billion. The Fund VIII closed in 2011 with over $752 million of commitments, remarked Coulter.
How well is JBG doing for its investors? Quite well, according to Preqin, a company that monitors and analyzes the performance of real estate funds, hedge funds and private equity funds. In both its 2010 and 2011 Global Real Estate Reports, Preqin ranked JBG the most consistent, top-performing, real estate private equity fund manager, across all of its investment funds. That is, out of 97 firms and 551 funds, JBG earned a perfect score, having returns for each of its funds in the top investment quartile, in a less-than-perfect economic environment.
Weathering Market Changes Through Relationship Building
Trying to adapt to changing market conditions over the past several years has indeed been challenging for the best of commercial real estate companies. When demand for conventional development dried up a few years ago, JBG, like many companies, turned its attention to public sector projects. But when JBG did this, it built upon an already established relationship with the federal government that it cultivated well before the market soured in 2008.
“JBG built the two million-square-foot Department of Transportation headquarters at the Southeast Federal Center in 2006 that afforded us experience in building one of the largest build-to-suit GSA projects,” said Lawrence. He added that over the past 18 months, JBG has moved forward on several major projects including a 575,000-square-foot office complex for the National Cancer Institute, delivering in late 2012, and a 490,998-square-foot office complex for the Social Security Administration. Additionally, JBG has been awarded a 15-year, 935,000-square-foot lease renewal for the U.S. Department of Health and Human Services and has begun construction on a major makeover of the complex.
Impacting the Community
JBG is singularly focused on the Washington, D.C. region, choosing to understand a single marketplace deeply in pursuit of excellence. Now in its second half-century, JBG’s legacy is also its future, according to Coulter. “JBG will continue to play a leading role in the Washington Metropolitan Area’s real estate and business communities. We are very conscious of the positive changes the company can bring with the projects we create. JBG will continue to focus resources on seeking out, and then executing projects that will have a positive impact on the region’s neighborhoods.”
2012 Developer of the Year Award
Please join us in honoring The JBG Companies at the Developer of the Year Lunch on Wednesday, October 24, 2012. The lunch will be held during Development ‘12: the Annual Meeting for Commercial Real Estate, October 23 - 25, in Washington, D.C.
Presented annually since 1979, the Developer of the Year Award is given annually to one developer that best exemplifies leadership and innovation in the commercial real estate market. The Developer of the Year award is determined by a five-member selection committee of industry peers that uses the following six criteria to evaluate entries:
- Outstanding quality of products and services
- Active support of the industry through NAIOP
- Demonstrated support of the local community
- Financial consistency and stability
- Demonstrated ability to adapt to market conditions
- Leadership in the real estate and general business communities
For more information on Development ‘12: the Annual Meeting for Commercial Real Estate or to register for the conference, please visit the conference website.