JBG Smith Extends Dominance Over National Landing With New Projects, Acquisitions

The development pipeline continues to move forward in the neighborhood around Amazon HQ2 despite the near-term challenges caused by the coronavirus pandemic, with the tech company's development partner growing its dominance in National Landing. 

JBG Smith, the developer building Amazon HQ2 and the new Virginia Tech campus, had 3,100 multifamily units in its near-term development pipeline in National Landing as of Q3.

The REIT then grew its National Landing pipeline in December with the acquisition of the shuttered Americana Hotel, signaling plans to build another 500K SF of multifamily on the site. The hotel buy was part of a portfolio acquisition that included another National Landing property, the 1960s-era Fern Gardens apartments, plus two properties in Rosslyn.

JBG Smith Chief Development Officer Kai Reynolds said it is continuing to look at new acquisition opportunities that would further grow its position in the neighborhood.

"In our role as the largest property owner and most active developer in National Landing, we’re always looking for new opportunities and the potential to grow," Reynolds said. "We've long viewed the Americana site as one of best opportunities for development in the area."

The developer has also been delivering and moving forward with a series of new projects in National Landing. 

In December, JBG Smith delivered the renovation of 1770 Crystal Drive, which Amazon is leasing as it builds its first two HQ2 towers. Construction has remained on schedule on the 22-story office towers that broke ground in January 2020, Reynolds said, and they are slated to deliver in 2023. 

JBG Smith has delivered its 108K SF Central District Retail project to tenants, which are now working on their individual build-outs. The developer in 2017 landed Alamo Drafthouse Cinema to anchor the project, and last year it signed a specialty grocer and a New York bakery and donut shop. Reynolds said he expects the tenants to open throughout this year, depending on retail market conditions.

The $1B Virginia Tech Innovation Campus project, on which JBG Smith is the development partner, is slated to begin demolition and infrastructure work this month in the Potomac Yard portion of National Landing, the REIT announced last week. The campus is part of the 7.5M SF redevelopment of the Potomac Yard Shopping Center, which JBG Smith is master-developing in partnership with the property owner, a pension fund. 

'We have approvals in place adjacent to the campus to create a mixed-use environment, and yes, I do think it has great potential as many universities serve as anchors in other markets," Reynolds said. 

JBG Smith also received approval in March to build two 300-foot-tall multifamily towers totaling 810 units at 1900 Crystal Drive. 

Reynolds said the 1900 Crystal Drive project is slated as its next construction start, but JBG Smith is still evaluating market conditions and determining when to break ground. 

"It’s mostly construction costs and then our confidence in the demand upon our delivery," Reynolds said of the factors JBG is evaluating. "We’re very confident about the future of National Landing post-pandemic, so right now we’re evaluating construction costs and trying to determine whether we can take advantage of any decline in the cost market."

JBG Smith has also been making moves in the affordable housing market. The REIT's Washington Housing Initiative earlier this month partnered with the Washington Housing Conservancy and Amazon to purchase the 1,300-unit Crystal House apartments and convert them to affordable housing. Amazon provided a $340M below-market loan and grants worth $42M. 

“With Amazon’s support, we are advancing our vision for inclusive, mixed-income communities of racially diverse middle-income and low-income families and individuals, to live near their employment and access high-performing schools and community amenities," WHC Executive Director Kimberly Driggins said in a statement. 

Neighborhood leaders and other developers say JBG Smith's massive and growing portfolio in National Landing creates benefits, but it also presents challenges for competitors. 

National Landing Business Improvement District President Tracy Sayegh Gabriel said developers with large, concentrated portfolios like JBG Smith are able to make more investments in public benefits such as parks and streetscapes that benefit the neighborhood over the long term.

"With the large portfolio that JBG Smith has, it enables them to take a long-term view of what will create a comprehensive experience in our district," Gabriel said. "With a larger developer, they can think about catalytic projects that can have impacts for the entire district, which may not be possible if you're doing a stand-alone investment."

LCOR Vice President Josh White, whose firm broke ground in September on its second apartment building near the Amazon HQ2 site, also said having a dominant developer like JBG Smith can benefit the neighborhood. 

"Most of the time you have a developer that just has one or two parcels, and that’s difficult to create a sense of place, and really a neighborhood feel when it's individual landowners," White said. "There’s certainly a benefit to having JBG Smith, with their historical development expertise, having an overall vision for what [the] entire neighborhood should be."

But JBG Smith's position in the market also makes it more difficult for other developers to compete, White said. He said LCOR and a host of other investors looked at the Americana Hotel portfolio before JBG Smith ultimately won the deal. 

"It certainly presents challenges on the competition side in that they have been very actively acquiring new sites in that market," White said of JBG Smith. "And because of some of their operating efficiencies they’ll have with neighboring projects, it’s difficult to compete on some of the new land transactions on the development side."

White said there has been a surge of investor interest in the neighborhood since Amazon announced its HQ2 selection in November 2018. But LCOR was ahead of the game, starting leasing for its first apartment building in September 2018 and buying the land for its second one the following month. 

The first apartment building, the 451-unit Altaire, has experienced some of the apartment market challenges caused by the pandemic, White said, with rising vacancy forcing the landlord to increase concessions. But LCOR was still confident enough in the market's future to break ground in September on the second building, with 306 units and 11K SF of retail. 

"That investment thesis was, we’re going with somewhat smaller units at a better price point than some of our competitors in the market, so we think we’re going to fill a unique niche there with this new product," White said. "And the timing is going to work out well, because Amazon's first phase is supposed to deliver early 2023, and hopefully we’ll catch a ride of momentum over there as we’re delivering on our project."

Gabriel said National Landing faces short-term challenges from the pandemic, but the neighborhood continues to attract new investment from developers that are willing to break ground during this period. 

"We’re no different than other districts in terms of major market shifts during the COVID period; however, what’s made our district exceptional is the continued momentum and collective impact of public and private sector investment that positions us for recovery and creation of a vibrant urban center into the future," Gabriel said. "In terms of momentum, we continue to see residential construction, and we have commercial construction underway with Amazon." 

The neighborhood also has a host of public investment coming, Gabriel said, including $4B of transportation projects in its pipeline. The projects include a pedestrian bridge to Reagan National Airport, the new Potomac Yard Metro station, a second Crystal City Metro entrance, a new VRE station and improvements to Route 1. 

Gabriel said these projects will help create a better connection between the Arlington and Alexandria portions of the National Landing area, with the Amazon HQ2 and Virginia Tech campuses serving as anchors on either end. 

"The Potomac Yard station will really shrink the distance between that Potomac Yard portion of Arlington and Alexandria, and there will be natural synergies between the campus, the Metro and the Arlington portions of National Landing," she said. "That district will be well-stitched together."