Real Estate Fund Betting on D.C. for Amazon’s HQ2

When Third Avenue Real Estate Fund announced it would buy $10 million worth of shares in a real estate investment trust (REIT) with extensive holdings in Crystal City, an urban neighborhood in the southeastern corner of Arlington County, Virginia, it cited, among other factors, the likelihood that Amazon’s second national headquarters, commonly referred to as HQ2, would be located in the area.

“Washington D.C. seems to rank near the top of the [short] list,” the fund wrote in a letter to investors explaining the investment in the REIT, JBG Smith. The trust holds a “significant portfolio of vacant, aging Crystal City office buildings” and has been working toward revitalizing the area specifically with an eye to attract Amazon to the submarket. JBG Smith co-chief development officer Brian Coulter said, “We would absolutely do backflips to land Amazon” of the REIT’s plans for the area, which include a retail development, an entertainment venue, and mixed-use housing including multifamily developments.

Many of the office buildings also boast a series of interconnected, underground tunnels, making the area uniquely well-suited to Amazon’s existing corporate culture and employee preferences.”Amazon’s current corporate Headquarters is actually in a series of buildings located near downtown Seattle,” noted D.C.-area investor Sherman Ragland, founder of the local RealInvestors Academy and a commercial real estate broker. “Over one-third of Amazon’s employees actually bike, or walk to work, unlike employees at Google, Microsoft and Apple who drive to Suburban office parks every day.”

Investor Insight: The way this fund made the purchase is a good strategy for HQ2-based speculation on any scale.

“We think there is a need for more residential,” said Coulter of the plans at the time, noting, “Crystal City…is viewed as a business environment…. JBG Smith hopes to bring in specialty grocers, additional shops and restaurants, a new Metro entrance, modern streetscaping, and plenty of office-to-residential conversions by 2020. The neighborhood has long been home to numerous defense contractors, the U.S. Department of Labor, the U.S. Marshals Service, and various Pentagon satellite offices. It also hosts the Ronald Reagan Washington National Airport. Many commercial buildings are connected by underground shopping areas and other underground corridors.