Latest / Icons of DC Area Real Estate / Oliver Carr, III- Evolving His Company Towards High Quality Mixed Use Development- A Sequel (#121)

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Oliver Carr, III- Evolving His Company Towards High Quality Mixed Use Development- A Sequel (#121) · Icons of DC Area Real Estate

• 0:09
  Speaker A: Hi, I'm John Coe and welcome to icons of D.C. area real estate, a one on one interview show highlighting the backgrounds and career trajectory of leading luminaries in the Washington D.C. area Real estate market. The purpose of the show is to highlight their backgrounds and their experiences and some interesting stories about their current business as well as their past, and to cite some things that you might take away both from educational standpoint as well as lessons learned in the industry and some amusing and sometimes interesting background stories. So I'm hoping that you will enjoy the show. Before I introduce today's guest, I'd like to share a few exciting updates, both this podcast, icons of DC area real estate and the community I founded in 2021. The iconic journey in CRE are currently part of a nonprofit organization also called the iconic journey in CRE that was formed in the middle of 2023. Since then we have secured nine corporate sponsors including Rapaport, FCP, Buzuto, JBG, Smith, Kettler, Eagle Bank, Cityline Properties, Sypharth and Lurch, early and Brewer Law Firms as well as six individual sponsors. These contributions have been instrumental in helping us grow the community and expanding our programs. I'm also pleased to announce that as of October 2024, the iconic Journey and CRE membership community has moved to a new platform called Mighty Networks. This community, which connects commercial real estate professionals between the ages of 25 and 40, has grown to 65 members and continues to expand. To learn more about this community or if you're interested in joining, please click the link in the show notes of this episode and each episode going forward. Thank you for your continued support and for listening. So I am welcoming back one of my oldest and dearest friends and former client in the business, Oliver Carr, who leads Carr Properties, one of the largest office investment and development firms in the Washington D.C. area, for a second interview. Our conversation was full of insights. The last time I spoke with Ali was a month before the pandemic started in 2020, and I wanted to get his perspective on the pandemic's impact on his company as well as the office market and his thoughts about going forward. So the key lessons we took away from this conversation was the pandemic's impact in his mind, his apprehension initially, and then the actual success of collecting rents during the Pandemic. He was surprised pleasantly for that. But you know, the whole concept of working from home had a long term dramatic impact on his portfolio. So he's had to adapt to the new realities with health and safety investments and operational adjustments of course adjusting for lower occupancy during the pandemic. With regard to strategic expansion both before and during the pandemic, he expanded to Boston, Massachusetts and Austin, Texas with major investments there in large projects which were developed in under construction during the pandemic and were completed successfully no less, with almost full occupancy in both projects. He talks about those markets, what he wants to do going forward there, and looking at mixed use development in both those markets as well as in Washington. He talks about quality and customer service and he's been a big advocate of hospitality for his user tenants, his customers as he calls them, as well as for the tenants, the end tenants, customers as well. So his spaces are very high quality with very highly amenitized and very customer centric during the pandemic. And since then the cost constraints have been an issue for further construction. So it slowed down his expansions both in Boston and Austin as well as here in Washington D.C. but he's very optimistic about the future and he says that he believes that the residential market obviously has a lot of opportunity, particularly in the workforce, housing space and in adaptive reuse as well as ground up. Looking at some of his office assets, he's looking to change. Oliver also talks about his corporate investment in philanthropy with two schools that he's invested in, a Car Cares concert every year. So he talks about that at length. Finally, he ends up with his constant message of persistence through difficult times, but optimistic view of the future. So without further ado, please enjoy this wide ranging conversation with Oliver Carr. So, Ali, welcome to Icons of DCRA Real Estate for the second time. Only Gary Rapoport is the only other person I've interviewed twice and we go back a long way so I wanted to kind of get into it. And the last time we spoke was February 2020, which literally was a month before everything shut down. So it's really, you know, interesting to kind of reflect back to that moment and since then because you were. We were reflecting 20 plus years of relationship that at that point, you know, or more actually 25 years of the relationship.
• 6:19
  Speaker B: Exactly. So yeah. Well, John, it's an honor to be back with you as your second repeat offender. So it's a privilege and an honor. Yeah.
• 6:30
  Speaker A: So talk a little bit about that time. So since that last time we sat down, the next month, you know, the proverbial s hit the fan and everything shut down.
• 6:41
  Speaker B: Yeah, no, that was a surreal experience for us, as I'm sure you know, for everyone listening to the podcast. But I'll never forget During February of 20, we actually had our board meeting up in Boston for the first time because we'd gotten active in the market and you know, we didn't know it, but we were having our board meeting next to, I think it was, was it moderna having a meeting. There was a major biotech firm having a meeting in Boston at the same time. And that was one of the original kind of super spreader events that kind of got Covid launched in the US So little, little did we know we were, you know, in meetings right in, in the middle of, you know, kind of the genesis of COVID in the US but yeah, so from there, I mean, you know, again, similar to how many people experience, experienced it and companies experienced it, we went from, you know, business is great, life is good to code red. Right. And what's going to happen to our business? How do we adapt? So I recall in the very early days we did a bunch of scenarios on what's going to happen when half of our tenants don't pay rent anymore. And I should say our customers don't pay rent. We use the word customer here, not tenant. So a lot of scenario planning around that and then frankly holding our breath to see what would happen with rents, rent payments coming in. And I think during COVID I mean, it's, it's kind of ironic, but during COVID office was one of the best performing asset classes because we collected like 98% of our rent. So all of our fear around not being paid ended up being just that, a fear. But the reality was just fine. But little, little did we know that the seeds of remote work and hybrid work were being sown during COVID That's the much bigger impact. Right. But you know, we felt great about the fact that, you know, rent payments were coming in, no credit issues. We thought we'd get through it, you know, fairly quickly. But again, you know, Covid was an extended situation and had probably the most impactful event ever on commercial office. I mean, I can't think of any comparison. So yeah, it was quite the experience.
• 9:16
  Speaker A: And been a financial crisis.
• 9:18
  Speaker B: Completely different, much different. And again, it's not anything you could plan for or see coming. So. But you know, at car, we're very focused. I mean, we're kind of relentlessly focused on our customer. Right. And the experience of our customer. So we spent a lot of time in those early days of COVID thinking about, you know, when people come back, how can we create the safest environment possible and also make sure we've got expansive in building amenities, things like that. So if our, if our customers want to kind of stay in the cocoon of our buildings, they can do that. So we invested in all kinds of different air quality systems, touchless systems, had plans, you know, how do we get more food on site if needed, things like that. And unfortunately, we were ready, like, we were ready to party and nobody showed up for, you know, the better part of two years. Right.
• 10:19
  Speaker A: What was your occupancy? Did you measure it physical occupancy during the. During most of that time? Was it less than 20%?
• 10:25
  Speaker B: Yeah, we did. We did also advance a lot of data analytics during that time, but, yeah, I'll bet it was 5%. I mean, our customer base is more, you know, professional service firms. We're not like in the dod, you know, tenancy business, for example. So most of our customers left and didn't come back for years. So our focus quickly shift to how do we reduce operating expenses and, you know, manage the most efficiently, you know, when we don't have people downtown. And I guess the other experience during that time is, you know, after, you know, George Floyd was killed, you know, riots sprung up in a lot of major cities around the country, including D.C. so that was another, you know, crazy experience for us, having to board up buildings. We had a lot of damage and so that was.
• 11:22
  Speaker A: You had vandalism.
• 11:24
  Speaker B: We did, yeah. Those. Those were not fun times. Yeah, we had some smashed windows in retail. We had a, believe it or not, a bank ATM blown off the side of a building with explosives. So, yeah, it was a very, very, very unique time. So thankfully we're through it now.
• 11:46
  Speaker A: Did you have construction going on at the time with any projects at that point?
• 11:50
  Speaker B: We did. I'll bet we were. And I'm smiling, you can't see it out there, but I'll bet we were one of the more active developers coming into Covid. So we had about 2.3 million feet in different stages of construction. So up in Boston, we were building a tower called One Congress, which is a million foot tower downtown locally in the D.C. area. In Bethesda, we were building the Wilson and the Elm that was under construction. And then we were also building a project called Signal House in Union Market. So combined like 2.3 million feet. And you know, I give our team and our construction team so much credit that all of those projects were delivered right on time. And think about, like, I feel like the construction workers and the contracting companies are kind of the unsung heroes in many ways out of COVID because think about what they had to deal with. Right. They had to screen, you know, every employee coming on site every day, you know, doing constant health checks, you know, try and maintain some physical distance on the job sites, if that's possible. And up In Boston, at one Congress, I believe we had like 500 people a day on site. So, I mean, yeah, so we were busy and pretty nervous about, you know, what's leasing gonna look like, just given the world is upside down at the moment. But I think one of the biggest lessons we learned is that if you focus on really high quality product, you're going to be fine. So When Congress delivered 100% leased, the Wilson, which is the office component of our mixed use project in Bethesda, delivered 100% leased and Signal House, like, you know, roughly 60% lease, something like that. So I think on average like 98% leased building through Covid. So we feel very fortunate to have had that kind of success.
• 13:59
  Speaker A: Were those leases in place at the time you the COVID hit, or are.
• 14:03
  Speaker B: You actually leasing during COVID it was a combination. At one Congress, our lead anchor tenant was State Street Bank. So that was signed, you know, prior to starting construction pre Covid, but the balance of leasing, so call it, you know, over half a million feet was done during, during the pandemic. And at the Wilson, I think it was similar. I think we probably had about a third of our leasing done before we started construction. A lot of the activity happened during the pandemic. Not without risk.
• 14:38
  Speaker A: Yeah. The office market had already been contracting more or less since the DoD sequestration in about 2013 or so in the D.C. area and other major cities. However, the pandemic was an extreme hit. Now that you've had four years to go through it and understand its longer term implications, what are your thoughts in general and for your company long term?
• 15:04
  Speaker B: Yeah, that's a great question, John. And thankfully, I feel like we're now emerging right into the new kind of post pandemic world. What does that look like? And I feel like there's pretty good, you know, better visibility at least. So, you know, things we've learned, I kind of hit on it thematically already. That is, at least in the office sector, it's all about quality.
• 15:29
  Speaker A: Yeah.
• 15:29
  Speaker B: So if you look today at market trends, and I can use the D.C. market as an example, the trophy market here is about 13% vacant, whereas the overall office market is just north of 20%, plus or minus. In the trophy sector in Downtown, there's only three blocks of space, contiguous blocks of space available over 100,000ft in the whole city, which is pretty amazing. And rents within Trophy are at a 58% premium to the rest of the market. So I mean, those are pretty strong statistics. So we see that the flight to quality is very real and we think is pretty durable.
• 16:16
  Speaker A: Does that include the submarket or the sublease market as well?
• 16:20
  Speaker B: Oliver, the 13% stat I provided was just direct. Correct. But sublet within Trophy is de minimis. Okay, so maybe it's another point or something like that. But anyhow, we've seen that companies, most are still getting a little smaller in terms of how much space they use because they're now trying to manage a hybrid workforce. But they want to be in the best quality buildings with the best set of amenities in the best locations to attract and retain talent. So, I mean, it's the same theme that has always existed within commercial office. But I think the pandemic really put a bright light on it and I think that quality is so much more important. So we're going to stay like relentlessly focused on what's best for our customers from a customer service, you know, customer experience in our buildings, and stay very focused on the quality segment, whether that's in commercial office or in residential. And I guess that's the other answer to your question, John, as we, as much as we love commercial office and I think we're pretty good at it, we learned the value of diversification, or better said, the pain of not being diversified. So we're absolutely going to take the skills we've learned over time in office development specifically, and then apply that to really grow into residential.
• 18:02
  Speaker A: That goes into my next question. We met recently for coffee at one of your premier assets, the Wilson in Bethesda, you refer to it. It has led the submarket in leasing, momentum and rental rates. You developed together with the elm, an apartment project linked together with a joint lobby, but you subsequently sold the elm. Are you seeking to develop mixed use projects going forward to offset the office building risks? Is that the plan?
• 18:31
  Speaker B: Definitely. So I think for us, objective number one is, you know, great locations and quality. So it could still be a standalone residential building or standalone office building. But it is pretty cool to see the synergy that you can create when you have two, you know, a great commercial asset next to a great residential asset and you can actually create some efficiency as well. So one thing we did at that project that's kind of unique is we doubled the size of the fitness center and made it a shared amenity for both residential and office. And that's worked great. I mean, the residents there tend to use it more, you know, off hours, sometimes during the day, evenings. And a lot of our office users, you know, use the fitness center in the morning, for example. It allows us to invest more into food and beverage, for example, opportunities on site because you've got a bigger population of users in the neighborhood. So, yeah, we like mixed use quite a bit. We'll try and do more of it. You could see, for example, trying to pair hotel and residential, hotel and office. But, you know, today, when everyone is looking for just, you know, a cool sense of place and, you know, an area that's dynamic, projects that are dynamic. I think mixed use is additive. Right. And can create something out of nothing. And the Wilson and the Elm are a little bit like that. I mean, it's in the heart of Bethesda, but, you know, we're on the Wisconsin Avenue edge. We're not in the middle of Bethesda Row. But it's proven to be an incredibly dynamic location. And we see the same thing at Midtown center downtown. That's all office. It's an office project, but we've got 50,000ft of ground floor retail, and that density of retail really helps create a sense of place. So that's almost a mixed use retail office project. So, yeah, there's a lot of power in. In mixed use.
• 20:45
  Speaker A: You mentioned hotel, and I'm curious if, because your father obviously had a significant hotel portfolio and still does, I think. So is that something that you even think considering is a possible use going forward on projects?
• 21:05
  Speaker B: Yeah. So that's not been our core business. Yeah. So, I mean, maybe one day it would be more happenstance. I would say if it was the right use to play into a larger development, we would pursue it. But I've learned a lot just being around my dad over the years, and he's still with us. He's going to be 100 in April.
• 21:26
  Speaker A: Oh, my goodness.
• 21:27
  Speaker B: Which is pretty amazing. Wow. Yeah.
• 21:29
  Speaker A: And he still goes into the office every day or not? Not as much.
• 21:33
  Speaker B: He does. He's amazing. But he loves it. Right. So, you know, he loves work and what he does, so it keeps him going, among other interests that he has. But anyhow, through, you know, learning from him, just kind of being proximate to the hotel industry in a lot of different situations, we've learned a lot about how to really infuse hospitality design into our public spaces, you know, the importance of customer service. So, for example, all of our employees are trained in distinguished hospitality. And we tried that a few Years ago, you know, we, we knew how important service was and the experience was. But it's translated into real results where we now consistently score in the very top quartile of all office, you know, owners and operators in the nation for customer service. That's great.
• 22:34
  Speaker A: How is that measured?
• 22:35
  Speaker B: And there is a direct correlation into the willingness of companies to renew. So I mean there's, there's power and value, it's measured in, there's large annual surveys that are done. So it's a survey based reference point.
• 22:52
  Speaker A: With the tenants mostly with your customers?
• 22:54
  Speaker B: No, with all the customers. Exactly. Yeah. And it's not just us. I mean we're partly owned by JP Morgan Asset Management and we've kind of learned through JP Morgan the power of, you know, customer surveys and you know, et cetera. So we're, we're measured against many of our large peers about vendors nationwide.
• 23:16
  Speaker A: Vendors get involved too in your assessment or not.
• 23:20
  Speaker B: We look for feedback from our vendors, you know, in a big way and are always trying to figure out what we can do better, what they can do better. Right. But this particular survey is, is customers only.
• 23:36
  Speaker A: That's cool. Since our last episode together, you've expanded geographically to Boston and Austin, Texas with large urban retail projects in each city. Please explain why those cities and how those assets are performing and would you develop more in those markets?
• 23:56
  Speaker B: Yeah, so at the time we expanded, John, we were solely focused on being the best commercial office company we could be. Right. And when you look back, so these expansions happened in like beginning in like 2018 I believe. So when you look at that timeframe, office demand was highly correlated to growth in technology companies. And you know, being based in dc, we're a little more of a law and order town for lack of a better descriptor. Yeah. No more government and related areas. And so D.C. has historically been a slow and steady consistent office market. Been a little tougher lately, but that was the legacy reputation of dc. So we were looking for more growth in our office assets and did a deep study with our partners at jll, looking at, you know, what are the, what are the best long term office markets in the US Driven by predominantly technology growth. So that's how we landed on both Boston and Austin, Texas. And in Boston we acquired 200 State street up there, an existing asset. And then we're the 75% owner and kind of master developer of One Congress, which is a million foot tower. Both investments. I mean we face the COVID reset on cap rates and also due to interest rate increases. But Setting that aside for the moment, both projects have been very successful. One Congress, 100% leased, as I shared, arguably the best building in the city, certainly one of them. And then 200 state is a very solid performer. That's located with tremendous views of Boston harbor, right at kind of the eastern edge of Faneuil Hall. So we definitely want to do more business in the Boston market. No two ways about it.
• 26:04
  Speaker A: What would you look at sites? Would you be buying existing assets?
• 26:08
  Speaker B: Both.
• 26:09
  Speaker A: I mean, what would you.
• 26:10
  Speaker B: Yeah, I think where we are in the cycle, it's probably going to be more the latter. You know, looking to acquire existing assets. But if it's in office, we have to be quality snobs. I think, you know, it's risky to stray away from the best quality product. And in development, you know, perhaps residential, you know, it's all about the economics. But I think that construction costs in Boston in particular have risen so much. I think to build office today, I think your cost is like 15 or $1600 a foot. And to raise capital for an office investment, I mean, my guess is you would have to build to like a 8 and a half, 9% return on cost, minimum. So I mean you've got to get 130 net rent. I mean, so what is the market today? Market's not there yet.
• 27:07
  Speaker A: About 90.
• 27:08
  Speaker B: No, not even. I mean the, the last wave of development up there of which we were a big part of it, I think net rents around 70, low 70, something like that. There's a big new project Hines has underway over South Station. Looks to be a great beautiful project. I would imagine they're looking for rents in the mid-80s to 90 net, something like that.
• 27:36
  Speaker A: I would think they'd be pre leased there to some extent, right?
• 27:40
  Speaker B: I don't think they are yet, but I think that's. It's a longer construction project because they're building over the. Over the rail station. But I'm sure they'll do well just given the lack. There's no new supply at all. And if a company wants new space, they're kind of the only game in town. But anyhow, that's the newest, you know, in the city and I would imagine mid-80s net rents, and that's a guess, I don't know. But there's still a huge gap between that level and what you would need to build new today, just given how much costs have moved.
• 28:14
  Speaker A: Whereas residential isn't quite as expensive as that.
• 28:17
  Speaker B: Residential is also very expensive. I think we might be looking more in quasi suburban locations where we Might be able to use a less expensive construction type and be in areas that still have pretty healthy rents. I think high rise residential downtown is also a challenge given how expensive it is to build.
• 28:44
  Speaker A: Does the labor union issue, is that creating a cost problem there for vertical construction there?
• 28:51
  Speaker B: Yeah, that's the market like a lot of other older east coast cities. Right? So yeah, I mean if you're building in Boston, you're building union for sure. And we, you know, we had a great experience with our contractor and all the unions so we're big fans of the quality of the labor force in that market. But, but there's other items that are adding cost. You know, the city's very forward leaning in terms of, you know, environmental goals and for residential, very forward leaning on the, you know, affordable housing component. They're all great initiatives but they add cost and you know, rents may not be there or I think aren't there yet to be able to build and also satisfy all those objectives, unfortunately. And then you asked about Austin, so we entered that market with an acquisition. We bought 100 Congress street which is kind of main and main downtown. And that's been a, been a fine investment for us. Great quality building. We renovated it. It's a kind of a solid performer in one of the best locations in the city. We also had planned to move ahead with two large office developments in Austin. And that's all on ice because Austin, it's a smaller market. You know, it's in total like 30 million feet. So compare that to D.C. that's like 330 million feet. In Boston, I think it's just about 200 million feet in total. So Austin is dealing with a bit of a supply shock right now. So lots of new office development is going to be delivering over the next few years. So before getting serious again about developing there, got to let this wave of supply get absorbed. And that's multi year process, like five plus years. But tech demand will come back. Austin's growing population doubles every 20 years. I mean it's a, it's a special dynamic city.
• 31:01
  Speaker A: I read that Dallas and or Houston are the leading office occupiers in the country right now. As far as return to the office, whatever. Yeah, I would imagine that Austin is similar to that, but maybe not, I don't know.
• 31:16
  Speaker B: But no, I think it is. I think you're right on. I think it's kind of in line with the other markets you referenced. I think it's like 70 plus percent return.
• 31:28
  Speaker A: It's quite a contrast to Washington.
• 31:30
  Speaker B: Yeah, well, it's funny. I mean, I was in New York a few weeks ago at a conference with John Schissel. Sure. Who's our president here. And talking to people in New York, they're like, yeah, of course everyone's back. Like, why wouldn't they be? Like, if you want to advance, if you want to make a career for yourself, you better show up. So it was very, it was very black and white, at least in the subset of people we were speaking to.
• 31:59
  Speaker A: Well, JP Morgan's been that way for quite a while.
• 32:02
  Speaker B: Yeah, I think most of the financial services firms have been. And, you know, I mean, I'm pitching our own book here, but I think it's like, of course it's better to, you know, to be there in person. Just think about the. When we were both younger in our careers, John, think about the mentorship, the synergy you get just from sitting in meetings or being next to somebody on a phone call or bouncing ideas off people.
• 32:31
  Speaker A: I mean, just to see somebody at the coffee, getting in the morning and you say, oh, I need to talk to you about something, you know, Exactly.
• 32:37
  Speaker B: That's. It's how you build relationships. Right, right. I mean, it's pretty hard to do that over video. So I don't know that the five day work week is coming back soon, but I'll, I mean, our company, we're four days in the office and, you know, Fridays are remote. Yeah, I, I think that's the future, you know, but I think it's going to be much more. I mean, the market has spoken. It is much more in office than not. I think that the remote work trend doesn't have staying power unless you're in certain industries, like you're a consultant or you're in coding or what have you. But for most of the workforce, I think people need to show up.
• 33:24
  Speaker A: You had mentioned Boston and Austin in tech. I'm curious, why not California, for instance, which obviously is kind of the hotbed of technology growth.
• 33:35
  Speaker B: Yeah, no, that's a great question. And it was part. We weren't ready to set up satellite offices in different cities yet. So knowing that we were going to try and, you know, manage assets from here, from D.C. it was a proximity thing. Otherwise I think we would have looked harder at California, but thank God we didn't.
• 34:00
  Speaker A: San Francisco has been hammered.
• 34:01
  Speaker B: Yeah, it really has. I mean, it may be a great buying opportunity coming up, but yeah, the valuations and occupancy in the Bay Area in particular have just gotten hammered.
• 34:15
  Speaker A: Yeah, it's not a good place. Southern California seems to have held its own though Orange county and Los Angeles, it seems like. So anyway, looking back at your business, when you and I were doing deals together, you were strictly acquiring existing properties from a value add perspective. Now appears that development is the primary focus. Could you see Car Properties broadening its investment spectrum to look at value add acquisitions or significant adaptive reuse projects in markets where you have knowledge and an edge competitively?
• 34:48
  Speaker B: Absolutely. So like to frame the opportunity a little bit as we see it today, John. I mean, we love development, but I think within commercial office, the bigger play today is to buy good quality existing buildings and make them great and then, you know, get included in the trophy set and capture a larger share of demand. So we like that strategy a lot. And there's a number of buildings out there that we feel are mispriced, meaning you can get pretty good buys. So we like that. Capitalizing office development today is next to impossible. Right. Almost impossible to get construction debt. Very hard to raise equity for that business. I do think there's a major opportunity in office development. You've got to have some courage. But we get pretty consistent inquiries from large companies who want to move into a new building. So I think the demand is there, but it's very hard to capitalize. So we'll. I think the bulk of our investing activities within office are going to be on kind of value add renovations as you described. The residential side is very different. I think there we will almost exclusively be investing through development.
• 36:15
  Speaker A: Ground up.
• 36:16
  Speaker B: Yeah, just because we think that's where, you know, that's where we can have a competitive, you know, advantage or at least, you know, fair playing ground and generate better returns for us to compete buying existing multifamily. There's so many firms out there active in that business. It's harder for us to create value.
• 36:38
  Speaker A: What about adaptive reuse of office into residential?
• 36:43
  Speaker B: Yes, we've looked at a lot of that and we found a couple of buildings that we think work. But to like, I mean, the word conversion, you know, of office to residential, I don't know if that's. Is it 1% of the market? 2%. I mean, almost most office buildings don't work for that because the layout isn't functional for residential. But it's also very expensive. It's not always the most economical way to go. We do like the play of acquiring obsolete office and tearing it down and starting over. And then if you're able to incorporate some features of the existing building or perhaps below grade parking. Yeah, that we think makes a Lot of sense. So we have a development in Alexandria that we're starting in December, so just in the next month, which is that it's an old office building we've now torn down and we're going to be going vertical soon with apartments. And then we're doing the same in Arlington with one of our existing office assets. We've emptied it. We're going through the rezoning process. We'll tear down the existing building, retain the garage and then bring it back as, you know, great residential in that location.
• 38:08
  Speaker A: So would you build a property management organization around that or would you go to third party on residential?
• 38:15
  Speaker B: We're just getting started in residential, so we will definitely work with third party managers. We've developed a great working relationship with the team at Pazuto. That's who they did a terrific job for us. Yet the ELM and Bethesda, that's who we're working with at 425 Montgomery in Alexandria. So I think we'll rely on those strong partners, you know, to help us grow in the business. And then way down the road, you.
• 38:44
  Speaker A: Know, maybe is that Montgomery asset, is that very close to the Madison Place deal that you and I did?
• 38:50
  Speaker B: Yeah, it is.
• 38:51
  Speaker A: Maybe across the street.
• 38:52
  Speaker B: Life has come full circle, John. Yes. Yes, it is. Like across the street. Yeah, it's pretty funny.
• 39:01
  Speaker A: You don't own that asset anymore.
• 39:03
  Speaker B: We don't own that office building. It's actually a great residential location. So maybe one day. Right.
• 39:09
  Speaker A: And then your father is developing condos not far from there too, right up on the river. Car companies.
• 39:15
  Speaker B: Yeah, his firm, his team, they have developed some condos in Old Town. I think they've got a rental project down there. So.
• 39:23
  Speaker A: Yeah, I saw one that was actually Dave Mayhood showed he was leasing it or he's selling it. Yeah, it's right there right next to the new, what they call it, the. The huge Pepco regeneration plant. Right at that location.
• 39:38
  Speaker B: Right, right. Yeah. Well, Old Town Alexandria is a unique market. It's strong. Yeah, yeah. But it's. Yeah, it's a good place to work. Live pretty close to D.C. not a terrible commute, but it's a very authentic. Like downtown. Right. You don't find that in many places in the D.C. area, for example. Yeah.
• 39:59
  Speaker A: And all the amenities are walking distance there. It's really.
• 40:02
  Speaker B: Exactly. Nice.
• 40:03
  Speaker A: Exactly.
• 40:03
  Speaker B: Yeah.
• 40:05
  Speaker A: So talk about your current portfolio and what you see as opportunities on the horizon. You just mentioned too, you know, office assets that you're converting to residential. What lenses are you looking. Are you looking through for New opportunities in general.
• 40:23
  Speaker B: Yeah. So I, I mean, John, you and I both, for better or for worse, been around for a long time. Right. And which means we're old.
• 40:32
  Speaker A: I get 10 years on you, though.
• 40:35
  Speaker B: But I do. I. It's a, it's a. On a statement that I think that there's more opportunity today for investment than I've ever seen in my career.
• 40:48
  Speaker A: Wow. And Even in the 90s, when all the deals were out there.
• 40:52
  Speaker B: Yeah. Well, the 90s, I think were a huge time of opportunity like today, but we were so small we couldn't really take advantage of it. Right. We were just kind of starting out. Sure. Now we have a bigger team, more scale. We always need access to more capital. But I'm pretty excited. It feels like we've hit bottom on office valuations for the most part. Definitely in the premium quality segment.
• 41:21
  Speaker A: Interesting.
• 41:22
  Speaker B: But there's so many failed office buildings out there. There's a sea of them and I think there's many more coming. So it's a, it's a really interesting time to, you know, buy those failed assets and then figure out the highest and best use for them. But I mean, when are you ever going to be able to buy, you know, really well located but failed office building for maybe $100 a foot? So value that could support 90s. Yeah. That could support multiple new uses. Could be residential, it could be office.
• 42:00
  Speaker A: Yeah.
• 42:00
  Speaker B: And then some really good quality buildings. Office buildings trading at 9, 10, 11, 12 cap rates. You know, that if you give them some love and reposition them, they could really succeed.
• 42:13
  Speaker A: So, I mean, that's like buying dirt almost.
• 42:15
  Speaker B: It is. I mean, I mean, these obsolete office buildings are priced as land and they should be because there's nothing else you.
• 42:22
  Speaker A: Can do or even less than land. Tear it down.
• 42:26
  Speaker B: Exactly. So, yeah, so I, we're pretty excited about that pipeline and our focus is really on how do we diversify the business much more into residential. We're probably. Excuse me. We're going to stay more focused on urban. That's kind of our specialty.
• 42:44
  Speaker A: Right.
• 42:44
  Speaker B: But yeah, I think this is, this is the time.
• 42:47
  Speaker A: Well, your definition of urban is, you know, inside the Beltway, I would put pretty much say. Right. Mostly.
• 42:53
  Speaker B: Yeah. And it's. Yeah, that's a great point.
• 42:55
  Speaker A: Alexandria.
• 42:56
  Speaker B: It doesn't, definitely doesn't mean just in the city. In fact, for residential, we probably favor, excuse me, Northern Virginia over the other jurisdictions locally. But yeah, when we say urban, we think of downtowns, of course, but also like urban nodes as you follow out. You know, the Transit line.
• 43:17
  Speaker A: So Reston, for instance, would you build there?
• 43:21
  Speaker B: Probably. It's hard to get into. You know, it's some large owners, you know, pretty well, pretty entrenched, it's pretty saturated. But definitely Arlington, definitely Alexandria, definitely Bethesda.
• 43:34
  Speaker A: Right.
• 43:35
  Speaker B: You know, upper northwest D.C. and then in Boston, you know, similar profile. Boston actually has some higher suburban rents than the D.C. area. So there's interesting, could be easier, more likely to support your development costs in that market.
• 43:54
  Speaker A: Like Wellesley, for instance, that area out there or what?
• 43:57
  Speaker B: Yeah, I mean, and I'm not the subject matter expert the way, you know, much more comfortable talking about the D.C. area. But they did pass new legislation in Massachusetts where communities that have proximity to commuter rail, I think are now mandated to increase their levels of affordable and moderately priced housing. And typically that's going to be accomplished with a blend of market rate and moderately priced housing together. So there's new opportunity. I think the push down from the state to a lot of these communities is you need more housing. And so I think for the first time you may see more development opportunities than those communities. But that's spoken as a tourist.
• 44:47
  Speaker A: But in Texas, Texas, are you looking at residential or you're still more focused on office there?
• 44:53
  Speaker B: Yeah. So I mean we've been less, we've been much more active looking in Boston and D.C. than we have in Austin because Austin's got a lot of residential supply as well. And if in resi we're going to be focused more on development, it's not the time in Austin. So we're probably a little more on pause down there.
• 45:16
  Speaker A: Yeah. More specifically, when we met recently, we discussed Southwest Washington and it's federal government owned properties that are considerably underutilized. L'Enfant Plaza is a good example of something that was recently foreclosed on by Blackstone at 20, 25% of its loan amount. So they took a huge hit there. Clearly land value has plummeted under all office buildings in this area. Would it make sense to begin conversations with GSA and Congress to consider an RFP to privatize some of the federally owned land either in a long term ground lease or landscale perhaps it would be structured as a win, win, win for the feds, D.C. and the private sector? What do you think?
• 46:02
  Speaker B: Absolutely. And I can't take credit for this idea. It came from someone else in our industry who we both know well. But it's a great idea. I mean, I'll put out his name, you know, Josh, Josh Bernstein, of course. But Josh had a great idea Basically, you know, have the federal government look at their underperforming assets. You know, consider a sale of those assets into the private sector for designated uses. You know, could be, you know, hospitality here, office here, residential here.
• 46:35
  Speaker A: Sure.
• 46:36
  Speaker B: But move the government workers out into better quality leased space. I mean, that would solve the downtown vacancy problem. It would put the federal government employees in much better quality space. It would allow the government to sell off underperforming, terrible old buildings. Ancient buildings raise capital in the process, but also stop the capital spend that these. I mean, these old buildings eat money. Right. They eat capital in terms of the required upkeep and everything.
• 47:11
  Speaker A: Well, their H Vac system was built in the 1920s and 30s. It's in that grid. Big factory there. Underground.
• 47:18
  Speaker B: Exactly.
• 47:19
  Speaker A: It's just, you know, antiquated.
• 47:22
  Speaker B: So I honestly thought that was a brilliant idea. And there are discussions happening. No idea. I mean, there's changes in administration, etc. What's, what's going to get legs and what won't. But that would solve a lot of problems. And if I were the feds, I would ground lease the property. I don't think I would sell it outright just because, you know, you've got, they've got to maintain flexibility for growth, you know, 100, 200 years from now, who knows? But yeah, it's a major opportunity and a lot of the buildings are old and obsolete.
• 47:58
  Speaker A: They need to be torn down.
• 47:59
  Speaker B: Yeah. And they're just not right for the current way of working.
• 48:03
  Speaker A: You know, there was an article in the Wall Street Journal this week about brutalist buildings.
• 48:09
  Speaker B: Yeah.
• 48:09
  Speaker A: One of them was the Hubert Humphrey building, which just, you know, I don't.
• 48:14
  Speaker B: Even know how brutalist is a thing. Why is, why is that like a.
• 48:20
  Speaker A: And it's actually in on the National Historic Registry.
• 48:23
  Speaker B: No, I know. I don't get like, just because a design type is unique and old doesn't mean it work. It's worth keeping. You know, these are like windowless concrete, hulking boxes. They're awful. So. Yeah, totally agree.
• 48:43
  Speaker A: Yeah. So hopefully that can be overcome as people are looking at vision that's back.
• 48:48
  Speaker B: To beauty is in the eye of the beholder, John. Right. Somebody out there loves brutalism.
• 48:54
  Speaker A: Yeah. But it just is not practical. And looking at what Monty Hoffman did at the Wharf and what he's been able to do in creating value and attractiveness to office users, believe it or not, it's one of the hottest office markets right now down there.
• 49:10
  Speaker B: Arguably the hottest.
• 49:11
  Speaker A: And so. And that's away from the rest of the office Market, but what is between it. Yeah, and that's my point really. I mean you look at that 6th street corridor that all the way to 12th, that whole area there.
• 49:26
  Speaker B: Yeah.
• 49:27
  Speaker A: The freeway is a bit of an obstacle, but other than that, I mean you could build right up to the freeway, it seems to me.
• 49:33
  Speaker B: I think you're onto something. Totally agree. And hopefully the federal government is like minded and they may very well may be.
• 49:41
  Speaker A: Well, with a new president as of this week.
• 49:43
  Speaker B: Well, he is a developer. You can say a lot about him, but he is a developer.
• 49:47
  Speaker A: Well, he owned a hotel on Pennsylvania Avenue for a while.
• 49:51
  Speaker B: Exactly.
• 49:53
  Speaker A: Yeah. So we'll see. Northern Virginia appears to be the center of economic growth for the region. As you had mentioned earlier, with considerable development activity in National Landing, Alexandria, Tysons, Reston and Ashburn. You have office redevelopment in residential projects in Arlington. Alexandria, as you talked about, these are both tear down, ground up situations. Are retrofits more challenging? You had already said that they are. Do you see other opportunities like this in Northern Virginia? What characteristics are good? What characterizes a good opportunity for this kind of conversion or this type of project? I mean, what do you look for?
• 50:31
  Speaker B: Yeah, and it doesn't have to just be in Northern Virginia, John. But it is interesting when you look in the D.C. area. I mean it's just factual that I'd say Virginia is a little more pro growth, a little more pro business. And if you live there, your income taxes aren't quite half. They're like 60% of Maryland and D.C. something like that. So when you look at population growth in the region, it's going to be in Northern Virginia for obvious reasons. So but whether it's Virginia, you know, Boston suburbs or elsewhere, it's all about locations. I mean it's an obvious statement, but locations where people want to live. And let me give you what's behind that comment. So like in downtown D.C. for example, there's a lot of talk and action in terms of either converting or redeveloping failed office into residential. But I think when you get down to it, a lot of projects can be successful as repurposing, you know, from office to resi. But they've really got to be adjacent to existing residential neighborhoods. It's pretty hard to drop a new residential building in the middle of kind of a.
• 51:50
  Speaker A: All office area.
• 51:51
  Speaker B: Yeah, I mean who would want to live there? Right. It's far from amenities. There's not a lot of people around after hours. So I think our view is that this transformation of office to residential is kind of Going to work in from the edges. Right. Instead of starting at the center and moving out. So we're looking for these kind of edge locations that are, you know, good commercial areas but near, near thriving residential. And you've got to get a really good land basis. And obviously the market rents have to be there. So we're not, we haven't figured out how to crack the code quite yet. And like workforce housing, like I don't have the answer, but whoever can figure out how to reuse existing office buildings as like moderate income housing where, you know, the design doesn't. Of the project doesn't have to be absolutely perfect, but you can offer rents at a significant discount to market if somebody can figure out how to do that, you know, at a reasonable price. I mean, there's unlimited opportunity. So we'd love to figure that out in time as well.
• 53:10
  Speaker A: So right after this conversation at about 5:00 today, I'm going to go walk around about five blocks west of here and tour 1111 20th street which is a conversion of a 1965 office building into residential.
• 53:25
  Speaker B: Yeah, that's the LC. Yeah. Or the L. The L. Yeah, walk through that.
• 53:31
  Speaker A: So I'll be interested because that was a 60s vintage office building to see what they did and how they did it. It'll be interesting.
• 53:39
  Speaker B: Yeah, please report back. I mean, kudos to Wilco on that one. I mean it was a smaller floor plate, which makes it more actionable. But I was really speaking of like the big floor plate downtown buildings, like you've got, you know, empty office buildings, you know, with big, big floor plates and unlimited demand for moderate housing. How do you marry the two together? There may be no solution, but it's, it'd be interesting if there were a way, you know, to come up with a new residential unit configuration or something like that so you can kind of match up the demand and the, and the supply. But if you figure that out. John, let me.
• 54:24
  Speaker A: Well, you know what might happen and I'm, I'm just throwing something out there that, and I don't see any of those buildings down in Southwest fitting into this regime. But the feds could put some kind of an incentive in place to build something that accommodates that kind of housing for federal employees, for instance. And there might be a vehicle structured to make that happen, a financing vehicle and, or some incentive package including tax incentives, not just property tax incentives, but maybe income tax incentives of some sort. I mean, when you're dealing with the federal government, you get, you could do all kinds of creative things there.
• 55:08
  Speaker B: So, you know, I think those are, those are great thoughts. And you triggered a thought, too. I do have to give kudos to, you know, the mayor, you know, mayor Bowser in D.C. and, excuse me, her Deputy Mayor of Economic Development, Nina Albert and the whole team. They are, D.C. has a pretty attractive tax abatement program for converting failed office into residential. And I think it's going to help accelerate the change. And without that tool, very little to nothing would be happening in terms of replacing vacant old office buildings with revitalized residential. So hopefully they do more of it. It's a great program.
• 55:52
  Speaker A: Did you sit down with the mayor to talk about it with any of your assets or have you.
• 55:58
  Speaker B: Not with the mayor, but we're in conversations on a couple things. And, you know, we and many of our peers in the industry, you know, try and be good partners with the city and share ideas and they, you know, provide thoughts back to us. But that's how you can come up with workable programs. So I, again give a lot of credit to the city for listening and responding. Well, downtown is, you know, without change, we're, we're in tough shape. So, yeah, we really need it.
• 56:31
  Speaker A: I met with Jordan Goldstein, who runs the Gensler office here, and you know, they're right at 2020 K Street. And I said, looking down the street here, what would you, how would you envision repositioning downtown Washington to make it a more attractive place? And he said, you know, you'd start taking down office buildings if you have to do that, not necessarily replace them with existing buildings, leave, you know, have more open space, parks, open space, having, you know, common area facilities there that people can enjoy and have a reason to come down. Some kind of a, as you say, place making opportunity somewhere.
• 57:11
  Speaker B: Totally. And you know, that was my point earlier, John. It's the first time where values have fallen so much for commercial office that you might be able to afford to create open space next to your building. Right. You don't have to use every last foot of density and you can, you can create better projects and better, better places if you do that.
• 57:36
  Speaker A: One question I didn't put on here, but it comes to mind as we talk about open space, is the Height Act Washington. It seems to me that that's an antiquated law and if done right and modified appropriately, maybe that could be changed. What's your thought about that?
• 57:58
  Speaker B: Long term, I totally agree with you and a lot of people feel the Haidt act is sacrosanct and it's what makes D.C. so unique and special. And, you know, the broad streets and lower buildings do make DC special. It's really important. But we could follow like what London has done, for example, and have areas in the city with taller buildings.
• 58:26
  Speaker A: Yes.
• 58:26
  Speaker B: You don't. It doesn't mean you need to raise heights across the whole city. And I actually think it would make downtown much more interesting. And the thing where lacking is density of people. Right. And taller buildings generate more density of people.
• 58:43
  Speaker A: Look at Boston. There's an example. Right.
• 58:46
  Speaker B: Look at Boston. Chicago, obviously. New York.
• 58:49
  Speaker A: New York.
• 58:49
  Speaker B: Yeah, yeah, but Boston's a great example. I mean, you've got some big buildings in the Financial district right next to the North End and Beacon Hill, which are historic and are never going to change. And that's great. We could do the same here. So, yeah, I think, you know, hopefully the city will and the federal government will.
• 59:09
  Speaker A: I mean, imagine the impact on property taxes and valuation and everything else. I mean, it could be dramatic. Absolutely dramatic.
• 59:20
  Speaker B: Yeah. Maybe attract some more corporate users into the city if you had some really cutting edge cool.
• 59:25
  Speaker A: I mean, I look at National Landing, for instance, and some of the things that they've already built and what they're planning there. I mean, if D.C. did that, it'd be very impressive. It'd be absolutely worth thinking about.
• 59:37
  Speaker B: You've got my vote, John. Go make it happen.
• 59:42
  Speaker A: I don't have your influence, Ali. So expanding on that theme of opportunities, what is your criteria for hiring at Carr Properties? Talk about your team and how you look at building and retaining quality personnel.
• 1:00:01
  Speaker B: Yeah. So there's nothing more important than the quality of the people we hire. Right. And you know, what, what are things we look for? I'd say we've. I mean, we've got a very strong culture here of being, you know, humble, you know, helping one another out. You've obviously got to be, you know, smart and engaged. But I think having, you know, important criteria is frankly, someone who works very well with others is key. And, you know, it's going to be a great contributor in addition to being, you know, subject matter expert, be it in, you know, finance, design, asset management, what have you. But I think, and frankly, having a customer service mindset is also really important. Like when we talk about distinguished hospitality. Yeah. That's most important is how we treat our customers, but it's also really important how we treat each other as, you know, co workers in the office. So, yeah, it's kind of a broad answer. It's not like we want ABC analytics. I mean, the analytics are expected, but it's really, you know, someone you can plug in and make the team better. I'll put it that way. Like not, not just smarts but also.
• 1:01:24
  Speaker A: Culture talk about the disciplines in the firm. So you have, you know, you have in house accounting, you have in house asset management. Do you have in house property management for all your office assets?
• 1:01:34
  Speaker B: We do, yeah, yeah, the best of the best.
• 1:01:37
  Speaker A: Yeah. And then you have investment analysts and people looking at new deals, et cetera, and then development folks. So you.
• 1:01:44
  Speaker B: Yeah.
• 1:01:44
  Speaker A: And then you have leasing, you have a leasing group.
• 1:01:46
  Speaker B: We have leasing and we have a full finance team. So I mean we, we were a public company back, it's now a long time ago, 15 plus years ago.
• 1:01:58
  Speaker A: Coe.
• 1:01:58
  Speaker B: Yeah, time, time flies. But so we, we carried forward, you know, some of the disciplines we had from being public and then we've expanded over time, as you said, John, and grown our development team, our construction team, leasing, construction management, finance, et cetera. So I mean we're, we're a full service, you know, real estate investment, development and operating company. And you mentioned property management. So I'm particularly proud by our, you know, on site team, both property management and engineering. They're, they're the face of our company every day with our customers and they do an amazing job. I mean they, they really do, they help create the brand, you know.
• 1:02:49
  Speaker A: How many buildings do you have in the portfolio now?
• 1:02:52
  Speaker B: Now is I believe 16. I think. That's right. 16, 17.
• 1:02:58
  Speaker A: And then what? All but three or in this market in the Washington area.
• 1:03:02
  Speaker B: Exactly. Yeah, exactly.
• 1:03:04
  Speaker A: And you have teams on those buildings that are on site.
• 1:03:08
  Speaker B: Exactly. And but yeah, I mean, extensive training around, you know, obviously hospitality, but also, you know, the required skill sets to, you know, manage customer relationships and manage buildings and all the building systems every day. But for us they're a real differentiator.
• 1:03:29
  Speaker A: How do you see yourself as different from other operators as far as your customer service? I mean, is there, I mean do you bring in one of the, like Marriott or Hilton or one of the, say Ritz Carlton and they do a training with your team to kind of get that feeling, that hospitality sense.
• 1:03:49
  Speaker B: Yeah, in the early days we were doing that. Now we manage it internally. But yeah, I mean it's, I mean it's not just coming from me, it's something I believe strongly in. But throughout our whole company it's like if we don't focus on, you know, the experience of our customer, like it's like nothing else matters. I mean if you do a great job with your customers, that's going to Lead to more occupied buildings, it's going to lead to lease renewals, development opportunities. You know, everything is about the customers. So we've got a customer first orientation through the whole company. But that leads to like, how do we think about design, how do we think about how we staff our buildings, how do we want to treat our customers? You know, it's critically important.
• 1:04:47
  Speaker A: So not only within the company into hospitality, but I see you've expanded your community involvement with two D.C. private schools and other programs for employees. Talk about your giving back strategies as well.
• 1:05:01
  Speaker B: We've had a lot of fun with us actually, which has been great. So John, I'm sure in your career at the different companies you worked with, you know, we all get a lot of requests to support various organizations and you want to be as generous as you can. But after some time thinking about it, we said, you know, rather than trying to help a little bit, you know, to different organizations, why do we get really focused and what do we care about? So as a company we landed on, we really want to help kids growing up in underserved communities. We started here in the D.C. area. So let's really focus on how do we improve the life of these kids and help give them a Runway to be successful. So then we thought about, okay, how do we do that? And we discovered a couple of schools locally that do incredible work. The Washington Jesuit Academy and the Washington School for Girls. And they, you know, work magic in terms of taking kids that are growing up, you know, in tough situations, meaning they didn't have the same opportunities you and I had. Right. And these schools are a complete game changer in terms of helping the kids learn how to be great students. And you know, they're taught about much more than just academics, like how to relate to business people. And they're thinking about, you know, college from a very, very early days at the school, you know, they're well fed and taken care of. So I mean, these schools are really changing the kids lives and they'll track the students and help them get into high school and then follow them on through college. So to me that's like. And not just to me, but to our company. That's inspirational, right? Like changing the trajectory for a kid who might not have had a lot of good opportunity otherwise. So we landed on those two schools. Let's support them. And then instead of just writing a check, we said, why don't we try something bigger? So we decided to create a charity concert that we do every year. It's called the Car Cares Concert. And, and we, you know, through the generosity of a lot of our partners in the business and vendors were able to like multiply the amount of capital we can support these schools with by like 20 times. Right.
• 1:07:42
  Speaker A: So that's great.
• 1:07:43
  Speaker B: Yeah, I mean, I think we've raised about a million and a half dollars in the last. I think we're coming into our fifth year or fifth concert. So we'll have, you know, again, I'm old, but we had like the English Beat play a few times, which was a lot of fun. This year we have Maggie Rose playing at the Hamilton. So all of our donors, you know, will attend the event. It's a big night of celebration, but we kick it off with, you know, talks from a couple of students just kind of explaining, you know, how the schools have changed, change their life.
• 1:08:19
  Speaker A: Great.
• 1:08:19
  Speaker B: So anyhow, so I really focused on that.
• 1:08:23
  Speaker A: I met Beth Reeves probably a year ago or so.
• 1:08:26
  Speaker B: Okay, great.
• 1:08:27
  Speaker A: And actually asked her to be on my board, which is my non profit that I've set up for iconic training for young commercial real estate people. She was so busy with what she was trying to do there that she just didn't have time. Unfortunately I got a chance to tour her school and of course Chris Smith is a podcast guest of mine and that they built their facility and now they're underway.
• 1:08:52
  Speaker B: Yeah.
• 1:08:52
  Speaker A: I just saw this week they got funding to build their new school over there.
• 1:08:57
  Speaker B: Oh, that's fantastic. That's great.
• 1:09:00
  Speaker A: Clark's foundation apparently.
• 1:09:01
  Speaker B: Yeah.
• 1:09:02
  Speaker A: Put up a big chunk of money.
• 1:09:03
  Speaker B: Yeah.
• 1:09:04
  Speaker A: For that. So that's pretty exciting news for them.
• 1:09:06
  Speaker B: Yeah, no, it's wonderful. Yeah. So I mean, finding these gems out there like that desperately need support and are helping to change kids lives. I think that's what it's all about.
• 1:09:20
  Speaker A: The last time we discussed your propensity to persevere, that quality really had to be accentuated over the past four years. Talk about some of your gut check moments and how you were able to stay the course.
• 1:09:36
  Speaker B: Yeah. The last few years have been gutted, gut wrenching, no question about it.
• 1:09:42
  Speaker A: Yeah.
• 1:09:45
  Speaker B: I mean we've got a great team and we were all in it together. Right. So I mean, we went through scary times. Like I said, we didn't know if we were going to have anyone paying us rent in the early days of COVID so we would have been out of business. And then coming out of COVID we've seen values crash. You know, our own portfolio has taken valuation hits. Certainly you're seeing less demand for space. So I mean, it's a Little better now, but the last few years have been the hardest time in commercial office ever. Right. Massive demand, contraction and plummeting values. So, you know, you're going through that like, well, this kind of sucks. Right? I don't know how else to say it.
• 1:10:36
  Speaker A: Well, I'm gonna bring up a couple of examples that I'm aware of. One is the contraction of Fannie Mae.
• 1:10:43
  Speaker B: Oh, yeah, yeah.
• 1:10:44
  Speaker A: Over here at Midtown. Talk about that situation.
• 1:10:48
  Speaker B: Yeah. So. But then I'll get to that. But where I was headed, John, is like, so it's been a really tough experience for any. Anybody in commercial office, not just us, but. But it is interesting. And you referenced a quote early about like, you never know how good things may be and it may not be as bad as you think it is in the present time. We're living that because I think there's a sea of opportunity in front of us. Right. So, yes, the last few years have been incredibly painful, but we're through it for the most part and we've come out the other side. We're all alive. You know what I mean? We still have our families and everything that matters is still there. And now I think the setup for like the next five to 10 years is pretty extraordinary. So it's like a lot of pain is washed through the market, but now it's time to rebuild. So, yeah, so it's. The sunshine is back out, we're through it.
• 1:11:53
  Speaker A: And that quote I say is, the past wasn't as good as you remember, the present isn't as bad as you think, and the future will be better than you anticipate.
• 1:12:04
  Speaker B: And that's right on. Right. And then you asked about Fannie Mae. Yeah, but that's a great question. So they leased the entire building except for a couple floors, leased to WeWork. And they had a termination. Right. I think they. I think it was effective like in May of 2029. So they came to us last year, so in 2023 and exercised their termination effective in 29. So that was a little bit of a punch in the gut to say we didn't see that coming. But they, Fannie Mae knew they were going to need about half the space they were in. So they were cutting down from like 750,000ft to. To call it half of that, more or less. And I think after looking at the market and seeing the value and quality of Midtown, you know, we came back together and executed a, you know, long term new lease with them. I mean, effectively a downsizing and a renewal. So that was a Huge win to be able to retain them now through 2045.
• 1:13:13
  Speaker A: Oh, that's. That's great.
• 1:13:14
  Speaker B: Yeah. So that was terrific. And when the news. This is a classic. It's not as bad as you think it is story, because when the news hit the market that Fannie Mae was leaving, we've been overwhelmed with companies who want to lease space at the project because there's no new development. Midtown's one of the best buildings. It's a beautiful property built in the last cycle. Right. So it's still really new, barely used, because Fannie Mae started occupying right before the pandemic. So, yeah, it's worked out. We've already. We've signed Aaron Fox for 120,000ft, and we have a lot of big, you know, big demand activity right behind that. So.
• 1:13:57
  Speaker A: That's awesome.
• 1:13:58
  Speaker B: Yeah. So exciting. We're gonna be okay. We're gonna be okay.
• 1:14:02
  Speaker A: So, as you know, I host a cohort of young professionals in our industry called the Iconic Journey in cre. What advice would you give young professionals in today's volatile market?
• 1:14:14
  Speaker B: I would go to your office in person and learn as much as you can, because, I mean, some of the best advice I got. So, I mean, I started. I was in corporate finance, then pivoted into real estate when I was, like, 2025, something like that. But my first job was doing loan workouts for Bank One up in New England.
• 1:14:40
  Speaker A: Sure.
• 1:14:41
  Speaker B: And it wasn't a ton of fun. Right. I mean, you're dealing with really tough situations. You know, owners, developers who've lost a ton of value, feeling a lot of pain. So, I mean, it was not a. Not a fun job for anybody. But I remember getting the advice, which is right on that. Like, it's in the down markets that you learn so much, Right. You learn, you know, how to treat people. You learn about how markets can reset. You learn about risk. So. And there's a lot of knowledge around restructuring and how to create new opportunities out of things. You don't get that when times are really good, you don't have time. Exactly. So especially today, I'd be, like, soaking up as much information as I could when that would be my recommendation, like, learn what's going on. How do you capitalize on the opportunity to come out of this market? And hopefully you can get with a company that's capitalized so that you're able to take advantage of, you know, the coming wave of investment opportunities. Because, again, the last time this happened in the early 90s, we were too small. We couldn't take advantage.
• 1:16:00
  Speaker A: I did the best I could to get.
• 1:16:01
  Speaker B: You did A plus plus. No, but think about like, you know, companies like Starwood and J.E. robert and others were.
• 1:16:11
  Speaker A: Oh, yeah.
• 1:16:12
  Speaker B: Were born in these times, back in the early 90s.
• 1:16:15
  Speaker A: Car America.
• 1:16:16
  Speaker B: Yes, exactly. So anyhow, it's a great time to learn. So that would, you know, pay attention would be my advice.
• 1:16:25
  Speaker A: So last one more thing and before you go, the last time I always asked at the end of every is my favorite question about the Capital Beltway sign. Last time you said persevere. Would you still reinforce that or was there, is there something else you might add to that, to that sign today, you know, for millions to see?
• 1:16:49
  Speaker B: I would still say persevere, but I would also say be optimistic.
• 1:16:55
  Speaker A: Okay.
• 1:16:56
  Speaker B: Like, have an optimistic outlook.
• 1:16:58
  Speaker A: That's great. So, Oliver Carr, thank you again for a great interview. Appreciate it.
• 1:17:04
  Speaker B: Yeah, John, great seeing you as always. And thanks for the opportunity. And congratulations. Congratulations on all your success. Podcast is awesome.
• 1:17:12
  Speaker A: Thank you very much.