An Interview With: Chip Akridge
One of Washington’s best known developers for much of the last three decades, Chip Akridge, 59, is today Chairman of the company he founded in 1974. The company has acquired or developed over 10 million square feet in the Washington region during that time, and has an equal amount currently in its pipeline. Among its best known projects have been Gallery Place, The Homer Building, 900 Seventh Street, The Victor Building, The Hartford in Clarendon, 1225 I Street, and 1201 I Street (which last year received the coveted “TOBY” award from Apartment and Office Building Association of Metro Washington). It is currently working on Carroll Square and 700 Sixth Street, and has in prospect the Burnham Place development of over two million square feet of mixed use space north of H Street near Union Station. It has also acquired nine acres in Southwest DC near the planned baseball stadium. Akridge was born and grew up in Knoxville, Tennessee, left in 1968 to Georgia Tech in Atlanta, where he got a mechanical engineering degree, then went to Harvard Business School. He served in the Army from 1970 to early 1972, eventually assigned to Headquarters, USAV in Vietnam.
Bisnow: You’ve seen the real estate pendulum swing back and forth a few times. Where do you think we are in the cycle?
It’s pretty hot and frothy right at the moment, so if we’re not at the top of the cycle, we’re certainly close. We’re probably due for some type of correction. Whether it’s going to be a burst or a glide, I don’t know, I can’t predict that, but I do think the market is going to be cooling down over the next year or so.
Over the next year or so, what do you think? Maybe ten percent, 20 percent? What would the range be?
You know the market, that’s really hard to project. Frankly a lot of it is going to depend on what we developers do to ourselves. We can cut back on production of all types of space: residential, commercial, office. Then I think the correction will be less severe. If we keep building, which historically we have tended to do unfortunately, the correction can be steeper than that. So it’s really hard to tell.
If that’s in the air, the potential of a correction, how do you explain the Blackstone purchase of Carr America, and what do you think about it in general?
That’s a good question. I’m still trying to think about what I think about that. Particularly given the price that they paid, and given where Carr’s stock has come from since the first of the year. I don’t know what values they saw there that weren’t being recognized by the stock market. I don’t think the stock market has ever been very good at valuing real estate, frankly, and this may be another case where the underlying asset values are really worth more than the street was valuing them. In addition to that, of course, the Carr platform and the Carr name are very valuable assets that are worth a lot of goodwill and provide a platform for future development. It’s clear that this is a strategic move on the part of Blackstone. I don’t think it’s a tactical move of buying a portfolio, and gussying it up, and then reselling it. This is a major shift for Blackstone going into the real estate management as well as development business, which the Carr organization is certainly capable of doing.
Do you expect more acquisitions and mergers of developers, brokers, other major names on the Washington scene?
Well, that trend has been prevalent in the industry for four or five years now as we tend to continue to consolidate all levels. So I would say, yes, that trend seems to be continuing.
And yet, since there is some uncertainty about values, and you’re not the only one to suggest there might be some froth in the market, does that surprise you that there is this continuing trend?
Not really. I think there have been some structural changes in the industry since the ‘89-‘91 meltdown. This is really a combination of things, not just in the real estate industry, but also a change in the investment philosophy of the world: people have become fairly disenchanted with stock markets that have not been that good over the last ten years or 15 years. On the other hand, the asset class of real estate has gained institutional acceptance as a valid investment vehicle, and a lot of that has come from the flow of professionals into the industry. When I entered this industry in the mid 1970’s it was really a mom and pop type of operation, where you knew a guy who had a development company. Charles C. Smith was the biggest company on the East coast. So the industry itself has changed, and the institutionalization of the asset class has brought a lot of professional thinking such as systems approaches. The market is much more liquid today in terms of being able to sell real estate and so we’re coming from a base of thousands and thousands of real estate entities and consolidating very much in the way that the banking business consolidated across the country. I don’t know how many thousand national banks we had when somebody projected at some point that we needed only about ten percent of the number we had. So I think you’re just really seeing an industry that’s maturing, it’s growing up, it’s becoming institutional, but we’re not there yet. So I think that’s going to continue.
And a perception of froth won’t stop investment?
I don’t think the people that are in the industry today are particularly concerned about cycles. I think everybody understands that there are cycles, and that you buy something in the up cycle and you buy something in the down cycle and you just kind of average out. So I think there’s a longer term view of real estate these days from institutions, and I think that has a very stabilizing effect on the whole asset class.
What project are you proudest of?
Probably the first one, completed in 1976. It was the little bitty building at 1627 K Street, which housed the Women’s National Bank for many years. It was a very small site, very difficult in terms of the construction techniques. But I think the toughest part about it was the fact that it was my first.
And how about since then, as a mature organization? What are you proudest of?
Well we’re still waiting to grow up. Once we grow up, I don’t know what we’re going to do. But I’m proudest of Gallery Place probably.
Just the complexity of the project. The difficulty of the approval process and then the financing process. We were trying to finance that building right after 9/11 and that threw a bunch of monkey wrenches into a large mixed use urban type development. The marketing of the project was difficult with the four different types of uses; parking, retail, office, and residential. We had some difficulties during the construction phase. Our contractor went bankrupt. It was just a very difficult project from beginning to end. And it was a million square feet, our biggest project. But it turned out to have a terrifically positive impact on the city, which is really why we conceived of it and took it on in the first place. Together with the MCI Center it’s really launched the renaissance of downtown and residential.
What aspect of your business keeps you up at night?
Many aspects. I think the biggest issue in this business, at least the way we run ours, is that we’re in the service business, not the space business. So what we try to do is take care of our clients everyday, and we have to have a group of folks here who are committed to that proposition, and keeping our buildings full.
How does the way you do business now differ from how you did it 10 years ago, and how do you think it might be different 10 years from now?
It’s interesting, we’ve got a little counter trend here in that we don’t really do business a whole lot differently now than we did 10 years ago. It’s the players, the partners that we do business with, that have changed. In one aspect we have changed our philosophy, in that we have put together a discretionary fund of money that provides a large part of our equity money. But if you look at the entities that we’re doing business with, they’re a little different than, say, a domestic insurance company who was our partner at 1627 K Street some 30 odd years ago. It’s really our partners who have changed. We’re still in the service business trying to provide service to our clients, trying to be the best at what we do, not the biggest. We really just continue to do that everyday.
What positive qualities do you look for in a development partner, and what qualities do you consider to be negatives?
The number one quality is to have a deep pocket and the ability to fund the deal. That’s why we have the partner. Additionally to the extent that they are familiar with the asset class, they can look over our shoulder and two sets of eyes are better than one, and we are learning everyday. We are a very localized company here in Washington. There are many things happening around the world worth looking at, and maybe our partners tell us about things that are going right and wrong in the other markets. We look at their suggestions, we evaluate them, incorporate some of them. We’re looking for a partner that’s interested in the same level of quality and level of service that we are. We are not the cheapest game in town. We’re looking to provide value, not the lowest cost, so we need people whose investment objectives parallel ours.
Is there a business mistake that you will never make again?
I made a lot of mistakes. You just try not to make any of them twice, and certainly try not to make them three times.
Is there something that comes to mind?
Probably the one mistake that I did make before 1989 was I kind of had a closed mind to ever selling real estate The one thing I learned is that there are certain times to sell real estate, and there are certain times to buy real estate, and you need to recognize those times and take advantage of them.
What brought you to D.C. to become a real estate developer?
That’s real clear, the market. After I got back from Vietnam, my wife and I spent about six months traveling around the country studying market areas, and I knew what I wanted to do, which was to be in the real estate office development business. We studied markets around the country, and the Washington market was unique. It really never had any great boom periods, but it really never had any bust periods either. It’s just had a slow steady three percent growth rate since World War II was over, and I liked that prospect. It’s lived up to that prediction.
If land use restrictions did not stand in the way, and money was no object, what would you like to develop in D.C.?
Well, number one, I don’t want land use restrictions abolished because I think that’s one of the key cornerstones of the stability of this market. It’s not like Houston, Texas where you could just go out to the cow pasture next door and build a million square foot office building or 2,000 apartment units or 10,000 houses. Land constraints here are one of the things that make this market attractive to me, and to just be honest, today money is no object. There’s more money chasing real estate today than there are deals to take it, so that’s not a problem. I think that our bread and butter project is a well located high rise office building in downtown DC. That would be our number one choice.
Not many people in D.C. know of the extraordinary efforts you’ve made in the preservation and creation of natural areas of the Maryland Eastern Shore? What’s that all about, and why did you do that?Well, first of all, how did you know about that?
Earl Segal told me.
Oh, okay. Well, I’m really a tree hugger at heart, and I do believe in our responsibility and our stewardship for this planet, and I am concerned about it. People say, what can you as an individual do about that, and that reminds me of the starfish story, which I’m sure you know: You make a difference a little bit at a time. Most of the development we’ve done in the history of our company has been urban type development, where we’ve not cut down forests or plowed up fields. We’ve developed urban areas where it’s primarily a re-development. The streets are already there — smart growth is what it’s called now. But I’m a country boy. I grew up in the country, I live on a farm on the Eastern shore. I found a way to essentially fund and preserve farmland, using some federal programs and state programs and private money that’s helping improve the water quality of runoff into Chesapeake Bay. I’ve was a trustee of the Chesapeake Bay Foundation for six years, I’m a past trustee of the Maryland Nature Conservancy, and these are areas I’ve been interested in my entire life. I bought a couple of farms to do these projects, both because they’re worth doing in and of themselves, but also to do them as demonstration projects so that other land owners can see how to cobble these things together to try to do the same thing.
Where do you live?
I’ve been in Oxford, Maryland for 23 years. Full time. I come to Washington. I have an office over there.
How much of your time are you spending on work, on Akridge proper?
That’s hard to say, it varies. Whenever they need me, I’m always available.
And the most controversial question, how old are you?
That is a personal question. I’m 59.
60 is your next birthday.
That is correct.
That’s like the diamond birthday or whatever they call the 60th.
Whatever they call it.
Do you have a birthday coming up anytime soon?
When is that, may I ask?
You may, I don’t think I’m going to tell you though.
Uh-oh, sometime soon. Must be a matter of public record somewhere.
It probably is somewhere. I challenge you to find it.
And could you at least tell me, is it in the next month or two?
You’re getting pretty picky now.
Don’t you want people to call you with greetings?
It’s within the next 12 months.
Well, if you won’t tell me when your birthday is, got anything else interesting coming up in your life?
I’m about to run a marathon in China. May 20th. Just outside of Beijing, it’s called the Great Wall Marathon and about six miles of it is on the wall itself. Fairly difficult, but it’s a full marathon, 26 miles, and it will be my sixth marathon, I think it is.
Really? When did you take up marathoning?
About 25 years ago.
And have you done it in any other exotic places?
Not so exotic, I’ve been to Boston, New York, and the Marine Corps, I’ve done the original track in Athens, that was interesting. I’ve done New York twice actually.
Why did you decide to do this one in China?
I do one every fifth anniversary of my birth. It takes me that long to forget how much I hurt last time I did it.
I see, well does that suggest that this is around to the time of your birthday…
Yes, sometime in the next 12 months.
But why China?
Well, I haven’t been to China, number one, and number two I just thought it was cool to run some on the Great Wall.
Anything else cooking, anything else unusual in your life?
No I’m just a country boy.
Where does the name Chip come from?
I’m the third, you know, “chip off the old block.”
But were your forbears also called Chip?
No, there were two previous ones with my name, John Akridge and John Akridge Jr. I’m the third.
But were you the first one to be called Chip?
And did it really have to do with “chip off the old block”?
Chip off the old block, that’s what my dad came up with. That’s really true.