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An Interview With: David Osnos

Washington DC
An Interview With: David Osnos

An Interview With: David Osnos

He is one of the most legendary of Washington real estate lawyers still practicing. At age 74, David Osnos works most of every day and this July celebrates 50 years in practice, all at the same law firm. He is particularly well known as the chief attorney most of that time for sports giant Abe Pollin, as Pollin acquired and built apartments, sports teams, and the MCI Center. (Ooops, as of this month now called the Verizon Center — will people of our era ever get used to that?) And the chief lawyer to Jim Clark of Clark Construction, and a decades-long adviser to and trustee of Washington Real Estate Investment Trust. Originally from Detroit, he’s a graduate of Harvard College and Harvard Law School.

Bisnow: So you’re coming out of Harvard Law School in spring of 1956 — 50 whole years ago. How did you come to Washington, of all places?
I was very interested in the tax field, so I thought I would come down here and work in the federal tax area. Hopefully develop some meaningful expertise. My original thought was that I would then go back to my hometown of Detroit, where at that time a highly sophisticated federal tax practice did not exist. So I came down here, took the bar, and was hired by Al Arent as a tax lawyer for a firm that was then called Berge Fox & Arent. But I got married a month after I started work. And after a year here in Washington, my wife and I both liked it so much, and I enjoyed working so much with Al, that we just decided to stay.

And how did you stumble into real estate law?
Well, as one of my partners said, a tax lawyer is really the last common lawyer. Because I found that to do real estate transactions in any kind of intelligent way, you had to know federal income taxes. If you didn’t, you weren’t doing the job for your client. And so I decided, well, I know the tax part. I’ll learn the real estate part.

When did you come to that decision?
Fairly early in my career. I’d say the first year I practiced from ’56 to mid ’57 I was doing purely tax work, handling tax deficiencies and the like. But then about a year later I began to get involved in transactional work. And in our firm at that time the deals were principally real estate transactions. And, of course, we still do a lot of real estate transactions.

I’m impressed you can remember the dates with such clarity. Do you remember the specific transactions you got involved in?
I don’t remember the ones from ’57, but I remember the ones from ’58 very well because that was the time I met Abe Pollin. And Abe was—still is!—eight years older than I. But in mid ’58, he asked our firm to do a major real estate transaction, constructing and syndicating an apartment building in Arlington Virginia. And I did most of the work on that. Abe and I became very close then, and that hasn’t changed in the 48 years I’ve been representing him.

Do I understand that you joined Al Arent for your first visit with Pollin, and you and Pollin just hit it off?
That’s correct. We had a lengthy meeting discussing the project, and it happened to be an area where I had developed some familiarity and expertise. Abe liked what I had to say, and we took it from there. We became very close then, and that hasn’t changed in the time I’ve represented him.

What was that project?
It was the Robert Towers Apartments in Arlington Virginia. Abe acquired the land and built the apartment buildings, and there was a lot of legal work in connection with that. But also, in order to raise the necessary equity, he put together one of the earliest limited partnership syndications of any magnitude.

So you actually remember today that specific meeting?
I certainly do.

Where was it held?
It was in Al Arent’s office.

And why do you remember it?
I remember it because it was such an exciting and interesting project. I also had the feeling it was up my alley. After the first five minutes of the meeting, I knew I was going to enjoy working on it.

How significant a figure was Abe Pollin at the time?
He was young. We represented not only Abe but his father Morris who was a major plumbing contractor. Morris with assistance from Abe had just built the Rittenhouse apartments there at 16th and Rittenhouse. A big project. So I would say at that point in the late ‘50s Abe was a real player.

I saw in some profile that Abe Pollin says you’re his right hand and left hand.
I don’t know about that. But he’s a wonderful human being. A great deal of fun to work with and for. And I’ll say this for Abe. There have always been interesting projects whether, as in the late ‘50s, it was among the first limited partnership syndications on any major scale in Washington; or in 1963, when he bought a one-third interest in the then Chicago Zephyrs NBA team along with his partners, and moved them to Baltimore to become the Baltimore Bullets; or in 1972 to ’73 when he acquired the Capitals nHL expansion franchise and built the Capital Centre. So with Abe it’s always been a treat.

Are you still his general counsel?
Yes I am.

And what do you do for him today?
First of all, I work with a number of excellent young lawyers here, particularly Rich Brand, and I’ve got to give them credit because without them I really couldn’t get the job done. We do such things as media contracts—that is, radio and television broadcast agreements and promotional contracts for advertisers inside the MCI center and on radio and television. We do a lot of executive agreements—for example, the agreement with Ernie Grunfeld, who’s president of basketball operations for the Wizards. The agreement with Eddie Jordan, the Wizards coach. And we’ve worked a great deal with Ernie Grunfeld on player contracts, particularly the major ones. So we do transactions and contracts. We’ve done some employment discrimination cases where we have represented Washington Sports. And financial matters, of course. Sports arenas aren’t cheap. The financing and subsequent refinancing of the MCI Center were both major transactions.

How often do you see or talk to Mr. Pollin? Several times a week.

Do you have a regular meeting with him, or lunch, or what?
It depends. We’re very flexible. Often we just do business by telephone. When it’s desirable to get together in person, I’m exactly a three-minute Metro ride from here to there.

You take the Metro.
Oh, absolutely. The Metro is an incredible lifesaver for downtown appointments.

Is Arent Fox the main outside counsel for Washington sports?
Yes we are, although occasionally other lawyers work for them and certainly do a great job. I would say more than a majority of work is done by us.

Do they have in-house lawyers?
They do, who are excellent. Marianne Niles, who used to be corporate secretary of the District of Columbia, does a lot of in-house work. I would say her major area is dealing with government, principally the city, but also to some degree the federal government. There’s also another lawyer there who spends a lot of time working on contracts for individual events like concerts. And he does most of that work, but will occasionally contact us if there’s an unusual problem and he wants to bounce it off somebody.

How many attorneys at Arent Fox would you say work regularly for Abe Pollin and Washington sports matters?
I would say half a dozen.

You’re 74 years old, and for the record that’s very young these days! How much are you yourself practicing law now?
About 70% of full-time. I go to physical therapy and personal training three mornings a week, and so those mornings I tend to get here around 11 or 11:30. The other two days I work normal hours. But the whole thing balances out to about 70% of a full schedule.

And how much of that time would you say you devote to work from Mr. Pollin?
About 25%.

Is it common anymore for substantial organizations like his to have general counsels who are in law firms rather than in-house?
Well, I’d say most big companies now do have their general counsels in-house. That is not a bad thing for outside counsel, because obviously in-house general counsel is likely to know a little bit about a lot of things. But real in-depth expertise isn’t something that goes with that job.

When was the first you heard that he might just decide to build the MCI Center and build it where it is?
We began to talk seriously about that in 1993 or 1994.

What did you have to do about it at that time?
We began exploring the possibility of great sites for the new arena. At the same time, Abe was being avidly courted by the city of Baltimore. They had just built Oriole Park in conjunction with the State of Maryland. And they very much wanted to build a brand new state-of-the-art arena right there adjoining Oriole Park where Abe could move the Bullets, as they were then called, and the Capitals. So that was going on. Also Abe was being besieged by people who wanted to buy the teams and move them. For example, in Cleveland, Abe’s good friend Gordon Gund had a basketball team, but he didn’t have a hockey team. He would have loved to buy the Capitals. On the other side of the coin, St. Louis had a hockey team but not a basketball team, and they were very anxious to buy the Bullets. So Abe was being besieged with a lot of favorable offers along those lines. But in the end he decided that he had made his career in Washington. He moved here at the age of eight from Philadelphia, he loved the city, and he wanted to achieve something positive for it.

Did you go walk around what is now known as the East End with him looking for sites?
You bet I did. The site where the Verizon Center is now was then a huge surface parking lot right in the heart of Chinatown. And because of its incredible Metro accessibility, being not only on the Red Line but also on the Yellow and Green Lines, we always knew that was a great location. A second location was over by L’Enfant Plaza. A third one was New York and Florida Avenues. And of course there was a considerable amount of interest in an arena over in Northern Virginia in the area of Crystal City and Pentagon City.

With respect to the site Mr. Pollin chose, do you remember walking with him around those streets? What did you guys talk about? What did you see?
It wasn’t exactly paradise, let me put it that way. That whole area was pretty run down, except for Chinatown, which was well polished up. But you know, Seventh Street, Sixth Street, F, G, H, they were kind of dismal, frankly. But Abe didn’t worry about that. He thought this was right in the middle of the city, we’re so close both to Capitol Hill on the one side, the White House on the other. This area has to succeed. And if we put a facility here, people will come, and development will happen all around it. And, believe me, he is one of the sharpest knives in the drawer. His prediction came totally true.

And what substantive thoughts about real estate and tax law were going through your mind at the time?
Well, here is one thing that shows what so many of us love about the guy. I checked the law and told him that if he wished to do so, we could create several straw parties and purchase real estate in the area of the new arena that would obviously go up in value once his plans to build the arena were announced. And this is vintage Abe. He said to me, “Well, David, I’m glad to know that I could do that. But I don’t want to do that. I’m happy for the people who own the property now to get the benefit.” So making more money for the sake of money has never has been at the top of his agenda. I mean he’s a great businessman. He negotiates good deals. But this was something where he could have gone out and really made big bucks on the cheap. But he didn’t want to do it because he thought that the people who would ultimately find out that he had been the one that bought the property would feel like they had been treated unfairly, even if it was lawful. He just didn’t want that. His focus was on the new arena. And to the extent it was good for others, that was fine with him.

What other notable real estate or tax issues arose in the course of bringing MCI Center to reality?
What didn’t! Of course, there were the original meetings. The ones that really made the building happen were with Mayor Barry, who was obviously very eager to have this done. We negotiated the principal points of the ground lease with him. And then he put together a tremendous team of people to work with us to get the project done. We worked with other lawyers such as Whayne Quin, one of my favorite people incidentally, then of Wilkes & Artis. Whayne handled the incredible amount of zoning and government approval work with the National Capital Planning Commission, the Fine Arts Commission, the Pennsylvania Avenue Development Corporation, and so forth. Every set of initials you could imagine needed to approve the building. And I worked a great deal with the architects for the building, including Coke Florance who was principally responsible for the exterior design.

And what other big real estate issues with the Center, as you look back?
The biggest issues were working out the construction details. Abe has always been very friendly with Jim Clark. It was Clark Construction, or George Hyman as it was then called, that built the Capital Centre back in 1973. And so Abe selected Clark as the contractor for MCI Center. It was not your routine project. Let me just give you three examples of what the construction difficulties were. The west foundations of the building are six inches from the Yellow and Green line tube. The Red Line tube passes directly under the building from the northwest corner to the southeast corner. The Gallery Place Metro Station, part of their roof is the floor of our main concourse. So we had to work out the details of many, many aspects of this with WMATA [Washington Metropolitan Air Transport Authority] and Metro. And it wasn’t easy. WMATA has always been in a position where they don’t have a lot of money to spare. But they understood that this would be a project that would be very good for them because it would create enormous ridership at a time of day when they didn’t usually have it. Of course, the financing was also a huge issue.

Fast forwarding to today, are there any real estate or tax issues that still come up in connection to the MCI Center?
Not really. We’ve had some questions with the District of Columbia. For example, they promised us as part of our deal that we would have a very substantial police presence. We told them we needed that, especially in the early years. And the District of Columbia came through. And subsequently we worked out the details with them. There’s been some modest reduction in the police presence around the building, but it’s still very substantial because we want to make sure people coming at night feel completely comfortable.

Is there any major new real estate transaction on Abe’s radar?
Well, Abe is considering a building in the District of Columbia, strictly on a nonprofit basis. A project that will provide quality housing in the city for people who want to live there but can’t afford it. The groups that he is targeting are police, firefighters, and teachers. He wants to build this project, which as I say will enable people who work in the city to live in the city in quality accommodations at a reasonable price. And he proposes to make for himself zero profit from this project. I can’t really say more about it at this time.

You mentioned spending 25% of your time on matters concerning Mr. Pollin. How about the rest of your time?
Perhaps 15% on Clark Construction matters, about 15-20% on Washington REIT matters, and then the remainder of my time among a wide variety of other clients.

Can you tell me about your history with Jim Clark and Clark Construction?
Well, back in 1967, I think it was, I represented the Motion Picture Association of America. And they were about to build their new headquarters building on 16th and I.

The one they still have?
Yeah, they’re still there, on the Southwest corner. And they selected the George Hyman Construction Company to be their contractor. Now, the Motion Picture Association didn’t have a whole lot of real estate or construction experience. I had a fair amount. So I wasn’t just the lead attorney for them in working out the details of the construction contract, but played maybe a larger role than counsel might normally because of my experience in the field. We had several meetings with Jim Clark and his people at Hyman and worked out a contract that I think both sides regarded as fair, reasonable, and workable. Hyman went ahead and constructed the building, which I think is still an incredibly attractive building, and it’s almost 40 years old. There are a lot of buildings in the city that are 40 years old that are being torn down. But not that one.

So you’ve come to work closely with Clark. What do you do for them exactly?
Our firm has handled a fair amount of construction litigation for them. I get involved in that only to a very modest extent. Judgment calls, if you will, from a litigation point of view. I’m certainly not a litigator. But I have been a counselor in regard to some litigation issues. Mostly for Clark I do corporate, partnership and tax work.

How about your work with Washington Real Estate Investment Trust?
I have represented Washington REIT for a lot of years. I’ve been on the board of trustees for about 20 years. We do an enormous amount of real estate securities and financing work for them. As you know, they’re always buying properties and selling them. We do that work, and we do work for their public offerings and other debt financings.

And what are their marquee projects they’re known for?
Certainly some office buildings in downtown Washington. The big one at 18th and G. Another office building at 19th and Pennsylvania. One at 19th and M. Apartment projects throughout the whole metropolitan area. The interesting thing about Washington REIT is that it’s different from many REITS that are diversified geographically but have the same product type. For example, I’m also on the board of East Group Properties, a big REIT headquartered in Jackson Mississippi. It has all industrial properties, but they’re spread from Florida to California. But in the case of Washington REIT, all our properties are in the Washington or Washington - Baltimore area. On the other hand, we have five separate project types: office buildings, medical office buildings, retail, industrial, and apartment.

What would be an example of the interesting sort of issue that you get from REIT?
Well, let’s say we’re buying a property for $80 million from a pension fund. That would have been 1776 G Street. Deals like that are not automatic. Before you commit that level of funding, you have to make sure through in-depth due diligence that you’re going to get what you pay for. And so we’re part of a much larger due diligence team, as you have with all REIT acquisitions.

Stepping back, how do you feel Washington has changed generally in terms of real estate? Besides the fact that everything is much more expensive.
It was a sleepy southern town when I got here in ’56. And everything about the commercial aspects of the city has become so much more sophisticated. In that era I think comparatively few District of Columbia lawyers knew how to do the financing for an office building, either on the construction or long-term financing side. So a lot of work was done out of New York. But starting in the late ‘50s, Washington really began to develop a very high level of sophistication. Part of that was the fact I mentioned earlier that federal income tax considerations became more and more crucial to real estate transactions. And there was plenty of federal tax expertise here. So I think that led to a real development of transactional expertise.

Did you think of practicing in New York, which was more sophisticated?
I like New York. Don’t get me wrong. It’s fun to be there for business, it’s fun to be there for pleasure. But especially in the winter when you’re in those dark canyons, it can be depressing. Washington is a low-rise city. The streets are wide and the buildings aren’t that tall. Which means there’s plenty of light. And I’m one of those people who believe light affects your mood. And so I love this city for that reason.

Do you have any relatives left in Detroit or have you gotten back there over the years?
Oh rarely. Most of my family is long gone from Detroit. I have an aunt and uncle and a cousin there, but that’s about it.

Are you surprised that Washington has gone from a second or third tier city, or as you called it, a sleepy southern town to a top tier city? What would you have expected years ago?
Once we got into the ‘60s, and I observed the increasing sophistication in every aspect of tax planning, law practice, accounting, construction and the like, and also the growth of the federal government, it was all right there on the table.

You’ve seen up and downs in business cycles in these 50 years in real estate as well as business generally. Do you think we’re on a permanent new plateau in Washington real estate, or do you think the business cycle is still with us and you could see a big downturn at some point in the future?
I don’t. Let’s go back to 1990. Starting in 1990, and in ’91, ’92, and ’93, I spent an enormous amount of my time in the area that was referred to as workouts. And it was brutal. The problem in that era was that everything was hopelessly over-financed. There wasn’t any equity in any of the deals. It was kind of scary. I used to come home and tell my wife that I had a great achievement that day. And she would say, “What was that, David?” And I’d say, “Well, I’ve been working on something that was a total catastrophe, and through my efforts, it’s now a mere disaster.” One of my clients, a very funny guy, I can’t give you his name, but he called me one day and said, “I’ve done a study. Do you realize I’m now in the top 10% of U.S. real estate developers in terms of net worth?” He paused a moment. “I’m up to broke.”

Why couldn’t we have that again?
It was an unusual era. The FIRREA legislation was incredibly misguided. It was really Congress’ effort to punish the real estate and thrift industries for some of the excesses of the late ‘80s. The bottom line was that they created a system that drove everybody under. Cost the banks a fortune, cost the thrifts a fortune, put a lot of real estate developers under because the government turned off the money spigot and then said to the real estate developers, “Sell your properties, and pay off your loans.” But the problem was there was no financing available. There were no buyers. But that era all by itself was quite special. Contrasting that with today, I find that today, the lending institutions have been much more careful and your typical project has far more equity in it than existed 15 years ago. And so these projects are capable of sustaining some reasonably hard times. Because of that, I don’t see any major downturns. I see a bit of a plateauing. Certainly real estate has had a great four or five years, including REITs. By the way, a very good friend is Rich Jeanerette of Ernst & Young, whose interview with you I read recently, and Rich’s views of REITs are quite similar to mine. So I don’t see hard times coming. I see a slowing of growth. But I don’t see any sharp downturn of the sort we had in the ‘90s, or, if you remember this, the early ‘80s.

How was that one?
It was fascinating. The prime rate went up to 20%. I bought a CD at Perpetual, which was then a pretty big thrift, at 16% per annum. Unbelievable. And then of course in the early ‘70s when essentially the U.S. banking system ran out of money. There was no money left. No liquidity. The Fed was up to its eyeballs. So that was some fun and games, too. It wasn’t that interest rates went crazy then. There just was no money to borrow.

What do you think is the lesson from past history that most people in the community forget?
Ah. I think they haven’t forgotten it here in Washington. I think the lesson is pretty simple. There should be real equity in deals and crazy speculative overbuilding should be discouraged. The building should be done into demand as opposed to being way in advance of demand. :)