JBG Smith Looks To Sell More Apartments Amid 'Anemic' Office Market
For years, JBG Smith has been shifting its portfolio from office to multifamily as it concentrates its holdings in the National Landing neighborhood around Amazon HQ2.
But now, the REIT is pressing pause on selling office properties amid the sector's increased uncertainty, and it is instead focusing on offloading more valuable multifamily assets as a way to obtain liquidity.
“Because office values have bottomed and remain at historically distressed pricing levels, selling office assets in this market would obviously be value destructive and likely will be for some time,” JBG Smith CEO Matt Kelly said in his letter accompanying the REIT’s first-quarter earnings report.
On the other hand, he said multifamily properties “remain attractively priced in the private market.”
JBG has already parted ways with multiple apartment buildings over the past few quarters.
In December, it sold a 345-unit Fort Totten mixed-use building anchored by Walmart to LBX Investments for $86.8M. Last quarter, it sold its sole Bethesda multifamily property, the 322-unit 8001 Woodmont, to Peterson Cos. for $94M.
Kelly said Bethesda, where JBG Smith is headquartered, has an “inhospitable business climate” and slower rent growth than other markets, but still, the property “garnered unexpectedly strong pricing and buyer pool depth.”
He said the REIT is marketing more properties in D.C. and Northern Virginia for sale.
JBG put on the market a 432-unit Union Market apartment building that it purchased in 2021, Bisnow first reported last month. It is looking to sell The Batley for $180M, according to Tenant Opportunity to Purchase Act materials distributed to residents. That price would represent a devaluation from the $205M it paid in 2021.
The REIT's multifamily portfolio ended the quarter 95.7% leased, down 0.5%, citing the seasonal slowdown in demand. The landlord said that after Amazon instituted a five-day office requirement in January, it saw the number of the company's workers renting JBG apartments in National Landing rise by 12.7%.
JBG is leaving its office assets off the market for now as distress and uncertainty permeate the sector, stifling any demand.
The REIT executed 71K SF of leases in the first quarter with a weighted average lease term of 1.7 years. Its office portfolio ended the first quarter 78.3% leased, down 0.3% from the prior quarter.
“Leasing activity in the first quarter was anemic as many deals were paused, waiting for more certainty regarding federal government staffing and spending changes,” Kelly wrote in the letter.
Of JBG’s 5M SF office portfolio, 1.4M SF is leased to the General Services Administration and 1.3M SF to government contractors. Kelly said the effects of the federal government's cuts on the office market aren't yet clear, but D.C. “seems headed for some sort of slowdown in economic growth.”
“It’s too early to say that headline risk has come home to the office market — but it has moved in next door and, in so doing, has had a palpable, chilling impact at least for the moment,” Kelly said.
JBG recorded a $53.7M net loss for the quarter, slightly less than its previous quarterly loss of $60M.
