Bob Milkovich's Advice To Matt Kelly About Going Public
One of the biggest stories of the year in the DC real estate industry has been The JBG Cos proposed merger with New York REIT and some of the backlash it has faced. At Bisnow's DC State of the Market: Part 2 on Wednesday, JBG managing partner Matt Kelly—who would become CEO of JBG Realty Trust if the merger goes through—called the deal a "win-win" for both companies, despite harsh criticism and legal wrangling from some of New York REIT's shareholders.
The event featured two blockbuster headliners, but before they graced the stage, attendees got insight into the future of the DC real estate market from several local industry leaders, representing regional mammoths JBG, First Potomac Realty Trust (that's new CEO Bob Milkovich next to Matt), Kettler and EagleBank.
Arent Fox chairman Mark Katz (below), who moderated the discussion of Bob and Matt, brought up how some in the market view the merger as a liquidity event and see it as a signal for others to cash out. Matt responded by refuting the claim that the merger represents JBG liquidating.
"One of the big reasons why the public structure is appealing to us is it enables much longer term ownership of real estate, versus a fund that has a finite life to it and has a year in which you have to sell out of everything," Matt said. "You could argue it's the opposite of liquidating a portfolio and 'getting out,' because what we're doing is we're effectively investing everything we have across all of the funds into future long-term growth associated with our entire portfolio."
Matt added that he is more optimistic about JBG's growth than any time since the downturn, and he thinks it is a great time to be investing in the future of Washington.
Bob offered some advice for Matt in transitioning JBG to a public company, noting public companies have less flexibility in changing their plans once they make an announcement.
"In the private markets a lot of times, you can test the waters," Bob said. "You can say, 'we’re thinking about harvesting this investment.' You can put information out there to see what kind of response you’ll get. In the public sector, once the words leave your lips, the public assumes you’re going to do it or it’s done."
Bob said he doesn't watch his company's stocks on a day-to-day basis because it can change without anything even happening with his portfolio. He also expressed confidence in the DC market and noted that it's following a different trend line than other parts of the country.
"I think nationally, we’re late in the cycle, and when you look at the information and data we read, we see red-hot markets like Silicon Valley and Boston are peaking," Bob said. "DC has always been counter-market, it’s coming back in. We’re very bullish on the future of DC. If you look at the net migration of people, it’s really a great story."
During the second panel, the moderator, CohnReznick's David Kessler, asked Kettler CEO Bob Kettler about the multifamily market, noting the city has 25,000 units under development but is experiencing just 3% rent growth, which trails the national average.
"We’ve been very concerned about it over the years," Bob responded. "If you look at the 25,000 [units], another 5,500 or so in the pipeline, that would be about 30,000 units delivering over the next three years.
"We're currently absorbing last year's 15,000 units and projecting 13,000 or 14,000 this year and averaging that for the next three years," he continued. "So it seems like, at least in the aggregate, the supply and demand are matching up, at least enough for some modest rent growth."
On the same panel, EagleBank CEO Ron Paul, who also owns Ronald D. Paul Cos, currently planning 370 apartments in College Park (our Prince George's County event is next month), talked politics and the impact upcoming government regulations could have on the real estate industry.
"As somebody that's on both sides of the tracks, I would strongly suggest that any construction projects that you currently have teed up that they get nailed down pretty quickly from a commitment perspective," Ron said. "I do believe, over the next six to nine months, you are going to see some radical changes in the concentration of real estate and the requirements that the regulators are going to have to the banks."
Ron also remarked that he recently met with 20 institutional investors in New York and that the most frequent conversation topic was Sen. Elizabeth Warren, the anti-Wall Street legislator and architect of the Consumer Financial Protection Bureau, who has been campaigning alongside Hillary Clinton. He joked that, from a regulatory perspective, they couldn't decide if they would rather see the Massachusetts senator become vice president or keep her current position.
The event had just shy of 500 people in attendance. Before the event, hundreds of professionals met for a breakfast and networking session. Above, we snapped Bob talking with Luchs Real Estate Cos' Ken Luchs. Following Bob and Ron's discussion, Cushman & Wakefield Americas chief Joe Stettinius and JLL Americas CEO Greg O'Brien discussed everything from Brexit to the local real estate market.