Over the past half century, St. John Properties has grown from a small, local real estate developer to one of the largest private commercial real estate companies in the Mid-Atlantic.
Headquartered in Baltimore, Maryland, the company focuses on speculative commercial development in a variety of sectors and owns 21 million square feet of office, research and development, retail, warehouse and residential space.
Matt Holbrook, regional partner, heads the Virginia and Central Maryland regions from the Frederick, Md. Office of St. John Properties. He recently spoke to Commercial Observer about what he is seeing in the region and why the market will remain strong.
Commercial observer: What is your development philosophy?
Matt Holbrook: St. John Properties turns 50NS Anniversary this year, and one of its differentiating missions is the company's persistence in being a speculative builder of commercial space to meet the emerging real estate needs of current and future clients. The pre-pandemic pace was more than 1 million square feet of speculative space in the greater Maryland-Virginia area, and this aggressive pace has continued without major disruption. St. John Properties anticipates where customers want to be, what properties they want and need, and we go ahead by building speculatively. Essentially, we try to be ready when our customers are ready.
What do you find appealing about new development locations?
When looking for new locations, we take into account important factors such as demographics, local equipment, the available and future transport network and infrastructure, expected population growth, the quality of the workforce and the diversity of existing companies. For each of the criteria, all arrows are pointing up in Northern Virginia and Maryland, and this region is considered one of our strongest and most attractive for further development.
How has that changed in the past 18 months as a result of the pandemic?
Although the pandemic has hit some commercial real estate sectors such as hospitality and retail hard, our experience has shown that new business growth has significantly outweighed the portfolio challenges of the past 18 months. We have higher rental rates than ever and a rotation in our portfolio to tenants with higher creditworthiness. Our suburban business parks benefit from tenants who want to decentralize from more densely populated urban locations. Businesses across the board are placing more emphasis on the security of their spaces, including improved air quality (number of air changes, ionization, UV, etc.), preferring suites with direct access, more outdoor common areas, fewer common areas, and no-touch systems.
A major challenge that we are working on, like everyone in our industry, is extreme inflation and the lack of availability of many building materials. Causes could be the "reopening effect" after COVID, plant closings during the height of the pandemic, winter storms in Texas, booming demand in the areas of life sciences and e-commerce, or a hype about expected trillion dollar infrastructure bills by the federal government. In order to master these challenges, we work closely with our contractors, suppliers and customers to be particularly creative and agile in order to mitigate these short-term disruptions.
St. John Properties owns approximately 21 million square feet of real estate. What segments do you see trending in the DC / Northern Virginia region right now? What are you bullish on?
E-commerce has created a seemingly insatiable demand for commercial space and we expect this trend to continue in the near future. The demand for life sciences has also reached new heights and the technology sector is strong, including new growth sectors such as artificial intelligence and bioinformatics. St. John Properties was founded by developing one story "Flex" research and development / office / warehouse buildings and the diverse needs of end users will continue to drive demand in the region.
In addition to these demand drivers, there is an enormous space requirement for data centers. Data centers are supported by a wide variety of companies, including construction and infrastructure companies, software developers, technology integrators, etc. These supporting companies are often small businesses that generate many jobs and significant tax revenues that have traditionally been local communities. While data centers are a significant contributor to the region's economic health, it is also important for local communities to understand that these businesses are in need of more commercial space. It is important that the remaining land inventory is not entirely consumed by data centers at the expense of industrial and commercial buildings for these supporting contractors, but also for life science firms, technology companies, etc.
What factors do you consider when considering new properties in the DC region?
In general, it is becoming increasingly difficult to find well-located land at reasonable prices in the region, especially given the volume of large data centers and residential projects that are still being developed. We draw on our proven formula, which includes building and maintaining strong relationships with the regional realtor community, and are grateful for the opportunities that constantly arise.
We also believe that St. John Properties is a truly unique commercial real estate company because we are privately held, we can make quick purchase decisions and close transactions successfully. Rather than signing up to large and often outside real estate and investment committees, only a handful of St. John Properties executives make all the final decisions. This scenario also sets us apart from other privately held companies, as several joint venture partners and investors are typically involved. Brokers understand that we have full confidence in sellers when they close. We are long term property owners, not resellers.
How do you think the post pandemic will affect offices and retail outlets over the next year?
For several years, suburban office buildings outside of the popular mixed-use hubs have been struggling not to become mass-produced goods without great differentiation. Natural tenant turnover can mean further downsizing and a flight to better locations as companies adjust to post-pandemic office supplies.
On the brighter side, well-located suburban office buildings are starting to benefit as companies with denser, urban locations adopt a "hub-and-spoke" model to give their employees more options and flexibility. Tedious commuting (including bulk transportation) and higher population densities are less attractive to some companies, leading them to rethink their space needs and consider smaller offices near their employees.
What do you like about the DC region? Why is it a good location for this type of property?
The Washington, DC / Northern Virginia metropolitan area is one of the most unique and economically diverse locations in the United States. Everything begins with the federal government and its strong influence on all companies and industries, and with the DC as the seat of power for the whole country, the opportunities radiate consistently for the benefit of the entire region. The region has become a technology hub for life sciences, public procurement, e-commerce and data storage. Commercial real estate is the lifeblood of each of these sectors and accordingly continues to thrive to reflect the growth of these various industries.
What notable developments or deals have you made in this area recently?
One of the newer projects is Gainesville Tech Park – along Wellington Road in Prince William County, Virginia – [which] shows our long-term vision, the recognition of value creation and the talents of our entire team. This 136 acre property is our first acquisition in Prince William County, and after claiming the land, we recently sold a portion for use as a data center. For our prototypical, speculative commercial buildings, we develop the balance of the property. St. John Properties is constantly looking for new opportunities in markets that are new to us.
How do you see your portfolio developing over the next five years?
In a word – more. Established more than 50 years ago, the formula of acquiring strategically located properties and developing a variety of commercial real estate products that address the needs of current and future customers has proven to be extremely successful and lasting. We intend to remain the leader in rethinking the sustainability of buildings and providing commercial real estate solutions with green buildings that minimize the impact on the environment [the] Earth and its natural resources. Over the years the company has grown from developing one story flex / office buildings to large, mixed use business communities with multiple product types and we will continue on that path.
What other trends do you have in mind that could affect our future?
The experience of the pandemic has resulted in a significantly increased emphasis on the life sciences in terms of testing and vaccines, including a recognized need for operational biotechnological manufacturing facilities for whatever the future holds. The extensive research and discoveries related to COVID-19 have resulted in breakthroughs in related areas of life sciences, including cancer therapies. These successes have spurred the emergence of new initiatives and new companies entering the life sciences industry, so we expect an upward growth curve to continue. The combination of exceptional research facilities, targeted financial investments and an unparalleled and highly qualified workforce will ensure the continuation of this activity in the life science industry for the foreseeable future.
source https://seapointrealtors.com/2021/07/31/st-john-properties-matt-holbrook-talks-development-outlook-in-dc-commercial-observer/
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