Development ® FALL 2018 IDEAS I ISSUES I TRENDS Commercial Real Estate Development
St. John Properties
Developer of theYear
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Industrial is Not a Dirty Word 72 Uni ed Commerce 14 Downtown Data Centers 84
Cover Story Developer of the Year 2018
St. John Properties Developing with a Long View
Listening to clients and employees has resulted in consistently high occupancy rates for this Maryland-based CRE developer.
Upon completion, Greenleigh at Crossroads near Baltimore will contain 1,900 single-family homes, townhomes and luxury apartments and more than 2 million square feet of Class A of ce space, ex/R&D buildings, retail amenities, and a 120-room SpringHill Suites hotel. All images courtesy of St. John Properties
Reprinted with permission from Development magazine, published by NAIOP, the Commercial Real Estate Development Association
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St. John Properties was selected NAIOP’s 2018 Developer of the Year due to its “ extraordinary commitment to not only develop a quality product, but also to enrich communities. This made a tremendous impression on the selection committee.
It’s clear that the company values its employees, takes pride in the quality
developments that form its vast portfolio and has an extraordinary commitment to the communities where it does business. ”
By Ron Derven
Joan Woodard, Developer of the Year selection committee chair at NAIOP and president and CEO of Simons & Woodard Inc., Santa Rosa, California
T HE PEOPLE AT St. John Proper- ties don’t just talk about a commit- ment to excellence, they practice it every day. A founding principle that permeates the DNA of the 180-per- son Maryland-based company is its focus on the long term when it comes to development, tenants, investors, buildings and the com- munities in which it works. Launched in 1971 as Maryland Industrial Enterprises (MIE) by its chairman, Edward St. John , the company started with the construc- tion of a single industrial building. Forty-seven years later, it owns more than 19 million square feet of office, flex/R&D, retail, warehouse, gaming and residential assets val- ued at $2.6 billion. The company serves 2,100 tenants (referred to as clients) at 150 projects located across eight states, including Mary- land, Colorado, Louisiana, Nevada, Pennsylvania, Utah, Virginia and Wisconsin. Its portfolio is expected to grow to more than 20 million square feet by the end of 2019.
receive this award. My employees and I are so proud of the company that we have built and what we have achieved. ” “Stop This Flying Foolishness” St. John was exposed to commercial real estate at an early age. When he was age 16, his father died and left the family with a small manufactur- ing company, a small distribution business and five 10,000-square- foot industrial buildings. Two of the buildings were occupied by the family businesses and three were leased to other tenants. St. John, however, wanted to be a test pilot. Upon graduating from high school at age 17, he was ac- cepted into the second class of the U.S. Air Force Academy in Colo- rado. After further consideration,
The company initiated a corporate sustainability program in 2009 that has earned it the U.S. Green Building Council LEED certifica- tion on 43 buildings, representing more than 2.3 million square feet of space across the portfolio. Nearly every new building now developed is slated to earn LEED certification, with 29 buildings totaling more than 1.8 million square feet pend- ing certification. In addition to its commitment to the environment, St. John Proper- ties is dedicated to supporting the communities in which it does business. Its chairman established a nonprofit foundation whose phi- lanthropy is exceptional. To date it has gifted more than $60 million. “The Developer of the Year honor is the Holy Grail for us,” states Chair- man St. John. “Never in my wildest dreams did I think that we would
Reprinted with permission from Development magazine, published by NAIOP, the Commercial Real Estate Development Association
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Cover Story Developer of the Year 2018
he decided to go to the University of Maryland, major in electrical engineering and join the Air Force ROTC, which would still enable him to become a test pilot. “In my senior year in college,” re- calls St. John, “my mother came to me and said: ‘If you don’t stop this ying foolishness, I’m going to sell all the businesses.’ I decided to get involved in the family businesses after graduation. I quickly learned that I didn’t like manufacturing, and I didn’t like distribution; but I loved the real estate part of it – talking to tenants and even taking care of the roofs.” After several years of managing the ve buildings that his father had built, totaling 50,000 square feet, St. John wondered if he could build and lease industrial buildings as a business. He didn’t know how to develop a building at the time, so he looked for a local builder with whom to partner. In 1966, he formed a partnership with a man named Leroy Merritt . “Leroy taught me how to build,” explains St. John, “and I taught him what to build. We constructed 500,000 square feet of industrial space together over ve years in the 1960s.” St. John says that the industrial buildings of the day were painted block with railroad tracks at the back of the structures. After ve years, the men split up the partner- ship and divided the buildings, and each started his own company. Flex/R&D Development in Maryland St. John does not take credit for inventing the ex/R&D property type, a structure that can accommo- date both of ce and industrial uses,
Utah Gov. Gary Herbert, middle, joined St. John Properties leaders including chairman Edward St. John, right, and president Lawrence Maykrantz at the 2017 groundbreaking ceremony for Valley Grove, a $250 million, 60-acre mixed-use destination in Pleasant Grove, Utah.
but he does claim to have been the rst to develop such a property in Maryland. “I built my rst industrial building in Columbia, Maryland,” he notes. “It was a typical industrial building with metal trim at the top. It was a front-loader, which meant there was an entrance door at the front with an 8-foot to 10-foot drive-in door. Trucks were parked out in front of the building with railroad tracks in the back.” He successfully leased his new building and planned his second one at the location. A tenant at the rst building with whom he had become friendly told St. John that he [the tenant] spent more time at the industrial building than he did at his own home and that he would like a better-looking building in which to work. He asked St. John why he didn’t install landscaping and plant a lawn in front and put the trucks in the back, among other things. After listening intently to what the tenant wanted, St. John redesigned the typical industrial building,
which became his business practice for the next 47 years. He installed a small of ce component, brick facade, large windows, a lawn and landscaping in front and moved the loading to the back. The market loved it, and the building leased quickly. If imitation is the highest form of attery, then St. John was indeed attered by other develop- ers who started to build a similar product in the market. At rst, these ex/R&D buildings were 5 to 10 percent of ce and 90 to 95 percent warehouse or indus- trial space. As time passed, tenants wanted a different con guration: the of ce component grew at rst to 25 percent and then from 70 percent to 80 percent, in some cases. “It became clear to us that there was a need for one-story of ce [buildings],” says St. John. So he moved into developing one-story of ce structures in addition to ex/R&D. The buildings were actu- ally quite similar in design to the ex/R&D, with the front and the
Reprinted with permission from Development magazine, published by NAIOP, the Commercial Real Estate Development Association
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Commitment to Philanthropy
Many real estate companies are good corporate citizens in the mar- kets where they work, but by any measure St. John Properties is in a philanthropic class by itself. In 1998, company chairman Ed- ward St. John formed the Edward St. John Foundation. St. John Properties donates 7.5 percent of its net pro ts each year to the foundation, and 100 percent of the funds donated each year go back into the community that same year. To date, the foundation has gifted more than $60 million. The Baltimore Business Journal has re- peatedly ranked St. John Properties as one of the Baltimore area’s top corporate philanthropists. In 2017, the company was ranked eighth and placed sixth and seventh between 2014 and 2016. Sharon Akers , vice president of corporate relations and executive director of the foundation, says the foundation’s main focus is on edu- cation – particularly the transforma- tive power of education to change lives and strengthen communities. The most notable contribution that St. John has made to date is to his alma matter, the University of Maryland, College Park. The university recently constructed the 187,000-square-foot Edward St. John Learning and Teaching Center. The facility encourages a new way of teaching that focuses on collaboration and problem-solving between students that is facilitated by instructors. The whole experience moves away from traditional lectures by faculty. The building has 12 classrooms and nine teaching labs, serving more than 12,000 students per day, and it acts as a national
Pictured are members of the Gold Star Mothers Maryland Chapter during the 2016 dedication ceremony in honor of Gold Star Mothers and Gold Star Families at Aberdeen Proving Ground (APG) in Aberdeen, Maryland.
model of collaborative learning and teaching, according to Akers. Another example of the com- pany’s extraordinary generosity took place at The GATE, an of ce and technology park developed on Aberdeen Proving Ground (APG) in Aberdeen, Maryland. St. John Properties learned of the tragic death in August 2014 of Maj. Gen. Harold Greene in Afghanistan. The general had served at APG before his deployment to Afghanistan and was the highest-ranking of cer killed offshore in combat since the Vietnam War. Wanting to honor the general and other fallen heroes along with their families, St. John Properties commissioned local artists to create a special tribute to
the general. In September 2015, the Fallen Star Memorial at APG was dedicated. In October 2016, a second sculpture was dedicated at the memorial to honor Gold Star Mothers and Gold Star Families for their immense sacri ces. Numerous other examples highlight the company’s philanthropy. Akers said the foundation has a program that matches dollar for dollar the amount that an employee gives to a charity up to a certain limit. She said that employees themselves are extraordinarily generous with the time they devote to community programs. According to Akers, this past year employees donated 7,400 hours to community work and board memberships. ■
Reprinted with permission from Development magazine, published by NAIOP, the Commercial Real Estate Development Association
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Cover Story Developer of the Year 2018
Commitment to NAIOP St. John Properties is a strong supporter of NAIOP , which it views as the nation’s leading commercial real estate trade association. Ed- ward St. John is a founding member of NAIOP’s Maryland Chapter, which was established in 1985 and currently has more than 400 members. St. John Properties hosts monthly chapter meetings at its headquarters in Baltimore. St. John Properties is one of three major nancial contributors to the chapter’s “Penny per Square Foot” fund, which supports the NAIOP Maryland Legislative Committee and acts as a unifying voice and lobbying force for both NAIOP Maryland and its sister chapter, NAIOP DC | MD. The legislative committee tracks bills, enacts strat- egy on relevant legislative issues and represents the general legisla- tive interests of commercial real estate companies in the state. Twenty-six employees of St. John are currently members of NAIOP; three executives are members of NAIOP chapter boards. • Richard Williamson , senior vice president of leasing and market- ing, currently serves on the board of NAIOP Maryland. • Thomas Pilon , senior vice president of development, currently serves as public affairs chair, NAIOP Maryland. • Matt Holbrook , regional partner, Northern Virginia and Central Maryland, currently serves on the board of NAIOP Northern Vir- ginia. “You cannot do it all yourself,” says St. John. “That’s why we sup- port NAIOP all the way and in any way we can. We attend every function, and we always have at least two people involved at the board level every year.” ■
back looking the same, but more suitable for of ce uses. Although St. John Properties made its mark with the introduction and perfection of ex/R&D in Maryland, it has continually expanded into other products as the market and tenants have demanded. From ex buildings, the company moved to one- and two-story of ce structures and then on to multilevel of ce build- ings and large-scale developments. Where retail space was once added to building lobbies to service existing tenants, the development of retail space became a separate division at St. John Properties as the com- pany’s highly compact and ef cient business parks – containing one to ve buildings – were expanded to become mixed-use, multifunctional business communities. Following its expanded of ce and retail mix, St. John Properties incorporated residential uses as integral parts of its communities. For example, at its Greenleigh at Crossroads project in Middle River, Maryland, it responded to a request from the late Baltimore County Ex- ecutive Kevin Kamenetz to include residential in what had originally been designed as predominantly of ce, industrial and retail space. At its Melford Town Center in Bow- ie, Maryland, where it has already constructed more than 1 million square feet of of ce and ex/R&D space, St. John Properties has responded to requests for affordable residential products. The company rezoned the project to include up to 1,800 residential home sites, apart- ments and senior living units. St. John Properties is vertically integrated and is proud that no third party gets between it and its
tenants. When tenants speak to a property manager, they know they are speaking to St. John Properties. This customer-centric approach has helped the company maintain a portfolio-wide occupancy rate of 90 percent. Its founder’s focus on listening to the tenant has become formalized into company policy over the years with two staff people dedicated to interviewing all of the tenants in the portfolio once a year. The company nds the interview process so important that it has tak- en it a step further and also inter- views all of its employees annually, using a list of about 10 questions. “We interview every one of our employees on how they are feeling about the company, about their job and about how their supervisor is treating them,” says St. John. St. John said that he used to conduct
the interviews himself when the rm had only 25 employees. St. John has a passion for excel- lence and focuses on surrounding himself with the very best people. He explains: “Everybody who stays with our company for four to ve years or longer is the best there is, or they don’t stay. It’s just the atmosphere around here; everybody is very good at what they do.” Build Speculatively Every Year Unlike most developers, St. John Properties builds speculatively every year – year in, year out – deliver- ing roughly between 300,000 and 1 million square feet of space. Interestingly, the company generally does not offer build-to-suit devel- opment options. “Build-to-suits
Reprinted with permission from Development magazine, published by NAIOP, the Commercial Real Estate Development Association
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Expanding into New Markets
Responding to growth opportuni- ties across the country, St. John Properties has created an innova- tive Partner-in-Training program that educates quali ed individuals interested in development on every aspect of commercial real estate development. The program takes four years to complete, and trainees are mentored in every area of com- mercial development, including site selection, acquisition, develop- ment, design, construction, leasing, marketing and property manage- ment, according to the company. In addition to this rigorous training, trainees must obtain a Master of Business Administration or a Master of Science in Real Estate during the four-year period. On success- ful completion of the program, graduates are sent to a region of the country where St. John Properties sees major growth opportunities. Program participants have come from both inside and outside the company. Four individuals have completed the program, and three are currently enrolled. Financial Consistency and Stability Although St. John Properties has never defaulted on a loan in its 47-year history, it has been tested time and again through numerous downturns in real estate and eco- nomic cycles. Three tough lessons the company learned in the 1980s and 1990s, however, helped it to navigate the recession of 2008 successfully and put it on its cur- rent growth path, according to St. John Properties president Lawrence Maykrantz .
Tiered classrooms, which promote group interaction and problem-solving by allowing students to move seamlessly from lectures to discussions, are among the design features at the University of Maryland’s Edward St. John Learning and Teaching Center.
When St. John Properties nds a site it likes, its architectural and engineering team puts a design together, and then the company’s leasing agents scrutinize it. “Our leasing people tell us what to build,” says St. John, “because they are the ones who have to lease the space.” Once the concept passes muster, the land goes under contract, usually with a 90-day window to conduct due diligence. After clear- ing the land for purchase, St. John Properties makes a substantial payment on the contract with the stipulation that it has 18 months to obtain a building permit. St. John Properties initially builds two speculative buildings on the property. When those buildings become 50 percent occupied, work begins on the next two buildings. If a market or economic downturn occurs, and the rst two buildings are not yet 50 percent leased, the company stops building at the site until market conditions change.
just slow us down,” explains the chairman. In 2018, the company developed and broke ground on 1.2 million square feet of speculative space from its Maryland headquar- ters. It has also begun to develop or construct 600,000 square feet in other markets for a total of 1.8 million square feet of multi- and single-story of ce, retail, ex/R&D and residential space. For 2019, St. John Properties expects to add an additional 1.3 million square feet of space. How Projects Are Developed St. John Properties’ development sweet spot is the 50-acre site, al- though the company will go down to 25 acres or up to 200 acres for the right location. Like everything else about the company, its projects’ size must satisfy the company’s focus on the long view: it wants projects that it can build out over seven to 10 years – not the in-and- out 5-acre, single-building project.
Reprinted with permission from Development magazine, published by NAIOP, the Commercial Real Estate Development Association
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Cover Story Developer of the Year 2018
The toughest lesson the company learned in the recession of 1991 was never to use lines of credit to nance real estate. Maykrantz says that banks began issuing lines of credit to real estate companies in the early 1980s. Three banks furnished St. John Properties with lines of credit totaling $90 million. When the recession of 1991 hit, the three banks consolidated into one; that institution told St. John Properties that it did not want anyone to have a $90 million line of credit – so the company needed to pay the money back. St. John Prop- erties paid the bank $30 million in the rst year and the remainder in the second year, but vowed it would never again use a line of credit in its business. A second important lesson was never to be “liquidity poor,” espe- cially going into a recession. After struggles in the 1980s and 1990s during recessionary periods, the company resolved to create a giant war chest for the bad times. Over the next decade, it created a $100 million stockpile at the corporate level and a $50 million reserve for capital improvements at the prop- erty level. When the recession of 2008 took hold and banks were not lending, St. John Properties had its war chest. With this cash on hand, the company was also able to make some strategic real estate acquisi- tions, which positioned it well for the years after the recession. Spacing out loan maturities so that few loans come due at one time was another lesson from previous recessions. “We have 150 projects and 150 separate partnerships,” says Maykrantz. “Each project has its own independent source of nancing. When we put a loan on a
The St. John Properties team at the 2018 Maryland State Police Polar Bear Plunge in Annapolis, Maryland. St. John Properties has participated in the annual Polar Bear Plunge since 2016, raising nearly $55,000 for the athletes of Special Olympics Maryland.
project, we look at all loan maturi- ties going out. Traditionally, with our type of projects, banks or life com- panies lend at terms of anywhere from 10 to 20 years, with 25-year amortizations. Accordingly, we methodically look at each and every loan and position its maturity.” Looking Ahead at Commercial Real Estate One of St. John’s key tasks at the company is to continually look ahead at what may be coming in the commercial real estate industry. Currently, the company is watching two potential areas of change. The rst is the fevered pitch of data center development. St. John says that he is astounded by the number of data centers being constructed in Northern Virginia. He questions the sustainability of ever-increasing land valuations and the long-term utility of many of the purpose-built data center buildings. “Land prices have skyrocketed at a rate that I have never encountered in my life,” he explains. “We don’t know what technological advances are just around the corner with regard to data storage and computing. Things are evolving so quickly that storage
technology could change in an instant.” St. John, who takes a long view on all buildings he develops, believes that continued advances could make many data center build- ings functionally obsolete in the next 10 to 20 years. Parking ratios is the second area of focus for St. John, who cites a current movement. Although more employees work from home, many still come into the of ce. Those who do come in use space much more ef ciently and compactly, which means buildings need more parking spaces per square foot of of ce space. However, St. John foresees the rapid development of driverless cars over the next few years. While he thinks that people will want to own and drive exotic or collectible cars, St. John believes most people will nd it far cheaper to commute by driverless car, which will mean less demand for parking. He envisions that, once the driver- less car drops the employee off, the vehicle will be sent on another assignment. At this point, however, St. John Properties has not begun to decrease the number of parking spaces it builds. ■ Ron Derven is a contributing editor to Development magazine.
Reprinted with permission from Development magazine, published by NAIOP, the Commercial Real Estate Development Association
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