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 ofce. Those who do come in use space much more efciently and compactly, which means buildings need more parking spaces per square foot of ofce 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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