New York asset manager Third Avenue is betting $10 million of its nearly $2 billion Real Estate Value Fund that Amazon's new HQ2 will be located in Arlington, Virginia's Crystal City neighborhood.
Incidentally, that is the same Arlington that we first noted may have been "unwittingly revealed" in mid-February by Amazon's own employees, when a local website observed a surprising spike in traffic emerging from an internal Amazon.com webpage.
Third Avenue has taken a $10 million position in JBG Smith Properties - an Arlington, VA REIT which was spun off from Vornado Realty Trust last summer, and which has significant holdings that would benefit from the choice of HQ2, which "will likely be worth a lot more than our current estimates," say Third Ave. managers Jason Wolf and Ryan Dobratz.
JBG is currently the top performer in the Bloomberg office REIT index, with a return of 7.1% since it began trading last July - currently trading at around $34.00 per share. Bloomberg notes that the index has fallen 10 percent over the same period.
Here is the kicker: according to a Bloomberg source, Third Avenue predicts the shares will be worth more than $40 apiece if Amazon picks Arlington’s Crystal City neighborhood, where JBG has significant holdings.
Third Ave. accumulated JBG shares at $30.50 and $31 and says it's still a good investment even if Amazon doesn't select the D.C. region, according to a recent letter. The fund mentions that they have options to purchase JBG shares at "a meaningful discount to NAV should an additional 50,000 jobs be added to D.C. in the next five years," in reference to net asset value.
Bloomberg shows those contracts would be priced at $36.50 and $37.
In a letter published in November, Chief Executive Officer Matthew Kelly wrote that the company was working with regional authorities on the HQ2 submission and cited the region’s high concentration of millennials, and appropriate housing for them, as a lure to Amazon.
Kelly highlighted Crystal City, partly for its proximity to three Metro stations, commuter-rail access and the Reagan National airport, which operates direct flights to U.S. cities including Amazon’s hometown of Seattle. -Bloomberg
Kelly added that JBG intends "to put our best foot forward, expect nothing and hope for the best."
Incidentally, the odds of the Third Avenue's bet being successful are quite high. As we observed previously, both an analysis by PR consultancy Hamilton Place...
... and a report from Bank of America...
... place Washington DC/Arlington either as the winner of Amazon's HQ2 venue contest, or among the top 5 city finalists.