Interview with real estate developer, Jim Beers, Washington
You’ve been watching the real estate scene for 43 years. How’s it changed?
Most of the real estate development in the 60’s was private development done by such people as Oliver Carr and Charles E. Smith. The developers were mostly local and the capital investment was relatively modest. They would raise money among friends and business associates. There’s been an enormous amount of capital wealth created by successful developers who brought in partners, such as JBG, Carr, Smith and Quadrangle. But the landscape changed gradually as real estate became much more expensive and capital intensive. Washington started attracting large institutional and international investors which, combined with growth in the federal government and related independent businesses attracted more “big money players,” making it more challenging for the small guys.
Is it harder to be a small real estate entrepreneur now in Washington?
One of the things you have to do is try to figure out what part of the market the big guys are not playing in. So you can have somebody say, “Okay, I’m going to start off with developments that are in the five to ten million dollar range,” whereas a big company says, “We’ve got a fifty million dollar cutoff because we don’t want to fool around.” It’s just as time-consuming to buy something for five million as 50 million or 200 million, because you still have all the legal work and due diligence. The smaller developers may be more willing to take a risk. I remember when a Watergate building was sold a while back and there was some small environmental risk associated with it. And it was thought to be almost a non-event. But it might take a large developer out of it because they can’t take that risk, so somebody local can step in and say, “I know how to manage that risk.” Then you also see smaller developers who come in and decide to go into an untested market either way out in the suburbs or parts of DC that have not yet been developed and that the big institutions are not interested in. The big guys want to be on K Street, the East End, Tysons Corner or something established. So there are still lots of opportunities for these smart young developers who want to start their own business.
What’s it like to do commercial real estate in Europe compared to America?
Much more lawyer driven. Horribly so. The transaction costs associated with buying or selling something they call pan-European transactions, among multiple countries, have fees that are way out of proportion to the price by US standards. If something’s worth a hundred million, the fees can be four to five times what you would have in the US. That’s money wasted. It doesn’t create value, it’s simply following all the laws.