MasterMinds: Lessons in Leadership—Matt Kelly, Chief Executive Officer, JGB Smith

Sure, thanks for having me. Yeah, JBG Smith is the largest operator focused on the Washington metro area. We're a mixed-use operator and we oversee a little over 11 million feet of commercial space, almost 6,000 multi-family units. We concentrate in neighborhoods where we can really drive value through place-making and amenities. The most notable is National Landing, where we are currently building Amazon's second headquarters and bringing online about five million feet for them over the course of the next four years. So a lot of exciting stuff going on here, right in the middle of everything that we think is most exciting about what's happening in the Washington metro area.

Well, we always look at it from the perspective of the customer — who's the end customer and what do they most want? When it comes to commercial space, we're in a large knowledge center employment center city. Those employers, those tenants, want an environment that's attractive to their employees. They want a place where they can easily attract talent. When it comes to apartment renters, they want a walkable, amenity-rich environment. When it comes to the retailers that serve those uses, they just want lots of people around — lots of customers. So there is a virtuous cyclicality to the creation of the environment. Having all of those uses in one place doesn't mean you have to know how to do all three uses in order to invest in or benefit from that synergy, but our strategy has been to do just that, to concentrate, and to do it in neighborhoods where we can accumulate that concentration before we have really brought online the value of that synergy. By having a rich amenity base, by having enough of a balance between daytime and evening populations, we create all the demand drivers that cause the uses to enjoy higher occupancy levels and higher rental rate growth over time. Most people can't point to any one reason why a great place feels like a great place, but we obsess over all those little details. It's one of the reasons we try to concentrate so that we can control those things and really try to move the needle, buy in at values that don't necessarily reflect that, apply our skills to impose some of those things, develop them, reposition neighborhoods, bring online the place that people look for so that we get paid a return through our efforts. Taking it from maybe un-amenitized to amenitized — a neighborhood like National Landing that had too much office and dated retail. Now we have Amazon, but we're also balancing the mix between office and multi-family, updating the retail, investing in the public realm so that it becomes a great place where people really want to stay. We didn't pay what it costs when the value creation is done. We bought in before all of that and believe there's a lot of upside for us in our value creation activities along the way.

Well, keep in mind we invest in the Washington metro area, so the places where we're investing usually have one or two of the components already. These are not big greenfield sites where we're trying to create a city de novo out of just a piece of dirt in the middle of nowhere. National Landing is a great example — lots of infrastructure already, airport, metro, roads, lots of office space already, has retail, just not the right kind of retail in the right places, and has some housing but not enough. We look at that landscape and quickly identify the things that need to happen soonest and then the things that are phase two, phase three. By owning all the parts of it, we have a stake in the upside, but we also have the control needed to deliver the right change at the right time. History is littered with examples of folks who had a lot of vision but maybe had bad timing or owned the wrong thing at the wrong time, or were investing in a neighborhood that was up-and-coming for 30 years. So you have to be smart about how much risk you take and where you take it. But we're typically investing in neighborhoods where there are one or two missing ingredients that we are well positioned to deliver. Most office investors can't do a whole lot to change the mix between office and multi-family because they're not bringing multi-family online. We look at that kind of opportunity as one we're really well-suited to capitalize on and invest behind. Those are the types of examples we find mouth-watering when it comes to near-term upside.

Yeah, our culture is just about everything when you think about how you get the most out of any team or group of individuals. It has enabled us to retain and continue to attract the best people interested in our business. I would describe our culture as one that is very collaborative, very transparent, collegial, and fundamentally rooted in meritocracy and fairness. I think that's one of the things that draws people to our company — they see it as a place where their career and growth will be cultivated and nurtured, and they will be invested in as people. We're a pretty open and sometimes brutally honest place where people get the kind of guidance, support, and feedback they need to do their best. It's not for everybody, but that's the kind of place we have created. It draws people looking for big, interesting things to work on, sometimes complicated. As you mentioned earlier, Peter, being a mixed-use operator is more complicated than focusing on a single use, so we tend to attract people that like those complicated problem-solving opportunities. That makes for a pretty dynamic workplace, and I think that's been a real strength for us from a culture standpoint.

Yeah, good question. We had the ability to do our own mini experiment around this when we merged with and spun off the Vornado DC business, because we were bringing together two companies that in some instances had different cultures. There are a lot of folks at Vornado who've been around longer; frankly our team tends to be a bit younger. So we saw in real time how do you create one culture out of that, and how do different people with more miles on the tires respond? I don't think it falls down along age lines. There are a lot of folks who spent decades at Vornado who happily dove in and said this culture is different, this way of working is new to me, and they ramped up incredibly quickly and are now full-fledged carriers of our culture, even passing it on to folks on their team. I often find that people later in their careers are seeking that. They may have worked in one way or one place for a very long time, and they actually embrace the change because it's a way to experience something new and maybe reinvent yourself a little bit. Our culture is also one where we really try to share credit. When something goes wrong, we don't spend a lot of time trying to figure out whose fault it was; we try to figure out what about our system or approach was flawed that we collectively need to change. There's a real tendency toward collaboration, which people of any age prefer. So Peter, for those of us who have miles on the tires, there's hope.

Well, they still work. And to your question, Peter, about public versus private — I think in the end it really doesn't matter. You have different pressures, different expectations externally, but internally what motivates people, what drives people, is the work. It's not the investor base. It's the work and the team, and how the team works together that defines someone's experience in the job. If your happiness with the job is purely a function of the structure of your comp or the structure of your investor base, then you're probably in the wrong job — definitely in the wrong company. So I would put it to you that I don't think it makes any difference at all.

That's a great question. We came into the pandemic having waited and prepared for some kind of a downturn. It's kind of hard to remember, but we were coming to the end of the longest expansion in history, and we just felt in our guts that we were due for a correction of some kind and we needed to be prepared. So we did prepare. We deleveraged, we recycled and sold out of a lot of office buildings we had been seeking to sell, and we issued equity at, in retrospect, what looks like almost a high point in our stock to date in order to deleverage. We came into it prepared. We had no idea COVID was coming, but we were poised and ready to become more invested with the next turn in the cycle. Our posture was one of being prepared to be aggressive. We came into COVID expecting, hoping, that there would be a correction in asset prices that would allow us to be more acquisitive, but that doesn't seem to have presented itself just yet. However, we also have a lot of internal growth investment opportunity — namely multifamily assets in the path of Amazon's growth, taking advantage of that tailwind. We spent the time during COVID to get entitlements and projects designed that we expect to tee up for new investment in the coming years. So our approach will likely be more aggressive in continuing disposal of some non-core office assets and continued heavy investment in new multifamily in the path of Amazon's growth. Thankfully, Amazon has only hired and grown faster during this period than prior, and they've committed to even more space at National Landing, which is over half of our company. So our posture coming out of this, we expect, will be more aggressive, not less.

They are, they are. They're better.

That's a great question. I think they would say — first of all, they'd probably give you a very different description of what I do. Like most parents, they never fully understand it the way industry insiders do. They might say, 'Oh yeah, I think he sells houses or something like that,' or 'I think he works for Amazon, doesn't he?' In a way we do, correctly — we work for all our customers. But I think what they would say is, they're glad he didn't let it go to his head. That was always a big deal when I was a kid — you may think you're doing a good job, but there's always somebody out there doing it better. Don't let it go to your head, don't rest easy on any one victory or success, because these things are fleeting, they take just as much luck as they do skill. I think they would appreciate the fact that I've done a decent job of keeping that in mind — keeping sight of the fact that there are plenty of people out there just as good at what they do who didn't have the right luck at the right time, and for those reasons didn't get to a spot like this. It also has a lot to do with the people who mentored and trained you along the way. I've been really fortunate to have some great ones.

Yeah, there have been a lot of them, and I can't name one without pissing off all the others. It's like the Incredibles awards, right? But it's ongoing. A number of them are members of my board of trustees. The partners of JBG who hired me and gave me a lot of rope to either prove myself or do myself in — they were instrumental from early on in my real estate career. They put a lot of trust in me at a young age, gave me the learn-by-doing experiences that are so valuable to the apprenticeship process of this business. Guys like Mike Glosserman, Rob Stewart, Ben Jacobs, Porter Dawson, and Brian Coulter — they were all incredibly generous with their time and energy. Even after the merger with the Vornado DC business, Steve Roth on our board is an incredibly valuable resource. A consistent theme is really telling you what they think, then getting out of your way and letting you go try it your way — not micromanaging while you're coming up. That has been incredibly valuable.

Yes, another good question. The idea of generosity has been very central to my family. Every family has family legend, family lore that gets passed down. One of the most impactful stories from my family's history has to do with generosity. My father was born in Ireland, and his father before him was the first member of the family who learned how to read and write. He did so because of the generosity of the daughter of the English landlord on whose estate they farmed. She saw in this young Irish kid promise and potential and a desire to learn, so she taught him to read. He later became a schoolteacher and taught all the kids in their small town. He married a fellow schoolteacher, and the two of them taught all nine kids in his family and all the other kids in that Irish town. We actually named our first child after her. It was something — she just decided to give of herself to someone else in a way that now, where would I be but for that person's generosity? So my biggest issue is I have a hard time saying no when people ask me, 'Can you help with this?' or 'Can you talk to this kid about real estate?' I spend a lot of time doing stuff like that because I keep thinking, is my version of that experience out there somewhere where I'm going to have that impact on someone and probably not even know it? It feels like a pay-forward obligation. It's one of the reasons why I'm here.

I am asked that question not infrequently — sometimes I lecture at schools and students ask how do I pick my employer, how do I pick the right job coming out of school, what criteria should I use? I consistently tell people that there's really only one criteria that matters: align yourself with good people. Align yourself with people that you trust. Don't worry if the title isn't the title you want, or the pay isn't the pay you want, or they're not promising equity day one. The best job for anybody is working for someone who actually cares about them, who they can trust, who's going to look after them to make sure they grow and have a fulfilling job and career. My dad used to describe it as 'where you hitch your wagon' — you'd be born in the '30s, right? So a lot of wagon analogies. But you hitch your wagon to a good person, and the rest will take care of itself. The truth is, the rest is a lot of luck. You can't underestimate how much luck has to do with it, and you can't control that. But you can control who you align yourself with, who you spend time with. Don't take the job that pays the most if you're with a bunch of sharks who don't trust each other — that's going to be an awful experience. Go with the people you trust, who are fundamentally good people, and you can't go wrong.

Great question. I would say the one thing I have seen in people who are kind of mid-career who really succeed versus those who don't comes back to a similar principle. Quite often, when people are unhappy, they attribute it to things they've known about for a very long time, yet inertia keeps them in the wrong place for far too long. As people get older in their careers, they learn a lot about themselves and of course know a lot about many different roles, functions, and jobs. Many times, people stay stuck in the wrong function, the wrong company, or the wrong culture far longer than they should. They shouldn't be afraid of the uncertainty that comes with making a change. I've seen people go from job A to job B and totally flourish and say, 'God, I wish I'd done that sooner.' Or they say, 'I don't know why I'm in a sales job — I'm a total introvert,' but they've been doing it for 10 years. You have to listen to yourself and those around you and ask yourself, does it make logical sense that I'm sitting where I'm sitting? If they listened to me in the first place about working with good people, then it shouldn't be hard to have the rest work out. But you've got to be a good fit for yourself. So many people just don't do that. We've had people who are incredibly successful working by themselves or with one or two people, who worked with us and left, and we remain very close to them. They flourish because they just couldn't work in a big company. Likewise, we've had other people who tried things on their own and then when they came to the bigger company they said, 'This feels like me, this feels like where I fit, where I belong.' The same thing happens in reverse. So I think people need to pay close attention to what their needs are, what their personality is, and whether it's a good fit for the job they're in.