Third Avenue Is Betting on Amazon Putting Its HQ2 in Washington

(Bloomberg) -- There are 20 cities shortlisted by Amazon.com Inc. for its second North American headquarters -- and at least one real estate fund is trying to score a payday in the stock market if the e-commerce giant chooses the Washington, D.C., area.

Third Avenue Real Estate Value Fund, which manages a little less than $2 billion, owns $10 million of shares in JBG Smith Properties, a real estate investment trust based in Arlington, Virginia. The REIT was spun off from Vornado Realty Trust last summer.

The Third Avenue fund, managed by Jason Wolf and Ryan Dobratz, has been touting JBG’s location and holdings, telling investors in a letter that the REIT’s shares “will likely be worth a lot more than our current estimates” if Washington hits the HQ2 jackpot. JBG, whose shares were trading at $34.05 at 1:36 p.m. in New York, is the top performer in the Bloomberg office REIT index, with a return of 7.1 percent since it started trading in July. The index has fallen 10 percent in that period.

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, according to a person with knowledge of Third Avenue’s thinking, who asked not to be named because the assessment is private.

The fund isn’t waiting around to find out. It has arranged to buy JBG shares at $30.50 and $31, according to data compiled by Bloomberg, and is willing to do so even if Amazon doesn’t select the D.C. region, according to the letter, sent to investors earlier this year. The fund also said it has 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,” referring to net asset value. The prices at which it can buy shares under those contracts are $36.50 and $37, Bloomberg data show.

While Amazon’s shortlist isn’t so short, D.C. has a decent shot. JBG has addressed the heady prospect of landing HQ2 with its own shareholders.

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.

He did acknowledge the fierce competition, cautioning that JBG intends “to put our best foot forward, expect nothing and hope for the best.”

To contact the reporter on this story: Gillian Tan in New York at gtan129@bloomberg.net.

To contact the editors responsible for this story: Daniel Taub at dtaub@bloomberg.net, Peter Jeffrey, Christine Maurus

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