Show Notes
Bio
Paul T. McDermott was elected to the Board of Trustees and named President and Chief Executive Officer of WashREIT in October 2013. Prior to joining WashREIT, he was Senior Vice President and Managing Director for Rockefeller Group Investment Management Corp., a wholly owned subsidiary of Mitsubishi Estate Co., Ltd. from June 2010 to September 2013. Prior to joining The Rockefeller Group, he served from 2006 to 2010 as Principal and Chief Transaction Officer at PNC Realty Investors. Between 2002 and 2006, Mr. McDermott held two primary officer roles at Freddie Mac — Chief Credit Officer of the Multifamily Division and Head of Multifamily Structured Finance and Affordable Housing. From 1997 to 2002, he served as Head of the Washington, D.C. Region for Lend Lease Real Estate Investments.
Show Notes
- Paul joined in 2013 and the company was called WRIT and wanted to triage the portfolio from five asset classes with various product types (7:00)
- Had to make tough decisions (8:30)
- Too many asset classes
- No geographical diversity
- Sequestration of the Defense Department had impact (9:20)
- Several immediate challenges including derisking the portfolio (10:30)
- Wanted company to have a research arm for the company (10:50)
- Hired Grant Montgomery to lead research effort to make decisions with their portfolio (11:10)
- Multiple asset classes are very tough in the REIT space as investors want “pure play” so they could determine their own investment allocation (11:50)
- Change the narrative of the company (12:30)
Origins
- Loved challenges and competing with siblings as the youngest (14:15)
- Started swimming at 5 yrs. old and being very competitive (Glenwood Pool, Silver Spring, MD) (15:00)
- Attended St. John’s Evangelist School and subsequently St. John’s High School in a military setting (15:30)
- Swimming is a disciplined sport- Swam all the way through college (16:15)
- Played all sports as a kid, but enjoyed swimming the most (17:15)
- Grades were key in his house growing up (17:40)
- Parents were huge influence (18:00)
- Dad was a police officer in Boston and joined Naval Intelligence here in DC (18:10)
- Dad wanted him to go into Intelligence
- His Dad traveled considerably with his job (19:30)
- Mother was a great influence, as well. Strict disciplinarian. (19:45)
- Shepard College/University (21:10)
- Swam there and studied business (21:30)
- Enjoyed his experience
- Story about his swim coach (21:50)
- Father wanted him to be an Intelligence agent, but he became a Staff Accountant and lost his Dad and it changed his life (24:10)
- Decided to go to graduate school at night (25:30)
Real Estate Career
- Joined Centennial Development Company (his first real estate Job) (25:45)
- Entrepreneurial development company primarily doing suburban office projects on the Dulles Toll Road markets (26:30)
- Subsequently joined Acacia Life while in graduate school to learn about the M&A business and at a young age took over the Real Estate Department during the post recession period in the early 1990s (28:50)
- Board Members included Jim Clark, Vince Burke and Mandy Ourisman where he had to make presentations (30:15)
- Learned quite a bit about Boards (30:30)
- Formed a JV with Boston Properties to develop properties (31:10)
- Influenced greatly by Ray Ritchey (31:15)
- Three finalists to be partners with Acacia (31:45)
- His job became more autopilot after hitting its 10% portfolio limit (33:45)
- Joined ERE Yarmouth which had been Equitable Life and eventually was merged into Lend Lease (34:20)
- His office was 13th out of 13th in the country in performance (35:10)
- Managed multiple separate accounts (35:30)
- Had $52B under management worldwide (35:50)
- Financed Embarcadero Center out of DC office due to Boston Properties relationship (56:15)
- Acquisitions of several companies including Boston Financial, Bovis Construction and AMRESCO during his tenure (37:00)
- Lend Lease had a profound impact as 500 people went to 15,000 people and was too disparate and was dismembered over time (37:45)
- Blending four cultures was almost impossible (38:30)
- Left to join Freddie Mac Multifamily as Chief Credit Officer (40:00)
- Sheer numbers were staggering (40:45)
- Eventually took over structured finance and affordable housing (41:00)
- Oversaw CMBS
- Adrian Corbiere was his boss (41:20)
- Told him he was “Dr. No” to challenge investment decisions (41:40)
- Competed with Fannie Mae (42:15)
- One deal he did was $6.2B (42:30)
- Different risk perception than Fannie Mae due to a different investment structure (100% opposed to 80% for Fannie Mae) (43:20)
- Subsequently joined PNC Realty Investors as Chief Investment Officer (44:20)
- Taft Hartley (union) investments (45:10)
- Investments in union dominant markets (45:40)
- Acquisitions and JVs with developers were investments (46:10)
- In charge of underwriting and providing capital
- Search firm reached out to join the Rockefeller Group, which is owned by Mitsubishi Corporation (47:15)
- Interviewed by both Americans and Japanese (48:00)
- Was asked to move to NY to take job, but agreed to two days a week in NY to take job (48:50)
- Buildings on Avenue of Americas are Rockefeller buildings (49:30)
- Opened office in DC for Rockefeller (50:45)
- Traveled to Japan frequently to raise capital (Junji Inagawa) (51:15)
- Enjoyed raising capital (52:15)
- Hired team and was involved in acquisitions (52:30)
WashREIT Opportunity
- Recruited to WRIT (now WashREIT) in 2013 (53:30)
- Needed to be completely rebuilt (54:30)
- Likes rebuilding opportunities
- Wanted research and recalibrate finances (55:00)
- Changes Needed Immediately- Triage required
- Operational Change Agent- Tom Bakke was hired as COO in 2014. (56:00)
- 100% of C-Suite changed, 80% of staff turned over (56:45)
- Looked at Medical Office portfolio which was under contract to sell when he took over (57:45)
- Immediately commenced research (58:00)
- Evident that Class B office would go through a de-evolution of value (58:30)
- Office market deteriorating (59:00)
- Growth in wrong types of metrics for office space (59:30)
- COVID was the straw that broke the camel’s back (1:00:00)
- Retail could not be scaled (1:00:20)
- Multifamily was significantly better than any other asset class (1:00:50)
- Current Board had to support him to take the managerial courage to sell significant portions of the company’s assets in 2021 (1:01:30)
- WashREIT was one of three REITs that dramatically changed its portfolio and strategy over the past 8 years
- Gives credit to Steve Riffe (CFO) and his team to keep the analysts and investors on board with the company’s strategy (1:05:00)
- “Call me when it’s over” regarding the major changes including the bulk sales and the geographic diversification (1:05:30)
- Researched the apartment markets across the country to determine which markets to pursue for multifamily (1:06:00)
- Balance sheet has restructured completely (1:07:30)
- First multifamily development called Trove in Arlington, VA delivered in 2020 and will be the first of several planned (1:09:45)
- Opportunities for densifying existing projects offer development opportunities (1:11:00)
- Diversification driven by research (1:11:50)
- Planning to bring property management in house in 2022 (1:12:20)
- Aiming at mid market renters- at affordability gap…not Class A or trophy (1:12:50)
- Rather rock the boat rather than watch it sink. (1:14:15)
- Analysts’ job is to be skeptical yet they have been fair with WashREIT (1:14:40)
- New Board was very supportive and saw need for change (1:15:30)
- Selling the office and retail portfolio
- “Want REIT mafia on your team”- Institutional investors (1:16:30)
- $6B in transactions since he joined them (1:17:20)
- Consideration to go private (1:18:00)
- Challenge to go private was the diversification. (1:18:15)
- Conclusion was to sell office and retail portfolios and stay public with a multifamily focus (1:18:50)
- Chasing A- assets that probably have been under-managed and a Class B strategy in Atlanta (1:20:00)
- Atlanta, Charlotte and Raleigh Durham are competitive; however, their research tell them that their niche strategy will be effective (1:20:45)
- Will take on older assets that others will not (1:21:00)
- Differentiation among EQR and AVB– While WashREIT doesn’t have their scale, they are aiming at lower tier market with more affordability (1:22:00)
- Providing long term solid growth in the more affordable product (1:23:20)
- Likes suburban markets because mid-market renters are there (1:24:30)
- In the throes of “Project Reimagine” is to bring property management in house beginning in Q4 2022 (1:25:30)
- Big project to bring 8,000+ units in house with management and branding (1:26:00)
- Re-Branding process by this Summer (1:27:00)
- Becoming more Business to Consumer (1:27:15)
- Has a team, but will bring in a leader for the Property Management division (1:28:15)
- Mixed use projects- less than 5% retail in apartment projects (1:29:30)
- Watergate office property is only remaining office asset (1:31:00)
- Renter by necessity compared to Renter by choice a big differential on amenities (1:32:20)
- Safety, Rent amount, location are priorities (1:32:40)
- Amenities vary among renter needs (1:33:20)
- Be smart about investing in amenities (1:34:00)
- Offer highest level of service and the best residential experience (1:36:30)
- Great home/life experience (1:37:00)
- Cultural shift in customer interface- customer service (1:37:30)
- Characteristics of new employee (1:38:45)
- Be intellectually curious (1:39:20)
- Be flexible (1:40:00)
- Enjoy your job…have fun (1:41:00)
Influences
- His Parents- Dad was serious and would come to a swim meet with a Fedora and Ray Bans (1:42:30)
- You won’t compete unless you perform well (1:43:30)
- Ray Ritchey– Thought that he was one of the hardest “grinders” he ever met- works very hard and is the best person he knows in the industry (1:44:00)
- His son had congenital heart defects at birth and received last rights twice and Ray was the first person to visit him in the hospital for his son- amazing, caring person (1:45:15)
- He likes competing with Ray (1:46:30)
- Paul Mason- Sutherland Asbill attorney- he was outstanding counsel when he was with Acacia (1:46:45)
ESG
- NAIOP Award 2020 (1:48:00)
- Green Bonds
- ULI Commitment for carbon footprint
- First multifamily assets certified by BREEAM (Code for Sustainable Built Environment certification)
- Commitment to DEI and sustainability (1:49:00)
Life Priorities & Personal
- Family is first (1:50:00)
- His wife Rosanne understands his need to compete
- Sean and Jack, his sons (1:50:45)
- Family understands his passion for work (1:51:00)
- Giving back (1:52:00)
- Coaching Special Olympics
- Worked at hospitals
- WashREIT has community service division
- Wins
- SEC win and loss for Acacia (1:53:00)
- Lend Lease job was a big win- to learn about multiple capital sources (1:53:30)
- Rockefeller opportunity was to learn about the Japanese culture and felt he “belonged” there (1:54:15)
- Doesn’t fall in love with assets (1:55:00)
- Losses
- Investing in 2006 and 2007 and reworking the projects (1:55:45)
- Surprises
- Chief Credit Officer at Freddie Mac- Unusual place for him, but it was a blessing in retrospect (1:56:30)
- They helped him dramatically when his son was born with the heart defect at the Ronald McDonald house (1:57:00)
- Surprised that people came to the hospital and some that didn’t show up (1:57:30)
- Chief Credit Officer at Freddie Mac- Unusual place for him, but it was a blessing in retrospect (1:56:30)
- Advice to 25 yr. old self- “Don’t be afraid of taking risk….Push yourself some more!” (1:59:00)
- Billboard statement- “Don’t worry about what you think might happen. Instead, think of what you want to happen” (2:01:00)
