Vernon Knarr - Sage Deal Architect (#39)

Bio

Vernon is a trusted expert in the Washington metropolitan area, especially within the regional sales and development markets. Since joining Savills in 1994, Vernon has excelled in advising clients on a wide range of investment sales, development land sales, joint ventures and ground leases. He has also represented both owners and users of headquarters space throughout the acquisition and disposition processes, leading strategic planning and managing the transaction from marketing through closing. Vernon is highly sought-after for his market insight, financial knowledge and creative approach to deals.

Prior to joining Savills, Vernon was the co-owner of his own firm, Vector Realty Group, from 1985 to 1994. As co-owner, Vernon held the highest responsibilities of business development and advisory oversight. Before that, Vernon was with Coldwell Banker for six years.

Vernon’s client-first mentality, well-honed negotiation skills and extensive experience in the industry have made him the go-to broker for some of the region’s most complex transactions.

Show Notes

• 42 years since he began as a Commercial Real Estate Broker (5:40)
• Land business not what it used to be (5:55)
• Owner/User market has been his focus, except in COVID issues (6:10)
• Savills is primarily a tenant representation firm, but Vernon and his team varies from that theme (7:15)
  • Has 37,000 professionals internationally
• Current listing- Former BET building in NE DC for Viacom (8:05)
• Freddie Mac buildings (8:30)

Origins & Education

• Grew up in Reading, PA (8:50)
• Musician since 7 yrs. old (9:15)
• Letter from US Army- Drafted at 18 yrs. old (1966) (9:40)
• Upbringing rough with abusive stepfather (9:55)
• Learned guitar at 7 yrs. old, eventually played in bands and continues to this day (10:20)
• Enlisted in the US Air Force (11:45)
  • Assigned to Andrews AFB entire service
  • Took college courses at Univ. of MD University College while in service (12:15)
• Finished his degree at University of Maryland (12:45)
  • Commuted there as he was married at the time
  • Almost went to work for Sears (13:30)

Career

Xerox

• Recruited by Xerox Corporation and was hired in 1972 (13:45)
  • Stayed there 7 yrs.
  • Went to training in Ft. Lauderdale
  • Sold copiers (14:30)
  • Friend of James Brown and worked there with him (14:30)
  • Met Hal Boles there who left in 1977 to Coldwell Banker (15:00)

Coldwell Banker

• Hal convinced him to join Coldwell Banker because he showed up in fancy cars and he joined in 1979 (15:50)
• Reference to Ray Ritchey, Cab Grayson and Bill Janes (16:30)
• Cubicles with a phone (16:45)
• Jim O’Brien led the office and hired him (17:30)
• Difference between Xerox (18:15)
  • Had something to sell there and clients to sell it to
  • At CB he had no “product” and no “clients”
• First deals at 1010 Vermont, NW (19:00)
  • Bob Moran & Barry Stern were owners and friends who asked him if he could sell the building
  • Hal Boles and he found Bank Paribas to buy the property (19:50)
  • Trying to close his first sale and waited 7 hours for a signature (20:45)
• Partners- Hal Boles & John Kyle (21:15)
• CB gave you a phone (22:00)
• Tysons Corner Mall transaction (22:30)
  • Jay Hyman told him that the property could be sold (23:00)
  • Hal Boles knew that Lehndorff was interested (23:30)
  • Max Ammerman and Homer Gudelsky (24:00)
  • Ted Lerner
  • Property on ground lease with only 25 yrs. to go (25:30)
  • Go to the land owners (26:00)
    • Frank Kimball, Jim McIlvane, & Sid Foulger
    • Assembled 85 acres where Rte. 123 & Rt. 7 crossed the Beltway
  • Kept approaching the landowners with Lehndorff to buy land only and made a deal at a 3% return with them (26:30)
  • Lerner and Ammerman tied up land across Rte. 123 to build Tysons II (27:15)
  • Lerner agreed to a price at $142M Net (Right of First Refusal)
  • Combined estate sale- $168MM (largest deal in DC area history) (29:15)
    • Closing was delayed due to suspected asbestos (29:30)
• Sale triggered Vernon & John Kyle to start Vector Realty to leave CB in 1985 (30:45)
• Nick Antonelli– one of the best people he knew. Hal Boles had a good relationship and started Huntmar with Nick’s help (31:15)
  • 1300 New York Ave. NW– 60,000 s.f. site (surface parking)- one of the first land assemblies on the East End- Daon Development ($62/s.f. FAR)- Done at CB (32:50)
  • Canadians, Texans, British & Japanese came in (33:30)
  • Connecticut Ave. site at corner of M St. NW-$1,000/s.f. FAR (Burberry site) (34:40)

Vector

• Vector (35:00)
  • Up to 30 people
  • Mike Curtis, Marc Magazine (35:30)
  • Greyhound Site- 1100 New York Ave. (Hadid & Manulife) (36:15)
  • 1212 NY (Hadid)
  • 1400 NY- Sigal Zuckerman
  • 555 12th St.- Arnold & Porter site (36:50)
    • Richie Cohen was the last holdout on the block
  • Block on 14th St. Assembly (between H & Eye St. NW) with Trammell Crow– $28MM (38:00)
    • Chris Roth
    • Capital Guidance
    • American Youth Hostel owner stumbling block
      • Wore a gorilla mask at closing (39:30)
    • Closing at strip club (40:30)
    • Crow demolished all the buildings (strip clubs, etc.) (41:00)
    • Crow sold site to Manulife for a $10MM profit (41:30)
  • 1990 Sale to Prudential (1200 K St.) (42:00)
  • Market could not sustain the size of the firm, but reduced size
  • Nick Pappas join in late 1980s from Barruetta (43:00)

Studley

• 1994 Joined Julien J. Studley Company (44:30)
  • Called Steve Goldstein
  • Sold 1350 Eye St. right away (44:50)
  • Differentiation- Land assemblies (46:00)
  • Started looking at areas outside the parallelogram of Mass, Penn (46:30)
  • Analogy of a toothpaste tube (47:10)
  • NOMA- New Greyhound sale to Greenebaum and Rose (47:30)
    • K St. NE and M St. NE sales (48:00)
    • Stern and Moran (48:40)
    • Churned several sites in NOMA
• Mandarin Oriental Hotel story began in 1998 (49:10)
  • Originally to be a Fairmont Hotel– infrastructure for the hotel was built, but it went into foreclosure with Lennar who hired him to sell the site (50:45)
  • Alan Novak (Lano International) stepped up with Mandarin Hotel Group for the site (53:00)
    • Met him when at Hadid
    • Another situation was the Rosewood Hotel site next to Washington Harbour
    • Brought in Armada Hoffler (55:00)
    • Alan asked him to finance the acquisition and development (56:00)
    • John Coe and Peter Farrell at Legg Mason Real Estate helped Vernon and Nick Pappas in raising debt and equity (56:00)
    • West Landesbank was the lender
    • Mandarin Hotel Group was equity
    • Acquired the Rosewood site back from a Texas developer and then arranged a build to suit for the Swedish Embassy and a site for an additional office building (58:00)
    • Sold Alan a site in NE Washington (58:20)
• Teamed up with Lois Zambo to work with Gannett to find a site for relocating the Newseum in Washington (59:00)
  • Found site at 6th St. and Penn, NW, which was owned by the DC Government (1:00:00)
  • Terry Lynch & Penn Quarter
  • Council Member tour through the existing Newseum in Rosslyn, VA (1:00:50)
  • $75MM price to close and move DOE move out of site with Mayor Anthony Williams (1:01:30)
  • Closed at end of 2000 for a total of $100MM (1:02:00)
  • Fee developer was Robert Carr (1:02:40)
  • Newseum couldn’t make it work over time (1:03:20)
  • Sold to Johns Hopkins
• 101 Constitution Ave. NW– Site was ripe for development (1:04:00)
  • International Carpenters Union owned it since 1961
  • Dan Rather broadcasted CBS News from the 5th floor of building (1:04:40)
  • Trammell Crow wanted to buy the site (1:05:00)
  • Vernon brought drawings and told them they could build a 500,000 s.f. building on the site (1:05:30)
  • Met new President and told him that they didn’t want to sell site
  • Worked with ARA (American Realty Advisors)
  • Receiving zone for TDRs (Transferable Development Rights) (1:07:00)
  • Put whole deal together and wanted to lease the project on a landlord basis and had to compete for the listing (1:07:30)
  • Had listing for 20 years (highest rents in DC and lowest concessions) (1:08:00)
  • Retention rate- 88% (1:08:20)
• NPR (National Public Radio) Relocation (1:09:30)
  • Strategic plan took six months
  • Studied 86 Metro sites to determine where they wanted to relocate (1:11:00)
  • Looked at staying in place and acquire an adjacent site…it wasn’t feasible (1:12:00)
  • Compared Silver Spring, MD and 1111 North Capitol St. in NOMA (1:13:50)
  • Needed to buy CLDs and TDRs to aggregate the density necessary on the existing site (1:14:15)
  • Needed a short term sale/leaseback to allow for NPR to stay while new building was under construction (1:15:30)
  • Ran process to sell the site to a developer- Boston Properties won the project and was not the highest bidder (1:16:30)
  • Boston Properties closed in Sept. 2008 the day that Lehman Brothers went down (1:17:00)
  • Location was at 635 Massachusetts Ave. and was eventually torn down and replaced by 601 Massachusetts Ave. NW now leased by Arnold & Porter law firm (1:17:45)
  • Art Greenberg and Parker Lange (1:18:00)
  • Difficult board to work with.

Savills

• Merger with Savills was good yet his business model has not changed except now an international platform (1:18:50)
  • Opened offices in Boston, Seattle, Phoenix (1:19:30)
  • In house project management capability (1:19:50)
  • Don’t have capital markets in house
• Pandemic impact
  • Stanford study (1:20:15)
  • Downsizing by law firms (1:21:00)
  • Too many companies have the “pause button” on (1:21:20)
  • 10% or more decrease in space needs
  • Vacancy almost 20% that he has never seen (1:22:00)
  • Muffin top buildings- huge supply of lower floor space where law firms take top floors and the rest of the floors are vacant (1:22:30)

Advice and Giving Back

• Brokerage industry is like riding a bicycle (1:24:10)
  • Need to team up with other brokers (1:24:45)
  • Workplace strategy and project management needed
  • Full compliment of services needed
• Was offered the opportunity to work with one sponsor, but wanted to have the opportunity to work with many clients (1:26:45)
  • Acquired property and they didn’t work out (1:27:00)
• Skills to be a good broker (1:27:15)
  • Must be optimistic to be a good broker
  • Can’t do all the services…must specialize (1:27:50)
  • Have to be on a team (1:28:30)
• Alan Novak was a great client (1:29:30)
• Self starter his whole life (1:30:00)
• His wife, Julie Rayfield, is his business and personal (1:31:00)
• Gives back to Johns Hopkins for cancer research as a cancer survivor (1:32:00)
  • Went through it 16 years ago
  • Sits with cancer patients and helps them to withstand the treatment (1:32:30)
• Mentoring junior brokers (1:34:15)
• You’re only as good as your next deal- stay relevant (1:35:00)
• Proud of what he did for Washington DC over the years (1:36:00)

Postscript

• Tom Amos relates to doing business when Vernon started in brokerage (1:37:30)
  • Cited reviewing leases by hand
  • Brokerage canvassing
  • Strip maps for ownership based on courthouse research (1:40:00)
• TIF- Tax Increment Financing (1:41:00)
  • Structured bond financing
  • Pass the “but-for” test
• Newseum (1:45:00)
  • Johns Hopkins purchased Newseum building
  • Didn’t work
  • Not viable amidst “free options” nearby

Exhibits

• Map of Projects that Vernon Sold at CB, Vector and Studley (86 transactions shown and 6 more off the map)