Real Estate Riffs: McLean Quinn, President and CEO of EYA

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John: Hello, everybody, and welcome back to Real Estate Rifts. I'm your host, John Ziegenhein, CEO of CCLC, and today I am thrilled and honored to have with me McLean Quinn, who is the president and CEO of EYA. McLean, I know you're a very, very busy man, and I want to thank you first for your time and for being here today and sharing some of your insights. I'm excited to have our conversation. I think we'll have some great dialogue back and forth. I know you just got back from a trip from Scotland. I, too, took a trip last year. It's very interesting that we both had the same itinerary. But the one piece that ties this conversation together that a lot of people don't know is the history of Chevy Chase. And if you don't know where the name Chevy Chase comes from, it actually comes from the Cheviot Hills, which is the land boundary between England and Scotland. And in 1388, there is a fierce battle between the English and the Scots in the Cheviot Hills on a “chase,” which is a medieval hunting ground. And 200 years later, a poet wrote a ballad about that fight and called it “the Ballad of Chevy Chase.” And so, flash forward a couple of 100 years after that when the United States was getting settled, one of the first pieces of land here was named Chevy Chase, and that's where it all started. So, you didn't realize it, but when you were there, you were where it all started for here at Chevy Chase. 

McLean: Oh, that's incredible, John, and the history of your organization is long, maybe not that long, but that's a pretty incredible, incredible tie back to Scotland and what an inspiring place. 

John: Yeah, yeah, it was beautiful. Why don't we start, if you don't mind, just giving us an overview of your role. I know you're kind of overseeing the company, but I also know, having dealt with you, that you're not just one that sits at the top and leads the team. You're down on the sites and on the properties and working projects day-to-day. So, give us a little example of what it's like for McLean.

McLean: Yeah, well, so my job is the best job I think that there is in the industry. I love what I do. EYA is a info residential developer throughout the D.C. DMV that focuses on delivering life within walking distance. And I took the CEO job about five years ago. And what that meant was trying to transition from running projects as a developer to running the organization. And so, I have a hard time giving up some of those project management responsibilities. I love the design component of what we do, the problem solving, community engagement. And so, I still do a fair amount of that. I work with our partners closely, really help think about what we want to do in a new development opportunity. And then I also have the responsibilities of managing an awesome partnership, creating the strategy for our organization, and really trying to block and tackle the problems that are in front of my colleagues every day so that we can advance in the direction that we set.

John: Yeah, no, I'm glad you said that. I think if anyone that's grown up in the real estate industry and you're involved in the deals, that transition later in your career as you take on more and more responsibility and more and more leadership roles, it oftentimes means you're more and more removed from what you fell in love with. And it's tough to juggle that, right? You have to sometimes sort of let go. There's meetings that you would prefer to be in that- where you're talking about the architecture, you're talking about the engineering and I don't necessarily miss the Microsoft Excel aspect of it or the Argus aspect, but certainly when you get pulled out of the day-to-day of the deals, you sort of feel like you've got to sort of get that back into your blood. So, it's nice to have that blend of doing both.

McLean: Well, it's kind of perverse, but I actually love the community engagement side too. I know for a lot of developers, that's the worst part of the job when you're in front of a room of folks who aren't necessarily happy about what you're trying to do. And the process of trying to explain the purpose of what we're doing and trying to get them to see the why behind our work and try and winning a few of them over, that's such a charging and energizing thing for me that I can't get out of that completely.

John: Well, good. Well, I'm going to call you for a pep talk before some of my meetings that I've got coming up. That's a good transition. Why don't we talk a little bit about the development landscape today? I find it interesting that, again, getting back to the site, we're all very, very hyper-focused on local sites, but at the end of the day, it's the community around you that impacts your thoughts. It's what's happening around the region. And then you take it to the national economy and interest rates all the way out to global incidences that are affecting us. So, while we're focused on the day-to-day aspect of the deal, maybe share a little bit of insight of how you're assessing projects at the local level and how you're navigating some of these challenges that we face.

McLean: Yeah, so, you know, our organization is completely focused on this metro area. And so I, given the complexity of the world right now, not trying to understand what's happening everywhere and being able to be focused on what's happening here is a real luxury. But it is an uncertain time for what we do, and our focus has always been on delivering life within walking distance in the best locations throughout the DMV. That's more important with the uncertainty of today than it's ever been before. And so, if there's sort of a guiding principle for where we're spending our time, what we're looking at, it is the no-brainer life within walking distance locations that have always been part of our success since 1992. And it's taking a skeptical eye or a really disciplined eye to anything that isn't squarely within that strike zone to really say how durable is this opportunity, how will this withstand a potential slowdown in the economy, a potential correction in the stock market or, you know, just sort of the continued uncertainty and whipsaw of the news cycle that we're in. So, we're kind of focusing on the core business right now.

John: Yeah. And I know we are in a business where we can't time the market, but are there any things that you're doing now that you would say are very different from the EYA of ten years ago or 20 years ago that you think is helping you navigate some of these headwinds and how are you looking at projects differently?

McLean: Yeah, so I mean, there's a couple of different things. First, our team is bigger and stronger than it's ever been. And so having that kind of talent, having those people on the bus, I think, is allowing us to do things and look at things that we haven't in the past. And for the last 15 years or so, we've been very focused on looking at suburban office buildings and over-parked retail and really trying to maximize the value of sites like that. But what's maybe a little bit different about the EYA of today versus 15 years ago is that we are executing multifamily where we didn't before. And being able to be the for-sale homebuilding organization that we're known for with an incredibly sophisticated and competent multifamily development arm is allowing us to tackle sites that are bigger, that are more complicated, and that have those mix of uses on it. And there aren't a lot of developers that can do both, right? That can be experts in what has over the last couple of years been a really stable for sale housing product and the multifamily piece, which, in a lot of these really well-located locations or some of these larger sites, has to be part of that equation. And so that that ability, having the multifamily arm that we now have is giving us access to sites and the ability to execute on visions that are bigger than just a standalone townhouse opportunity.

John: Yeah. And with this new team and then that transition into multifamily, do you think that that's just the beginning of something that might be more? Do you maybe see yourself and EYA moving more into mixed-use development or are you sort of, “let's stick to the residential component for now?”

McLean: Yeah, so mixed-use is actually always been part of what we do, but it's been a means to sort of the for-sale housing piece originally and now towards the residential. And I think even when we look at some of the big sites that we're tackling, we've got 30, 40-acre sites that are many hundreds or thousands of units that have that commercial component, the retail is still a small fraction of the overall density, of the overall project cost. I mean, it can be a key component of the placemaking, and it can drive the value of the residential. But if you look at where the dollars go in the project for us, the big dollars go into the residential components. A lot of the value creation though can come from that mixed-use, that placemaking, that retail environment.

John: Yeah. One thing that I think separates us, whether good or bad, CCLC, we've had the luxury of- we've owned the land that we have control of, and we've owned it for quite some time. So, we have not been- I think we'll transition a little bit more, but up until now, we haven't been out there pursuing opportunities, looking for additional land to acquire, to develop. We've had enough inventory to develop new projects, recycle older assets into new projects. But you do pursue a lot of very large infill sites. I know that can be extremely challenging. So maybe talk a little bit about- How do you identify, how do you start to identify these sites and what are some of the metrics that you use to sort of give the no-go, no, decision?

McLean: Yeah, I think it's a couple of things, but first, we have the benefit of a long, again, not as long as yours, but a long reputation in our market, having been focused on what we do since 1992, and since Bob Youngentob and Terry Eakin founded the company, we've built a reputation that creates opportunity for us. And so, as we think about how we source deals for our pipeline, the success we have is not just from having my partner, Aakash, who runs our acquisition efforts, being sort of the best guy for that job in the industry, in my opinion, but it also comes from having a reputation where opportunities come to us. Where folks know that we can solve complicated land use problems, complicated value creation problems, and they bring deals to us. And not all of those deals, not the ones that we find, not the ones that people bring to us, are fits, right? I mean, I think we always look at every deal and say, “can we actually add value to this process or is this a commodity opportunity?” If it's a commodity opportunity, then somebody else with a lower cost of capital or with a lower cost business model, they're going to be a better problem solver for that property. If it's something that needs creative thinking, if it's something that has a complex entitlement that needs deep community engagement, that's where we'll thrive. And so that's the lens we're putting on all these opportunities is, you know, can we actually create value for our partner? Can we create value for ourselves? Does this fit the sort of life within walking distance box for us?

John: And that success and that reputation, which I think we all know very well, not just lend itself to new opportunities, but also on the capital side. I think in today's environment, I mentioned earlier, we can't time the market. We have to keep going, but we also have a natural timer of the market, and that's the capital markets. They usually are the ones that finally say, “it's ready to go, it's not ready to go.” But you've also been able to attract a lot of capital, and I'm assuming that's helped fund your pursuits, whether through pre-development or going through entitlements and all the way through construction. Is that right?

McLean: It is, and we've been really fortunate in that regard. I distinguish our townhouse business and our multifamily business. On the townhouse side, we've had three programmatic capital partners since our company was founded, and we've worked with Bernstein Management on every single townhouse deal we've pursued over the last almost decade. And they're just an incredible partner, a stable partner, and they ride with us, you know, on every project. And on the multifamily side, we do have to chase capital for those deals, just like everybody else. But, you know, I think we've taken a little bit of a different approach, which is: we will pursue intentionally mixed income opportunities where the yield on cost is not the only metric that matters. And sometimes there are creative financing strategies and capital sources that are different from market rate capital. And then we'll pursue long-term partnerships. We’re not afraid to do multifamily with a long-term hold strategy, given that our for-sale business turns over pretty quick. We're pretty good at generating ordinary income tax liabilities for ourselves. We'd love to have some longer-term assets to offset that.

John: Yeah. it's interesting. Why don't we pivot a little bit and shift to talking specifically about Friendship Heights. We're here in Friendship Heights today. We have, again, more in common. We, CCLC, we control through to Wisconsin Circle all the way up to Saks Fifth Avenue, just over 20 acres of land. You're in the middle of your acquisition of the Geico site, which I believe is around 26 acres of land, two very large tracts of land in an area that I think is really prime for new development. I think Friendship Heights has been through a transition. It was once a major retail destination. I feel that today it's lacking identity. I think it needs a rebirth, and I think we're all working towards that. I think the community's fully involved in that. We have the Friendship Heights Alliance. It's operating as our bid. We have local developers that are here. And it's all come together at the perfect time because we're now dealing with the county and working through the sector plan. So, we sit here today, I think we're a little over halfway through the sector plan, which hasn't been done since 1998. We at CCLC have been really bullish about the sector plan. We engage very quickly with the county on that. We are truly taking this as the 2050 vision, right? So, we're thinking very long term, we're not thinking, what can we do right now? So, we're trying to craft something that I think is going to be really special for the area. Again, we've been here, we've owned these sites for quite some time, so it's been on our mind. But I'd love to hear a little bit more about the EYA pursuit of Geico, because from what I've been told, it goes very, very far back. And there's got to be a story behind that. And I commend the perseverance, and would love to just hear your thinking around, you know, never taking your eye off the ball, which I think has led to your success here.

McLean: Yeah, so it goes back to that original sector plan you mentioned back in 1998. So, Bob Youngentob, our founder, began consulting for Geico in helping them envision what they would pursue during that sector plan process. And so, since that '98 sector plan process, we have been actively pursuing the Geico site. There's been a ton of change in the team over there over those years, but we have not sort of stepped off the gas and we're thrilled to be in a position of helping deliver now on that rebirth of Friendship Heights that I think we're also eager for. And the opportunity, I don't think it's primed, I think it's starved for it. I think that it really, Friendship Heights, there is no reason that it isn't a more thriving mixed-use environment than it is, but for the fact that it hasn't had the opportunity for meaningful new deliveries. And if you look at what happened over the last cycle and you look at what delivered in different D.C. submarkets, you look at what delivered in Bethesda, and then you look around at what delivered here, and it just didn't happen. So, this is our opportunity through the sector plan to realize that new vision for the future of Friendship Heights. And we're thrilled after 30 years of chasing that site to finally be able to try and put that in action.

John: Yeah, no doubt. I sometimes struggle with, you know, when you look back, how do you explain how Friendship Heights, which sits on top of a red line metro station, great infrastructure, surrounded by housing, very accessible for pedestrians, very accessible for vehicles. But yet, Mazza is the first residential project developed in 15 years. You can't look at another market around Washington, D.C. metro area that didn't see thousands of units get developed over that same time period. And so, yeah, I think you're right, it's starved. And I think some of the challenges are, I believe they're a direct result of the of the residential development, the lack thereof, and then it starts to snowball, right? You start to have businesses that are here and they say, “well, my employees don't live here because frankly, there's no place to live.” Someone has to move out for someone to drive in. Then your restaurants and your retail start to struggle. So, then you start to lose that on the ground vibrancy, and then it just snowballs to more businesses that are leaving. And it's not just residential, we don't have brand new Class A office here. So, it's a flight to quality for office. Most people that we're, you know, competing for are looking at Bethesda as their number one choice. And so, it's just, you know, it just keeps coming, you know, down the hill. And I think we- I think it's primed and starved. You know, I saw some protests a couple of weeks ago around the sector plan and development and signs that said, “Save Friendship Heights.” And my first reaction was, “that's what we're trying to do. That's right. That's what we're trying to do. We're trying to save Friendship Heights” because I'm here every day and I'm talking to all of our retail tenants; I'm talking to all of our restaurants. And you just, you know, you go to Bethesda, you see a completely different feel. And I look out of my office window to see downtown Bethesda and you just sense vibrancy in a lot of other markets, but it's lacking here. So, it's exciting to be a part of that shift. I know, again, in our world, we're surrounded by AI and speed of light technology, but we still have to, spend the years and years to go through the process before development happens. But it's coming. It's coming. It'll be here. And I think Friendship Heights, you know, over the next three to five years, you may not see the complete transformation, but you'll see the wheels of motion. I think you'll start to see a new infrastructure born that's going to support what I hope becomes one of the top markets around the area, because I think it has everything it needs to do that.

McLean: The fundamentals are clearly there. They've always been there, right? I mean, if you look at the demographics that surround this node, they're some of the best in the world, right? The most affluent in the world, most educated in the world. There's no reason that it hasn't had that success, but for the complexity of getting it done. And there's so many things that drive that complexity, right? I mean, it's split between D.C. and Maryland. It's got single family neighborhoods, long-established single-family neighborhoods, pretty close around the core. And so, there's easier places to do things, easier places to get jobs approved and to build. And I think, you know, I live a mile and a half in from here and my office is in Bethesda. So, I pass through this on my bike, on my on the metro or in my car every day. And the enigma of why it hasn't happened yet has always fascinated me. And I know we'll talk about market conditions in a minute. I think that the market conditions actually are going to really support the transformation of Friendship Heights because secondary markets, places where it might be easier to build density, places where it might be easier to find land, those things are great when the market's really hot and when the capital's flowing. I think we're going to see over the next five years- the capital's gonna be more selective. It's gonna have to be in the no-brainer locations. And it's gonna have to be, and I think people are gonna wanna be in those no-brainer locations. If you look at some of the challenges sub-markets in the district that were incredibly hot have had over the last couple of years since COVID, there's public safety concerns, there's stalled project issues that have really changed some of those landscapes. I think people in capital are gonna wanna be in the no-brainer places like Friendship Heights. And so, the timing of the sector plan and the timing of some of these development opportunities, I think, are really well aligned for the market opportunity.

John: Yeah, I think you touched on something that makes D.C. unique in its own way, and that is you have several different jurisdictions. Well, you have the state of Maryland, you have the district, and then you have Virginia. And then within those, at Maryland, you have Montgomery County and PG County, and they each have their own things. And we're sitting here today on election day in Montgomery County for the primaries. And I think there's a lot at stake for the development community. But you do see that around the region where different areas have different legislation that some are promoting business growth and promoting development. And in other cases, you feel like it's anti-growth and anti-development. So, we'll see what the future holds there. But one thing that I think is changing the landscape, and we can touch on it a little bit, but there's more legislation around housing than I've seen or we've all seen in our careers. You know, there's EHO policies, there's the missing middle conversation, there's talk about, you know, rent control. And I've always felt like, in our business, the greatest form of stabilizing rents is supply. right? It's supply and demand. It's one of the most fundamental economic principles. And if you're lacking in supply, but demand continues to be there, which is going to continue, you're going to have upward pressure on rent. So, we got to fix one side of that equation so that the pressure is off rents. But I think that's making a lot of developers and a lot of capital be very selective about where they're going to search for sites and where they're going to put capital. So, I think that's a dynamic that we're challenged with. And I think some other market conditions that we're seeing, you know, construction costs continue to rise. I don't think there's ever been a point in my career where you may have seen a dip, a very small one, but there is no world where we wait for construction prices to come down. Right? So, we have to figure out, how do we adjust our projects? How do we adjust our engineering? How do we think about our cost to build? And now we're faced with a couple of other dynamics that are hurting that. And one is the data center boom, right, which most of it's in Northern Virginia, most of it's out at IAD. And it's just, it's an enormous amount of development that's really creating pressure on the MEP side of the world, and labor, right? And that capital and those users have a very high demand. I mean, the vacancy rate for data centers, I believe, is 0, and there's a lot of people that need access to it. And the capital behind it, I think, can push the labor markets in their direction. They can pay the premium, whereas on our end, we're already struggling to try to make deals with pencil. So, do you think you're going to see that impacting your business? Do you think you're going to see that pressure on labor and some aspects of our construction costs, including concrete?

McLean: We know we're seeing it. And there is a difference between the trades that service our for-sale townhouse business and the ones that we work with on the multifamily development side. We have a little more insulation in the for-sale housing. And in that side of our business, we've actually seen costs come in and they've come in not to pre-pandemic levels, but they've come in much below the peaks that we struggled through during COVID. What hasn't come in on that side of the business is the land development, all the horizontal, because the data centers are gobbling that up, too. So, all the infrastructure work, the earth moving, the grading, the concrete. And then absolutely we're hearing from our third-party general contractors on the multifamily side that they are competing for that MEP trade base with the data centers who will basically offer full time employment for those trades, right? You come on site, we'll move you job to job, and you will be busy forever. So, it is driving the cost side of multifamily. It's keeping the trades busy. which the rest of the CRE is not doing right now. And I'm a little bit worried about sort of the broader implications of how much capital spending is taking place in that part of our economy right now and how much the stock market's dependent on it. I think that obviously has implications for our business, but it is, I mean, it is the great sucking sound in the economy right now.

John: Yeah, I just read, I think digital reality themselves, which they're a major player, but there's a lot of major players. So they're one of many. And I think their pipeline, I saw their pipeline for development alone is $18 billion for data centers. So, yeah, there's going to be a lot of pressure. Now that's global, but that just gives you an idea, I think, of what we're faced with. And I know we're all excited as well about the Commanders in a new stadium. But again, there's going to be capital behind that project that I, and there's going to be timing pressure. And I think that's going to also push labor prices and sort of, create a little vacuum into that direction where you have a, I think it's, they say a $4 billion stadium. So, you have to imagine, right, it's going to be 4 plus something. And then they're talking about another potential $4 billion of development around the stadium for mixed-use and things to support that. So.

McLean: We heard it. We heard it from the subs during the time when they were building the casino across the river. Yeah. And it was easy, limitless work for a period of time. And it paid well. And so, it did impact costs and availability. Yeah, for sure. But John, you mentioned the sort of unique pro-housing dynamic that we're seeing at a national and at a local level right now. To me, that is one of the most fascinating trends, kind of, in our industry, certainly first time in our lifetimes where we've seen that level of national attention on housing. But it's happening concurrently with this sort of rise in these liberal jurisdictions of the democratic socialist leadership in some of these cities. And there are so many important policy objectives that those politicians are bringing to their cities, but my concern is that the public capital is never going to be able to replace private capital and its magnitude of investment in those places. And so, one of the dynamics that we're watching in our market, certainly looking at where D.C.'s headed and wondering about where Montgomery County's headed, is, you know, can that movement, that sort of pro-housing, pro-investment in policy, perspective coexist with private capital? And does it, will it recognize the importance of keeping that private capital flowing into those markets? Because the public capital just won't be able to backfill private capital at the scale that's required to achieve the objectives that they've laid out. So, I know we had a kind of an unprecedented success with an 85-5 vote in the Senate yesterday on the housing bill. But when the rubber meets the road and some of these policies have to go into action and the fiscal realities of some of our jurisdictions are tested, that's going to be a dynamic that will be very impactful on our business.

John: Yeah, and that's a great point. And the fiscal dynamic of the public money is very different. And I think one thing, in my view, to combat all of the challenges that we face in our business is to be nimble and quick, right, is to be able to move fast and execute on your timing. And that's where private capital can move quick and be prepared versus public capital. That's- there's got to find they got to find the source for the capital. They got to then put it into the budget. Then it's got to go through a process, and projects can't wait that long for that, you know, level of importance when we're talking about housing across the country. So that's an excellent point. Well, why don't we why don't we start to wrap things up? Just a couple of quick questions to conclude. In all of the projects you're working on and the trends that you're seeing, are there any trends that you're seeing in the market right now that you feel you're hesitant to commit to or feel are amiss?

McLean: So, we won't be getting into the data center business. Maybe I'll start there. Although I'd lie if I told you we didn't look at all of our sites and say, “Hmm. Could any of these be data centers?” But, you know, that component of the industry is fascinating to me and maybe a little bit worrisome. You know, I do watch, curiously, the office conversion projects. We've done an office conversion. We did one on the waterfront in Old Town Alexandria. They're hard, they're complicated. The costs are always more than you think they're going to be. And, you know, the suitability of our buildings is not great for those conversions. But watching how the office market in our core CBDs recovers, I mean, to me, that's going to be a really important part of the long-term demand creation for housing, for retail, for placemaking, for growth in our urban areas. So that's probably the number one thing that I'm kind of paying attention to.

John: Yeah. Yeah. And fortunately, I saw, I think office, this is across the country, office rents increased, I think a little over 2% so far this year, which is the first time we've seen that level of increase since 2020. So hopefully that's a sign that we're moving in the right direction because I think we all- it's part of the ecosystem is having that vibrant office and having those businesses that are growing and they're a part of the community because they're a really, really important part of our [community].

McLean: They are, but what's interesting to me is that you do have now, you have the reversal of the remote work movement, right? You have a lot of people bringing employees back to the office, got a lot of data coming out now that fully remote work may actually not be good for mental health. And I think many of us are concerned about whether it's actually deeply productive. We understand people might feel productive, but are people growing in their careers? Are they creating, are they innovating in the way that they can, or when they're around other people? But you also have a lot of the core drivers of Class A office space beginning to reinvest in space. And so, you look downtown, we're talking about new Class A office starts again and law firms moving and they're always the tip of the iceberg and they're always the ones that can pay. But I'm encouraged to see that coming back.

John: Yeah, yeah. I think we're starting to find- it's taken a while, but we're finding that balance, right? What's the right balance between having that flexibility but also having that culture that you need within your office environment, so. All right, let's, one last question, which we ask all of our guests. If you weren't in commercial real estate and you were to choose a path that was limitless, what would that be for you, McLean?

McLean: That's a great question. I tried a path that was different. So, my first meaningful time in Washington was working on the Hill because I thought politics was the path. And the bloom came off that rose pretty quick and led me to pivot to this. You know, I might be a teacher. One of my favorite things to do is to interact with our analysts, to go guest lecture in a classroom, seeing sort of the creative juices flowing in people's minds, seeing the connections being formed. I love that energy. Maybe it's like being in the front of a community meeting and taking the heat. Maybe trying to win hearts and minds. Yeah. Maybe it's a little different. More receptive audience. But yeah, maybe that. Because definitely not politics.

John: Yeah, definitely not politics. Well, again, I'd like to thank you for your time today. I've really enjoyed our conversation. I always appreciate hearing your insight. You know, your firm, your company, and all of your people, I think the world of them, I think you have a great reputation in the market. So, we're thrilled to have you here and glad to have you as part of our community as well. So, thank you. 

McLean: Well, thanks so much for this opportunity.