Beyond the Beltway

Beyond the Beltway

D.C.’s MRP Realty looks to expand its millennial-fueled apartment empire to Philadelphia – and elsewhere

Published on January 11, 2015

PHILADELPHIA — The first satellite office of hard-charging D.C. developer MRP Realty is outfitted with a decrepit electric stove and cheap carpeting. On the kitchen counter is a stack of hard hats and two empty Coke bottles. In the middle of the room is a folding table with two laptops, which is where Charley McGrath is plotting to take over his hometown.

McGrath, 34, with slicked-back brown hair and a pinstripe suit, said he is in Philadelphia for two reasons, one personal, one professional. A native of the area with three young children, he wanted to move back home to raise his kids.

But his interest in Philadelphia aligned perfectly with that of the company, which was looking to do something most of its predecessors and competitors have avoided: Export their development success in Washington to other cities.

For all the commercial real estate empires that have been created in and around D.C., few of the homegrown companies have ventured much beyond the Capital Beltway. JBG, the titan of local developers with a 24 million-square-foot portfolio, has famously avoided it. Lerner Enterprises, founded in 1952, doesn’t list properties outside greater Washington. Same for Akridge, founded in 1974.

MRP will be 10 years old this summer, and it already has taken the plunge.

The company’s leaders, led by Robert J. Murphy, think it’s the perfect time. Like a lot of Washington developers, MRP (short for MidAtlantic Realty Partners) has been on a tear the past few years, erecting apartment buildings catering to a wave of millennial workers — those born in the 1980s and 1990s.

Gallery: Exporting Washington success

Charley McGrath of MRP Realty stands in front of the apartment project the company is developing in Philadelphia -- the company's first venture there.

MRP is doing it faster than most; at the moment, it is working on 13 glossy projects around Washington, on U Street NW, on H Street NE, in Brookland, NoMa, Potomac Yard, Huntington and Arlington. Originally an office company, half of its portfolio is now residential. Its staff has doubled in two years, and it now controls $2 billion worth of real estate.

As the pipeline of new millennials in Washington has slowed, however, MRP’s team began to look afar. In Philadelphia, they think they’ve found a similar flood of young workers into urban neighborhoods such as Center City, but not nearly the same level of competition to build new apartments and even offices for them.

“The city changed a lot over the last 20 years since I left. It feels a lot more like New York than I remembered Philadelphia,” McGrath said. “There’s a lot of action. All the restaurants are top-notch. It’s a Wednesday night or Thursday night, and every parking lot will be packed. What that really speaks to is the amount of millennials that are part of the population in Center City.”

There is a lot at stake for the company as it looks elsewhere to expand, and there are reasons other companies haven’t strayed far from the nest. No wants to be caught stretched too thin when the economy takes a hit. But for a lot of reasons, MRP is not like other companies.

The ethos of MRP
People sometimes use the word “cowboys” to refer to MRP executives.

“It’s a very disciplined, Wild West philosophy, is how I would describe it,” said Doug Firstenberg, founding principal of MRP competitor, Bethesda-based StonebridgeCarras. “They work hard, they party hard, but they’re really smart.”

Other competitors describe the company as just as strict about underwriting as it is aggressive.
“They’ve managed to see value where other people have been scared,” said P. Brian Connolly, a former Akridge executive who often competed with MRP for deals.

MRP Realty's D.C. area projects

With more than a dozen local apartment projects, District-based MRP Realty has been aggressive in trying to cater to young workers pouring into the region in recent years. (Steve Stankiewicz for Capital Business)

He pointed to the Washington Harbour renovation as an example. MRP bought it in 2010 for $245 million, spent around $80 million upgrading the office and retail space, and then sold it for $370 million in 2013. “Everybody — everybody — looked at that deal. But they dig in. I think they dug in harder and deeper, and I think they thought more about what they could do to improve it.”

The company’s ethos begins with Murphy. Before getting into real estate, he served in an armored tank division of the Army, stationed on the East German border during the Cold War. As an executive at Trammell Crow, he built a reputation for working, playing and exercising hard. A snowboarder for more than 20 years, he and his son took up mountain climbing, reaching the summits of Mount Kilimanjaro (in Tanzania), Mount Elbrus (Russia) and Mount Aconcagua (Argentina).

Now 54, Murphy is known to go across the street from his office in Georgetown and, wearing a weighted backpack, do practice runs up the steep “Exorcist Stairs,” made famous by the 1973 horror movie.
Employees at MPR work hard enough that they sometimes show up to the office in sweats in the early morning to get a start before their workouts. The rule is that the sweats need to be off by 10 a.m. When they land a deal, they throw a party. Jeffrey Miller, who served as director of real estate under Mayor Vincent C. Gray, said Murphy and his partners were among the most talented and fun people in the industry.

“They tend to be cut from that lacrosse, fraternity kind of cloth,” he said.

Murphy has been trying to dial back the company’s “bro”-like image; he says MRP is now 31 percent female, including a number of senior managers. What he’s looking for is people who are aggressive enough to find the best deals and smart enough to know when they’ve found them — and when they haven’t.

“I’m not a good boss of people who need to get their butt kicked. I’m a good boss of people who are self-motivated,” he said.

MRP’s first Philly venture
McGrath fits the model perfectly. In Washington, he shepherded the company’s successful overhaul of Georgetown’s Washington Harbour complex, where the company still keeps its headquarters.“I never turn off my cellphone. I don’t think I’ve done it in 10 years. At the same time, I sometimes feel like I’ve never really worked,” he said.

When they began seriously considering Philadelphia, McGrath and Murphy, who also grew up outside Philadelphia, began underwriting the idea similar to the way they would any of the deals that come across their desks every day.

A look inside the gutted Avenue of the Arts Building, from the inside and from the street.

In his makeshift office, McGrath pulls out a spreadsheet of data to support his bet on the city: Philadelphia added 19,000 net new jobs in the past 12 months, 10 percent above average the average year. Sixty percent of Philadelphia’s Center City population are ­millennials, averaging 33.5 years old. But of the 4,500 apartment units in Center City, more than 70 percent are at least 30 years old.

The company’s first property here is called the Avenue of the Arts building, which was built in the 1890s. It was an office building for more than a century before the Art Institute of Philadelphia turned it into student housing in 2000. MRP and one of its financial partners, Principal Real Estate Investors, bought floors four through 17 in February of last year for $33 million, with plans to turn them into luxury apartments.

Most of the floors have been gutted, leaving bare walls and loose wires hanging from the ceiling. McGrath’s makeshift office is on a nearly vacant lower floor. From the rooftop on a recent weekday evening, where MRP plans a party deck, city hall was in full view a couple blocks away and the sidewalks below were bustling.

MRP Realty's projects outside D.C.

MRP has several industrial projects outside the Beltway and is branching into apartments in Philadelphia. (Steve Stankiewicz for Capital Business)

“There’s a massive population of people in New York and D.C. of guys who are right around my age, mid-30s, who all left because when they came out of college, there were no jobs,” he said. “So there’s a huge returning population that wants to be here.”

Although MRP had only bought one building so far, he said he is looking at a dozen others and was is in the process of hiring a team that would allow him to look at more.

Sean Coghlan, a researcher in the Philadelphia office of real estate company JLL (which brokered the sale of the building to MRP), said he envisions MRP growing a portfolio in the city that other Washington investors will begin following.

MRP has also built a portfolio of industrial properties in New Jersey, Pennsylvania and Maryland.
“Historically in Philly, most of the investor money that was coming down was mostly New York-based … there weren’t many groups coming from elsewhere. MRP is kind of at the beginning of a wave of D.C. capital coming up to Philly,” he said.

Can success be replicated?
Not all of MRP’s rise has been pretty by any means, and therein lie some of the risks as it begins branching out.

Some of the company’s real estate deals in NoMa and the Potomac Yard area of Alexandria ended up worth less than they were purchased for following the 2007 real estate collapse. Investors lost money, and Murphy and his partners, Ryan K. Wade, Frederick W. Rothmeijer and J. Richard Saas, considered shutting down the company. They cut their staff to 12 by the end of 2009.

Coming out of the recession, the partners made a number of saves, thanks to the underlying strength of their real estate and relationships the company had with its investors. In Potomac Yard, JBG swooped in to take a major stake, making the deal viable again and allowing MRP to stay in. In Tysons, MRP paid near peak price to buy a development site from Gannett, making it difficult to fetch a good return. Then LMI Government Consulting, a contractor, agreed to buy a large portion of the building.

As the dust was clearing, they hit a number of home runs. In 2009, the company partnered with New York-based Angelo Gordon & Co. to buy two Northern Virginia office buildings: the Hartford Building in Clarendon, for $71.5 million, and Monument III, near Dulles International Airport, for $51 million. It flipped the Hartford for a $41.1 million markup 17 months later. It sold Monument III after two years with a $20 million markup.

MRP Realty hopes to add a roof deck, and the building has a courtyard.

Those deals — and Washington’s apartment boom — gave MRP the runway to chase millennials elsewhere. Firstenberg said that for the strategy to work, MRP will have to either grow street-level understandings of the markets the company enters or hire people with the knowledge.

“The real truth is local knowledge is all the difference in the world. Period. End of story. And can you get that model in other markets?” he said.

Connolly said that for all MRP’s growth in Washington — and the executives’ swashbuckling reputation — the company needed to remain true to its underwriting, which he said was top notch. “Murphy has not allowed his successes to go to his head,” he said.

Murphy said he does not have a timeline for expansion, but there are other places he is closely watching for their ability to grow jobs and attract young workers, among them Raleigh, Nashville and Pittsburgh. He could see adding another four to six offices in the next decade. If he succeeds, he could create the rare national real estate company that began with a Washington portfolio, something only Oliver Carr, with Carr­America, and a few others have managed to do.

“I’m not looking to take over the world,” Murphy says. “It’s more just where we see opportunities.”