A major real-estate fund is making a $10 million bet that Amazon will choose the Washington, DC area for its second headquarters

JBG Smith/Gensler

A rendering of a proposed redevelopment in Crystal City, Northern Virginia.

• New York-based Third Avenue Real Estate Fund has purchased $10 million in shares in JBG Smith, a Maryland-based real-estate investment trust (REIT).
• Third Ave reportedly told investors in a letter that the REIT's shares will "likely be worth a lot more than our current estimates" if Amazon chooses the Washington, DC area for its second headquarters.
• Evidence is piling up that the tech giant will pick Northern Virginia as the location of its new $5 billion campus.

Out of the 20 North American cities Amazon shortlisted for the site of its second headquarters, three finalists are near the US capital.

A major real-estate fund is betting that the tech giant will pick a site in Northern Virginia, specifically an Arlington neighborhood called Crystal City. According to Bloomberg, Third Avenue Real Estate Fund has bought $10 million in shares in JBG Smith, a real-estate investment trust (REIT) working on a massive redevelopment in Crystal City.

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The New York-based fund reportedly touted in a letter to investors that if Amazon chooses the Washington, DC area, the REIT's shares "will likely be worth a lot more than our current estimates." Bloomberg reports that the fund has arranged to buy JBG shares at $30.50 and $31, and estimates that they could be worth more than $40 apiece if Amazon picks Crystal City.

JBG Smith owns two dozen Crystal City office buildings - many of which are vacant and older - totaling more than 7 million square feet, according to The Real Deal. The REIT's revitalization plan includes 120,000 square feet of retail, including a 50,000-square-foot movie theater and a grocery store. The redevelopment could also add up to 3,300 residential units.

Built in the 1960s and 1970s, Crystal City is a semi-planned community near Reagan National Airport.

JBG Smith/Gensler

A rendering of Potomac Yards for a proposed redevelopment in Crystal City, Northern Virginia.

In January, Amazon announced that it would build a $5 billion headquarters, dubbed HQ2, in a mystery North American city. The project promises 50,000 jobs over the next two decades, and many of the finalist cities are offering large economic incentives to the company to land it.

There is now mounting evidence that Northern Virginia is a top contender. As BI's Hayley Peterson previously reported, Amazon has quietly been expanding its presence in the area. The company recently put a new headquarters for its fast-growing cloud service, Amazon Web Services, close to a proposed HQ2 site - about 25 miles northwest of Crystal City.

The site is also within a 10-minute drive of where Amazon plans to build corporate offices as well as a 600,000-square-foot data-center campus.

Known as Data Center Alley, the area features a high concentration of data centers, including ones owned by Amazon Web Services. Approximately 70% of the world's internet traffic flows through Data Center Alley, and a big share of that passes through Amazon's centers.

By constructing HQ2 in Northern Virginia, Amazon could tap into its data-center network, bringing more efficiency to the internet connection at the headquarters. Plus, it would be a stone's throw from CEO Jeff Bezos' new $23 million mansion, also near DC.

Third Avenue certainly seems optimistic.

"Washington DC seems to rank near the top of the list," the fund said in the letter to investors. "Should it ultimately be selected for its second headquarters, JBG Smith is likely to be a big winner as its Crystal City and Pentagon City locations are natural candidates for Amazon to utilize as it initially relocates employees to the region."