D.C. Real Estate Leaders Say Losing Capitals, Wizards ‘Would Take Years To Recover From’

UPDATE, DEC. 12, 8:45 P.M. ET: Capitals and Wizards owner Ted Leonsis is scheduled to appear at a press conference with Virginia Gov. Glenn Youngkin in Alexandria’s Potomac Yard neighborhood Wednesday morning, multiple news outlets reported Tuesday afternoon. On Tuesday evening, D.C. Mayor Muriel Bowser and Council Chairman Phil Mendelson jointly announced new legislation to provide $500M in financing for the renovation of Capital One Arena. Bisnow's original story that published Tuesday afternoon follows below. 

With Virginia lawmakers passing a plan Monday night to lure D.C.'s NBA and NHL teams across the river, leaders in D.C.'s commercial real estate industry say the city needs to put on a full-court press to keep the teams downtown. 

The details of Virginia's offer aren't yet clear, as the plan was passed in a private session by a group of state legislators and still needs to be approved by the full General Assembly, The Washington Post reported. But the larger decision to come is from Ted Leonsis and Monumental Sports, the owner of the teams that will ultimately choose whether to move to Virginia or stay at Capital One Arena, the 26-year-old venue that has served as an anchor for the downtown economy. 

Leonsis has asked D.C. for up to $600M in public funding to renovate Capital One Arena, The Washington Post reported last month. Mayor Muriel Bowser's administration hasn't said how much it is willing to invest to keep the teams in D.C., but a spokesperson for the mayor's office said the District has put forward a proposal. 

“Mayor Bowser and Chairman Mendelson have worked together closely, and in lockstep, to put forward a strong proposal to Monumental Sports, and after several months of negotiations, we are committed to seeing this through as a vital component of DC’s Comeback,” the spokesperson said in a written statement. 

Downtown DC BID CEO Gerren Price said in a statement that the more than 80 Wizards and Capitals games a year, plus concerts and other events, draw over 2 million people to the downtown area and “contribute greatly” to the downtown economy.

“We encourage city leaders to continue working together to put forth their best possible offer as soon as possible,” Price said.

“We recognize that Monumental must consider offers from other jurisdictions in order to make the best possible business decision for their operations, but we strongly believe that keeping these teams in the city will yield the highest regular attendance of any site in the region,” he added.

Several real estate executives told Bisnow Tuesday that the Capitals and Wizards are critical to downtown's health, and they said it would be well worth the money to keep them in the arena.

“They’re all money generators for the District, and at this point, we’ve a got very difficult situation in the office industry where buildings aren’t able to pay their real estate taxes,” said Chip Akridge, founder and chairman of local development firm Akridge. “The city has got to do something or go bankrupt.”

If the teams were to leave, executives said it could cost the city hundreds of millions in lost tax revenues, not only from the arena itself but also from the businesses that depend on its foot traffic and the property values of surrounding commercial buildings. 

“Any commercial use will be in serious trouble without the traffic from the sports facilities,” said Western Development Chairman Herb Miller, who developed the Gallery Place mixed-use complex that connects to the arena. “If they try to steal them from the District, I think the District should use every possible way to try to keep them there.”

Donohoe Hospitality President Thomas Penny, whose firm owns several hotels downtown, said the hockey and basketball games are a significant driver of demand for hotel rooms, restaurants and retail businesses in the surrounding area. He would expect a number of them to go out of business if the teams were to leave D.C.

“It's a critical priority,” Penny said. “The hospitality industry is to D.C. what Disney is to Orlando or Ford is to Detroit, and at the center of that is Capital One Arena and the jobs it generates, the economic activity it generates. At a time we’re still recovering from the pandemic and office buildings are sitting empty, we can ill afford to contribute to greater vacancy in the downtown core.”

Office buildings are already falling in value due to record-high vacancy rates, reducing D.C.'s property tax revenue. Penny said the loss of the Capitals and Wizards would further depress values. 

“As the mayor and council are having to deal with pressing priorities from an economic perspective, fewer priorities are more important than keeping them in D.C.,” he said. “They should find a way to work it out so that they can stay in the District.”

Dave Dochter, who leases a large portfolio of downtown retail space as managing principal of Dochter & Alexander Retail Advisors, said keeping the teams downtown is “immensely important” for the retail market. 

“I don't think — given the challenges facing the market with Covid, hybrid work and the pressure on the restaurants and the retailers — that this is a scenario that we can entertain,” Dochter said of the teams leaving. “I think we need to do whatever we need to do in order to satisfy Monumental’s concerns.”

He said D.C. “has to be competitive” with the economic offer that Virginia has proposed. But he also said the city needs to address the rising concerns of crime and public safety on the streets surrounding the arena. 

“They’re not just Monumental’s concerns,” Dochter said. “Monumental is in a position of strength, and hopefully it’s going to allow the city to realize that other business are feeling a similar pain. And that’s specific to crime. And I’ll tell you, other businesses are surely feeling that. They may not have as big of a megaphone as Monumental, but this is top of mind for all business owners in D.C.”

Bob Murphy, managing principal of local development firm MRP Realty, a Bowser campaign donor and a Capitals season ticket holder, said he thinks keeping the teams in D.C. is a top priority for the mayor and council as they work to revive downtown.

“It would be a very difficult blow and would take years to recover from,” Murphy said of a potential move to Virginia. 

Murphy said it would be worth D.C.'s investment to help Monumental renovate the arena. He also said crime is an important issue for the team ownership group, as it wants the employees and visitors at the arena to feel safe. 

“It’s really important for them not just to get the money but to make it a safe and vibrant experience for everybody,” Murphy said, adding that he supports the mayor's efforts, but it comes down to a “business deal and decision” for Monumental.

A Monumental spokesperson declined to comment on Virginia's action, instead issuing a statement to Bisnow.

“Monumental Sports & Entertainment is committed to delivering the best fan experience, winning championships, giving back to our communities, and becoming the most valuable regional sports and entertainment enterprise in the world so that we can continue to reinvest in our fans and community,” the spokesperson said. “Our commitment to the DMV is unwavering and we look forward to sharing plans for future investments.”

Bill Miller, a retail broker at Miller Walker Retail Real Estate Advisors, said drawing people downtown is “incredibly important” to making the streets feel safe and supporting the area's businesses. 

“We have so much going on to try to get more people downtown, and meanwhile, we’ve got a situation where we could lose the largest generator of leisure folks coming to downtown D.C.,” Miller said.  

Given the loss of tax revenue if the teams were to leave, he said it would be worth a $600M investment from the city to not only keep the teams at Capital One Arena but upgrade the facility to make it more appealing for fans. 

“The arena is like a department store in a regional mall. It is the anchor to downtown, and that helps support a lot of other shops and restaurants,” Miller said. “We need to keep that anchor, and we've talked about adding other anchors, but we at least need to keep what we have as the most active, important anchor at the heart of downtown.”