Regal's Closure Will Bring Once-Vaunted Gallery Place Retail To 67% Vacancy

One of D.C.’s most prominent retail properties, Gallery Place helped usher in the revitalization of the Chinatown neighborhood over the last two decades. But today, the complex sits more than 40% vacant, and its largest tenant is preparing to close. 

Regal Cinemas parent company Cineworld, as part of its bankruptcy process, on Thursday revealed that it would close 39 theaters, including Regal Gallery Place, the 14-screen theater that has operated in its 63K SF space for 18 years. A bankruptcy judge approved the lease's cancellation, and the theater is slated to close next month.

Canadian real estate firm Oxford Properties bought the controlling interest in Gallery Place in 2014, and Oxford Director Jim Potocki told Bisnow on Friday his team hadn’t yet heard from Regal. He said the firm found out about the closure from media reports. 

“We saw the public news stories at the same time everybody else did,” Potocki said. “My phone lit up, other people in my office were starting to send notes, so it all kind of came at once.”

The closure is the latest in a series of unfortunate events for Gallery Place, which has seen the parent companies of three of its tenants file for bankruptcy in as many years. But real estate insiders and city officials also attribute its high retail vacancy to the larger challenges that downtown faces, from slow office traffic to concerns around public safety. 

Commercial real estate leaders, including the developer who built Gallery Place and the broker who leases it today, say that turning around the property will require not only the owner reimagining the retail spaces, but the city reinvigorating its surrounding area. 

“They’ve got to revamp what they do with it,” Western Development founder Herb Miller, who co-developed Gallery Place in 2004 and sold his stake in it a decade later, told Bisnow.

“The city needs to work with these owners to liven up the properties again,” Miller added. “It’s got to be a larger, concerted approach.”

Dave Dochter, the co-founder of Dochter & Alexander Retail Advisors who leases the retail space for Oxford, said he has been approached by multiple theater operators that have interest in opening in the Regal space. 

He said it is still too early to know when the theater could reopen and who would operate it, but he expects it would be a theater that represents the new evolution of the moviegoing experience: offering a full food and beverage menu and finding ways to activate the theaters during the off-hours.  

Downtown DC BID CEO Gerren Price said he plans to work with Oxford, the brokers and the city to help fill the theater space. 

"The closing of Regal Cinemas at Gallery Place is a tough loss for downtown D.C. — and, as it was one of 39 locations across the country shut down by Regal, a sign of the larger troubles afflicting a pandemic-battered industry," Price said in a written statement. "The BID strongly believes that movie theaters are an essential aspect of a vibrant central business district."

The movie theater business and the retail industry have changed dramatically since Regal debuted at Gallery Place in 2004, the same year the larger development opened. 

Gallery Place — a 660K SF mixed-use complex featuring 250K SF of retail, 220K SF of office and 192 condos — was built by Western Development and Akridge. The project, which cost $250M to build, was funded in part with $75M of tax increment financing, the District’s first-ever TIF deal.

The project’s retail component hit multiple snags before it opened, with AMC Theatres backing out of a deal before Regal ultimately signed on, and with anchor tenant Jillian’s Entertainment filing for bankruptcy in May 2004 before occupying its 60K SF space.

Of the retailers that occupied the property when Gallery Place opened, it appears only one is now remaining: Clyde’s, which is still in its 22K SF space. 

The property is connected to the Capital One Arena, which opened in 1997 as the MCI Center and is home to the Wizards and Capitals. The two projects are widely credited with helping spark the revitalization of the Penn Quarter neighborhood on the eastern edge of Downtown D.C. The area transformed into a hot dining and shopping District in the years leading up to the pandemic, with its retail rents reaching the highest level in the city in 2017. 

Western and Akridge, along with investor Cornerstone Real Estate Advisors, sold their stakes in the property in 2014 to Toronto-based Oxford Properties and a subsidiary of the AFL-CIO for a combined $230M.  

Along with the acquisition, the new owners obtained a $185M loan in June 2014 from Pacific Life Insurance Co., deed records show. Oxford didn’t respond to questions about the status of its loan payments and the impact of the vacancies. 

“This has to be painful for them,” Miller said of the Regal closure. 

The movie chain's bankruptcy comes after Gallery Place suffered from a string of retail casualties in the last three years. 

Bar Louie closed its Gallery Place space in January 2020 after the restaurant chain filed for bankruptcy. Bed Bath & Beyond closed its store in 2020 (it is reportedly preparing to file for bankruptcy). Lucky Strike closed its bowling alley in May 2020. Washington Sports Club closed its gym in June 2020 before the company filed for bankruptcy. Circa, which temporarily shut down its restaurant during the pandemic, announced in July 2021 the closure would become permanent. Aveda Institute closed its space in 2020. Urban Outfitters closed its store in late 2020. Loft closed its Gallery Place store in January 2022. 

Oxford’s Potocki said the Bed Bath & Beyond and Lucky Strike closures came after the expiration of 15-year leases that began in 2005.

Potocki noted that three of the spaces have already been backfilled: Planet Fitness replaced WSC, Tom’s Watch Bar took over the former Circa space, and a 14K SF esports venue run by Capitals owner Monumental Sports and Entertainment is being built out in the former Bar Louie space. 

Dochter & Alexander's marketing brochure for the property shows that Gallery Place has a total of 103,655 SF of retail available across three floors, which doesn't include the Regal space. That works out to a 41% vacancy rate ahead of the closure.

Once the Cineworld turns over the keys of the 63K SF Regal, the property would be 67% vacant. 

The largest of those vacancies is a 45,783 SF space on the lower level that formerly housed Bed Bath & Beyond. The second floor has a 21,575 SF space available and a 15,366 SF available, the larger of which was formerly occupied by Lucky Strike. 

Dochter said he is in talks with tenants that could fill the Bed Bath & Beyond and Lucky Strike spaces, and he expects they will be taken by entertainment-oriented retailers. He said users looking for large retail spaces downtown don’t have many other options. 

“There are a number of different groups that are looking for that size space, and if you look across D.C. there are very limited opportunities to get in the center core with a meaningful presence. Really only Gallery Place has that,” Dochter said. “There are groups that want to be proximate to the neighborhoods and the office and the tourism. And if you look across the landscape, there’s not that many opportunities for that, so that’s where we’re seeing much of the activity and focus.”

Gallery Place isn’t alone in suffering from closures in Chinatown, with several properties around it also sitting vacant. The Chipotle and McDonald's in the ground floor of Capital One Arena both closed late last year. Three storefronts on the block directly across Seventh Street from Gallery Place also have vacancies: the former La Tasca space, the former It’Sugar candy store and the former EagleBank branch on the corner of G Street.

Miller said he sees many parts of the downtown retail landscape still hurting from the effects of the pandemic, from restaurant demand plummeting in 2020 to the continued work-from-home trend that has depressed downtown office traffic.

“The problem is when Covid hit, it just put a knife in the back of so many projects, and the community wasn’t developed enough to have the stability you’d need to get through the impacts of Covid,” Miller said. “The pandemic just stopped the trend for growth downtown, it stopped people from going out. And merchants can’t hang on for a couple years through something like that, not when they have overhead costs. It was just too difficult.”

Dochter also sees the lingering effects of the pandemic as an issue, but he thinks the larger problem facing D.C. retailers today is public safety. 

“The biggest challenge that we have right now is crime,” Dochter said, speaking about the city’s retail market generally rather than about Gallery Place. “The public safety and public realm is, I think, one of the bigger issues facing retail in the city … If there’s not a general sense of safety and well-being, it’s going to push down some of that foot traffic and that’s going to have negative consequences on sales and the demand for retail.”

Last year, the number of homicides in D.C. surpassed 200 for just the second time in nearly two decades, though violent crime was down compared to 2021, The Washington Post reported Sunday, adding that homicides were up through the first three weeks of this year. Mayor Muriel Bowser held a summit with neighborhood commissioners and community members Saturday to discuss how to address crime. 

D.C. Deputy Mayor for Planning and Economic Development John Falcicchio said in an interview Monday that bringing more people downtown can help make the area safer. 

“Public safety is always a top concern, but I think from my perspective what we need to focus on is how we create more vibrancy, more foot traffic, because when there are more people out and about, it enhances public safety,” Falcicchio said. 

In order to bring more vibrancy to the downtown area around Gallery Place, Falccichio said the city is focusing on two efforts: bringing more workers back to the office and developing more housing.  

“If we could have that daytime foot traffic and that nighttime vitality that residential will lend itself to, I think that’s a good recipe for us to bring back Seventh Street,” he said. 

He also said that bringing more big events to Capital One Arena beyond the typical basketball and hockey games, such as concerts and boxing matches, can help bring more people downtown. 

Monumental Sports, the owner of Capital One Arena, let the McDonald's and Chipotle leases expire in order to bring in new uses as part of its reinvention of the property, Falcicchio said. Monumental in 2021 opened a 20K SF sportsbook at Capital One Arena in partnership with William Hill, and it is involved with the esports venue opening in Gallery Pace. 

“There is some movement that you’ll see over the next couple months and over the course of 2023, that we’ll see the future path for what happens in Chinatown-Gallery Place, especially the Seveth Street corridor, take shape,” Falcicchio said. 

UPDATE, JAN. 24, 12:50 P.M. ET: This story has been updated with comments from Downtown DC BID CEO Gerren Price.