Following Monday’s announcement that Lerner and his family will consider selling the Washington Nationals — something his son Mark has sworn never to do — it’s unclear what Lerner sees around the corner this time, and what that says about the current financial situation of the family. But it comes at a time of great uncertainty for the industry in which Lerner made his fortune.
Vacancy rates in malls and office buildings, two mainstays of Lerner’s commercial real estate empire, were already up slightly in 2020 before soaring during the pandemic, forcing building owners to make choices difficulties in managing loans and leases.
The Lerners have not been immune, as the family has seen the valuations of some of its properties drop dramatically, has been slow to redevelop others, and has given up its stake in the Dulles Mall. Town Center under pressure from banks.
The reasons behind the Lerners’ decision to consider selling the team remain unclear. The family has hired an investment bank to handle the process and say they are ready to sell all or part of their stake. The team released a statement to the Post on Monday saying the family’s real estate empire “continues to thrive.”
Messages left this week with executives and staff at the Rockville headquarters of Lerner Enterprises, a notoriously low-key operation, have not been returned.
But managing a real estate empire and a baseball team emerging from a pandemic that has disrupted both industries is a lot to ask, surmised Terry Clower, director of the Center for Regional Analysis at George Mason University. People are making far fewer trips to malls and ballparks than years ago.
“Our economy is still recovering from covid-19 and it hasn’t been easy,” Clower said.
Clower is not suggesting that the Lerner family is short of money, or even operating from a position of weakness. Lerner’s success in Washington real estate is unparalleled. He has developed more than 20 million square feet of shopping malls, office parks and apartment buildings from Annapolis to Prince William County, earning him more than $4 billion in wealth, according to Forbes. , and the possibility of buying the Nationals in 2006.
While now may not be the time to panic, it could be a time that needs more attention, Clower said.
“I guess it’s part of a family strategic repositioning of their assets rather than trying to offload something of any kind of real concern,” he said. “I don’t think it’s anything other than taking advantage of an opportunity to take advantage of a market like the Lerners have always done.”
The pandemic has not treated all types of real estate equally. As anyone who has tried to rent an apartment or buy a house recently can attest, home values have increased dramatically, sometimes reaching record highs. The Lerners boast some 5,000 apartments in their portfolio and a similar number they plan to build. These investments look great.
“The apartment market was hit pretty hard early on, but rebounded the fastest,” said William Rich, president of research firm DC Delta Associates.
But many malls and office buildings – the bread and butter of Lerner’s fortune – were slipping before the pandemic and have suffered significantly as coronavirus closures have changed the way people shop and work.
Malls were falling out of favor with some shoppers long before the pandemic, leading the Lerners to tear down two of their own, in White Flint and Landover. So far, they haven’t built anything for them. The Lerners have been pushing for years to have a new FBI headquarters built on the Landover site, so far to no avail.
The value of another Lerner mall, Dulles Town Center, has fallen 81% in three years, according to county tax records. Nordstrom closed its store there in 2017 and Lord & Taylor left two years later. Fortunes plummeted so far once the pandemic began that lenders initiated foreclosure proceedings, prompting Lerner Enterprises to forfeit its stake in the property in November 2020. Loudoun County valued the property at $290 million in 2018 but only to 54 million in 2021.
Analysts say the trend of shopping online and moving away from physical stores has accelerated.
“The pandemic has accelerated this trend,” Rich said. “There have been a lot of restaurant closures and apparel retailers haven’t done as well since the start of the pandemic.”
Lerner sold Tysons Corner Center and Tysons Galleria, two of the nation’s most successful retail developments, years ago. He focused on developing more urban properties in Tysons, for the first leg of Metro’s Silver Line, which debuted in 2014.
But the pandemic has hammered home what was increasing ridership on the fledgling line. An average of 3,100 people a day boarded Tysons Corner station, at the gates of Lerner’s planned new projects, in 2019, according to Metro data. Only 691 board on average so far this year.
Lerner long ago established himself as one of the region’s leading office building developers, excelling in the planning and construction of suburban towers that attracted law firms, defense contractors, consulting firms and other affluent tenants. But this industry also faces an uncertain future, as the office sector tries to figure out a post-covid hybrid workspace future. In a recent Pew survey, 59% of workers said they believed their work could mostly be done at home.
This is unlikely to be seen as good news for Lerner Enterprises, which owns at least 17 office buildings in the area – over 4 million square feet – with plans for more. The Washington-area office vacancy rate hovered between 13 and 14 percent before the pandemic, according to services company JLL. Now it’s 20.8%.
Rich said companies looking to sell space are also doing so at a steep discount. In 2019, local offices sold for an average of $309 per square foot; which fell last year to $236 per square foot, a drop of 24%.
“The office market was in trouble before the pandemic and the impact of covid-19 made it worse,” Rich said. “It is starting to pick up, but there are still a large number of office workers who are not going to work in person like before.”
The impact of the pandemic has also been felt by the baseball industry, flattening ticket sales, concessions and parking revenue at a time when Major League Baseball – whose peak attendance year was 2007 – was already dealing with its own uncertainty. As the Nationals rebuild, the team’s payroll has grown from $197 million in 2019, when Washington won the World Series, to $125 million this season, according to league data.
It remains unclear to what extent these developments drove Monday’s announcement. Lerner still owns billions of dollars in property in one of the wealthiest parts of the country, as well as a baseball team that’s probably worth around $2 billion and plays in a taxpayer-built stadium.
“You definitely see pressures in the economy,” Clower said. “Ultimately, though, if we think longer term, DC will continue to do well. Our data tells us that people still want the conveniences of living in cities. »
At 96, Ted Lerner has weathered more economic strife than most. But the pandemic has massively shifted the already shifting ground beneath the two industries that make up his wealth, and he and his family don’t appear to be standing still.
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