As Lerners mull Nationals sale, real estate market faces uncertainty
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In the 1960s, local real estate agent and up-and-coming developer Theodore N. Lerner began buying hundreds of acres of Fairfax County farmland.

“I knew the Beltway was coming and thought it would be a great location for a mall,” Lerner later explained to author Russ Banham. Lerner saw something others didn’t, and the payoff was huge. The mall he envisioned, Tysons Corner Center, opened in 1968 and ushered in an era of suburban development that made him billions.

Following the announcement Monday that Lerner and his family will consider selling the Washington Nationals — something his son Mark vowed never to do — it’s unclear what Lerner sees around the corner this time, and what it says about the family’s current financial standing. But it comes at a time of great uncertainty for the industry in which Lerner made his fortune.

Vacancy rates in shopping centers and office buildings, two staples of the Lerner commercial real estate empire, were already edging up in 2020 before ballooning during the pandemic, forcing building owners to make difficult choices managing loans and leases.

The Lerners have not been immune, as the family watched assessments of some of its properties fall dramatically, has been slow to redevelop others and gave up its stake in the Dulles Town Center mall under pressure from banks.

The reasons for the Lerners’ decision to consider selling the team remain murky. The family has hired an investment bank to manage the process and says it is open to selling all or part of its stake. The team issued a statement to The Post on Monday saying the family real estate empire “continues to thrive.”

Messages left this week with executives and staff at the Rockville headquarters of Lerner Enterprises, a notoriously tight-lipped operation, went unreturned.

But managing a real estate empire and a baseball team coming out of a pandemic that disrupted both industries is a lot to ask, surmised Terry Clower, director of the Center for Regional Analysis at George Mason University. People take a lot fewer trips to both shopping malls and baseball stadiums than they did years ago.

“Our economy is still in recovery from covid-19 and it hasn’t been easy,” Clower said.

The Lerner family will explore selling the Washington Nationals

Clower isn’t suggesting that the Lerner family is hard up for cash, or even that it’s 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 malls, office parks and apartment buildings from Annapolis to Prince William County — delivering him more than $4 billion in wealth, according to Forbes, and the chance to buy the Nationals in 2006.

While it might not be a moment to panic, it could be a moment that requires more attention, Clower said.

“I would assume that this is part of a family strategic repositioning of their assets rather than anything like trying to unload something out of any kind of real concern,” he said. “I wouldn’t think it’s anything other than taking 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 home recently can attest, home values have gone up tremendously, in some places to record levels. The Lerners tout some 5,000 apartments in their portfolio and a similar number they are planning to build. Those investments are looking great.

“The apartment market was hit pretty hard in the beginning but bounced back the quickest,” said William Rich, president of the D.C. research firm Delta Associates.

But many shopping malls and office buildings — the bread and butter of the Lerner fortune — were sliding before the pandemic and have suffered significantly as coronavirus shutdowns changed the way people shop and work.

Malls were falling out of favor for some shoppers long before the pandemic, leading the Lerners to demolish two of theirs, in White Flint and Landover. So far they have built nothing in their place. The Lerners have been pushing for years to get a new FBI headquarters built on the Landover site, so far to no avail.

The value of another Lerner mall, Dulles Town Center, fell 81 percent in three years, according to county tax records. Nordstrom closed its store there in 2017 and Lord & Taylor left two years later. Fortunes fell so far once the pandemic began that lenders initiated foreclosure proceedings, prompting Lerner Enterprises to give up its stake in the property in November 2020. Loudoun County assessed the property at $290 million in 2018 but only $54 million in 2021.

Analysts say the trend toward online shopping and away from bricks-and-mortar stores has accelerated.

“The pandemic has hastened that trend,” said Rich. “There have been lots of closures of restaurants, and soft-good retailers have not done as well since the start of the pandemic.”

Lerner sold Tysons Corner Center and Tysons Galleria, two of the most successful shopping developments in the country, years ago. He has focused on developing more urban-styled properties in Tysons, catering to the first leg of Metro’s Silver Line, which debuted in 2014.

But the pandemic has hammered what were growing ridership numbers on the nascent line. An average of 3,100 people per day boarded the Tysons Corner station, on the doorstep of Lerner’s planned new projects, in 2019, according to Metro data. Only 691 are boarding on average so far this year.

The Washington Nationals might be for sale. Then what?

Lerner long ago established himself as one of the region’s top developers of office buildings, excelling at planning and erecting suburban towers that attracted law firms, defense contractors, consulting firms and other well-to-do tenants. But that industry is facing an uncertain future as well, as the office business tries to figure out a post-covid, hybrid workspace future. In a January Pew survey, 59 percent of remote-capable workers said they were working from home all or most of the time.

That is unlikely to be viewed as welcome news for Lerner Enterprises, which owns at least 17 office buildings in the region — more than 4 million square feet — with plans for more. The vacancy rate for Washington-area offices hovered at 13 to 14 percent before the pandemic, according to the services firm JLL. Now it’s 20.8 percent.

Rich said companies looking to sell space are also doing so at a significant discount. In 2019 local office space sold for an average of $309 per square foot; that fell last year to $236 per square foot, a 24 percent drop.

“The office market had been struggling prior to the pandemic and the impact from covid-19 has caused it to worsen,” Rich said. “It’s starting to pick up some, but there are still large amounts of office workers who are not going to work in person the way they used to.”

The pandemic’s impact has also been felt by the baseball business, flattening ticket sales, concessions and parking revenue at a time when Major League Baseball — whose peak attendance year was 2007 — was already facing its own uncertainty. With the Nationals in the midst of a roster rebuild, the team’s payroll has fallen from $197 million in 2019, when Washington won the World Series, to $125 million this season, according to league data.

It remains unknown to what extent these developments prompted Monday’s announcement. Lerner still owns billions of dollars in properties in one of the wealthiest parts of the country, along with a baseball team that is probably worth around $2 billion and plays in a stadium built by taxpayers.

“Certainly you see some pressures in the economy,” Clower said. “At the end of the day, though, if we think about the longer term, D.C. is going to continue to do well. Our data tells us that people still want the amenities of living in cities.”

At 96, Ted Lerner has managed his way through more economic strife than most. But the pandemic has massively shifted the already moving ground beneath the two industries that make up his wealth, and he and his family do not appear to be standing still.