by Frank Dillow, NVAR Member
Santa may have arrived early for Virginians with the announcement two weeks before Christmas that the Washington Wizards and the Washington Caps will relocate to Alexandria and anchor a new 12-acre, $2 billion dollar sports and entertainment development at Potomac Yard.
The nonbinding agreement was reached between the City of Alexandria, Commonwealth of Virginia, Monumental Sports & Entertainment and developers JBG Smith, At its center the project will include a new arena for both teams and practice facility for the Wizards (the Caps already have a practice facility in the Ballston area of nearby Arlington County) along with corporate headquarters for Monumental Sports, a performing arts center, hotels, additional restaurant and retail properties and multi-family residential properties. Metro is also constructing a new Potomac Yard station at the site.
The development planned to be ready for the 2028 basketball season is expected to give yet another economic boost to residential and commercial real estate in what was once an abandoned railroad switching yard. The real estate firm JBG Smith, already the developers for the adjacent Amazon HQ2 and Virginia Tech Innovation Center projects. has been named to develop the project.
The Capital One Arena in the Gallery Place neighborhood of Washington, DC. is currently home to the Wizards and Caps. Developed by the previous Wizards owner Abe Pollin, it opened as the MCI Center in 1997. At the time, property values in the area were depressed. Construction of the Center led to the redevelopment of the area that had been plagued by crime and vacant commercial properties. Since office workers began abandoning downtown as a result of the pandemic, the neighborhood has again begun to deteriorate.
At a special community meeting in August the evidence of the downward slide was apparent, with businesses shuttering and crime becoming a problem. Citing the increase in panhandling, homelessness and increased crime. DC Council Member Brooke Pinto (D-Ward 2) said “We’ve seen some shootings down by Capital One Arena, and other assaults with weapons.” In addition, Monumental Sports CEO Ted Leonsis had complained about the deterioration of the building and the need for roughly $500 million to modernize it and to accommodate new technologies.
Interestingly, all this new development along the Virginia side of the Potomac River is not just a “one-off” or unique to Northern Virginia phenomenon. Rather, it reflects a growing trend in urban development sometimes referred to as the donut effect. The central business districts (CBDs), which have historically defined the economic status of metropolitan areas, are being hollowed out, with the new development occurring in the suburban fringes, like Northern Virginia. This trend has accelerated in the aftermath of the COVID-19 pandemic with workers being reluctant to return to their downtown offices, preferring to work closer to their homes in the suburbs.
Northern Virginia has responded to the preference for mixed use, high tech, suburban developments by encouraging new multifamily construction; relaxing zoning ordinances to facilitate auxiliary housing and mixed-use developments; and supporting efforts by developers to repurpose existing obsolete commercial buildings into new multi-use residential and special use properties.
The Potomac Yard project is just the latest in a long list of developments on the Virginia side of the Potomac River. The result has seen a blossoming of desirable multi-family and commercial projects stretching from Reston and Tysons across Arlington County to Alexandria. As in the proposed public – private partnership to develop Potomac Yard, much of the emphasis of Virginia's projects has been to expand entertainment and recreational uses throughout the area.
The nonbinding agreement has already been endorsed by the Virginia Economic Incentives Commission and the Alexandria Economic Development Partnership, but still needs to be accepted by the Alexandria City Council and by the Virginia legislature to allow Virginia to create the new Virginia Sports and Entertainment Authority to own the land and buildings and lease them to Monumental Sports.
Under the plan, the Authority would agree to issue $2 billion in bonds to pay for the project and lease the property for 40 years to Monumental Sports. The bonds would be paid off through annual rents of roughly $30 million each year. The Authority would also receive revenue from parking fees, naming rights and incremental tax increases resulting from the project. In addition, Monumental Sports and Alexandria would each contribute $56 million for the performing arts venue and construction of underground parking.
In his announcement Alexandria Mayor Justin Wilson predicted the project will “catalyze economic growth and community building in Alexandria generating 30,000 jobs and a total economic impact of $12 billion over the next several decades, including millions of dollars to create affordable housing, provide rental and home ownership assistance, while also investing in transportation and education improvements.
Virginia Gov Glen Youngkin described the project as “the most visionary sports and technology in the most advanced innovation corridor in the United States.” The project is “a once-in-a-generation historic development for the Commonwealth, for sports fans and for all Virginians,” he added.
Stephanie Landrum, CEO of the Alexandria Economic Development Partnership predicted the complex would become “a world-class entertainment district----active 18 hours a day, 365 days a year.”
The projected success of the project, and the continued redevelopment of the nearby Del Ray area of Alexandria, has some local residents concerned about its effect on the community, including traffic congestion, reduction in affordable housing and increased demands on the existing infrastructure.
Senator Mark Warner addressed those concerns in an article in the Virginia Mercury. As reported by Michael Cline, “Our job is to make sure that the neighborhoods adjacent here in Potomac Yard, across Route 1 in Del Ray and other surrounding neighborhoods feel engaged and know that their quality of life will be protected,” Warner cautioned. “At the end of the day, their quality of life will be improved by development,” he predicted.
Both residential and commercial real estate professionals will be engaged as important participants in producing the promised improved quality of life from the continued development and growth changing the face of Northern Virginia.