The Lerners Aren’t Selling The Nats, But What Are They Doing With Their Real Estate?

Nearly two years after hiring a firm to explore a sale of the MLB's Washington Nationals, Mark Lerner told The Washington Post Monday his family has decided not to sell the team. 

Over that span, two other professional sports franchises in the DMV have sold, the NFL's Washington Commanders and the Baltimore Orioles, while the owner of the region's pro basketball and hockey teams launched plans to move from D.C. to Virginia.

Those two years have also seen a dramatic disruption to commercial real estate, the industry in which the Lerners made their billions. But while the family broke its silence on the Nationals, the status of its massive portfolio of D.C.-area real estate remains opaque. 

The Lerner family owns millions of square feet of older office buildings, which have come under intense pressure since the onset of the pandemic, requiring big investments to stay competitive. 

Lerner Enterprises hasn’t announced any acquisitions, sales, renovations or new office leases since 2022. The 72-year-old firm also hasn’t provided updates on the millions of square feet of planned development it has in its pipeline, including the fate of two demolished shopping malls where communities have been waiting years to see activity. 

The company’s founder, Ted Lerner, died one year ago last week at 97. Since then, the company hasn’t publicly named its top executives or said who leads its real estate decision-making. Its website features a tribute to the founder on the homepage but doesn’t list a single executive.

A Lerner spokesperson declined to provide an interview for this story or respond to written questions after several requests from Bisnow over the last two weeks. The spokesperson said Lerner’s real estate executives couldn’t comment because they have been busy with baseball meetings, plus other work and personal travel. 

Brian Tucker, a senior managing director at JLL who leases Lerner’s office portfolio, told Bisnow Tuesday that the Lerners are “very private people,” and he isn’t privy to their decision-making. 

“But I can assure you they are solid as a rock,” he said. “And any decision that was contemplated to sell the team had nothing to do with raising funds but had everything to do with how much time and effort they had collectively to oversee their many different businesses.”

The family of Annette Lerner, Ted’s widow who helped him found the real estate company in 1952 and is a principal owner of the Nationals, has a net worth of $6.4B, according to Forbes. 

A group of five siblings and siblings-in-law — Ted and Annette’s son, Mark Lerner, daughters Debra Cohen and Marla Tanenbaum, and their husbands, Ed Cohen and Bob Tanenbaum — have reportedly acted as the brain trust behind the baseball team. 

While Mark Lerner was designated as the team's control person with the MLB, Washington Post columnist Barry Svrluga reported in September that the Nationals’ leadership structure is “scattered” and the five family members have often disagreed on decisions. The chief operating officer of Lerner Sports, Alan Gottlieb, also has responsibilities with Lerner’s real estate business, Svrluga reported. 

Lerner has at least two other executives who have represented the real estate side of the company in speaking engagements: Executive Vice President of Development Art Fuccillo and Senior Vice President James Policaro. 

Fuccillo, speaking on a podcast in July, said the company is led by a board that is “essentially” made up of the family, plus it has a chief financial officer, chief operating officer, heads of residential and retail management, and heads of IT and accounting. He also referenced that the grandchildren of Ted and Annette have started to come up in the business. 

“We’re going to continue to grow as an organization under this leadership,” he said on the podcast, John Coe’s Icons of DC Area Real Estate. “Fortunately for us, the next generation has come into the company, they’re all taking an active role and are wonderful people; hard workers.”

'It's A Soft Market'

As two other sports franchises in the area have changed hands within the past year, the potential sale of the Nationals lingered in the background. 

Monumental CEO Ted Leonsis and Carlyle Group co-chairman David Rubenstein were reportedly looking at a joint deal to buy the team in August 2022. Rubenstein instead led a group of investors in purchasing the Orioles last month. Leonsis reportedly offered the Lerners $2B for the team in late 2022, but the Lerners either rejected or ignored his offer, the Post reported. 

While the Lerners have now said they aren’t selling the team, they are reportedly playing hardball with Stephen Strasburg. The Nationals' 2019 World Series MVP is owed $105M over the next three seasons but hasn't pitched since June 2022 due to a nerve injury. The family is looking to delay paying some of that money and have requested him to report to the team's facility despite his health issues, The Athletic reported last week.

Ted Lerner acquired the Nationals for $450M in 2006 after the MLB took over the Montreal Expos and moved them to the nation's capital. He built that fortune as one of the dominant developers in the region, shaping the D.C. suburbs by building massive malls in Tysons, Dulles, Wheaton, Rockville and Landover and amassing a portfolio of real estate holdings that few in the area can rival. 

Much of Lerner’s portfolio is concentrated in the types of properties that have faced distress over the last decade, suburban malls and office buildings, and the firm has suffered one prominent loss: Dulles Town Center. 

The company built the 1.4M SF mall in 1999 and developed a host of residential, office, hotel rooms and additional retail around the property. But it lost two anchor tenants in 2017 and 2019. And then in November 2020, Lerner handed the deed to the property to lender New York Life. Its value at the time was $55M, down from $184M in 2018. 

Lerner has an existing office portfolio that spans 4.1M SF, according to its website. Five of its 15 office buildings are in Tysons, four are in Rockville and two are in D.C., including the 1M SF Washington Square, which spans an entire block at the Farragut North Metro station. 

The average age of those buildings is 23 years old, according to a Bisnow analysis of its public portfolio. The majority were built in the early 2000s, three were built in the 1980s and only two were built after 2010.  

Lerner doesn’t disclose its properties' performance, but the region as a whole is facing record-high office vacancy. Northern Virginia ended last year with a 22.2% office vacancy rate, Suburban Maryland’s vacancy rate was 23.4% and D.C.’s stood at 18.9%, according to JLL. 

The D.C. metro is the nation’s leader for distressed real estate: As of the third quarter last year, 72% of office loans in the area were at risk of default, according to Trepp. 

A series of sales in recent months have shown how far values for office properties have dropped. Several Downtown D.C. office buildings have traded for around one-third of their prior prices, one Fairfax building sold in late December for $9.5M, down from its 2020 price of $31.1M, and a prominent Bethesda office tower sold for one-fifth of its sale price from 2019. 

Tucker described the Lerner portfolio’s occupancy as “very stable” and said the landlord is actively leasing and renovating its properties.

“All of the buildings are in great shape, but they all have space to lease ... which is the nature of the beast,” he said. “Tenants come and go.”

A large portion of Lerner’s portfolio is concentrated in the area that the family had perhaps the greatest influence on shaping: Tysons. Lerner built the Tysons Corner Center megamall in 1968, sold it in 1985 and then built the high-end Tysons Galleria mall in 1988. 

Office vacancy in Tysons is at an all-time high regardless of building quality, according to a JLL report this month on the submarket. Lerner now owns five Tysons office properties after selling a pair of 11-story 1980s buildings for $49M, or roughly $129 per SF, in July 2022.

The landlord has launched multi-million dollar lobby and amenity renovations at sister buildings 1750 and 1650 Tysons Blvd., Tucker said.  

Capital One vacated 136K SF at 1750 Tysons to move to its new headquarters campus in nearby McLean. The leasing team is “eating away” at that Capital One availability, Tucker said. He said the property has 141K SF of availability.

Lerner also recently repositioned 1800 Tysons Blvd. after PwC moved its headquarters to downtown D.C. Tucker said that building has had “great success” in re-leasing over the last 24 months and its availability is down to one 27K SF floor. JLL inked a lease for its own office at the property in February 2022.  

“Lerner is very actively doing what they need to do when they need to do it,” Tucker said. “They’re not pulling back due to the climate and the market. They do things when they need to be done.”

The office buildings that are winning today feature amenities like conference centers and tenant lounges, plus spec suite offerings — all assets that cost money for owners to build out. Even for office buildings that remain attractive to users, the cost of retaining and drawing new tenants has soared in recent years. 

The average concession package that Northern Virginia office landlords have given to tenants has risen 34% from pre-pandemic levels, according to CBRE’s Q4 report. It found that tenant improvement allowances for a 10-year lease now average between $95 and $105 per SF in Northern Virginia and $140 per SF in D.C., plus landlords often provide at least 12 months of free rent on top of that. Given these pricing structures, the amount of money landlords need to put in to get deals done is especially high. 

“The magnitude of the concessions that landlords are required to contribute right now, and the extent, is not sustainable,” said Transwestern Executive Vice President Spencer Stouffer, a leading Northern Virginia office broker.

Will Patience Pay Off?

The turbulent market has brought Tysons’ under-construction office pipeline to a standstill, but one of the most recent proposals came from Lerner. It unveiled plans in February 2022, its most recent development announcement, for a 21-story, 490K SF office building at 1725 Tysons Blvd., part of the master-planned Tysons II development that spans 117 acres around the Tysons Galleria. 

The firm is working with Tucker’s team at JLL to find tenants that could kick off construction, but there hasn’t been any public movement on the property.

“We are very anxious to get that building under construction, but we won’t until the market tells us that there is an appetite for a brand new trophy building in Tysons,”  Tucker said.

“The reality is, it's a soft market,” Fairfax County Economic Development Authority CEO Victor Hoskins told Bisnow. “And until that market gets a little bit more firm, I think you're going to see people pausing on what decisions they're making. And even the residential market has slowed down a little bit because of interest rates. A lot of this is interest rate-dependent.”

Lerner has other stalled developments around the region, but it is not alone.

The commercial real estate construction pipeline has significantly dropped off over the last year. Rising costs of capital, elevated construction and labor costs, and a decline in money flowing into real estate have made all construction hard to pencil. Developers nationwide are pausing, delaying and stalling projects. 

Among the millions of Lerner square feet waiting to be developed are multiple mixed-use developments in Maryland and Virginia, including 2M SF at Tysons II, poised to include office, hospitality and retail; another 1M SF of retail, office and residential development next to the Herndon Metro station branded as Quantum Ridge and 3M SF in Germantown off I-270, planned for office, residential and hotel. 

The company also has filed plans to redevelop a 1980s-era Herndon office property and its surface parking into a mixed-use development branded Parkview with three buildings – retail with either a combination of office and residential or just office. The plan to redevelop the 135K SF property on a 5-acre site has been in the works since at least 2019, FFXnow reported. The Herndon Town Council approved the plan for Parkview in August 2022 but there have been no updates since. 

Two large mall sites in Maryland have been sitting vacant for a decade each after missing out on large economic development deals that would have kickstarted major projects.

In Prince George’s County, Lerner’s Landover Mall site was one of three finalists for the new FBI headquarters. The selection process dragged on for years before a WMATA-owned site in Greenbelt was chosen last fall. After coming up short, Lerner last month filed a new proposal for 4.1M SF of data centers across 87 acres on the Landover Mall site, the Washington Business Journal reported, but Lerner didn’t comment to the publication. 

“When they explained that if it did not get the FBI that their next thought was the data center, I was kind of deflated by the idea,” Prince George’s council member Jolene Ivey, whose district includes Landover, told Bisnow.

“But I've had time to think about it and learn more and it seems like a great way for the county to bring in more tax revenue and not put any kind of pressure on our infrastructure, our schools, our police or anything,” she said.

The White Flint Mall site in North Bethesda, once home to 125 retailers, has been sitting fenced-in and vacant at a bustling intersection across from the Pike and Rose development since 2015. Lerner lost a $31M lawsuit against Lord & Taylor for its partial demolition of the mall. 

The 45-acre site was reportedly Montgomery County’s bid for Amazon HQ2 and landed among the 20 finalists in 2018, but it lost out on that bid to JBG Smith’s National Landing proposal. Nothing has moved forward at the property since.

“They’re patient. They have patient money and I wouldn’t expect them to move forward with the White Flint project until they really see the economy have a significant uptick in Montgomery County,” LCOR Executive Vice President Harmar Thompson, who is developing a 1,300-unit community a mile away from the site, told Bisnow. “I think they’re smart enough and patient enough to wait until the economy comes to them.” 

The Lerners also exercised patience in their decision not to sell the Nationals, even as two other franchises in the region traded hands. Fuccillo said last July that the willingness to wait for the best price or opportunity was always a core principle of Ted Lerner’s philosophy.

“Keep your eyes open, go to work every day, figure it out. Look for something coming over the horizon, don’t ignore it, read, focus, see new opportunities, go see what people are doing,” Fuccillo said of Lerner’s strategy. “Don’t sit on your laurels but don’t rush what it is you have. Don’t rush it.”

“Whether it’s White Flint, Landover, the second phase of the Spectrum at RTC that has got 1,400 apartments and 700K SF of office. Whether it’s what’s going to go next to the Metro at Tysons II, we don’t know,” he added. “But just be patient.”