A plan to build a sports arena in Northern Virginia depends on more than a billion dollars in taxes and fees generated at the facility to fund its construction — but those figures rely on some aggressive assumptions, including unprecedented prices for high-end hotels, according to an analysis commissioned by Virginia Gov. Glenn Youngkin’s administration that has not been released to the public.
Youngkin (R) and other officials behind a proposal to move the Washington Capitals and Wizards to Alexandria have pitched it as a once-in-a-lifetime opportunity with a unique financing structure: Virginia would borrow $1.5 billion from Wall Street and then use parking fees, ticket taxes and other revenue from the project, including from privately built hotels nearby, to pay back the debt.
Yet the Feb. 28 analysis, conducted by the Maryland-based public finance consulting firm MuniCap Inc. and obtained by The Washington Post, discloses for the first time that the financing plan assumes thousands of fans will pay $75 for parking, the teams’ owner will host 53 more events annually in Alexandria than it did last year at its current D.C. arena, and a new luxury hotel will book rooms at a “historically unprecedented” rate of $731 a night.
“While no single assumption … is inherently unreasonable,” the MuniCap analysts wrote, “few assumptions could be characterized as conservative.”
To build the arena, a new state sports and entertainment authority would collect $400 million upfront from Monumental Sports & Entertainment, which owns the teams, and issue two bonds payable over 40 years. A smaller bond would be paid off with rent payments from Monumental. The larger one, for $1.05 billion, would be paid back with tax receipts and other revenue generated at the arena in Potomac Yard and adjacent development. Under the terms of the agreement, taxpayers in Virginia and Alexandria would be on the hook if revenue were too low to cover the debt.
Christian Martinez, a spokesman for the governor, said in a statement that the financing plan for the arena, which depends on projections for parking fees, hotel rates and the number of events, has been “exhaustively tested.” Even if the arena hosted only Wizards and Capitals home games or did not see any growth in revenue, Virginia and Alexandria would still make enough to pay off the debt — with money to spare, he said.
Martinez pointed to a separate, rosier review of the revenue projections. That report, commissioned by the real estate developer JBG Smith and conducted by George Mason University, says the forecasts tend “toward conservative estimates of the economic and fiscal impacts,” but calls the assumptions about hotel revenue and the number of concerts “optimistic.”
Both reports were sent earlier this month by the Youngkin administration to legislative staffers in the General Assembly who oversee Virginia’s spending and financial matters and a lawmaker who represents the arena site. GMU professor Terry Clower summarized his findings in a Feb. 21 op-ed for the Richmond Times-Dispatch, writing that forecasts for the arena are based on “sound” assumptions.
In an interview, Clower agreed that some of the assumptions in the arena proposal were “strong or aggressive” but said he still felt confident in the project overall. “You never know for sure what’s going to happen but if you put up a venue like this, it’s going to attract people,” he said.
The MuniCap analysis — which was obtained via a public-records request and then shared with The Post — has not been made public. Martinez said in a statement that “the administration has been transparent about this project, its unique structure, and the benefits with legislators and the public.” Youngkin, Monumental and others behind the deal “have released multiple other reports on economic impact, housing, and transportation to affirm the merits of this monumental opportunity,” he added.
As the arena project faces uncertain prospects in the General Assembly, Youngkin and Monumental owner Ted Leonsis have continued to call it an “unprecedented opportunity.” The governor stressed in a news conference last week that it would bring thousands of jobs and billions of dollars in economic impact to Virginia while relying in part on revenue that would not exist otherwise.
Some economists, lawmakers and city residents have been questioning the math behind those numbers since the project was announced in December and citing some sports facilities that came up short. Alexandria in mid-February released to the public two reports by consultants for the city and Monumental that led them to make their projections. (Projected parking revenue and some other figures were redacted.)
The MuniCap analysts specifically noted that they did not opine on the overall viability of the project. Still, Stephanie Landrum, president and chief executive of the Alexandria Economic Development Partnership, issued a statement saying that while “there are marginal differences between all of the reports, the ultimate finding is the same: the model can and does work.”
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End of carouselThe owner of the Washington Wizards and Capitals has reached a nonbinding agreement to move the teams from downtown D.C. to a future arena in Northern Virginia as soon as 2028.
Under the deal announced in December, the NBA and NHL teams would relocate to a new facility in Alexandria’s Potomac Yard area. Both teams now play at Capital One Arena.
The plan was crafted by Virginia Gov. Glenn Youngkin (R) and Monumental Sports & Entertainment owner Ted Leonsis.
Leonsis has called his mortgage for the teams’ home at Capital One “the worst building deal in professional sports” and expressed concerns about crime in the area. He has also said the District has not invested enough in the arena.
Virginia’s $2.2 billion proposal would move the teams next to the new Potomac Yard Metro station. The facility would also include a separate performing arts venue, underground parking, a Wizards practice facility and Monumental’s corporate offices and media studio.
State legislators and the Alexandria City Council still must approve the deal.
District officials, including Mayor Muriel E. Bowser (D), say they haven’t given up on trying to keep the teams. In December, they announced an 11th-hour bid of $500 million for upgrades to Capital One Arena.
If the teams leave, it’s not clear what would happen to that facility. Monumental owns the arena and the city owns the land under it.
The Virginia plan requires Monumental to pay about $400 million and calls for $1.5 billion in publicly issued bonds to be paid back over 40 years with a combination of sources.
State and local officials behind the deal, including the governor, have stressed that public funds for the project largely come from revenue that would not exist without it.
Some local officials in Alexandria have presented the arena plan as a necessary way to diversify the Northern Virginia city’s tax base.
Yet residents of nearby neighborhoods have also expressed concerns about what it would mean for area traffic, the region’s Metro system and housing costs, amid a host of other questions.
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By the time MuniCap finished its analysis at the end of February, state lawmakers had already put up major legislative hurdles to the arena plan. Youngkin’s administration on March 2 sent the MuniCap analysis and dozens more pages on financial details to legislative staffers on the Senate Finance and Appropriations and House Appropriations committees as well as Del. Elizabeth B. Bennett-Parker (D-Alexandria).
The packet included the initial forecasts published by Alexandria as well as three documents reviewing those projections: the Virginia-commissioned MuniCap analysis (labeled a “summary” on the cover), Clower’s GMU report and a “sensitivity analysis” conducted by the bank JPMorgan Chase, which has also been contracted by the governor’s office.
Bennett-Parker, who declined to comment for this article, voted last month against stand-alone arena legislation and said in a statement that she had been “continually frustrated with the Youngkin Administration and their lack of forthcomingness.” The General Assembly last week dealt a major blow to the project’s chances of moving forward by approving a budget without the project.
Still, the governor could resurrect the arena proposal when the legislature returns to consider his amendments and vetoes in April, or by calling a special session.
$75 parking spaces
The MuniCap analysis took issue with a number of the initial projections, including how much money could be made in parking fees from an underground lot on the arena site. Those forecasts require the state to collect $75 per parking space during sports games and concerts — far more than parking generally costs in the region — and $30 to $50 for other events.
For events at the teams’ current home at Capital One Arena, Monumental charges between $60 and $100 per space at its on-site garage, according to a spokesperson. Parking apps show spaces in several garages within a block or two of the downtown D.C. arena that are available for $20 or $30 on game nights.
Monumental also plans to package underground parking in Alexandria with season ticket passes and suite packages. There will be “significant demand for these spots,” Martinez said.
Monumental also projected that its 2,200 underground spaces would be filled before fans park elsewhere, despite there being more affordable lots that exist nearby. The projections assumed that even for events requiring less parking, its spaces would fill first.
“A more conservative approach would be to assume that the lots fill proportionately,” the MuniCap analysts wrote.
Number of events
The analysis also cast doubt on how many events Monumental would realistically be able to hold at the Alexandria arena. Capital One hosted 168 events in 2023, according to MuniCap, but Monumental’s consultants at the firm CSL International projected the new arena would host 221 events annually, based on the fact that Capital One hosted an average of 216 events annually in the four years before the pandemic.
MuniCap reviewed eight other big-city arenas that host hockey and basketball teams and found that only three hosted more than 200 events last year — including Crypto.com Arena in Los Angeles, home to two NBA teams and an NHL team, and Ball Arena in Denver, which also hosts some professional lacrosse games.
To get to 221 events, Monumental projected that it would host 133 concerts and other events annually beyond NBA and NHL games at the new arena. But of the eight comparable arenas, only Madison Square Garden in Manhattan — “an iconic venue in the nation’s largest market” — hosted that many last year, according to MuniCap.
Monumental government relations chief Monica Dixon issued a statement saying that Monumental “had fewer events by design” last year because it was “prioritizing higher revenue events.” But she said that Monumental hosted more concerts in 2023 than previous years and that newer arena infrastructure would allow the company to host Capitals and Wizards games on the same day, “making it feasible to host more events and create more scheduling flexibility.”
‘Historically unprecedented’ hotel rates
Youngkin and JBG Smith, the developer proposing the arena, have also touted the tax revenue that would come from three hotels, ranging from three to five stars, with 991 total rooms that would eventually be built near the Alexandria arena.
MuniCap found that the projections for those hotels relied on the expectation that the highest-end option would compete with some of the country’s top properties, including the Park Hyatt in New York, the celebrity favorite Beverly Hills Hotel, and the Ritz-Carlton Half Moon Bay, a Northern California resort on a cliff overlooking the Pacific Ocean.
A spokeswoman for JBG Smith said the project’s hotels will need to offer rooms at a variety of prices. Because there is no comparable five-star hotel in the Potomac Yard area, she said, the company relied on data for properties elsewhere “that reflect the quality of stay that visiting players, team management, and VIPs typically expect.”
Using those hotels as comparisons, Alexandria’s consultants at HR&A Advisors projected that a five-star hotel at Potomac Yard would be able to charge an average daily rate of $731 and that the three hotels would hit a 75 percent occupancy rate.
Many visiting athletes or performers who come to D.C. for Capital One Arena stay at the Four Seasons in Georgetown, which often charges more than $1,000 a night. The Alexandria consultants’ projections for a four-star hotel were based on the performance of long-established luxury properties in the District, including the Four Seasons, Hay-Adams, St. Regis and Willard InterContinental.
Still, in the current market for high-end hotels, according to data referenced by MuniCap, the daily rate averages $195 — less than one-third of the projected number — on 66 percent occupancy. MuniCap wrote that the “assumed performance is historically unprecedented” for this area.
Martinez, the Youngkin spokesman, said the sports and entertainment district built around the arena would “involve world class facilities,” drawing visitors who “will expect to stay in a variety of lodging products, including luxury hotels that don’t currently exist” in Alexandria or other parts of Northern Virginia.
But Michael Bellisario, a longtime hotel analyst at the investment firm Robert W. Baird & Co., said the Alexandria rates and the occupancy projections “are way higher than what the Washington, D.C., market would suggest.”
Bellisario said that the hotels’ success would depend on a number of factors but that such projections should consider what other hotels are likely to be built and whether the region will face a recession in coming years. “The underwriting on the surface appears aggressive,” he said.
To avoid being too optimistic in their analysis, the city’s consultants reduced the total projected hotel tax revenue by 15 percent. Martinez said that even if hotel revenue were to further decline by a third, the overall revenue for the project would shrink by less than 2 percent.
‘Compounded impact’
Finally, the MuniCap analysts said that existing forecasts did not consider situations in which multiple revenue streams fall short.
They wrote that the Alexandria consultants’ projections of tax receipts and other revenue streams were “mechanically sound” and considered several “stress” scenarios that might lower those projections. However, they said few of the consultants’ forecasts considered scenarios in which two or more factors underperformed at once.
“Taken in concert, risks within the underlying assumptions compound,” the MuniCap analysts wrote. “This is noteworthy, as the forecasts assume continuous operation and uninterrupted growth for the duration of the thirty-year forecast.”
That could create problems over time: The teams’ current home, Capital One Arena, was inaugurated 26 years ago, but Monumental now says it is “no longer a viable NBA/NHL venue in its current condition,” the analysts wrote. Renovations create disruptions that prevent arenas from hosting a full slate of events, which would lower revenue forecasts.
Boosters of the Virginia arena plan have said the teams would not follow that fate thanks to its different ownership structure. In D.C., the District owns the land and Monumental owns the facility; under the Virginia plan, a government authority would own the Potomac Yard arena itself and lease it to Monumental. The teams would be required to sign non-relocation agreements and pay off outstanding debt if they leave early.
Martinez said MuniCap’s conclusions and suggestions have been incorporated into the financial model for the proposed arena.
A separate sensitivity analysis conducted by JPMorgan Chase found that Alexandria and Virginia taxpayers would have to pay up in two scenarios: if a planned fall 2028 opening were to be delayed by 20 or more months, or if the projected fees and taxes from Potomac Yard decline by 78 percent in 2029 and then again in 2030.
