Fast-moving developments in the national capital region could open a gold mine of new debt to finance a nine million square foot arena complex in Alexandria, Virginia.
The proposed, $2 billion public-private partnership would move the National Hockey League’s Washington Capitals, and the NBA’s Washington Wizards out of Washington, D.C.’s Capital One Arena in the Chinatown neighborhood. The teams would move across the river to brand new facilities built from scratch on a 12-acre site in Potomac Yard, a former rail hub that straddles Arlington County and the city of Alexandria.
“This is the most visionary sports and entertainment development in the world, bringing together entertainment, sports, and technology in the most advanced innovation corridor in the United States,” Virginia’s Republican Gov. Glenn Youngkin said in a
Bloomberg News
After two days of news leaks, the proposed, non-binding agreement was officially announced Wednesday at a press conference kicked off by Youngkin and Ted Leonsis, whose firm Monumental Sports & Entertainment owns the Capitals and Wizards.
Financing the venture could hinge on establishing a stadium authority, a legal entity that could be used to issue highly rated municipal debt to finance construction. The site is owned by JBG Smith, which is slated to sell the land for an undisclosed sum to the stadium authority. The authority would then lease the parcel to Monumental. Youngkin’s administration is already promising that tapping taxpayers is not part of the plan.
“All project investments backed by the commonwealth and the city will be paid back in full by incremental project revenues. There is no upfront investment by the commonwealth and no existing taxes or tax increases are a part of this financing plan,” said Virginia Secretary of Finance Stephen Cummings.
U.S. Sen. Mark Warner, D-Va., indicated the new complex would be supported by a special tax district.
Moving the teams out of D.C. would require Monumental to pay off a bond currently securing the lease arrangement at Capital One that stretches out till 2047.
Before the deal was announced, D.C. officials proposed a bill offering their
The proposed project is not a done deal as concerns about traffic are already springing up in neighborhoods adjacent to the site. In addition to a new arena, the proposal includes underground parking, practice facilities, offices, media studios, fan plaza and a performing arts venue. Future development is also being eyed for the area on the western border of the site which is dominated by strip shopping centers and surface parking lots.
Municipalities leveraging professional sports to finance mixed-used development outside city centers has proved successful at The Battery in Atlanta. In 2022 the district generated enough property tax revenue to cover its debt with taxpayers.
“There are a lot of considerations on how local governments have been funding sports,” said Henry Flynn, director of the infrastructure and project finance group and lead sports analyst at Fitch Ratings. “There’s a lot of different types of structures and it’s been a pretty supportive market over the last one to two years.”
Which market the debt floats into also remains to be seen. “It’s more likely that this will end up in the private credit markets, depending on if they somehow get tax-exemption, then it’ll be public,” said John Medina, a Moody’s Investors Service senior vice president.
Handicapping the debt quality in sports-related issuance considers several factors. “Private equity ownership will overall reduce the amount of debt that’s going to be borrowed, which would probably result in better metrics,” said Moody’s analyst Aysha Seedat. “How long can the anchor tenants, in this case, dual anchor tenants commit to stay at the arena is also really important.”