By Alec MacGillis and Dana Hedgpeth
Washington Post Staff Writers
Monday, October 9, 2006
To District officials, the concrete columns rising along South Capitol Street represent the beginning of a sweeping renewal of the Anacostia River waterfront, not just the foundation of a new $611 million stadium for the Washington Nationals.
For the team's owner, the family of 80-year-old billionaire shopping mall developer Theodore N. Lerner, there are more immediate goals. Every few days, the Lerners call or visit city officials with their latest desire: an executive dining room, and in the luxury suites, individual bathrooms and a special window glaze. They want close-in parking for the best-paying fans and have turned down several ideas for how to build it. They don't want to pay for cost overruns. Recently, Lerner himself wanted to know precisely where the team's souvenir store would be. When a city official described it, Lerner said he needed to see actual plans.
"These are the guys who invented hardball," said Allen Y. Lew, chief executive of the D.C. Sports and Entertainment Commission.
The sense of promise that surrounded baseball's return to Washington is colliding with the hard realities of building the team a home. At the center of that collision are the Lerners, a fiercely private, tightly knit family that has turned its company into a regional juggernaut with an emphasis on nuts-and-bolts details and demands.
When Major League Baseball selected the Lerners as the Nationals' owners this spring, baseball boosters took heart in the family's local roots, deep pockets and pledge to invest in a winning team. City officials hoped the family's development experience would bring high-quality services to the stadium and propel a waterfront revitalization, a major justification for building the ballpark with city money.
But the Lerners also came with something else: an all-business approach that helps explain the friction with the city over the stadium.
The Lerners defend their style of doing business, saying they stick to their agreements and expect the same of others. "We are people who honor the deal," said Robert K. Tanenbaum, Lerner's son-in-law and a principal of Lerner Enterprises, in a rare interview with members of the family.
Over the past four decades, several of the family's business relationships have ended in acrimony over what some tenants, contractors and partners say is an unwillingness to compromise and an insistence on the fine print of agreements.
The family has also found itself at odds with government planners, saying their ambitious ideas often show little appreciation of economic realities. The Lerners don't talk about their work in terms of leaving a broader civic legacy. Instead, they say, they simply aspire to build successful projects, with an eye to the bottom line and the long-term security of the family.
That tension is playing out at Tysons Corner, which the Lerners helped transform into a commercial hub but where their current plans clash with the vision of Fairfax County officials.
John T. "Til" Hazel Jr., the prominent Northern Virginia land-use lawyer and developer, shares the Lerners' skepticism of planners and expects that view will continue to complicate the family's relations with the District.
"One thing I could have predicted was that Ted was going to do his own thing," said Hazel, who represented Lerner at Tysons. "The District is learning that Ted didn't get where he is, or become as successful as he is, by following all the rabbit holes that planners and politicians set out."
The strain has been on display since the Lerners' $450 million purchase of the team. City officials argued that the family's demand for aboveground parking garages would interfere with plans for a vibrant entertainment district around the ballpark, an anchor for the waterfront makeover. The Lerners countered that underground parking would cost too much and delay the ballpark's scheduled 2008 opening. In the face of the family's resistance, another developer's plan for garages wrapped in condominiums collapsed. Now, the city is trying to win the Lerners' backing for its latest plan, spending $75 million more in public money on a mix of above- and below-ground garages.
City officials have also said the Lerners have not participated in broader discussions about how to improve the area, which has lagged behind development in other parts of the city.
"I'm really disappointed in their involvement. They've been exclusively focused on the stadium. At best they've been indifferent and at worst hostile," said Adrian G. Washington, president and chief executive of the Anacostia Waterfront Corp., a quasi-public agency overseeing redevelopment. "The whole point of the stadium was to anchor a great waterfront neighborhood [and] create opportunities in that area. I really don't feel like they get it."
The Lerners say they are not against waterfront renewal -- they just want it done right. The redevelopment effort, they say, will succeed only after the ballpark opens and only if fans have a hassle-free experience, including easy parking.
"The stadium's success is the key to everything," said Tanenbaum, 49. "We're concerned about the stadium opening and functioning. In time, all those [other] things will fall into place."
The Lerners acknowledge that they find themselves on unfamiliar ground. After guarding their privacy for decades, they are adapting to a role that demands a more public profile. And after working mostly in the suburbs, they have entered the thornier realm of the city, where public financing of the stadium has been controversial, and the government, although better managed than in years past, can still be difficult to navigate.
As Lerner asked one city official, trying to find the decision maker: "Who's your General Eisenhower?"'A Long-Term Investment'
Some Lerner associates are mystified why the family would plunge into sports team ownership and urban redevelopment, given the challenges ahead and the Lerners' professed lack of interest in local prominence or legacy. To Hazel, it is "uncharacteristic" for a "conservative businessman" such as Lerner to take on a sports team.
To hear Lerner tell it, buying the Nationals was just another business decision.
"There wasn't much difference between this and any other new project we undertake," he said. "We looked at this as a long-term investment. A family investment that would continue on ad infinitum and that my grandchildren would eventually be involved in and their children and so forth."
Based on their prior investments, the Lerners say, Nationals fans should have confidence in the team's future.
Lerner Enterprises owns and manages more than 20 million square feet of office and retail space -- the rough equivalent of 10 Empire State buildings. Lerner has helped build and manage a half-dozen of the region's shopping malls, including both malls at Tysons Corner, as well as White Flint, Wheaton Plaza, Landover and Dulles Town Center. In the District, he and a partner built Washington Square, an office building on one of downtown's most coveted corners, Connecticut Avenue and L Street NW.
Forbes magazine estimated Lerner's net worth last month at $1.5 billion, No. 242 on its list of the richest Americans. The family's foundation gives out more than $2 million annually to, among others, the Lerners' Chevy Chase synagogue, Ohr Kodesh; Lerner's alma mater, George Washington University; and the Hebrew University of Jerusalem. Lerner and his wife, Annette, gave more than $1 million toward the founding of the U.S. Holocaust Memorial Museum.
It is a classic American success story of a man who started selling homes at 21 to support his family after his father's death. The Lerners attribute their success to working hard, understanding customers' needs and paying attention to detail. At the peak of his mall building in the 1970s, Lerner would travel the country studying the latest in malls and then present his architects with lists of 500 specifications, including material, lighting and sightlines. He remains involved in the job's finer points. At one of the Nationals' last games of this season, a guest in Lerner's owner's box said he commented about the precise cost of baseballs for the team next season: $17,000.
"He's very focused," said Lew, the sports commission chief executive, who has been in numerous negotiations with the Lerners. "He knows what works and what doesn't."
Others say the Lerners' financial rise is also due to their unyielding style. That was at the heart of a bitter fight in a pivotal partnership in Lerner's career, with the family of developer Isadore Gudelsky.
Gudelsky, who knew Lerner's father-in-law, invited Lerner, then a young real estate salesman, to join him in building Wheaton Plaza mall in the 1950s. With just $6,900, Lerner acquired a 5 percent stake, which doubled for the group's next venture, building a mall on 86 acres of farmland in Fairfax: a crossroads known as Tysons Corner.
Gudelsky, who, Lerner said, was "almost like a father" to him, died suddenly in 1963. Lerner did not get along well with Isadore's brother Homer, the new majority partner. Gudelsky and other partners charged that Lerner was delaying renovations at Wheaton Plaza and discouraging Hecht's from locating a store there in deference to White Flint Mall, where Lerner held a larger stake with a different partner.
The group fought most about Lerner's desire to build a second mall at Tysons, with his partners opposed to anything that might compete with Tysons Corner Center, which opened in 1968. Lerner was also pressing for a larger share than the 25 percent stake he then held in the Tysons holdings.
Frustrated with Lerner's assertiveness, Gudelsky and other partners decided to sell the land, dubbed Tysons II, to developer and publisher Mort Zuckerman, who offered $25 million. But Lerner refused to sell. Lerner and Zuckerman faced off in an auction, which Lerner won for $35 million. The deal collapsed on technical grounds, but moments before a second auction, in 1983, Lerner and his partners announced that he had bought out Gudelsky and his partners for $21 million.
Lerner had what he was after, the most central parcel at Tysons. Two years later, Lerner and the partners cut the rest of their ties when they sold Tysons Corner Center for $142 million. "Finally, it was obvious to us and our family that we should part," Lerner said in the recent interview.
Jack C. Merriman, the lawyer who represented Gudelsky and the other partners, laid the breakup at Lerner's feet. "His style of negotiation is to take a stand and stop; there's no budging," Merriman said in an interview. "He was just hard-nosed, and he's been very effective with that style."
He added: "I don't think Ted minded if people liked him or not. He didn't let anyone's opinion of him get in the way. It didn't seem to bother him whether he made enemies or friends."
The Lerners' other contested dealings have led to similar assessments, although some contractors and brokers declined to discuss them publicly, for fear of losing business with the family.
In the District, city tax officials in the 1980s mistakenly assessed one of Lerner's properties at $4.75 a square foot instead of $475. Lerner paid the lower bill. But when the city caught its mistake and filed a tax lien for the correct payment, Lerner sued, saying the lien amounted to slander and libel. In the end, Lerner and a partner agreed to a $675,000 tax payment, $160,000 less than the District sought, according to news reports at the time.
At Tysons, the Lerners battled two years ago with an office tenant over who was to pay for the tenant's parking, which was unclear in the lease. The sum involved was a fraction of the $6 million lease, and the tenant's broker, Thomas Birnbach, said it was the kind of dispute that could normally be resolved with personal negotiations. But the Lerners pressed until the tenant relented, having spent $40,000 in legal fees.
"Rather than work it out with the tenant, [the Lerners] stuck to their guns," said Birnbach, a principal of Cresa Partners. He declined to identify the tenant, which is still in the building. Fairfax officials said they have on several occasions felt duped by the Lerners and their lawyers. Lilla Richards of McLean, a county supervisor in the 1990s, is still upset about what she sees as the Lerners' success in invoking the fine print of zoning agreements to delay building a much-needed bridge over Route 123 in Tysons.
"What [Lerner] does is get the [lawyers] to write the document in a way that most gentlemen would understand in one way," she said. "But after the document is signed and everyone is happy and goes away, then they find out, 'Oh my God, there is a loophole in here we didn't see.' " The Lerners say they are simply abiding by the letter of agreements. "I guess we're just going to have to get used to the fine-print rap," Tanenbaum said. "A lot of times, you'll find that when people have different expectations, the argument of refuge is, 'They're insisting on details.' We're just going to have to be okay with that."
The Lerners note that the family has earned a stellar standing with banks and dozens of partners.
"We have partnerships where we shake hands, or on the telephone, [for] tens of millions of dollars, where we just agree, and all the paperwork and everything comes later," said Edward L. Cohen, 60, Lerner's other son-in-law and another company principal.
Albert "Sonny" Abramson, founder and partner of the Tower Cos., praises the Lerners' business style. He and the Lerners built Landover Mall, White Flint Mall and Washington Square, among other buildings.
"He's very frank and honest from the very beginning; he tells you where he stands and what kind of deal he'll make. Once he's made a commitment, you know exactly where you stand," Abramson wrote in response to questions. "On the other hand, he expects the other person to live up to his commitment."
Others say the Lerners' insistence on the letter of the contract is welcome because people know what to expect, and everyone is held to the same high standards. That explains why the company's buildings are well maintained and command a premium price, some brokers say.
"Everything they do is first class, and that comes at a price," said Michael Zacharia, a senior vice president at CB Richard Ellis, a commercial real estate services firm. "Everyone understands when you do a deal with Lerner, all the cards are on the table. They run it cleanly and efficiently, and they follow the lease documents to the letter."Trendsetters at Tysons?
As the Washington region has expanded steadily over the past three decades, the Lerners have served as pioneers. One by one, the family's shopping centers and office complexes have tracked and advanced the outward growth. It was that history that D.C. officials saw as valuable experience the family could bring to the renewal in Southeast, the city's next development frontier.
But Lerner plays down his role as a visionary, citing Tysons as one example.
"We happened to be early into the Tysons Corner situation. We were able to secure the zoning when most people weren't interested in Tysons Corner and that general area," he said. If he and his partners hadn't built a mall there, "someone else would have."
Thomas Hanchett, a consumer historian, agrees, saying Lerner and his partners were simply following the trend. Not only were the suburbs expanding rapidly, but a 1954 change in tax laws also made it much more profitable to build malls on the outer rim.
Lerner's larger role in the transformation of Tysons came later, in his decision to differentiate Tysons II by taking it upscale, said broker John McEvilly, who assisted Lerner and his Tysons II partner, a Sears, Roebuck and Co. subsidiary.
The Galleria mall that opened in 1988 was like nothing the Washington region had seen, with spacious walkways and premier anchors in Neiman Marcus and Saks Fifth Avenue, all of it behind a mauve facade accented with Napoleon Red Swedish granite. Flanking it were a Ritz-Carlton hotel and Tysons' first high-end office towers, which now hold tenants including PricewaterhouseCoopers LLP and Deloitte & Touche.
The luxury tilt was a bold move: Washington was mostly a government town, and the Galleria struggled in its early years. But as Northern Virginia's private economy began to boom and serious money poured into Fairfax, Tysons II helped transform Tysons into a nexus of high-end commerce. "It's probably the crown jewel in our portfolio," said Lerner's son, Mark, 53. "There's no place in this entire area you'll find development of that quality."
More recently, though, the Lerners have found themselves in a conflict with Fairfax officials over a large, undeveloped section of Tysons II.
With the planned arrival of Metrorail in the area, Fairfax officials hope to transform Tysons from a car-clogged, outsize office park into a walkable downtown. The county says focusing growth, particularly housing, around transit will ease congestion, reduce sprawl and help Tysons compete with rival employment centers.
The large open swath remaining at Tysons II is crucial for this transformation because its central location next to a proposed Metro station makes it ideal for high-density housing.
But the eight high-rise buildings the Lerners proposed in 2001 fell far short of county hopes. Planners cited the absence of ground-floor retail, an excess of parking and, most of all, a lack of residential space, just enough for 300 apartments, which would leave Tysons II even more dominated by offices.
This was despite county rules letting the company build more square footage in exchange for creating housing -- an incentive that other landowners have embraced.
"They had a business plan, essentially, that said, 'This is what we're building now, and in so many years we'll build another building,' " said Supervisor Linda Q. Smyth (D-Providence), who represents Tysons and opposed the Lerner plans. "They wanted to keep going on with their business plan." Fairfax officials approved the plans in 2003, after the Lerners agreed to more than double the residential space, enough to produce 530 apartments. But last year, the Lerners told the county they would divide the square footage among many fewer and larger units -- roughly the 300 they were planning to build in the first place, only now they'd be far more expensive.
Officials said they felt taken: They thought they had agreed to more apartments, but the only thing in writing was square footage. "We were all chagrined," said Board of Supervisors Chairman Gerald E. Connolly (D). "They should build the units we discussed."
The Lerners dismiss the criticisms, saying they preferred office buildings as a better long-term investment. "It's not the planning board people's job to focus on economic viability," Tanenbaum said. "We wish it was, but it's not. It's our job."
The family has a charitable foundation, he added, "but the development company is not the charitable arm of the family. The development company borrows money and has to pay it back."Different Visions
The debate around the ballpark is taking on similar tones. What the Lerners describe as attention to economic realities, some city officials view as narrow self-interest.
"Clearly, the idea of using the ballpark to be a catalyst for urban development along the waterfront is an idea that it appears they haven't bought into," said Eric W. Price, the city's former deputy mayor for planning and economic development and a board member of the Anacostia waterfront group.
To counter this perception, Lerner notes that the family has invested in the area, in the form of a 10-story office tower it is building on M Street SE.
Still, the Lerners and the city have had several disagreements in the past five months. Before the sale of the team, officials criticized the family for waiting until the last minute to name African Americans to their ownership group.
In July, D.C. Mayor Anthony A. Williams (D) labeled the Lerners' approach to the parking talks "condescending." Last week, Williams joked that the Lerners are now the "problem" of the likely new mayor, Adrian M. Fenty, who voted against the ballpark as the D.C. Council member representing Ward 4.
Looming over everything is the city's commitment to have the ballpark ready on time, which requires it to pay damages "without limitation" to the Lerners, if there is a delay.
Contractors say they are on schedule, but the pressure to beat the clock is driving cost overruns, which must be covered by the city unless they are caused by Lerner requests.
Nationals President Stan Kasten warns of dire consequences if the stadium isn't done on time. "It's a big number, millions and millions, that it will cost the team," he said. "There are massive amounts of damages."
Family members stop short of such warnings for now. "We think there are certain things that are required for the stadium, and we're going to keep pushing those ideas forward," Cohen said. "Obviously, there is time, money and different things to consider. We'll put that all into the mix, and we hope to come out with the best answer for us, for the city and for the fans."
Staff writers Ray Rivera and Tom Jackman contributed to this report.