City of Alexandria, Virginia
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MEMORANDUM
DATE: DECEMBER 4, 2024
TO: THE HONORABLE MAYOR AND MEMBERS OF CITY COUNCIL
FROM: JAMES F. PARAJON, CITY MANAGER /s/
DOCKET TITLE:
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Introduction and First Reading. Consideration. Passage on First Reading of an Ordinance to amend the 5001 Eisenhower Avenue Redevelopment District for the Purposes of Conversion to Residential Use.
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ISSUE: Facilitating economic use of a long-vacant office building and a portion of a 9.73-acre site located at 5001 Eisenhower Avenue.
RECOMMENDATION: That City Council:
1. Approve on First Reading and schedule for Public Hearing and Second Reading, and Adoption on December 14, 2024, an ordinance amending section 3-2-192 of the City Code to provide a performance based partial real estate tax abatement to induce the redevelopment of 5001 Eisenhower Avenue (Attachment 1).
2. Authorize the City Manager to execute a performance agreement, with content not substantially different from that which is outlined in the Term Sheet (Attachment 2), in order to induce redevelopment of Eisenhower Avenue.
BACKGROUND: 5001 Eisenhower Avenue is a large, outdated office building on a 9.73-acre site, originally constructed in 1973 for the U.S. Army Material Command. Since that agency’s move to Ft. Belvoir in 2003, the 600,000+ SF building has been vacant. Despite the efforts of two owners over 21 years to identify and secure federal tenants, the most likely user of an office building of this size and orientation, no lease was ever executed. The building’s chronic vacancy has significantly raised Alexandria’s total office vacancy rate and is a contributing impediment to significant Eisenhower West redevelopment activity.
Most recently, in 2019, in an effort to induce commercial activity, the City granted the owner, an affiliate of Stonebridge, a partial real estate tax abatement to make the site conducive to office redevelopment and leasing. Similar to a previous partial real estate tax abatement granted for the site, these proposed projects were not realized because office tenants never leased the facility.
The City has also granted development requests and Development Special Use Permits to improve the building’s marketability as an office space - to allow for the construction of street level retail and for the construction of housing on a portion of the site. These changes, and the previously granted tax abatement, still have not induced office tenancy.
With that in mind, and in light of the current post-pandemic state of the office market, the property owner has determined that conversion of the existing building to residential use is its highest and best use. At the owner’s request and, because of this proposed change of use, City and Alexandria Economic Development Partnership (AEDP) staff have evaluated the viability of 5001 Eisenhower Avenue remaining an office building. Based on the building’s age, location, floorplate, and ceiling heights, the owner’s inability to lease the building with office users over multiple decades-even with City incentives offered-AEDP and City staff concur that the building is obsolete for office use. The building is responsible for approximately 3% of the City’s office vacancy rate (City’s 2024 midyear vacancy is 15.5%).
The building owner requested that City staff review a potential opportunity to utilize City financial participation, in the form of partial tax abatement on improvements to the building, to encourage the developer to incorporate a significant number of committed affordable and workforce units into the residential conversion of the building. City staff have reviewed the request to utilize City financial participation (in the same format as previously approved - partial tax abatement) to achieve two of the City’s strategic priorities- continued reinvestment and conversion of obsolete office buildings to return it to active use, and creation of affordable housing units. The existing Redevelopment District can be repurposed to structure City financial participation to induce/catalyze the conversion of a challenging commercial building to residential use while also meeting Alexandria’s need for committed affordable and workforce housing. In addition to the committed affordable and workforce rental units, conditions of the proposed City financial participation also require future development adjacent to the existing building as well as other community benefits.
During the November 12, 2024 Legislative Meeting, the City Manager provided details regarding the possible City financial participation and public benefits.
DISCUSSION: Following the City Manager’s presentation at the November 12, 2024 Legislative meeting, there were multiple opportunities and forums provided for community engagement. The Alexandria Housing Affordability Advisory Committee were excited by the opportunity to use tax abatement to provide affordable housing and unanimously endorsed the affordable housing plan for the development. The committee also recommended potential refinements to deepen affordability or get more family sized units, however, expressed understanding that there is likely limited capacity to do so. City staff presented to the Environmental Policy Commission (EPC), which voted to support the project, celebrating the opportunity to conserve the existing building. The Eisenhower West/Landmark Van Dorn Implementation Advisory Group members supported the project and asked about the proposed density, open spaces, streetscape, parking, and student generation during the discussion. The Developer also hosted a virtual community meeting, with about 30 attendees. The attendees asked about the construction timeline, parking for the parallel park, retail/commercial opportunities, pedestrian routes to the Van Dorn Metro Station, and the traffic impacts. Several residents said they welcomed the project. City staff have coordinated with the Alexandria City Public Schools and will integrate the project into forthcoming school enrollment forecasts. The Coordinated Development District Concept Plan for the entire development and the Development Special Use Permit for the conversion building was approved by the Planning Commission during the hearing on December 3, 2024.
The following is a summary of the future performance agreement for which City Council authorization is sought for the City Manager to sign with content not substantially different than presented the in the Term Sheet (Attachment 2).
I. Project Overview
• Main Components
o Conversion of Existing Office Building
§ Conversion of the now-vacant and existing office building for 377+/- rent-controlled housing units including affordable and workforce housing units
§ Includes a City-operated community space.
o Future Development
§ Construction of 450+/- new market-rate dwelling units
• Includes associated open spaces, day care space, and retail space on the remainder of the site
II. Conversion Building Details
• Financial Overview
o Construction improvements cost: $105 million+/-
o Estimated total development budget: $150 million+/-
• Rent-Controlled Unit Commitments
o 377+/- dwelling units rent-controlled for 40 years:
§ Affordable Units:
• 41 units at 50% AMI - exclusively available to income-qualified residents
o These units shall contain:
§ 20 junior 1 bedroom, 1 bathroom units
§ 20 2 bedroom, 2 bathroom (1 interior bedroom) units
§ 1 2 bedroom, 2 bathroom, plus den (1 interior bedroom and den) unit
• 41 units at 60% AMI - exclusively available to income-qualified residents
o These units shall contain:
§ 20 junior 1 bedroom, 1 bathroom units
§ 20 2 bedroom, 2 bathroom (1 interior bedroom) units
§ 1 2 bedroom, 2 bathroom, plus den (1 interior bedroom and den) unit
§ Workforce Units:
• 189 units at 80% AMI
§ 106 units at 100% AMI
o The 80% and 100% AMI units will be available to income-qualified residents for 75 days after each unit is vacated and may be leased at the restricted rent to tenants whose incomes are higher after 75 days
o The City’s Office of Housing will enforce its standard conditions, ensuring rent-controlled units are leased in accordance with City policies
§ The City’s financial participation described below (partial real estate tax abatement) will be terminated if rent-control requirements are not met.
§ Remedies after the abatement period if rent-control requirements are not met.
• City Space Provision
o The Developer will construct a 2,000+/- sq. ft. community space for City use at no cost to the City, which will be initially built out to a “warm lit shell” condition
o Space to be leased to the City for $1/year for 40 years
o The Developer will provide the City with an additional $50,000 allowance to complete build-out when a user is identified. The City will work with Developer to finalize plans for the City Space by June 30, 2025
• Open Space
o The Development Approvals provides for public open space areas to be privately maintained in perpetuity subject to an easement
III. Future Development Details
• 50+/- townhomes at market rate
• 400+/- multifamily dwelling units rented at market rate
o Day Care Space
§ 10,000+/- sq. ft. of space reserved for a daycare facility
§ Discounted rent ($10 per sq. ft.) for 40 years
§ If daycare use is not ultimately feasible, the City and Developer may mutually agree upon another use with discounted rent for community benefit
§ The City and Developer will detail time frames, period for marketing the space, details about how decisions about the chosen user will be made, and other terms in the performance agreement
o Retail Space
§ 5,000+/- sq. ft. of space for retail uses
§ If retail is not viable after a reasonable period of marketing space, to be detailed in the performance agreement, space may be converted to building amenities
o Open Space
§ The CDD Concept Plan provides for additional public open space areas to be privately maintained in perpetuity subject to an easement
• Development to be consistent with Coordinated Development District (CDD) and Development Special Use Permit (DSUP) as well as other City land use requirements
IV. Developer’s Construction Timing Requirements
• Conversion Building (Phase I)
o Commence construction within 2 years
o Complete construction within 4.5 years
o If timelines are not met, the agreement may be terminated and waivers revoked
• Future Development
o First 50 units (townhomes): complete construction within 6 years (Phase II)
o Units 51-450 (multifamily): complete construction within 15 years (Phase III)
§ Includes open space, day care, and retail
§ This period will be extended to 16 years if timeline for Phase II is met
o If Phase II and Phase III construction timelines are not met, the time period for providing rent-controlled units will be extended to 45 or 50 total years
• The City Manager may extend the construction timelines up to 12 months if the Developer is making good-faith progress
V. City’s Financial Participation
• If approved by City Council, the City will provide a partial real estate tax exemption on the improvement value of the Conversion Building for 25 years
• Abatement Years:
o Years 1-5: 90% abatement
o Years 6-10: 80% abatement
o Years 11-15: 70% abatement
o Years 16-20: 60% abatement
o Years 21-25: 50% abatement
• The partial real estate tax abatement will not exceed a maximum of $1.5 million annually
o Cumulative cap will not exceed $31.25 million unless certain atypical real estate tax rate conditions are met, and in no case will exceed $34.375 million
• If approved by City Council, the City will waive the Affordable Housing Trust Fund fee for the Conversion Building, estimated at $797,551.00 in 2024 dollars.
FISCAL IMPACT: The site is assessed for 2024 at $11.94 million (as-is condition). At a $1.135 per $100 millage rate, the real estate property tax generated from the site is $135,519. The fully developed site is estimated to be approximately $290 million in today’s dollars. This equates to annual real estate property tax receipts of approximately $3.3 million.
The partial real estate tax exemption for the improvements to the Conversion Building is estimated between $13.6M and $16.4M in net present value over the abatement period. Over the 40-year affordability period, the tax receipts to the City’s General Fund from the entire development post abatement is estimated at $63 million in net present value compared to approximately $4 million in the as-is condition.
ATTACHMENTS:
Attachment 1: Proposed ordinance
Attachment 2: Term Sheet
Attachment 3: Presentation
Attachment 4: For Reference - Clean Version of Proposed Ordinance
Attachment 5: Additional Community Feedback
STAFF:
Bonnie Brown, Deputy City Attorney
Julian Gonsalves, Assistant City Manager for Public/Private Partnerships
Kevin Greenlief, Assistant Director - Revenue, Department of Finance
Stephanie Landrum, President and CEO, Alexandria Economic Development Partnership
Helen McIlvaine, Director, Office of Housing
Annwyn Milnes, Appraiser Supervisor, Department of Finance
Karl Moritz, Director, Department of Planning & Zoning
William Bryan Page, Assistant Director - Real Estate, Department of Finance
Kendel Taylor, Director, Department of Finance