City of Alexandria, Virginia
________________
MEMORANDUM
DATE: JUNE 4, 2025
TO: THE HONORABLE MAYOR AND MEMBERS OF CITY COUNCIL
FROM: JAMES F. PARAJON, CITY MANAGER
DOCKET TITLE:
TITLE
Consideration of ARHA Request for a City Guarantee in Support of $56 Million in Virginia Resource Authority Bond Funding for Silver Fox Acquisition
BODY
_________________________________________________________________
ISSUE: Provision of a City guarantee as backstop support for $56 million in bond funding requested by the Alexandria Redevelopment and Housing Authority (ARHA) from the Virginia Resource Authority (VRA) for acquisition of The Alate, an existing multiunit senior housing building located at 1122 N. First Street, a project which ARHA has branded “Silver Fox.”
RECOMMENDATION: That City Council:
(a) Receive staff’s presentation regarding Silver Fox and the proposed City backstop guarantee;
(b) Direct ARHA and City staff to continue due diligence and conduct community outreach to impacted ARHA residents and other stakeholders regarding the project; and
(c) Schedule the backstop request to return to Council on June 24 for consideration of a Resolution to provide a guarantee to VRA on behalf of ARHA for acquisition of Silver Fox.
BACKGROUND: In mid-April, ARHA entered into a purchase agreement to acquire The Alate, a recently constructed senior housing building, located at 1122 N. First Street. ARHA’s Silver Fox is intended to provide a permanent housing relocation resource for residents of Ladrey: following the property’s acquisition in August, ARHA would move willing and age-eligible Ladrey residents to Silver Fox to fully occupy the building.
ARHA has determined that the redevelopment of Ladrey Senior Housing, as proposed by ARHA and its development partner, Winn, and approved by City Council in January 2024, is not feasible at this time because of changed conditions in the debt and equity (tax credit investment) markets. Due to delays in undertaking redevelopment of a building represented to HUD as obsolescent, HUD now requires that ARHA relocate Ladrey residents and has terminated operating support for building management and maintenance. HUD has authorized 168 vouchers to help ARHA relocate Ladrey residents to other housing. Besides resident relocations to Silver Fox, ARHA plans to assist other residents move to housing of their choice within the City and elsewhere and anticipates all relocations will be completed by the end of 2025.
Regarding its future plans for Ladrey, ARHA is working with development partner, Winn, on plans to substantially renovate the existing building and use that to supplement ARHA’s future stock of senior housing. It is noted that a plan for the renovation of Ladrey must be reviewed and approved by HUD, and it is not yet clear if the scope of proposed renovations would require City approvals beyond permits.
The Alate project received development approvals in 2018 and was constructed thereafter. The Alate serves seniors aged 62+, and is highly amenitized, including concierge-style local transportation services, assistance in scheduling medical and other appointments, nicely appointed community spaces and rooms, including theater and fitness facilities, an outdoor grilling and dining pavilion, programmed social and wellness activities onsite and off, and currently, daily continental breakfast and twice-weekly catered community dinners. The building also has underground parking, and a dining room with commercial kitchen on the ground floor, which is currently not in use.
Pursuant to the 2018 DSUP, nine of the units at The Alate are required to offer discounted rents for income eligible seniors. While marketing began in Fall 2023, to date only twenty units have been leased (including one of the discounted units) and, according to ARHA the developer now wishes to exit the project and has agreed to its sale for $56.8 million. The City’s real estate assessed value of the property in 2025 is $53.1 million.
DISCUSSION: To finance the acquisition of Silver Fox, ARHA has applied for bond funding through the Virginia Resources Authority (VRA) and will also invest $6 million of its own savings as equity. In the past, VRA has provided bond funding for a range of municipal infrastructure and community facility projects, especially to jurisdictions and public entities with limited capacity and/or resources to secure debt for these types of projects on their own account. Recently, VRA opened its Pooled Funding program to assist with affordable housing projects, and Silver Fox is its first submission for this purpose. The interest rate and terms VRA offers are very advantageous in comparison to other financing options, however, provision of a locality guarantee/moral obligation is a prerequisite. This means that in the event ARHA does not perform, the City would have to step in and pay project debt on ARHA’s behalf. While the guarantee, by itself, doesn’t count against the City’s own borrowing capacity, should the City be required to make payments in ARHA’s stead, the obligation would be incorporated into the city’s debt service and limit Alexandria’s capacity for borrowing. While the VRA is performing its own due diligence regarding the proposed transaction, including assessing ARHA’s financial position and the feasibility of its project proforma, VRA’s underwriting will ultimately rely on the City’s repayment pledge to backstop ARHA.
While there are several concerns that staff are working with ARHA to mitigate, the two chief risks identified regarding Silver Fox are general uncertainty regarding federal voucher funding and ARHA’s capacity to complete and successfully maintain the project. ARHA’s ability to repay the VRA loan is premised on the agency’s ability to convert the tenant protection/relocation voucher authority allocated by HUD into project-based vouchers for Silver Fox. Currently, HUD allows vouchers to subsidize rents, up to market rate levels based on comparable projects in the zip codes in which projects are located. For Silver Fox, a project-based voucher could potentially make up the difference between what the household can afford to pay and standard market rate rents at privately owned multifamily developments within the Braddock Metro neighborhood. ARHA’s proforma for Silver Fox indicates that ARHA forecasts that project-based vouchers would yield monthly rents of approximately $2600+ for a one-bedroom unit and approximately $3,600+ for a two-bedroom unit. This elevated payment standard would ensure sufficient rent revenue generated to repay the VRA loan. However, if voucher funds are cut by HUD, it is unclear to staff if this assumption is reliable and/or how channeling future ARHA voucher resources to satisfy the VRA debt might constrain the number of overall vouchers that can be funded within the agency’s allocation. While ARHA has provided some information regarding these issues, City staff are seeking clarification on the HUD processes involved in project-basing vouchers and the timeline for a conversion, including whether it is administrative-only or requires specific HUD approvals.
Regarding successful completion and implementation of the project, City concerns are focused on ARHA’s capacity to manage and maintain the Silver Fox property, to relocate Ladrey residents eligible for transfer to Silver Fox as well as those who must be placed elsewhere, to successfully complete the HUD processes involved to project base vouchers at an elevated payment standard, and to develop and implement a “Plan B” for the future renovation of Ladrey. In the past year, ARHA has begun to rebuild its in-house staff capacity, including a development team headed by a CEO with development experience in several cities and multiple new employees with experience in diverse aspects of development and finance.
To address other concerns, ARHA has agreed to third party management for Silver Fox, pay a PILOT (payment in lieu of taxes) as a partial offset to ARHA’s exempt property tax status, and enter into an agreement with the City to repay expenses or debt it incurs on ARHA’s behalf related to Silver Fox. Also, in addition to VRA’s tentative agreement to provide the City with a first lien position in the required three-party Support Agreement (Attachment 1 offers a sample agreement and Attachment 2 provides a sample Resolution), and the indemnity agreement, ARHA has agreed to provide the City with additional collateral to help meet debt service coverage should that become necessary.
FISCAL IMPACT: Providing the guarantee obligates the City to step in and make payments for ARHA if the agency can’t meet its obligation to repay the VRA bonds. An ARHA default would require the City to make debt service payments (estimated to be approximately $3.5 million per year), and the full debt would then be added to the City’s balance sheet, limiting the City’s borrowing capacity for other projects. Planned borrowing for other City projects would need to be reduced by a corresponding amount. While several mitigation measures have been proposed by the City and accepted by ARHA, staff believe it will be impossible to fully safeguard against the potential risk to the City’s financial position due to uncertainty regarding the level and availability of federal voucher resources in the short to mid-term. This risk must be weighed against the City’s confidence in ARHA to carry out the project and complete the HUD process with project-based vouchers as well as our shared commitment to provide safe, appropriate housing for relocated Ladrey residents.
Staff Recommendation. Because due diligence is ongoing, if the City Council wishes to pursue this project, staff recommends that the Council consider a contingent approval. A contingent approval could grant the City Manager the authority to approve the project only if specific conditions are met by the bond pricing deadline, which is currently set for July 22, 2025. After this date, the process to unwind (“defease”) the bonds is complex and expensive. Among other things, even if bonds aren’t used, VRA and its investors would have to be paid the fees/return the bonds that were expected to yield over time. Such contingent flexibility in authority would allow the City Manager to determine, in consultation with Council and the City Attorney, whether any changes to the transaction’s terms and conditions would materially affect the City’s financial position. Staff plans to present a set of conditions for City Council’s consideration together with the VRA resolution.
ATTACHMENTS:
Sample VRA Support Agreement
Sample Resolution of Support (Rappahannock County)
STAFF:
Emily Baker, Deputy City Manager
Cheran Ivery, City Attorney
Bonnie Brown, Deputy City Attorney
Christina Zechman Brown, Deputy City Attorney
Kevin C. Greenlief, Director, Finance
Helen McIlvaine, Director, Office of Housing
Eric Keeler, Deputy Director, Office of Housing