City of Alexandria, Virginia
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MEMORANDUM
DATE: JANUARY 7, 2013
TO: THE HONORABLE MAYOR AND MEMBERS OF CITY COUNCIL
FROM: RASHAD M. YOUNG, CITY MANAGER /s/
DOCKET TITLE:
TITLE
Public Hearing, Second Reading and Final Passage of an Ordinance to Approve and Authorize the Transfer of City Owned Property Located at 3600 Jefferson Davis Highway, as Part of a Total City Support Package. [ROLL-CALL VOTE]
BODY
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ISSUE: How to fund a proposed new 78-unit affordable housing development on East Reed Avenue.
RECOMMENDATION: That City Council:
(1) Hold the public hearing for an Ordinance for transfer of the City-owned parcel located at 3600 Jefferson Davis Highway to a city-controlled special purpose limited liability entity that will form a public-private partnership with AHC, Inc. (and its eventual tax credit investor) in order to complete the land assemblage for the development and facilitate the City's participation in ongoing project oversight and governance; and
(2) After all required public hearings, contingent upon City Council approval of the East Reed Avenue Development Special Use Permit and other necessary land use actions to allow the development of the subject property:
(a) approve the provision of a loan totaling $2.5 million from City housing monies to AHC, Inc., incorporating the $250,000 forgivable predevelopment loan approved by City Council in September 2012; and
(b) authorize the City Manager to execute all necessary documents, including but not limited to a special limited liability entity formation documents, a partnership agreement and loan documents, as well as letters of support and such other certifications as may be required on the City's behalf, to assist AHC, Inc. with its application to the Virginia Housing Development Authority (VHDA) for 9%/competitive federal Low Income Housing Tax Credits (LIHTC).
BACKGROUND: AHC is a 501 (c) (3) nonprofit housing development organization which has successfully developed or preserved more than 5,000 affordable rental housing units in the Washington Metro/Northern VA-Baltimore-Richmond-Tidewater corridor since its creation in 1975. For the past two years, AHC has worked to assemble several lots along the 100 block of East Reed Avenue, seek the inclusion of a City-owned parcel at the corner of East Reed Avenue and Route 1/Jefferson-Davis Highway, and to refine a project concept that will deliver 78 new units of rental housing affordable to households with incomes up to 60% of the Washington Area Median Income (AMI), or around $65,000 for a four-person household, $52,000 for a two person household and $45,000 for a one person household. AHC has also offered to commit the units to a sixty (60) year affordability period. In addition, AHC hopes to obtain up to eight (8) project-based vouchers to make the project's HUD Section 504/accessible units more affordable to residents with disabilities.
AHC enjoys an excellent reputation as an affordable housing development and management entity and has been designated an "experienced developer" by VHDA. AHC also has a strong balance sheet, with the capacity to self-finance significant portions of project costs and/or access credit, as needed. It understands the low income housing tax credit program and has been successful in obtaining multiple awards of credits over the past two decades. The East Reed project has been modeled to maximize the points available (within AHC's control) in this competitive selection process, and has worked to ensure that the proposed cost per unit is within recent limits adopted by VHDA for Northern Virginia - Inner Beltway projects for the 2013 application cycle. As it has done for other affordable housing developments, the City would plan on providing technical assistance and letters of support for AHC's East Reed tax credit application as well as provide certifications, if appropriate, that may be required to bolster AHC's ranking. Nevertheless, because neither the land use approvals nor a tax credit award is a certainty, the City has structured and sequenced the formation of the partnership entity, the transfer of the City parcel and the execution of the loan documents in a manner to facilitate the unwinding of the City's commitments should the project not proceed for any reason. If AHC were not to be successful in obtaining its City land use approvals and/or in securing tax credits, the City's financial exposure for East Reed would be limited to $250,000 (the amount of the predevelopment loan), which would be converted into a grant to AHC, Inc. In addition, the land use transfer would reverse to ensure city control over the 3600 Jefferson Davis Highway property.
As proposed, the building will range from four to five stories in height, like The Preston Condominium development across the street, and will be comprised of one, two and three bedroom units. (An elevation is provided in Attachment I.) The building will include an activity room for residents as well as a roof top terrace. The underground garage will have 78 parking spaces, with the 1:1 ratio including both residential and visitor parking. This reduced parking ratio reflects the low utilization rates typical of other affordable housing developments in the City where residents own fewer cars and rely on public transportation. As at other recently-approved multifamily developments in the city, parking will be unbundled from rent. Residents with cars will be able to lease parking spaces for a monthly fee (e.g., $35-40), to be deemed reasonable by the Housing Director. With its location on Route 1 and ready access to planned bus rapid transit, the East Reed development will also participate in the City's TMP to provide additional encouragement for residents to limit car ownership and use.
In September 2012, City Council considered and approved a predevelopment loan to AHC of $250,000 to assist with the estimated $1.2 million in costs that AHC expected to incur to maintain options on privately held properties that had been assembled and to develop the project concept for the City's development special use review process and to submit an application to VHDA for low income housing tax credits. To date, AHC has advanced all monies needed to cover predevelopment expenses from its own accounts. The City's predevelopment loan of $250,000 (which is forgivable if AHC is not successful in securing land use approvals and/or tax credits) is available for future expenses. When City Council approved the predevelopment loan, staff also vetted the preliminary partnership/land appropriation concepts, as well as AHC's anticipated future request for a permanent loan of $2.5 million (incorporating the $250,000 predevelopment loan). The Affordable Housing Advisory Committee (AHAC) approved the predevelopment loan at its September 2012 meeting, and approved an additional loan of $2.25 million at its November meeting. AHAC noted its appreciation of the City's willingness to partner with a nonprofit again to achieve a significant number of new affordable units in a transit-oriented mixed use location.
As the project concept has progressed through the DSUP review process, City staff has participated with AHC in several presentations and meetings with neighboring civic associations and community groups, including the Lynhaven and Hume Springs civic associations, the Preston Condominium and Townhome Owners' Associations and the Arlandria Advisory Group. Both the affordable housing element of the development and the City partnership concept have been very well received. The Lynhaven Civic Association expressed concern about additional pressures that may be caused to limited on street parking if East Reed residents do not choose to pay for parking in the garage. In the proposed partnership agreement, there are provisions for the City and AHC to collaborate in monitoring the situation and creating incentives to encourage greater utilization of the garage parking should such negative impacts materialize after full occupancy is achieved.
DISCUSSION: Since the development will be AHC's first project in the City, staff has proposed that East Reed be developed as a public private partnership between AHC and the City (which would eventually include AHC's tax investor, as well), with the City appropriating the parcel at 3600 Jefferson Davis as its partnership stake. While AHC will maintain the responsibility and risk for developing and operating the project, as a partner the City will be able to participate in project oversight and governance. Even more importantly, with regard to affordable housing, the public-private partnership structure is a construct that provides greater access to diverse funding sources and allows the partners to maximize available federal, state, local and private leverage. A partnership agreement will memorialize the various rights and responsibilities of the City and AHC.
The public-private partnership concept is recommended in the draft Housing Master Plan that was released in November, and was anticipated as one tool to help achieve part of the 800 committed affordable units in the recently approved Beauregard Small Area Plan. The City's first successful public private affordable housing venture was the award-winning mixed use development, The Station at Potomac Yard. For that project, the City partnered with the nonprofit Alexandria Housing Development Corporation (AHDC) to combine federal, state, local and private funding sources to build a new fire station with 64 affordable and workforce units above, on land donated by the Potomac Yard master development entity. Like the residential facility at The Station, the City's proposed cash investment loan for East Reed represents approximately 10% of the project's total development cost of $24.5 million, with the balance to be leveraged from tax credit equity, a private or VHDA first mortgage, and AHC's deferred developer fee.
The Planning Commission reviewed the City's Section 9.06 study as part of East Reed's land use approvals package at its January 3, 2013 meeting and concurred with the proposed change in public use of the City parcel (it is vacant) before it is appropriated to be part of the assemblage for the affordable housing development. It is also noted that prior to the land being transferred to the partnership entity, the City will reserve an easement over a portion of the property so that a right turn lane, or other necessary traffic improvements, may be made in the future along the side of the property that is adjacent to Route 1/Jefferson Davis Highway. At its September meeting, Council asked T&ES to study traffic management options further (and separately from the land use and affordable housing aspects of the East Reed project) and to report back to Council with its recommendations in March 2013. Should these improvements be recommended they may be constructed concurrently by the City as the East Reed project is being built.
The City parcel to be appropriated was appraised in January 2012 as having a market value of $720,000. After the initial tax credit affordability period has expired, AHC will have an opportunity to buy out the investor's share of the partnership and own the project, which is anticipated to be 2031. Once this milestone occurs, AHC will have a similar opportunity to acquire the City's partnership share. The City and AHC agree that the value of the City's partnership stake will be its 2012 market value minus one half of any environmental mitigation costs that AHC incurs in developing or constructing the project. Because of the City parcel's former uses as a gas station and a rental car lot, the City has proposed to share these costs (as it likely would in any sale of this parcel to a private entity) by deducting 50% of the total from the amount to be paid for its partnership share in the future. A partnership agreement details a process for the City to review and approve all environmental costs before they are incurred by AHC.
FISCAL IMPACT: The total cost of this 78-unit development is projected at $24.5 million, with tax credits to provide around $8 million in equity; VHDA or conventional loans to provide $12.5 million; AHC has already expended more than $1 million on predevelopment activities and will provide $1.5 million in deferred developer's fees; and the City to provide a $2.5 million loan, plus the city lot at 3600 Jefferson Davis Highway, for which it will receive a future payment of up to $0.7 million.
Sources for the proposed $2.5 million permanent loan from the City to AHC for East Reed include $1,613,784 from the housing tax revenue account (i.e., the dedicated affordable housing/"penny" fund), $486,326 in unallocated housing bond funds and $399,885 from the Housing Trust Fund (i.e., which derives from housing loan repayments and developer voluntary affordable housing contributions). The loan will be a residual receipts loan, meaning that repayment will occur out of the project's cash flow after senior debt and AHC's deferred developer fee is paid. Pro formas provided by AHC indicate that the project will generate adequate cash flow to repay the City over approximately 30 years, including the anticipated future buy out of the City's partnership stake in 2031. Like most loans to facilitate affordable housing, interest will accrue throughout the loan term until the loan is repaid. The City's relatively low interest rate is strategically set to attract special VHDA funds that can be blended to lower interest rates on debt VHDA finances.
ATTACHMENTS:
1. Project Graphic - East Reed Avenue Elevation
2. Draft Partnership Agreement
3. Cover sheet for Ordinance to Transfer City Property Located at 3600 Jefferson Davis Highway
4. Ordinance to Transfer City Property Located at 3600 Jefferson Davis Highway
5. September 27, 2012 City Council Docket Item
STAFF:
Mark Jinks, Deputy City Manager
Mildrilyn Stephens Davis, Director, Office of Housing
Helen S. McIlvaine, Deputy Director, Office of Housing
Christina Zechman Brown, Assistant City Attorney, City Attorney's Office