City of Alexandria, Virginia
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MEMORANDUM
DATE: SEPTEMBER 4, 2013
TO: THE HONORABLE MAYOR AND MEMBERS OF CITY COUNCIL
FROM: RASHAD M. YOUNG, CITY MANAGER /s/
DOCKET TITLE:
TITLE
Consideration of a Wesley Housing Development Corporation Funding Request for Lynhaven Apartments.
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ISSUE: Funding request from Wesley Housing Development Corporation (WHDC) for the renovation of Lynhaven Apartments.
RECOMMENDATION: That City Council:
1) Approve a new loan of $1.078 million to WHDC for the substantial renovation of the 28-unit Lynhaven Apartment complex, comprised of $862,400 in federal HOME and $215,600 in local matching funds from the Housing Opportunities Fund, to be added to the outstanding principal and interest balance of approximately $422,000 from the existing City loan on the property for a total loan amount of $1.5 million; and
2) Authorize the City Manager to execute all necessary documents in connection with this project and its funding, including a support letter for WHDC's 4% (non-competitive) Low Income Housing Tax Credit (LIHTC) application to VHDA and for tax exempt bond financing.
DISCUSSION: WHDC, which has an existing $422,000 City loan balance on the Lynhaven Apartments, is requesting an additional City loan of $1.078 million in order to undertake a substantial $3.2 million rehabilitation of that property. The City's 2002 loan of $325,000 assisted WHDC only to purchase the 28-unit garden style complex located at 3521 Commonwealth Avenue. The Lynhaven property consists of 23 two-bedroom and five one-bedroom apartments in four buildings.
The planned substantial rehabilitation of the building is designed to reduce operating costs and increase the useful life of the property. The proposed renovation will make significant upgrades to the exterior of the property, completely renovate all interior units and common areas, and replace the aging HVAC systems in each unit. The City contracted with a third party construction review firm that has verified the needs and costs in WHDC's needs assessment, which was prepared by Wiencek Associates.
In response to WHDC's funding application, staff is recommending a new loan of approximately $1.078 million in new funds from the HOME portion of the HOF (including local match), leaving in place the existing City loan of approximately $422,000 of HTF funds from the HOF. WHDC plans to apply for non-competitive housing tax credits to raise nearly all of the balance needed for the $3.2 million rehabilitation budget. The Affordable Housing Advisory Committee (AHAC) voted on June 27 to recommend approval of the loan.
The sources and uses for the rehabilitation are shown in Attachment I.
The $1.5 million loan would be a residual receipts loan, accruing 2% interest, to be repaid over time once the project has been stabilized, similar to recent affordable housing loans approved by the City. Based on the projected rent levels that WHDC expects to be able to attain based on the property's anticipated improved condition and its location close to Potomac Yard, WHDC's current pro forma shows residual receipts of approximately $165,000 in the first 15 years, starting in Year 4, with full repayment occurring well after year 30 (with the likelihood of substantial earlier repayment upon refinancing). All residual receipts would be split on a 50/50 basis between the City and WHDC.
In return for the new City loan, WHDC will keep all 28 units in the complex affordable for a minimum of 40 years. The major change in the loan terms (but not the reality of current occupancy) concerns the affordability Of the 28 units, 16 will continue to be affordable at or below 50% of area median income (AMI), and the remainder will be affordable to households at or below 60% AMI. This expands the number of dedicated affordable units within the project from 16 to all 28 units. More than half of the units will continue to be affordable to households at or below 50% AMI, a priority income group as noted in the Draft Housing Master Plan. The previous loan had the same requirement for 16 units at 50% AMI, but called for the remaining 12 units to have rents that would start at the same level as the income-restricted units, and then increase, beginning at such time as market rents rose above the rents of the income-restricted units, to be affordable to households at no more than 100% AMI. However, market rents for this property did not increase as anticipated, and the two tiered rent structure (with the upper tier modeled at 60% AMI in the original pro forma) never materialized, as most rents stabilized at a 50% AMI level.
WHDC has reviewed the project with the Lynhaven Civic Association, which has provided a letter of support (Attachment). The planned rehabilitation of the building will not meet the current City parking ordinance requirements which are triggered by the cost of the rehabilitation. As a result, a parking reduction approval by the Planning Commission and City Council will be required prior to the start of the renovation, a situation that has been faced by other affordable housing rehabilitation projects. Staff from the Departments of Planning & Zoning and Transportation & Environmental Services have reviewed the parking issue pertaining to the Lynhaven project and will be recommending approval of WHDC's requested parking reduction. The number of units/bedrooms in the Lynhaven Apartments is not being increased so the parking demand should not increase. In addition, WHDC's renovation includes a plan to better incorporate nine off-street parking spaces that are located in the rear of the property but currently underutilized. While the project will need a "parking reduction" approval from the Planning Commission and City Council to be completed per the City Code, the parking situation for this project and the neighborhood will improve with the better utilization of the nine off-street spaces in the rear of the building.
Wesley is in the process of submitting an application for VHDA financing and needs to receive confirmation of funding from VHDA prior to the City's final commitment of HOME funds, which includes the execution of a loan agreement with the City
The City faces a commitment deadline of September 30, 2013 for approximately $350,000 in HOME funds. This project will satisfy that requirement if HUD grants a requested waiver of an unexpected new regulatory requirement that all funding for a project be secured prior to committing HOME funds. (The VHDA funding will likely not be secured by the commitment deadline). Because the City likely will not receive HUD's response until shortly before the commitment deadline, a docket item for a backup project in the amount needed to avoid recapture of federal funds will be submitted for Council consideration on September 24, 2013. That project would be committed only if the waiver is not granted in time to allow the Lynhaven project to be committed by September 30, 2013. If the backup project is committed, the City will have sufficient HOME funds remaining to commit to the Lynhaven project once the conditions of the new regulation are met.
BACKGROUND: The original City loan for Lynhaven carried a two percent interest rate and WHDC projected to be able to begin payment, on a residual receipts basis, starting in 2003 based on its projections of income and cash flow, after expenses. To date, the cash flow from operations of the property has not been sufficient to begin residual receipt payments, and the total outstanding City loan balance is approximately $422,000, including interest accrual. The current loan terms call for the loan to be repaid by August 1, 2017, but allow for renegotiation at that time without penalty to WHDC.
WHDC's original purchase of the Lynhaven property did not involve substantial rehabilitation. As a result of aging and inefficient building systems, in recent years any cash flow achieved from the property has had to be reinvested back into the property to continue operations. In addition, WHDC has used approximately $330,000 of its own capital resources to help cover the property's escalating operations and maintenance costs.
FISCAL IMPACT: The City would provide an additional $1.078 million from the City's Housing Opportunities Fund (HOF). These funds would come from the Federal HOME ($862,400) and matching funds ($215,600) portion of the HOF, leaving an uncommitted Federal HOME and matching fund balance of $581,100.
ATTACHMENTS:
Attachment 1 - Sources and Uses for Substantial Rehabilitation
Attachment 2 - August 14, 2013 letter from the Lynhaven Civic Association
STAFF:
Mark Jinks, Deputy City Manager
Mildrilyn Davis, Director, Office of Housing
Helen McIlvaine, Deputy Director, Office of Housing
Eric Keeler, Division Chief, Office of Housing
Jon Frederick, Housing Analyst, Office of Housing