Affordable Housing, Retail Space”¦ and a Fire Station

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Tax Credit Advisor, April 2009: Building affordable housing, or any housing for that matter, on top of a fire station might seem highly unusual. But city officials in Alexandria, VA, a close-in suburb of Washington, DC, believe that the new Station at Potomac Yard Apartments will be fully leased when the project opens this fall.

“Affordable housing is one of the city’s great, largely unmet needs,” says Helen McIlvaine, Deputy Director of the city of Alexandria’s Office of Housing. “We’ve had tremendous interest from people, from employees who work for the city, who would be very excited to live anywhere close to where they work.”

Daniel R. Abramson, president of the Alexandria Housing Development Corporation (AHDC), a nonprofit affiliated with the city, calls the development a model for future collaborations between municipalities, private developers, and nonprofit affordable housing developers.

AHDC is developing the project, called The Station at Potomac Yard. When completed, the $24.7 million mixed-use development will contain 64 affordable and “work force” apartments, two levels of underground parking, and 1,500 square feet of retail space. The four-story development will sit atop a separate $7.6 million state-of-the-art, LEED-certified firehouse owned by the city. The city believes the retail space will likely be occupied by a coffee shop, dry cleaner, bank, or small office.

The development has been recognized by multiple awards, including a 2008 Excellence in Public-Private Partnership Award from the U.S. Conference of Mayors.

Need for Affordable Housing

McIlvaine notes a growing need for affordable housing in the city of Alexandria; it’s lost roughly 10,000 affordable units in the past decade to condo conversions, rising rents, and redevelopment.

The historic city of about 137,000 competes with other communities in the Washington, DC metropolitan area for employees, housing, and transportation. According to McIlvaine, the city has had few opportunities to build modern affordable housing that offers more than the current stock of older developments with one- and two-bedroom apartments or efficiencies.

The new project had its origin in 2004, when Potomac Yard Development LLC (PYD), a joint venture formed by national builders Pulte Homes Inc. and Centex Corp., acquired a 167-acre tract of land located along Route 1 in the city – a former railroad yard known as Potomac Yard. PYD’s original plan was to redevelop the site into an urban village center comprised of office, commercial, hotel, and residential spaces.

But during a 2006 review of the proposed urban center project, city officials raised questions about the impact of PYD’s plan on Alexandria’s emergency services. In response, PYD agreed to donate a small parcel of land and $6.6 million to construct the city’s first new fire station in 30 years. The city contributed another $1 million to pay for a fourth bay in the 24,800-square-foot station, which will store hazmat equipment purchased after 9/11.

The new fire station and The Station at Potomac Yard will occupy a small part of the 167-acre tract, which when completed by PYD will include over two millions square feet of commercial/retail space and about 1,600 residential units.

Mix of Credit, Market-Rate Units

AHDC was designated by the city in May 2007 to develop, manage, operate, and maintain the residential component of The Station at Potomac Yard.

When completed, the development will include 44 low-income housing tax credit apartments (8 one-bedroom, 33 two-bedroom, 3 three-bedroom) and 20 market-rate or work force apartments (4 one-bedroom, 15 two-bedroom, one three-bedroom). “We expect to have a model unit ready for the public on July 13,” McIlvaine said. “We expect the units to be fully leased by October, with everything fully occupied before the end of the year.”

Projected initial monthly rents for the one-bedroom apartments are $995 for tax credit and $1,418 for market-rate units; two-bedroom units, $1,185 and $1,550; and three-bedroom units, $1,360 and $1,855.

Tax credit rents will be affordable to tenants earning 60% or less of the area median income (AMI). Sixty percent of AMI for a one-person household is $41,340; two persons, $47,220; three persons, $53,160; and four persons, $59,040.

The tax credit unit rents will be based on tenants paying no more than 30% of their income, according to Jim Chandler, Director of LIHTC Programs at the Virginia Housing Development Authority (VHDA). Chandler, though, acknowledged that tenants earning below 60% of AMI will likely pay more than 30% of income toward rent.

Workforce units will be restricted to households earning 80% or less of AMI, according to AHDC documents.

Funding Sources

The development has utilized multiple funding sources.

The biggest single piece is $8.6 million in housing credit equity, generated by the syndication of the housing credits by RBC Capital Markets. VHDA made an award of roughly $1 million in 9% housing credits for the project.

“We were fortunate to get a good price for our credits when we went to closing last fall,” said Abramson, who noted that credit markets have been in turmoil since then.

In addition, VHDA issued $4.85 million in taxable bonds to fund a 35-year mortgage at 7.6%, and provided another two, below-market loans for the project (35 years each, at 5.05% and 2.55%) totaling $3.5 million. Loans were made under VHDA’s SPARC (Sponsoring Partnerships and Revitalizing Communities) program, which is funded through VHDA’s REACH (Resources Enabling Affordable Community Housing) program.

Other sources included $880,000 in deferred developer fees from AHDC, and roughly $7.5 million from the city’s Housing Trust Fund, from a more than $10 million contribution being made by PYD to the Trust Fund.

The tax credit units must be maintained as affordable housing for 30 years. The development can be sold to AHDC or another nonprofit organization after 15 years, said Chandler.

Chandler said the project’s application scored well in competing for a housing credit allocation, due to local support, affordability, special amenities, energy efficiency, number of family-sized units, and other program criteria. The residential component was designed to meet EarthCraft certification guidelines for energy efficiency, which brings additional points under VHDA’s housing credit program competition.

Steps have been taken to minimize noise for apartment residents living above the new fire station. The area above the fire truck bays will be used as terrace space. In addition, McIlvaine said the fire trucks won’t turn on their sirens in the residential neighborhood. Also, studies have found that living above the fire station won’t cause undue excess noise for the residents. The neighborhood, now mostly commercial, already has noise from heavy traffic and nearby Reagan National Airport.

– Stephen K. Cooper