Housing Commission Action Item 11.09.17 Room 311 of Courthouse Plaza Park Shirlington Acquisition/4510 31 st Street South Background Park Shirlington Apartments is a 294-unit garden apartment community built in the 1950 s. The property is located at 4510 31st Street South (see Attachment 1). The total site area of the property is about 15.79 acres. It is divided into two parcels. The parcel that is north of 31st Street South is 9.44 acres and contains 189 units. The portion to the south of 31st Street South is about 6.35 acres and contains 105 units. The units are market affordable ( MARK ), meaning they are affordable to low-income households earning up to 80% AMI as a result of current market pricing rather than local, state, or federal affordability or income requirements. Standard Property Company, Inc. signed a purchase agreement with the current owner, an affiliate of HOME Properties, on September 7, 2017. The agreement provides the buyer with 60 days to close on the acquisition which may be extended 30-days to December 7, 2017. Standard Property has formed a joint venture with the National Foundation for Affordable Housing Solutions (jointly, the Project Sponsor ) to acquire the property and preserve the affordability of all 294 units up to 80% Area Median Income for the length of the loan term. MARKS Preservation Historic Conservation Districts In April 2017, the Arlington County Board held a work session with the County Manager and staff to review the findings and recommendations of the report Market Affordable Housing: An Approach for Preservation. Park Shirlington Apartments is identified as being within one of the nine study areas included in this report. In order to help incentivize preservation of affordability within the study areas, the County Board directed the County Manager to develop recommendations for creating Housing Conservation Districts (HCDs). The HCDs would be designated in the County s General Land Use Plan (GLUP), along with regulations in the Zoning Ordinance. The new HCD would contain zoning incentives, including preservation, infill, and redevelopment options, aimed at preserving the affordability of the MARK properties within district boundaries. The first phase of recommendations for the HCDs, anticipated to be considered by the County Board in December, includes establishing a Policy Framework, amendments to the General Land Use Plan that would establish the HCDs through defined goals, objectives, and boundaries, and amendments to the Affordable Housing Master Plan to reference the HCDs in relation to policy 1.1.3 to Make every reasonable effort to prevent the loss of market-rate affordable rental housing. Part of the Phase I recommendations also include amendments to the Zoning Ordinance to reclassify townhouse development as a special exception use within RA zones in HCD boundaries. This would be consistent with the Project Sponsor and County goals to create a long-term affordable housing program at this site. County staff anticipates bringing forward the package of recommendations for the Housing Conservation Districts in three phases to be completed by spring/summer 2018. The options available
to an HCD may help to inform the long-term affordable housing program at the site. Community Process After Acquisition The Project Sponsor will engage with County staff in determining the long-term affordable and mixed-income housing program at the property. The County s goals during this process would include arriving at a long-term affordable housing program that preserves as much affordable housing as possible and a tenant relocation plan that assists current tenants to remain or return to the community. It is a County goal for people who currently live in Park Shirlington to be able to continue to live in Park Shirlington. The Project Sponsor has initially proposed a 4% Low Income Housing Tax Credit (LIHTC) project to rehabilitate and preserve all 294 units at an income mix as agreed to by the County. A 4% LIHTC project would require additional County financing in the form of a future AHIF loan request and allocation. The applicant may also choose to utilize new HCD zoning incentives that are developed. Attachment 2 includes a draft Memorandum of Understanding (MOU) that the County will execute with Project Sponsor within 60-days of financing closing that states the goals for the property. Affordable Housing Program A total of 294 units will be income certified up to 80% AMI following acquisition. Project Sponsor will make best efforts to income certify current tenants following financing closing. Any remaining units occupied by tenants that are not able to be income certified or are over-income will be incomerestricted as vacated apartment units become available. There will be no tenant displacement or relocation upon acquisition. The table below shows the bedroom mix of the 294 existing units that the Project Sponsor will acquire. Unit Type Total Average Rent as of June 2017 1BR 57 $1,320 2BR 223 $1,610 3BR 14 $2,088 Total 294 $1,673 Proposed Financing Structure The Project Sponsor will close on financing within the first week of December 2017. At settlement, the total acquisition costs are estimated to be $72,356,038, of which $66,750,000 is the purchase price for the property ($227,041 purchase price/unit). The sale of Park Shirlington was a competitive process, and Standard Property Company, Inc. submitted the winning bid. In addition to the purchase price, the total acquisition budget includes a $2.00 million capital reserve fund for immediate capital repair needs, $2.90 million in acquisition costs (including a buyer acquisition fee, legal, insurance and other costs), and financing debt fees of $770,125.
The financing will include the following sources: a $47,510,000 loan from Citibank, N.A.; a $6,500,000 mezzanine financing loan from Candeur Group, $12,414,353 million in equity from the Project Sponsor, and a $6 million AHIF loan from the County. The project will leverage about $11 for every $1 in County loan funds. The loan term for the senior, mezzanine and County loans are all three years plus an option for a one-year extension. The following table shows the proposed sources and uses for the acquisition. SOURCES OF FUNDS: Citibank, N.A. Loan (Senior Lender) Candeur Group Loan (Mezzanine Lender) USES OF FUNDS: $ 47,510,000 Purchase Price $ 66,750,000 $ 6,500,000 Acquisition Closing Costs $ 2,904,228 Project Sponsor Equity $ 12,414,353 Capital Reserves $ 2,000,000 AHIF Loan $6,000,000 Debt Fees $ 770,125 Total Sources $72,424,353 72,356,0 Total Uses $ 72,424,353 AHIF Funds Requested The Project Sponsor is requesting $6,000,000 in AHIF loan funds equaling $20,408 per unit in County financing. Once the property is acquired, there will be an additional AHIF request once the long-term affordable housing program has been determined. The amount and terms of the additional AHIF requests will be subject to County Board approval. The repayments of the County AHIF loan would be in the form of interest only payments that would carry a 2% interest rate ($120,000/year). Affordability Requirement and Covenants During the AHIF loan term, two hundred ninety-four (294) or 100% of the units will be restricted to occupancy by households earning up to 80% of the Area Median Income (upon attrition). A Deed of Restrictive Covenants will be recorded that will be effective during the length of the loan term (three years plus an option for a one-year extension). Following acquisition, the County and Project Sponsor would work towards the goal of preserving as much affordable housing as possible. The Restrictive Covenants would then be amended for an affordability period and income mix to be agreed upon by the County. If, at the end of the loan term, the Project Sponsor reasonably determines that an affordable housing program is not economically feasible and elects to sell the Property, hold the property, or develop the Property by-right, the affordability requirements within the Restrictive Covenants will be released. However, the following loan terms provide additional protections for the County s interest in the property: Re-Sale Restriction: During the loan term period, the Project Sponsor agrees not to sell or otherwise transfer the Property prior to the end of the loan term, with the exception of a pre-approved sale of the Property into a low income housing tax credit partnership.
Option to Purchase: Staff recommends an option to purchase the smaller southern parcel (RPC 29-018-003), containing 105 units, at the end of the loan term. This parcel contains fewer units and buildings than the northern parcel (five of the fourteen buildings), and therefore could be purchased for a lower AHIF amount. Also, this parcel, based on an analysis completed by Planning and Urban Design staff that examined existing environmental, site and neighborhood context considerations, presents potential opportunities for future in-fill development. The County Board will have the right to exercise and/or assign an option to purchase the southern parcel for a portion of the purchase price plus certain agreed upon predevelopment costs incurred during the loan term. The option would be triggered at the end of the loan term and in the event the Project Sponsor deems a low income housing tax credit/committed affordable housing program at Park Shirlington to be economically infeasible. The option is intended to further protect the County s interests in the property as a secured, subordinate lender. AHIF Interest Rate: The AHIF loan would carry a 2.0% interest rate for the loan term ($120,000/year). The interest rate will retroactively increase to 4% in the event that the Project Sponsor reasonably determines that an affordable housing program is not economically feasible by the end of the loan term. This would equal additional AHIF loan repayments of $480,000 over four years.
ATTACHMENT 1 Park Shirlington Apartments 294 Units Key: Building 1 4520-22 31 st St. South (21 units) Building 2 4510-12 31 st St. South (21 units) Building 3 4500-02 31 st St. South (21 units) Building 4 4428-30 31 st St. South (21 units) Building 5 4420-22 31 st St. South (21 units) Building 6 4501-03 31 st St. South (21 units) Building 7 4421-23 31 st St. South (21 units) Building 8 4427-29 31 st St. South (21 units) Building 9 4433-35 31 st St. South (21 units) Building 10 4513-15 31 st St. South (22 units) Building 11 4519-21 31 st St. South (22 units) Building 12 4525-27 31 st St. South (21 units) Building 13 4507-09 31 st St. South (20 units) Building 14 4439-41 31 st St. South (21 units)
ATTACHMENT 2 DRAFT PROPOSED MEMORANDUM OF UNDERSTANDING - TERMS November 18, 2017 The owner of Park Shirlington and the County Board of Arlington agree to work together in mutual good faith to achieve the following objectives in the preservation, infill, and/or partial redevelopment of Park Shirlington Apartments: A. The preservation of as much affordable housing as possible within Park Shirlington, with a goal of 294 committed affordable units; B. Submittal of a low income housing tax credit development proposal for the rehabilitation of the affordable units; C. The ability of people who currently live in Park Shirlington to continue to live in Park Shirlington. Toward the achievement of the preceding objectives, the Owner and the County agree to the following processes and actions: 1. The Owner agrees to develop, in consultation with the County, a rehabilitation program that would preserve all 294 units at affordable rents and income mix as may be agreed between the Owner and County. 2. The rehabilitation plan will consider appropriate additions ( bump outs ) or infill development to maximize the number of units and optimize unit sizes. 3. The Owner agrees to develop applications for low income tax credits for the rehabilitation program. 4. The Owner agrees not to issue notices to vacate until the County has approved an affordable housing preservation plan and tenant relocation plan. 5. The recommendations for the preservation, site plan or use permit for infill or partial redevelopment would lead to action by the County Board by November 2020, or other date as the Owner and County may agree. 6. The Owner understands that the review of the preservation, infill, and or development recommendations for the property will be subject to evaluations typical of any site plan/use permit in Arlington, including but not limited to -- building form, height, massing and density, materials/façade, architecture, transportation, parking, trees, and open space. 7. The County anticipates receiving a future AHIF request from Sponsor Developer to fill the gap in financing for an affordable housing low income housing tax credit project, subject to a future County Board appropriation. OTHER PROVISIONS 8. The Owner agrees to explore use of Property-Assessed Clean Energy (PACE) financing options and Historic Tax Credit financing options. 9. The Owner and County agree to explore ways for people who live in Park Shirlington and have incomes over 60% area median income to remain in Park Shirlington. 10. The Owner and County will work to provide an adequate number of designated units that will respond to the needs of existing tenants in terms of depth of affordability and unit size. 11. To the extent possible, the Owner will develop construction phasing to minimize burdens on tenants during displacement and relocation. 12. The Owner agrees that Park Shirlington will be properly maintained in good habitable condition throughout the negotiation and any subsequent preservation and/or redevelopment process, while tenants are onsite.