Leveraging Value Northern Virginia Nonprofit to Redevelop Prized Urban Site to Create Larger New Apartment Property

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Sometimes a developer’s best new project is replacing an existing property with a larger new development on the same site.

That’s exactly what the Arlington Partnership for Affordable Housing (APAH) is doing in an urbanized part of Northern Virginia. Taking advantage of a favorable land use amendment and rezoning, the local nonprofit will demolish a low-rise 27-unit affordable property it owns and construct a five-story, 104-unit mixed-income apartment community that also includes new offices for APAH. The $40 million transaction is expected to close in the fourth quarter, begin construction in January, and be completed next summer.

Founded in 1989, APAH owns and manages 14 affordable multifamily rental properties with more than 1,200 units in Arlington County, a high-density urbanized suburb of 220,000 people across the Potomac River from Washington, D.C.

The new development, called The Springs Apartments, will replace the current Carlyn Springs Apartments, a long, three-story brick building that APAH purchased and renovated in 1997. The property contains 20 income-restricted one-, two-, and three-bedroom units and seven market-rate one-bedroom apartments.

The Springs will contain 10 studio, nine one-bedroom, 63 two-bedroom, and 22 three-bedroom apartments, ranging from 395 to 971 square feet. Ninety-eight apartments will be low-income housing tax credit (LIHTC) units restricted to households earning less than 40%, 50%, or 60% of the area median income, and six apartments will be market-rate units. Initial gross monthly rents will range from $749 to $1,669 for the affordable units and $1,613 to $2,200 for the market-rate apartments.

Currently, 60% of area median income in the Washington area is $51,360 for a two-person household and $64,200 for four persons.

APAH is working with current residents of Carlyn Springs Apartments to help them relocate to other housing during construction. They will have the opportunity to return to the new development.

“This is a great opportunity to both upgrade the housing and expand the number of affordable units in a neighborhood that everybody wants to live in,” says APAH President/CEO Nina Janopaul. “This is where the jobs are. This is where the transit is.”

Located in the rapidly redeveloping Ballston area, the site is on a dozen bus routes and less than a half-mile from the Ballston Metro station – a stop on the area subway system’s Orange and Silver Lines. In the past few decades, property values and population in the Ballston area have risen substantially amidst a build-up of new high-rise buildings (offices, apartments, condos), restaurants, shops, and other businesses. A major indoor mall is about to be redeveloped as well.

According to Janopaul, the existing site and improvements will be sold to the new tax credit partnership for $4.35 million, much less than the increased value of the property.

Amenities and Services

In addition to the apartments, The Springs will contain underground parking, a business center, fitness studio, bicycle storage area, tot lot, public and private courtyards, and a community room for resident gatherings and services. “As part of our affordable housing mission, APAH maintains resident services programs,” says APAH Real Estate Project Manager Laura London. “We provide a host of opportunities for families, individuals, and children who reside in our properties, including workplace skills, health and well-being, household finance, and community engagement. We have English language classes, health fairs, cooking classes, and programs geared toward children. We provide those both with our own in-house staff as well as many partnerships with other area service providers.”

The Springs, designed to the EarthCraft Platinum green building standard, will also contain new headquarters offices for APAH, structured as a condominium unit and financed separately. Currently, APAH operates out of a converted basement in one of its smallest apartment properties, despite an increase in staff from three to 16 persons over the last seven years.

Ten percent of the apartments are designed to be fully accessible for persons with physical or behavioral disabilities, with such features as roll-in showers and larger turning radiuses to accommodate wheelchairs. Arlington County will provide funds to help pay for supportive services and rent subsidies for residents of these units.

Multiple Funding Sources

According to Janopaul and London, one key challenge was structuring the new project to compete successfully for an award of 9% federal housing tax credits from the Virginia Housing Development Authority (VHDA). Part of this was designing the development to fall within a new per-unit dollar cap on total development costs established by VHDA.

In June 2014, VHDA finalized an award to the project of $1,999,950 per year in housing credits. The credits will be placed with Bank of America Merrill Lynch, the tax credit investor, for a price of $1.105 per dollar of tax credit. Tax credit equity will fund about 55% of the total cost of the project. Other sources include a 30-year fixed-rate permanent first mortgage and two additional loans from VHDA, a deferred developer fee, and a soft second loan of $7.8 million from the Arlington Housing Investment Fund (AHIF), the county’s housing trust fund. The soft second loan will accrue interest at 2% a year and be repayable over the 30-year term from the project’s excess cash flow to the extent available.

A condition of the trust fund money is that the affordable apartments be kept affordable for 60 years.

Janopaul praised the county, VHDA, and Bank of America Merrill Lynch for their financial support for The Springs. She also commended county officials for their commitment “to having a diverse and inclusive community.”

“We’re very excited about the project,” says Arlington County Housing Director David Cristeal. “It’s going from 27 units to 104 units. This deal illustrates the challenges that we have in high-cost areas in trying to meet the demand for affordable housing…Our job in the Housing Division of the Planning Department is to expand housing opportunities [in the county] for folks with a wide range of employment and incomes.” In the past 10 to 15 years, he said, Arlington County has lost more than 11,000 affordable primarily conventional apartments – units no longer affordable because of increased rents.

APAH began planning the redevelopment of Carlyn Springs Apartments in 2012. With extensive public input, the county conducted a lengthy review of the land use plan for the North Quincy Street Area and in February 2013, amended it to change the zoning from low/medium density residential (16-36 housing units per acre) to medium/high density residential/mixed-use. This change increased the potential development rights for properties in the area and paved the way for APAH obtaining county approval of a rezoning of the Carlyn Springs site to higher density and a mixed-use designation.

The Springs will mark the second time that APAH has demolished a small property in its portfolio and built a new, larger mixed-income development on the same site. Janopaul said high property values throughout Arlington County have forced APAH to change its development approach. “We’re finding that land is very expensive and that the formula that we used in the past – buying older garden apartments – is getting out of reach because those garden apartments are being snapped up by other buyers who are redeveloping them or even just remodeling them as is and doubling the rents.”

APAH’s leader calls the new transaction “an excellent example of nonprofit stewardship. “Our little one-acre property with a 1963 aging walk-up apartment building is now next door to very valuable high rises with lots of offices and condos and rental apartments at the top end. We as nonprofit stewards are able to recycle this property back and expand our mission without increasing the rents.”