If you want to build affordable housing along Arlington County's Orange metro line, the math just doesn't add up. Development costs can run as high as $300,000 to $400,000 per unit on the suburban Virginia route, which takes commuters directly into the heart of the nation's capital.
“You're talking about a rental market where an average two-bedroom will go for $2,500 a month plus utilities,” says Ken Aughenbaugh, the housing director of Arlington County.
That can be a hefty price tag for a family on a limited income. No one knows these harsh economic realities better than Douglas Peterson, who was executive director of the Arlington Partnership for Affordable Housing until June 2007. Peterson worked 10 years in the county's housing office before joining APAH in 2000.
Fortunately, Peterson had the land to try to address Arlington's affordable housing problem. But before he could capitalize on this parcel, he needed to mobilize a team of county and state officials to get the much-needed density and capital. Even then, the neighbors next door almost thwarted all of his progress.
MECHANICS OF THE DEAL APAH bought the land for Peterson's development long before he arrived on the scene. The organization purchased the parcel and a 22-unit garden apartment complex, Rosslyn Ridge, in 1992. The 30,000 square feet of land sits in a prime spot—less than a mile from the Rosslyn Metro station.
Upon arrival at APAH, Peterson knew he wanted to tear down the existing units there and build as big as possible. “I figured that the way real estate was going in 2001 [just before the Washington, D.C., market took off], it just made sense to try to pool the parcels together to create as big a building as I could,” Peterson says.
Fortunately, nearby Hillside Park had the additional density Peterson coveted and was zoned for residential use. Arlington shifted density to APAH by incorporating Rosslyn Ridge into one site plan. Arlington then sold the park's density to APAH for $5.5 million. “In doing a deal where we can take advantage of that additional density, it's really about getting your land costs down to a very low basis relative to the overall development,” Aughenbaugh says. “You get a very efficient deal as a result.”
The density deal gave Peterson a bigger footprint for the project's 238 units, 98 of which are affordable. “Without the density from the park, APAH could have built a 15-story apartment building but with a maximum of 97 units,” Peterson says. “There is a question of whether the 97-unit building would have been feasible. The cost would have been too great to make it a feasible project. “
Getting density was only part of the battle. Peterson then needed capital. He tapped into the Virginia Housing Development Authority on two different occasions. It was the first lender on the project, providing $46.5 million in financing (the biggest deal the organization ever financed). “It's a mixed-income deal,” says Scott Charnock, senior development officer for the VHDA. “That was attractive to us.”
Arlington County also pitched in by lending APAH $1.8 million in long-term 30-year money, and a separate department at the authority administered the $7 million in tax credits at Rosslyn Ridge. “It would have been impossible without those funding sources,” Peterson says. “Basically, 40 percent of the rents are, in some cases, half of what the market rate is. You need some initial funding mechanism that will provide that gap to be able to cover lost income that you get on reduced rent units.”
NIMBY FIGHT Although Peterson did a good job of getting both Arlington and the state of Virginia on board with his vision, one group wasn't too happy about the affordable deal he orchestrated. Unfortunately, this contingent was right next door.
A condo complex, the 526-unit Belvedere, towers over APAH's land. Some owners in the complex weren't too thrilled to see almost 100 new units of affordable housing proposed for construction next door. Others were concerned about issues stemming from 16th Street, which runs right in front of the condo complex and above APAH's site.
“They were very concerned about people accessing [16th Street] thinking they could access the new APAH property,” Peterson says. “They were concerned about people cutting across the street at midblock, trying to access the park, and creating safety issues.”
Many drivers already think 16th Street is a through street. When they find out it isn't, they must turn around at the Belvedere. “People and trucks go in there, and, in backing out, they knock over lamp posts,” Peterson says. “They've had huge bills over the years because big trucks would go up there, see it wasn't a through street, turn around, and knock over a lamp post.”
As he sat down with leaders from the Belvedere, Peterson worked through many of their issues and was able to hammer out agreements. He's building a sidewalk along the park, putting up a wall, and using landscaping to keep people from crossing the street at dangerous points. He's also handling the issue of trucks destroying the Belvedere's lamp posts. “We will put some brick posts at that intersection stating that this is a private access road with no through street or turn around to prevent that from happening in the future,” he says.
BACK ON TRACK In all, the negotiating process with the Belvedere took 11 months. Aughenbaugh estimates construction costs rose 23 percent during that time, forcing the developers to go to Arlington County for a bridge loan of $4.5 million. “The bridge loan came into the equation to fill the void that was created by the cost increase during the time period,” says Stanley Sloter, president of Arlington-based Paradigm Development, APAH's partner on the deal.
Peterson's funding sources didn't have to provide more money after the delay. In fact, they could have used the delay as an excuse to bail from the project. “All of these resources are scare,” Sloter says. “All of those funds can go somewhere else during the time period you're in the penalty box.”
Fortunately, that didn't happen. Seeing the injection of affordable housing in a community that desperately needed it was enough to keep Arlington on board. “They had never been able to produce that many units in the metro corridor for that cheap amount of money,” says Peterson, the former county employee. “Affordable housing is their No. 1 agenda item. That's why they stayed on board.”
Peterson's lenders down in Richmond didn't waver either. “VHDA was willing to wait for it to be resolved. However, it could or could not be resolved,” Charnock says.
With financing finally settled and opposition from the Belvedere quelled, Peterson finally broke ground on the project last winter. While the shovels hit the dirt on one of the coldest days of the year, Peterson couldn't have been happier. He'll be even more satisfied when Rosslyn Ridge, a project with a number of green features, begins leasing in June or July of next year and is completed by the end of 2008. “At the end of the day, the products we're producing will be a huge asset to the community,” he says.
Les Shaver is senior editor at BIG BUILDER, a sister publication to MFE.
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CLEARING HURDLES
So, you want to follow Douglas Peterson, former executive director of the Arlington Partnership for Affordable Housing, and build affordable housing in a high-cost area? Even if you have the land for the deal, these tips can help to over-some other challenges.
- Find a partner. Peterson's deal for Rosslyn Ridge depended on a partnership with Paradigm Development in Arlington, Va. “They needed somebody to stand behind the deal with their net worth on the line,” says Ken Aughenbaugh, the county's housing director.
- Wait it out. Often NIMBYs know they can't win in court. But litigation can tie up a project and make it unfeasible. “The strategy of those kinds of groups is to delay the project until something else happens that stops it,” says Stanley Sloter, president of Paradigm Development.
- Save some cash. APAH used its funding sources to structure a deal that kept income flowing in at Rosslyn Ridge. “A smaller cash flow stream [could] help the organization survive through the lean times,” Peterson says.