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.”