THE STATION AT POTOMAC YARD Public, Private, and Non-Profit Collaboration BY HELEN S. MCILVAINE
The Station at Potomac Yard is a creative and cooperative approach to meeting multiple community needs in the City of Alexandria, Virginia. Located within a former regional rail yard, which is to be redeveloped into a walkable urban village, the project s innovative mixed-use design maximizes the use of land by combining a fire station, 64 units of affordable and workforce rental housing, and retail space, above two levels of underground parking. The project was made possible through a unique public, private, and nonprofit collaboration. The efforts of these groups the City of Alexandria; Potomac Yard Development (PYD), a joint venture of national homebuilders; and the Alexandria Housing Development Corporation (AHDC), a local non-profit housing entity allowed multiple public and private resources to be accessed to complete the project, despite the implosion of national credit markets and increasing constraints on city fiscal spending during the development period. More than 92 percent of the Station at Potomac Yard s $34 million total development cost came from non-city funding sources. While Alexandria s investment of actual dollars was limited, the city s superior bond rating, strong financial position, and willingness to provide back-stop guarantees were critical to securing other financing and investment. GETTING STARTED The Station project was conceived in early 2006 when city staff, reviewing PYD s plans for the first neighborhood to be developed, realized that the dense, urban design being proposed might hinder optimal emergency response time. The plans had already been extensively and positively vetted with the community, so all parties were interested in keeping the development schedule on track while mitigating the response time issue. PYD executives suggested that PYD would be willing to donate land and $6.6 million toward the cost of constructing a fire station within the 160+ acre Potomac Yard redevelopment site. The city, which had not built a new fire station in more than 30 years, eagerly accepted the offer. Keeping in mind A unique collaboration allowed multiple public and private resources to be accessed to complete the project, despite the implosion of national credit markets and increasing constraints on city fiscal spending during the development period. that Alexandria had lost more than half of its affordable rental housing since 2000 (a decline from 18,000 apartments to fewer than 9,000), the city also opted to use the air rights above the fire station to build a residential facility that would meet the urgent need for new affordable housing. PYD responded by offering to donate a substantial portion of its voluntary affordable housing contribution (estimated at approximately $10.5 million for the overall site) early to help fund the affordable housing project, if approved. In summer 2006, the project team (including city fire, housing, code, and planning staff, and developer and non-profit representatives) held weekly informational meetings with a mayor-appointed citizen task force and the community. These meetings led to two important outcomes. First, the community communicated its desire to include some workforce housing in the development, with rents that would be affordable for residents with incomes of up to 80 percent of the metropolitan area median income. These units would potentially serve city employees, including first responders and teachers. Second, it was confirmed that this new municipal structure would be designed and constructed according to green building standards, in accordance with Alexandria s commitment to becoming an eco-city. In September 2006, the task force issued its report endorsing the project; at its October retreat, the city council preliminarily approved $1 million to fund LEED elements. In February 2007, the planning commission and city council unanimously approved the development proposal, which included 64 apartments, with 44 affordable units and 20 workforce units. In March 2007, AHDC submitted a successful application for $10 million in low-income housing tax credits. With this award of additional equity, the station project was able to move ahead. In fact, Internal Revenue Service rules governing the low-income housing tax credit program required that the project be delivered and the affordable units occupied by the end of 2009, so construction got underway in January 2008 and the project was completed in August 2009, allowing AHDC to meet its critical December 2009 milestone. June 2011 Government Finance Review 31
THE ROLE OF CITY FINANCE STAFF The complexity of the project i.e., the number of entities involved, multiple sources of funding, varied reporting requirements of investors and lenders, a rigid construction schedule necessitated by the tax credits, and challenges encountered due to dynamic market conditions during the development s construction and stabilization periods (2008-2010) necessitated regular participation, collaboration, and leadership from the city s financial, management, and budget executives and their support to keep the project moving forward on time and on budget. Their contributions included: n Initial determination of project feasibility n Assessment of city financial support required and potential funding sources n Management of public and political support for budget items related to the project n Guidance and support in establishing Alexandria Station LLC, a specialpurpose entity comprising the city and AHDC, to develop and construct the project More than 92 percent of the Station at Potomac Yard s $34 million total development cost came from non-city funding sources. n Technical assistance to set up finance and accounting systems to track all project expenses, funds, and payments according to uses, funding sources, and participants n Strategic advice to troubleshoot and pragmatically navigate difficult market conditions n Bookkeeping and accounting for all aspects of the project: making payments to contractors, vendors and consultants; tracking and allocating PYD contributions and deposits from all funding sources; helping all parties with record keeping and audits; and responding to information requests from lenders, banks, and investors n Technical support to AHDC and its accounting team n Regular participation in monthly Alexandria Station LLC steering committee meetings to anticipate and resolve issues affecting project construction, financing, and operations n Ongoing assistance to the condominium unit owners association that governs station operations (the city is a member of the association, as it owns the fire station) The city s top financial executives were available primarily in a regular consult- 32 Government Finance Review June 2011
ing capacity, as needed, and finance and accounting administrative staff provided daily support for operations from 2007-2009. On one occasion, too, the city consulted its third-party financial advisor for independent counsel regarding soliciting a letter of credit to benefit AHDC. By associating with AHDC on this project and providing technical assistance, the city also helped AHDC build investment. its capacity and develop greater self-sufficiency to successfully undertake future projects. Although AHDC did not have full-time staff until the station was nearly complete, AHDC board members with affordable housing development, legal, and finance experience provided regular leadership to Alexandria Station LLC s development efforts. FINANCING THE PROJECT The most important financial concept demonstrated by the Station at Potomac Yard is the tremendous potential for accessing resources through collaborations among public, private, and non-profit entities. So many local and state governments face fiscal constraints similar to those Alexandria s investment of actual dollars was limited, but the city s superior bond rating, strong financial position, and willingness to provide back-stop guarantees were critical to securing other financing and experienced by Alexandria, and this model will allow them to deliver capital projects with community benefit. Municipalities that have the capacity and willingness to adopt more entrepreneurial business practices will be able to enter into effective partnerships and attract, marshal, and maximize third-party resources. Creating a special-purpose entity corporation allowed Alexandria to act more nimbly in financing, building, and managing the overall development for the station (necessary to meet the deadline imposed by the tax-credit funding). And the technical assistance, participation, and oversight provided by city finance professionals throughout the development process ensured that the requirements and fiduciary interests of the public trust were fully safeguarded. In addition to loans and grants, the city was able to provide a short-term bridge loan of $1.4 million to help AHDC pay the general contractor when the planned closing on tax credits was delayed for several weeks in the fall of 2008. The city s willingness to provide flexible interest-rate terms, to make residual receipts loans, and to subordinate its financing at The Station at Potomac Yard in late 2009, when the project was completed. (Photo by Eric Taylor.) June 2011 Government Finance Review 33
different stages of the project all helped AHDC secure non-city financing. While the city s investment of dollars in the project was proportionally smaller than some other sources (exclusive of land, around 8 percent of the total development cost), the city s active participation in the station and its willingness to provide backstop guarantees, as needed, enabled AHDC, a startup non-profit organization with no balance sheet or development track record, to secure a tax credit investor and to arrange for favorable construction to permanent financing with the Virginia Housing Development Authority (VHDA). Award-Winning Project The Station at Potomac Yard has won the following awards: n Virginia Municipal League 2010 Achievement Award n Brick in Architecture Award, 2010 n Housing and Non Profit Developers 2010 Achievement Award for Innovation, June 2010 n 2009 Virginia Housing Award Best Mixed Use or Mixed Income Housing Development, November 2009 n Fire Chief Magazine, 2009 Bronze Award for Fire Station Design n Finalist, Affordable Housing Finance 2009 Reader s Choice Award, Master Planned/Mixed Use Category n American Planning Association Award, 2008 Outstanding Project, National Capital Area n U.S. Conference of Mayors Award for Excellence in Public Private Partnerships, January 2008 n Finalist, National League of Cities Award for Municipal Excellence, August 2008 n Finalist, Urban Land Institute Ronald J. Terwilliger Center Workforce Housing Models of Excellence Award, October 2008 The most important financial concept demonstrated by the Station at Potomac Yard is the tremendous potential for accessing resources through collaborations among public, private, and non-profit entities. On AHDC s behalf, the city backed two letters of credit and provided a completion guaranty to the tax credit investor. PYD s donation of land made the project both possible and affordable over the long term. The developer s willingness to stake early dollars for predevelopment and feasibility studies (typically the most difficult project phases to finance because of risk) and to fund the initial period of construction helped AHDC get tax credits. Developer dollars also helped fund non-eligible (for tax credits) costs associated with the underground parking, the community room, and the workforce housing. By using consultants and vendors that had a relationship with PYD, the station was able to take advantage of efficiencies and knowledge that resulted in savings for the project. Because of the strict deadline for completion, financing and constructing the project had to be fast tracked as soon as the development concept was approved and tax credits awarded. Alexandria Station LLC, the special-purpose entity established to own, develop, finance, and construct the project, allowed the city, as the managing member of the corporation, to act nimbly. COSTS AND BENEFITS Between 2006 and 2010, Alexandria provided significant staffing resources to this important capital project, in addition to finance staff. The city provided technical support to AHDC in order to enhance the capacity of this start-up non-profit development organization. City departments and agencies involved included representatives from code administration, fire, general services, housing, planning, transportation and environmental services; the Office of Historic Alexandria; the city attorney s office; communications; and recreation, parks and cultural activities. The investment of city funds in actual non-personnel hard and soft costs associated with the development of the Station at Potomac Yard was approximately $3 million. Of that amount, $1.9 million was secured by a loan to AHDC that is expected to be repaid from project cash flow from the residential component over the next 15 to 20 years. 34 Government Finance Review June 2011
In addition to PYD s donation of land and its contributions to the fire station ($6.6 million) and to the housing facility ($7.5 million), other funding for the $34 million project included $8.6 million in low-income housing tax credit equity, $8.35 million in loans from the Virginia Housing Development Authority, city loans and grants, AHDC s deferred developer fee, and some ancillary project-generated revenue. The station project provided much needed, very tangible benefits to the City of Alexandria a new, state-of-the-art fire station and affordable and workforce rental housing. The new station houses multiple vehicles, stores modern firefighting and equipment for dealing with hazardous materials, and provides a suitable living environment for a male and female workforce. Both the fire station and the housing facility are green: The fire station is LEED-certified and the residential units meet Earthcraft program standards for energy efficiency and savings. The project has provided many opportunities for community engagement and education regarding affordable housing and its demographics; the very visible and iconic station building has helped change the public s perception of affordable housing. CONCLUSIONS While mixed-use projects and public-private partnerships are not new, the station represents a unique combination of uses. Despite initial concerns about combining Municipalities that have the capacity and willingness to adopt more entrepreneurial business practices will be able to enter into effective partnerships and attract, marshal, and maximize thirdparty resources. a fire station with residential apartments, the engineering and design measures taken to mitigate sound and vibration within the structure appear to have been very successful. Building residents and members of the fire station both report that the station community is thriving. Visitors from other cities, states, and countries have toured the station with the hope of replicating the concept. City staff is providing technical assistance and information to several similar projects being explored in Arlington, Virginia; Washington, D.C.; New Brunswick, New Jersey: Durham, New Hampshire; Wilmington, Delaware; the City of Frisco, Texas; and Shanghai, China. The Station at Potomac Yard design concept, which combines a municipal use with affordable housing, could be easily adapted and replicated in urban, suburban, and rural communities as part of smart growth or efficient land use planning. With monetary resources limited, governments are challenged to find and adapt new ways of providing meaningful support: mutually beneficial public, private, and/or non-profit collaborations offer excellent opportunities for local governments to maximize new resources available through strategic partnerships. y HELEN S. MCILVAINE is deputy director, Office of Housing, for the City of Alexandria, Virginia. June 2011 Government Finance Review 35