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P3 Digest for December 21, 2017

Fairfax County Uses a P3 to Provide Affordable Housing for Local Residents and County Workers

Editor’s Note: The following article is one in a series of six profiles of winners of NCPPP’s  National Public-Private Partnership Awards, which recognize organizations and individuals who have gone above and beyond to advance the concept and implementation of P3s across the country. The winners will be honored during P3Connect in Miami Beach in January.

Fairfax County, Va., is an expensive place to live. The county’s median home price is $579,000 compared with $424,900 in metropolitan Washington, D.C., according to Zillow, a national real estate database company. The county’s median monthly rent price in Fairfax County is $2,300, $100 higher than that for the metropolitan Washington area.

The Fairfax County government has been working for decades to help many of its low- and moderate-income residents gain access to affordable housing. In July 1990, for example, the Board of Supervisors approved an ordinance that established the Affordable Dwelling Unit program, which allows low- and moderate-income households pay reduced rents in some privately owned or managed market-rate apartment communities in the county. In 2004, the board announced launch of a new Affordable Housing Preservation Initiative to preserve existing affordable housing and increase the production of additional units. The centerpiece of the initiative was the Penny for Affordable Housing fund which dedicated revenue to commensurate with the value of one cent from the Real Estate tax rate to affordable housing preservation. The fund provided over $185 million for affordable housing in Fairfax County between FY 2006 and 2016. In 2008, the county began to look for creative ways to add to the county’s stock of affordable housing, a portion of which would benefit its mid-to-low income employees. Rather than acquiring land on which to build, the county decided to build affordable housing on nearly nine acres of public land, on the Fairfax County Government Center’s campus. This innovative decision allowed it to be built at no cost to local taxpayers.

The housing was developed through a public-private partnership between the county, the Fairfax County Redevelopment and Housing Authority (FCRHA), Jefferson Apartment Group, Stratford Capital Group and the Virginia Housing Development Authority. The effort was spearheaded by Paula Sampson, who was serving as the Director of the Department of Housing and Community Development (HCD), a county agency that serves as staff for the Fairfax County Redevelopment and Housing Authority (FCRHA), a distinct political entity that acts as the county financing agency and has the authority to own and operate residential housing. The Board of Supervisors supported the project, under the leadership of then-Chairman Gerry Connolly, who now represents Virginia’s 11th district in the U.S. House of Representatives.

The FCRHA provided $13 million in tax-exempt bond financing and the Board of Supervisors issued a long-term ground lease to Jefferson Apartments Group and SCG Development, which specializes in affordable housing projects. The two firms invested $56 million in the project. Additional funding was provided through a deferred developer’s fee of $2.5 million. The county’s financing approach has a unique component: the use of both 9 percent and 4 percent Low-Income Housing Tax Credits.

“Pairing the tax credits in one transaction was a new approach but it’s an effective way to allocate scarce resources efficiently. Now the county is incentivizing other project applicants to do it,” explained Stephen Wilson, principal and president of SCG Development’s Virginia office. “We plan to replicate this approach in affordable housing projects we do in other states,” he added.

The ground lease was divided into two leasehold parcels to accommodate the use of the two distinct types of tax credits. Condominium A, which contains 150 units, sits on 6 acres and Condominium B, containing 120 units, is built on 2.17 acres. The private partners act as lessees under the 99-year ground leases, which are unsubordinated and not cross-defaulted, with a one-time $100 payment.

These two buildings, part of the property now known as the Residences at Government Center, opened in December 2016 and provide 54 units of affordable housing to households with incomes at or below 50 percent of the Area Median Income (AMI) as set by the U.S.  Department of Housing and Urban Development. The remaining 216 units are available to households with incomes at or below 60 percent of AMI. Rental costs range from just above the mid-$800s for an efficiency apartment to just under $1,500 for a three-bedroom unit.  It also offers features not typically found in affordable housing developments, including underground stormwater management, low-impact and sustainable design elements and amenities such as a fitness center, children’s play area, a pool, a conference room, outdoor courtyards and a connecting walkable trail to the government center. The Residences has been awarded the coveted EarthCraft Gold certification, which attests to a project’s high level of sustainability in the areas of environmental performance, indoor air quality, durability, comfort and affordability.

“Fairfax County is a big proponent of P3s and this use of county property in partnership with a private developer and private financing demonstrates that P3s can benefit people across the income spectrum,” said current HCD Director Thomas Fleetwood. “And, the Residences is just the first example. We’re using a P3 to redevelop an old county-owned elementary school in McLean into 82 units of senior housing, a senior center and two child care centers. We’re also using another P3 to redevelop 33 acres of county-owned land along the Richmond Highway corridor in Alexandria, VA into a combination of affordable senior and market-rate affordable housing with a public park.”

“The need for affordable housing is growing as the cost of housing stock in metropolitan areas keeps rising,” said Wilson. “Fairfax County’s solution, building on government property, is a novel idea and quite successful. The Residences is 100 percent occupied and there’s a lengthy waiting list. I believe more counties should consider adopting this approach to providing affordable housing. It’s a great strategy for cutting costs by eliminating the need for a big capital subsidy and replacing it with a long-term ground lease at a favorable rate.”

“I’m very proud that the Residences and the Government Center have earned an EarthCraft Gold certification and the fact that this P3 project allows many public and private sector employees to live near where they work, eliminating long and expensive commutes, which is great for them and for the community,” said Fleetwood.

NCPPP is honoring the Residences at Government Center with its Innovation Project Award for its success in using the P3 procurement model to provide affordable housing efficiently and cost-effectively to Fairfax County employees and other residents.

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