If all goes according to plan, the Alexandria Redevelopment and Housing Authority could end 2006 in the best financial position of its 66-year history. A single deal promises a possible profit "in excess of $20 million."
That was the prediction William M. Dearman, CEO, ARHA, delivered to his Board of Commissioners at its January meeting. It all stems from a plan for the buyout of the limited partnership of Cameron Valley, now known as Quaker Hill.
"Without a doubt this timely buyout of the limited partnership is extremely advantageous to ARHA. Our financial strength will reach a point never before achieved in ARHA's history," Dearman told the board in his report.
"This will assist ARHA in pursuing other housing options for our low-income residents. As we enter more austere times and continual reduction of federal funding it is imperative that we seize this opportunity to strengthen our financial position," he stated.
"This is an amazing opportunity for ARHA. Total control of the property without federal or state controls is a rare situation for a public housing authority," Dearman said.
"The placement of our low-income families in this very upscale neighborhood was a great achievement. Fifteen years of blending our families into a predominantly high income community setting attests to the determination and resolve of the families residing in the units and to the commitment of ARHA," he said.
His excitement stemmed from the potential to initiate formal negotiations with Clorox Corporation to buy out their financial interest in the partnership agreement. Clorox originally became involved in September 1988 when they purchased tax credits pertaining to Cameron Valley Limited Partnership from Chesapeake Partners Limited Partnership.
ARHA, as the general partner, holds a one percent interest. Clorox Corporation, the sole limited partner, holds a 99 percent interest. In November 1990, the partnership obtained a $3.7 million mortgage to purchase 30 townhouses at Quaker Hill at a unit cost of $123,000. In 1991 they obtained an additional $2.2 million mortgage to purchase 30 condominiums at the site based on a unit cost of $75,000.
Clorox Corporation agreed to purchase the tax credits from the Partnership in June 1991. ARHA received $7.2 million in tax credits from Clorox over the 15-year required tax period. Both loans originally held by Burke and Herbert Bank and Trust Company were consolidated and refinanced in 1998 by SunTrust Bank.
IN OCTOBER 2005, ARHA began preparations for the development of a buyout plan, according to Dearman's scenario. "Discussions with the syndicator, First Financial Management Company, indicated that the Partners capital account exit tax liability would be approximately $1.5 million," according to Dearman. This would be the buyout amount after being confirmed with the partnership auditors, he said.
The Quaker Hill "project compliance period" ends June 30, 2006. Assuming that the buyout is completed by July 2006, "ARHA would have more than 75 percent ownership equity upon successful completion of the property transfer," Dearman's report stated.
When the formal "project qualifying period" ends on June 30, 2006 "ARHA has first option to buyout the limited partnership" at an estimated price of approximately $1.5 million.
Based on a market valuation analysis "the total assessed value of the townhouses and condominiums is in excess of $20 million with approximately $3.57 million remaining in mortgage debt. Current sales listings show significant higher sale prices for both the townhouses and condominiums," according to the report to the board.
As explained to the ARHA board by Dearman, "Administrative control of federal tax credits are regulated by state housing agencies. Their primary function concerns qualifications of families residing in tax credit units and adherence to very restrictive rents based on area median family income factors. These monthly rents cannot be exceeded during the 15-year qualifying period. These restrictions would cease upon conclusion of that period."
When that happens rents "could be increased based on market demands." This would "enhance ARHA's financial revenue position without an adverse impact on the residents," according to Dearman.
This is accomplished because the present rents, which are paid through the Section 8 Housing Program, are "not at the top of the Section 8 scale," according to A. Melvin Miller, chair, ARHA Board of Commissioners.
"Those rents could be increased to that level which would be paid by the federal Section 8 program, not by the tenants," Miller said. The amount of Section 8 rent is based on individual tenant income and, therefore, can vary unit to unit.
However, there is a catch to the final calculation of the amount ARHA might realize from the transaction. It depends on the city's willingness to readjust the real estate tax calculations on ARHA's Quaker Hill units.
"Right now we are paying regular taxes on those units based on property assessment. All our other properties are based on what is known as payment in lieu of taxes. Tax payments are based on rent income to ARHA not on a property assessment formula," Miller said.
"The city has to agree to change the formula for Quaker Hill in order to prevent an eventual increase in rent payments to the tenants. If property values keep escalating, then the assessed value on our Quaker Hill properties will also continue to escalate and we will have to deal with that as with any regular rental property in the city," he said.
"If the city says no to the change from assessed value to rent income then rents will eventually increase and the residents will be impacted. But, we can't wait for that decision, we intend to move forward with the buyout plan," Miller said.
An ARHA team composed of Dearman, the director of finance, the director of housing operations, the director of development, and two commissioners appointed by the Board of Commissioners plus a consultant will negotiate with Clorox Corporation on the terms of the buyout.
IN OTHER ACTION, board members were informed that Commissioner Linda Cheatham had resigned because she is moving from the area. City Council will appoint her replacement.
The current officers were re-elected for 2006. They are: A. Melvin Miller, chair; and Carlyle C. Ring Jr., vice chair.