The Mayor’s Budget Review Committee advances incentive to develop 118 market-rate apartments along the expressway.
A bill seeking approval for a Recapture Enhanced Value Grant for the proposed $14.545 million redevelopment of the former FBI Building along Arlington Expressway as apartments is headed to City Council.
The Mayor’s Budget Review Committee voted unanimously 7-0 on Feb. 22 to file legislation authorizing an economic development grant between the city and apartment developer Theotokos Holdings LLC.
Theotokos Holdings requested a 10-year grant of $820,000 based on 75% of the incremental tax increases the project will generate over that time.
The developer proposes a first mortgage of $11 million and cash equity of up to $3.545 million.
A project summary says Theotokos Holdings wants to convert the former FBI Building at 7820 Arlington Expressway into 118 market-rate “starter” apartments comprising 72 one-bedroom, one-bathroom and 46 two-bedroom, one-bathroom units.
Rental rates will be comparable to other apartment complexes in the Arlington and Regency Square areas, the summary says.
Each apartment will include amenities that include maple cabinetry, stainless steel/black appliance packages and stackable washers and dryers.
Theotokos Holdings paid $1.2 million in September 2019 for the vacant, six-story, 95,000-square-foot Class C office building.
According to the summary, if the minimum development investment falls below $11 million, the REV grant is adjusted to 50%. The grant will be terminated if the investment drops lower than $9 million.
City Council will need to waive the city’s public investment policy because it is a residential development and not created for a target industry or for job creation.
The project is in what is considered a Level II Distress Area.
The summary says the REV Grant percentage of 75% for 10 years does fall within the policy for a project within the Level II Distress Area and the private capital investment exceeds $3 million.
The 20-acre quadrant at the Arlington Expressway and Southside Boulevard originally was developed in 1975 for Westinghouse Offshore Power Systems. The office park is vacant and deteriorating, the summary says.
The old FBI Building is one of three structures there, and all are vacant, have been vandalized and are without power. The FBI leased a building until 2009 when it moved to Gate Parkway.
Kozman Realty, the agent for the developer, bought the building and began interior demolition toward conversion of it into apartments.
Marc Peter Kozman and Magdi Samuel are partners in Theotokos Holdings.
When it bought the structure, it estimated the construction cost to convert the project at a cost of $6.8 million and a total cost of $9,925,000.
“However, since the Covid-19 pandemic outbreak in the spring of 2020 construction costs have increased by 65% to $11,200,000 and a total development cost of $14,545,000,” the summary says.
That along with credit tightening and changes in lending requirements for projects in older urban areas “negatively affected the financial viability of the project,” the summary says.
Those factors and the inability to increase market rents created a financing gap it says.
To close that gap, Theotokos Holdings is requesting the REV Grant “lowering the ad valorem property taxes over the first ten years of operation to obtain the necessary financing to complete the project.”
A legislative fact sheet says the public investment is a REV Grant at 75% of the incremental net increase in the ad valorem portion of the real and tangible property taxes resulting from construction costs for the conversion.
The city wants to promote growth and revitalization within its Level I and Level II Distressed Areas.
The census tract also is a designated federal Opportunity Zone.