‘Revenue Neutral’ Revised to $185k Annual Tax Loss
The conversion of 230 residential condominiums from “for sale” to “for rent” units in the large-scale Pearson Square project will impact Falls Church taxpayers, new documentation from the F.C. City Hall has confirmed.
Last week, City officials made the controversial claim in a briefing to the City Council that the impact would be “revenue neutral,” comparing 2004 revenue expectations to 2007 ones.
However, the Council wanted to see a comparison of projected assessments of the units for 2007, to show the difference between the net assessments as condos for sale, as condos for rent, and as straight rentals.
The data provided showed that, far from being “revenue neutral,” the conversion will cost the City about $185,000 in net revenue annually, or equivalent to about a half-cent on the real estate tax rate paid by all City homeowners.
The City Council has no legal grounds to prevent Carr Homes, the current owner of the project, from selling the residential component to Trans-America, or to stop the latter group from renting, rather than selling, the condos.
The Council remains entitled to act, however, on a request to change the terms of the proffer agreement between the City and the site’s original owner, Atlantic Realty, associated with the switch from sale to rental condos.
That has to do with the disposition of the 15 units designated as “affordable housing” and made available to households with 60 percent or less than the area’s median household income. Since prospective occupants would no longer have the right to own their condos, but only to rent them, the City must approve the change beforehand.
The Council gave preliminary approval to do that Monday by a 6-1 vote, with Dan Sze absent and David Snyder dissenting. It will have to repeat that majority on June 25 for the approval to be final.
Snyder voiced strong disagreement with the vote, citing the new numbers showing the negative revenue impact on the move for the City’s taxpayers. A spread sheet prepared for the Council indicated that if the condos were sold the City would net $875,148 annually; if sold for development as condo rentals, as now proposed, they would net $690,083 (a loss of $185,000); and, if they were converted to apartments the City would net $496,047 (a loss of nearly $400,000 annually).
“This is a bait and switch,” Snyder said. “A deal is a deal, but it is being broken and we were told without any financial impact on the City. But it is not ‘revenue neutral,’ and we are not doing anything to leverage our special exception powers to work for us and not against us.”
He added, “Once again we are walking away and the City is being shafted.”
Mayor Robin Gardner followed Snyder saying, “I agree with part of what you say. You’re very eloquent but to do not offer another option.”
She added, however, that the switch to rentals “calls into question what kind of housing we’ll wind up having at the City Center.”
Snyder cited intra-City Hall e-mail messages that he obtained by making use of “Freedom of Information Act” (FOIA) request of the city attorney. He made the request as a dissenter from the Council decision to approve the Hekemian Company’s plans for an all-rental mixed use project on N. Washington Street in late March.
The documents, which he quoted at the meeting and provided copies to the News-Press afterwards, show that in early March, key City officials talked about prospects that other major mixed-use projects may revert from condos to rentals, and that the difference, in terms of tax revenue to the City, would be significant. They gave no suggestion that such a conversion would be “revenue neutral.”
In an e-mail to four staffers on March 6, City Manager Wyatt Shields wrote, “I think we need to understand and be able to explain to the public this condo vs. apartment dynamic more fully – what drives the numbers. This is going to be a major issue for us over the coming months for PSquare (presumably referring to Pearson Square-ed.), Spectrum, City Center.”
He added, “Why are apartments assessed lower than condos? One is assessed on comp[arative] sales, the other assessed on income. But we need an illustration of how this plays out.”
Responding to this correspondence, City Economic Development Chief Rick Goff wrote, “Hekemian’s experience is that even higher-end apartments are assessed significantly lower than moderately prices condos.”
Goff went on to point out that if the Hekemian project’s residential units were sold as condos, they would “command an average value of $400,000,” but that, as rentals, they would be assessed at “about $275,000 per apartment.”
But the City Council was persuaded to approve the Hekemian project as lower-yield rentals later in the month, not only because the condo market has tanked for the time being, but because the City lacked a good stock of residential rental units and the Hekemian project would help fill that need.
However, the discussion was never raised at a Council meeting in the terms of Shields’ e-mail; that is, that developers of other projects under construction may move to convert their for-sale condos to rentals.
Adam Shulman, representing Atlantic Realty at Monday’s City Council meeting, made a remark suggesting that there were, indeed, very few contracts ever signed for the sale of condos at Pearson Square. Doing the paperwork to resolve contract purchases would take almost no time at all, he quipped, “There are not a lot in place.”
Comments were also made confirming that Carr Homes, which originally paid a handsome sum for ownership of the condos at Pearson Square, would be selling them at a loss to Trans-America, on condition the Council gave its blessing by approving the new terms for its affordable housing component.
The fact that the units will still be built out as condos, albeit for rent, suggests that developers do foresee a rebound of the condo market in the area, although no one knows how long that will take.
Waterford Development’s Jan Zachariasse indicated earlier this spring that The Spectrum, under construction in the 400 block of W. Broad St., will commence selling of the 170 condos in its project this fall. Should the sales not be forthcoming, Shields’ March e-mail suggests it could be looking to convert to rentals, as well.