Housing deal bust upsets Fairfax County supervisors

Loss in Reston from years ago

Fairfax County lost about $2.4 million on a Reston housing complex that went into foreclosure several years ago - news that was not formally relayed to the county’s Board of Supervisors until this year.

“You don’t lose [that amount] and not report it to the Board of Supervisors,” said Supervisor Pat Herrity, Springfield Republican.

Auditor of the Board Mike Longhi said the Department of Housing and Community Development went through “normal notification,” which included notifying the Housing Board, county attorney’s office, and county debt manager. He did say notices of the deal were included in supervisors’ often-voluminous board packets.

Still, Mr. Herrity was not satisfied with the entire deal, let alone the lack of notice.

“We invested over the appraised value, which is not a good thing,” he said. “It was unsecured, it was over the appraised value, and we lost it. Those are things I don’t like.”

In January 2007, Fairfield Properties bought the 200-unit Reston Glen apartment complex for $30,375,000. The company subsequently sought financing through the county to keep a fifth of the apartments affordable based on a preset rateand to rehabilitate the property.

The county’s Redevelopment and Housing Authority facilitated $34 million in bond financing for the project, and also provided a $2.375 million loan from the county’s “Penny for Affordable Housing Fund,” which is funded by dedicating 1 cent of the value of the real estate tax rate.

In September 2009, Fairfield was unable to put up enough collateral after entering into an arrangement with Goldman Sachs, who bought the bonds, and so Goldman foreclosed on the property. In December 2009, Fairfield filed for Chapter 11 bankruptcy.

The $2.4 million was lost through the foreclosure, but the Department of Housing and Community Development (HCD) came to an agreement with the purchaser, Red Stone Partners IV LLC, to repay the note up to the full amount at 25 cents on the dollar. The catch, though, was that the money would only flow for every dollar the company got in excess of $34 million for a future sale of the property.

“The sad thing with this is the project was on time, the occupancy was good, the residency was good,” said Mike Longhi, the Auditor of the Board. “The normal income stream on the project was very good.”

The property was sold in December 2010 for $28.5 million, however, so HCD wrote off the Penny Fund loan at the end of fiscal 2011. The affordability restrictions on the complex are still in place, it was rehabilitated, and the bonds were fully repaid.

Stacy Patterson, a spokeswoman for the county, said in an email that notification protocols are being developed. However, it’s unlikely that another situation would develop like Reston Glen, which was done as a pilot, because of changes in market conditions.

“[T]here was no immediate loan loss; it was a year after the bankruptcy when the property was sold before there was any impact,” she wrote. “In this transaction, the bonds were fully repaid, and the Board of Supervisors was notified when they received an overall report on the housing portfolio in 2012.”

Mr. Longhi, too, noted that the department has agreed to notify the county board in the event of future loan losses.

“While $2.375 million is always a significant amount of money, when you look at financing deals that were unraveled by the recession across the nation, to lose one loan at that amount, while still significantit doesn’t represent serious problems,” he said.

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