THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Tuesday, August 20, 1996 TAG: 9608200352
SECTION: LOCAL PAGE: B1 EDITION: FINAL
SOURCE: BY KAREN WEINTRAUB, STAFF WRITER
DATELINE: VIRGINIA BEACH LENGTH: 114 lines
Council members, who reluctantly approved the project, want to block its rebuilding. Developers say they were doing what the law and the council allowed in meeting a need for retirement housing.
The developers go before the Virginia Beach Development Authority this morning to ask for interest-free bonds to finance the complex.
Two weeks after fire struck a retirement community under construction on Shore Drive, the City Council is trying to stop the project from being rebuilt.
Council members say they reluctantly approved the Sunstates House development a year ago, because they thought it would be filled with older people of modest means. Several months later, when they realized that as few as 22 of the 109 units would provide below-market rents, they began to regret their decision.
Several council members said they hope the fire, which struck the night of Aug. 6, will provide them an opportunity to correct their mistake.
But the developers say they fully intend to complete what the council allowed them to build.
Both sides want to meet the housing needs of older Beach citizens, but their dispute has descended into name-calling, accusations and threatened lawsuits.
Council members say they would not have approved the project if they had known that modest rents might be available in only 20 percent to 40 percent of the units.
``I felt like I had been misled,'' City Council member William W. Harrison said Monday.
Developers say the council should have known about the low-income rent limitations and is making unrealistic demands.
`I don't see where it's far-fetched on my client's part to believe (the council) knew what they were voting for,'' developer's attorney Michael B. Hamar said.
The complex is set to be four stories tall with two-bedroom units for residents aged 62 and up. The building would have a medical emergency system, electronic security doors, blood pressure checks and a free shuttle bus for short trips.
Local civic and business leaders supported the proposal when it came before the council last year, though many began having second thoughts once construction began and they saw how large the building would be for its 1.8-acre site.
Fire Department spokesman Mike Wade said Monday that investigators haven't yet concluded where and how the blaze began, though they expect a final determination as early as today. Lou R. Joyner, a spokeswoman for the developer, said she has been told the fire was intentional.
No one was injured in the blaze, which significantly damaged the construction site.
The Sunstates project, located at Shore Drive and Sunstates Court near Great Neck Road, dates back to 1993, when the council first signed off on the plan and the federal government approved construction tax credits.
One of the original developers was forced to drop out because of financial problems, and in the two years it took to put the project back together, both approvals expired.
In June of 1995, a new development group received a conditional use permit for the complex. That group includes SunAmerica Inc. a California financial services company with $36 billion in assets, and Tidewater Westminster Inc., a local consortium of Presbyterian churches which has developed other retirement communities.
Five weeks after that approval, then-council member Robert K. Dean asked the council to reconsider its decision. On Aug. 22, the majority of the council voted again to issue a conditional use permit to Sunstates, despite concerns about density and the design of the complex.
In October, the developers asked the council to approve tax exempt housing bonds to help finance the project and the council, in asking detailed questions for the first time about the breakdown of the units, realized that not all the residents would be low-income.
It is the type of tax relief the developers receive that will determine how many units they can afford to rent at below-market rates, according to Joyner, development administrator for the development group's managing partner.
If the development group can get federal tax credits, it will be able to set rents in all the units at about $550, Joyner said. If it can get only housing bonds issued through the city's development authority it will have to set a majority of the rents at about $750 a month.
SunAmerica, which specializes in retirement services, would provide financial backing and would recoup its investment through the tax credits.
With the guarantee of the larger federal tax credits, SunAmerica would be willing to provide more cash up front, so the other developers would have to borrow less money to construct the building. Borrowing less means the developers would have lower debt payments and could keep rents lower and still cover costs.
The problem is that this spring, the federal government turned the developers down for the tax credits. Joyner said she plans to reapply next year, but until then she wants to be able to have a fallback plan based on locally issued bonds.
The housing bonds yield lower tax credits so SunAmerica would provide less capital, the bond payments would be higher and rents would have to be higher to cover them. Joyner said the developers could then afford to rent only 40 percent to people with moderate incomes.
The other trouble with the housing bonds is that the Virginia Beach Industrial Development Authority can't issue them without the City Council's approval. Without any bonds or credits, the developers could provide lower rents on only 20 percent of the units, lawyer Hamar said.
Last October, the developers withdrew their request for the housing bonds because the council said it would vote against them if only 40 percent of the units were reserved for moderate-income residents.
Harrison said he told the developers on Aug. 6, hours before the fire, that he wouldn't support state bonds unless 75 to 80 percent of the units had below-market rents.
But the developers aren't giving up. Today, they go before the development authority to ask for the bond approval, and their request will be presented to the council in September.
Meanwhile, several council members, including Harrison, have asked the city attorney to investigate ways to withdraw the project's zoning permit or find some other means to derail the housing plan.
``The best thing would be for the city to find some way for this project to be reconsidered,'' Harrison said.
KEYWORDS: SENIOR CITIZEN RETIREMENT CENTER FIRE ARSON by CNB