Financial Tools

Successful affordable housing acquisition, preservation, and new construction often require creative application of financing tools. The Housing Arlington Financial Tools Initiative has examined ways to expand and re-think resources, financial and otherwise, for affordable housing projects in Arlington. The Initiative undertook a comprehensive approach to understanding the financing challenges, the potential solutions to those challenges, and assessing which of those potential solutions can succeed for affordable housing projects in Arlington.   

This webpage is a summation of the work the Financial Tools team has performed. You will also find a timeline of financial tools milestones and project-specific examples of how projects in Arlington are successfully financed. 

Challenges and Policy Goals

The Financial tools team identified the following challenges the County faces to increased Committed Affordable Unit (CAF) production:

  • Challenge #1: Project cost. The cost of affordable housing projects in Arlington is increasing and County supports for these projects (AHIF, Housing Grants, etc.) are also increasing.
  • Challenge #2: Desire for new approaches. We want innovation as well as new (funding) sources and partners.
  • Challenge #3: Re-thinking existing tools. Existing tools may not yield the supply desired to meet the County’s affordable housing goals. Re-thinking how current tools are used may allow the County to support more units.
  • Challenge #4: Limited opportunities. As property demand increases, opportunities for affordable housing projects are more limited.
  • Challenge #5: Cost of recapitalization. Housing preservation and managing the County’s aging CAF portfolio are necessary yet expensive.

Overlaid with these challenges are competing policy goals. Some of these goals, such as deeper affordability, mixed-income development, and geographical distribution don’t always align with other important goals, such as maximizing loan repayments (that can be re-invested in future projects). Different policy levers impacting how the County may participate in affordable housing projects include the following:

  • Size of County loan, for example a bigger loan may enable more policy goals yet results in the County supporting fewer projects.
  • Loan terms such as interest rate, year repayments start, etc.
  • Project location, for example, a more desirable location may increase the cost and likely increase the incremental gap the County or other soft financing needs to fill.
  • Affordability levels, for example, deeper affordability and mixed income may be more expensive and/or harder to finance, which could increase costs to the County for these units.
  • Supply/# of projects, for example, supporting more units/projects may mean tradeoffs with other policy goals, such as affordability levels, to keep County loan amounts lower.
  • Partners, for example, market-rate developers may bring more equity to projects, yet nonprofits may be more mission-driven to support certain policy goals, such as longer affordability terms.

Understanding how these levers impact each other, and clarifying the County’s policy priorities, help inform new resource tools, financial and otherwise, that the County explores with each project.

Strategies To Expand And Re-Think Existing County Resources 

This section reviews all the potential strategies studied as ways to grow current County resources for affordable housing and/or using existing resources in new ways. It also states what challenges they address and details why it may be a strategy Arlington will continue to pursue. These approaches, and associated staff analysis, are separated into three categories, they are:

  1. Attracting private capital to County programs/projects
  2. Using County funds in different ways to stretch dollars further
  3. Identifying additional sources to increase available resources for affordable housing in Arlington.

1. Strategies Attracting Private Capital to County Programs/Projects

a. Identify resources available through industry groups

Staff met with several affordable housing organizations, including the Northern Virginia Association of Realtors, to identify available funding sources. While these funding sources aren’t likely to support major affordable housing developments, staff can consider these resources for Housing Arlington and other work.

Challenge Addressed: Desire for new approaches

b. Explored utilizing Federal Section 108 financing

This financing would entail the County borrowing funds from a private lender in order to loan to a third-party developer, then securing and/or repaying these loans by pledging current or future Community Development Block Grant (CDBG) allocations from the Department of Housing & Urban Development (HUD). Annual federal CDBG allocations are typically significantly less than AHIF NOFA requests. A Section 108 loan would tie up multiple years of CDBG allotments, which would impinge on the County’s commitments to other community development goals, projects and programs.

Given the structure, federal requirements, and expenditure deadlines of this financing, staff does not recommend pursuing this strategy as this time.  

Challenges Addressed: Desire for new approaches
                                          Re-thinking existing tools

c. Analyze use of non-County sources of capital in the capital stack

(The capital stack is the structure of all capital that is invested in a project. This includes both debt and equity. For example, a typical capital stack could include a First Mortgage, LIHTC Equity, AHIF and potentially other subordinated debt. These funding sources together make up the capital stack.)

Review impacts of different non-County options of debt and equity on County AHIF, affordability term, use of LIHTC, etc. Staff evaluates different sources of debt and equity on every development project considered by the County. Recent examples of less-traditional sources can be found in the Barcroft and Crystal House infill projects. Along with developers, staff will continue to consider the most cost-effective sources of debt and equity on future projects.

Challenges Addressed: Project cost
                                          Desire for new approaches 

d. Identify pension fund investments

Certain pension funds provide socially responsible capital to public projects, including affordable housing. If successful, this could provide another debt or equity option that reduces financing costs to affordable housing projects.

Staff explored whether the Arlington County pension fund would have interest in investing in affordable housing projects. Separately though, California State Teachers' Retirement System (CalSTRS) funding was used to support the Barcroft acquisition. Staff will continue to explore these funding opportunities in the future.

Challenge Addressed: Project cost

e. Establish a 3rd-party fund for community grantors and investors

Staff worked with the Arlington Community Foundation (ACF) to identify private contributors to a fund managed by the ACF or a Community Development Financial Institutions (CDFI) partner. This included exploring the Foundation for the Carolinas model in Charlotte, NC to see how banks could replicate their consortium model in Arlington to provide more competitive (lower cost) financing to affordable housing providers.

The arrival of Amazon, and subsequent investments by its Housing Equity Fund, have superseded this work. Market and gap financing is working to finance projects.

Challenges Addressed: Project cost
                                          Desire for new approaches

f. Develop options/process for developing County-owned sites

Creating a standard process to help facilitate the creation of affordable housing on County-owned sites.  The Crystal House infill opportunity demonstrates how the County may identify a development partner for a future County or partner-owned site. Unfortunately, difficult sites, planning considerations, lack of opportunities, and funding challenges make this difficult to replicate. Nonetheless, the County will continue to consider co-location on County-owned sites.

Challenges Addressed: Project cost
                                          Desire for new approaches
                                          Limited opportunities


2. Strategies Using County Funds in Different Ways to Stretch Dollars Further

g. Leverage County resources through affordable housing partners

Staff has considered regional partnerships to leverage County funds further such as community land trust. For now, the County is holding off on these investments. The County would consider revisiting if investing County funds in affordable housing projects via these organizations would provide greater leveraging than what the County can receive by lending funds directly.

(Community Land Trusts provide a model of homeownership whereby the land ownership is separated from the building structure. Under the community land trust model, a non-profit is established that holds title to the land while allowing the building to be purchased by individual households, generally with some income restrictions and other provisions governing the resale of the property. Given that in Arlington the land values are generally the greater share of a house’s value, removing the land value from the cost would greatly reduce the cost of homeownership.)

Challenges Addressed: Desire for new approaches
                                          Re-thinking existing tools

h. Consider impact of mixed-income housing approaches

Staff reviewed the impact on finance tools available, subsidy of affordable component with market-rate component, and total County commitment. Staff also examined the considerations of mixed income approaches. While financing can be more challenging in mixed-income communities, they continue to be more desirable from a political and social equity standpoint, so the County will continue to assess feasibility when appropriate.

Challenges Addressed: Project cost
                                          Re-thinking of existing tools

i. Consider a regional financing approach, such as creation of a Community Development Corporation (CDC) or Regional Development Authority (RDA)

This would entail reviewing whether a regional CDC or RDA could provide lower cost/more competitive financing options for affordable housing projects. Staff discussed the possibilities of this with Fairfax and Alexandria, the two Virginia jurisdictions most likely to partner on such an effort. Since both jurisdictions already have Housing/Redevelopment Authorities, there is no interest in duplicating this approach with a regional organization.

Challenges Addressed: Project cost
                                          Desire for new approaches

j. Review capital stack and evaluate options/merits of County providing other sources (such as hard pay financing ) in addition to gap financing (Hard pay financing would utilize AHIF to further reduce interest rates but in turn would require a larger AHIF loan up front.)

Understand impact on total and net present value of County contributions by evaluating participation in other areas of the capital stack. This could include conventional hard-pay debt, construction/bridge financing, etc.  

Given that issuing hard-pay loans would require significantly more resources from the County and would likely still require gap financing, we are not pursuing this strategy at this time.

 Challenges Addressed: Project cost
                                           Re-thinking of existing tools

k. Utilize County AHIF in new ways (e.g., interest rate write-downs or debt reserves)

AHIF has historically been used to provide low-interest loans to developers as gap financing. This strategy explores using AHIF to also provide interest-rate write downs and/or for debt reserves to lower the cost of first-trust financing and reduce the size of a county gap loan. Staff found that making the AHIF loan larger is more efficient than writing down first loans prior to closing.

Challenges Addressed: Project cost
                                          Desire for new approaches

l. Consider creating a portfolio management approach using AHIF resources to address long-term maintenance & capital improvements

This would entail setting aside a portion of funds for new projects and a portion of funds for asset management needs. This includes an evaluation of the fiscal impact of future asset management needs, ongoing cost, and how we address that cost/challenge. Would we consider allowing developers to “buy out” remaining affordability? Build year 25 (and recapitalization) into Arlington deals?

Recent capital needs review effort suggests owners would be managing and planning for these costs. Reserves are meant to fund these needs. Development partners manage their own portfolios and often plan for LIHTC resyndications after year 15 to address comprehensive renovation needs. However, continued dialogue with staff is needed to ensure the long-term viability of properties within the CAF inventory.

Challenge Addressed: Cost of recapitalization


3. Strategies Identifying Additional Sources via Tax Tools or Other Funding Mechanisms to Increase Available Resources for Affordable Housing in Arlington

m. Review the Multifamily Partial Property Tax Exemption

The program was repealed by the County Board in 2020, with potential for future revenues to be captured for affordable housing. It was not seen to be a significant inducement for redevelopment by developers and there were negligible benefits. However, there was a significant negative fiscal impact on County tax revenues. Furthermore, all properties older than 25 years were eligible for the tax exemption, so many hi-rise multifamily properties built in the Metro corridors in the 1990s or early 2000s would (soon, if not already) be eligible for this tax benefit, if it were still in place.  Potentially, rehabilitation of these properties, along with application for the Multifamily Partial Property Tax Exemption, would have a significant negative impact on the County’s budget over time.

Challenges Addressed: Re-thinking existing tools 
                                          Cost of recapitalization

n. Explore a Green Financing Program

Staff reviewed several green financing opportunities, including establishing a Green Bank for Arlington projects and state financing opportunities (such as a proposed $10M revolving loan program for renewable and energy efficiency projects). After review of several existing green financing models and associated resources, staff determined there wasn’t much new money available in this area for affordable housing. If the federal or state governments start investing more resources in green financing for affordable projects, staff could revisit.

Challenges Addressed: Project cost 
                                          Desire for new approaches 
                                          Cost of recapitalization 

o. Proactively seek affordable housing development opportunities in Arlington

Continue seeking institutional partnerships to grow development potential and available sites such as schools and libraries. Also, inventory existing affordable housing sites that have development potential.

Via Institutional Partnerships and other avenues, staff will continue to seek these opportunities when possible.

Challenges Addressed: Desire for new approaches
                                          Limited opportunities

p. Review tax tools to support affordable housing projects

This includes analyzing the impact of the Transit Oriented Affordable Housing (TOAH) fund on County funds and exploring options to amend and/or expand the concept, opportunities to reallocate existing tax revenue through tax-increment financing (TIF) districts, and property tax reductions for affordable properties to reduce operating expenses/ increase cash flow.

The County Board in 2023 agreed to commit future Columbia Pike TIF/TOAH revenues to the AHIF budget, specifically to help support the Barcroft property, including ongoing debt service. The County’s ability to explore new tax incentives is limited by state code. There hasn’t historically been traction to use tax tools for affordable housing in Arlington because (a) there is limited evidence that tax incentives are a strong inducement for affordable housing creation/preservation, and (b) tax related incentives can have substantial negative impacts on the County’s budget. Staff will revisit periodically to see if there are new opportunities going forward.

Challenges Addressed: Project cost
                                          Desire for new approaches
                                          Re-thinking of existing tool

q. Seek new sources of tax revenue, such as a “penny for housing”, that would be dedicated to affordable housing programs

This tool proposes creating a new revenue stream for affordable housing. The County could consider advocating for this if there is significant community support.

Challenge Addressed: Desire for new approaches

r. Consider bond financing to fund AHIF

Staff reviewed a revenue bond model with PFM, a prominent financial consultant, in 2017. Staff then revisited this idea (with a focus on general obligation bonds) during the AHMP Review in 2020-2021. Given the challenges of a revenue bond model with an affordable housing portfolio (i.e., not enough loan repayments to sustain) and tradeoffs of general obligation bonds versus AHIF, staff does not recommend pursuing bonds at this time.

Challenge Addressed: Desire for new approaches

s. Evaluate the options/merits of creating a streamlined funding process for acquisitions

This involves developing a streamlined process to enable “quick strike” acquisitions, which may include identifying funding streams (e.g., County LOC), determining standard loan terms/financing structures, and developing loan document templates with CAO that could be executed within 60-90 days.

The Barcroft acquisition exemplified the County’s ability to execute financing quickly. Currently, there are funding limitations, but the County does evaluate opportunities for Out of Cycle Funding as they arise.

Challenges Addressed: Project cost
                                          Desire for new approaches
                                          Re-thinking of existing tools
                                          Limited opportunities

t. Review Affordable Housing Ordinance

Staff engaged a consultant to analyze how the AHO has performed over time to achieve the County’s affordable housing goals and to compare the value of cash contributions and the provision of on-site units. Staff is also considering other options, such as using affordable housing contributions to secure a master lease in nearby MARKs properties in return for density. If this can be developed as a viable option, staff will then determine whether changes are politically feasible.

View the report here.

Challenges Addressed: Re-thinking of existing tools
                                          Limited opportunities

u. Consider creating a low-interest capital loan program for MARKs owners and existing CAFs, including small property owners

While the targeted audience would be owners of MARKs, this program would provide an infusion of resources to allow aging properties to make capital repairs and improvements. Staff found that MARKs owners find it more efficient to deal with third parties, such as Arlington Community Foundation, instead of having to involve the County. This is likely due to the County reporting and tracking requirements, and affordability restrictions, among other County requirements. The County will help make these connections going forward if approached by MARKs owners.

Challenges Addressed: Desire for new approaches
                                          Cost of recapitalization


Project Specific Example

A recent successfully financed affordable housing project in Arlington is the Ballston Station development. As seen below, the County worked with the non-profit developer APAH, as well as other third-party financing organizations, to creatively structure the necessary funding to build the new construction 144-unit building across from the Ballston Metro station. The project will serve incomes between 30% AMI and 60% AMI.  

APAH’s permanent financing package for the project included a Virginia Housing (VH) first mortgage, Low Income Housing Tax Credit equity, a deferred developer fee, Amazon REACH grant proceeds, Virginia Housing Trust Funds, and a County AHIF loan. Permanent sources and uses are as follows: 

Sources of Funds

Uses of Funds

County AHIF Loan


Ground Lease Payment


VH Permanent Loan




Deferred Developer Fee


Soft Costs


Tax Credit Equity


Financing Costs


VH Amazon REACH Grant Proceeds


Developer Fee and Reserves


Virginia HTF




Total Sources


Total Uses


This project successfully used many of the strategies outlined above. The project relied on an institutional partnership with the Central United Methodist Church to co-locate affordable housing above a new church space. Local AHIF funds were leveraged with 4% Low Income Housing Tax Credits to create substantial equity for the project. The partnership also included significant VH Amazon REACH funding and Virginia Housing Trust Funds to help construct and finance the project.  

Securing all the required financing for the project was challenging. The life cycle of the project lasted over 7 years. The developer changed from a for profit developer to APAH, it failed to win competitive tax credits three separate times, had to win $8.75M in Amazon REACH funding (over two funding rounds), and win an additional $900,000 from the Virginia Housing Trust Fund. Each of these funding decisions has its own applications, deadlines and requirements. It takes a collaborative effort to finance affordable housing projects such as Ballston Station.