The Messy Aftermath: A Boomtime Bid on Condo Conversions Goes Sour
UPDATE, 5:15 p.m. – The sales were both canceled. Guess the owners aren't going to let these go so easily.
Last May, local landowner Tenacity Group announced the auction of a batch of seven large, rent-controlled apartment buildings, under pressure from banks to get them off the books. Ultimately, none of them sold. On Tuesday at 1:00 p.m., Tenacity will try again with two buildings: The Park Lee at 1630 Park Road and the Concord Apartments at 5807-5825 14th Street NW, both slated for Alex Cooper's auction block.
Why didn't the whole group sell originally? Hard to say with any certainty, since neither Tenacity nor its property management firm, Cap City Management, have returned calls or emails. But organizers working with the buildings have provided a rough picture of overly optimistic investments that didn't work out the way Tenacity expected, creating an albatross that the company has struggled to unload.
"The plan was not to own rent controlled properties, but convert them to condos," says Farah Fosse, director of affordable housing preservation at the Latino Economic Development Corporation. "They were thrown for a loop that the tenants didn’t go for it a few years ago."
The strategy worked very well for a while: Tenacity would look for large apartment buildings up for sale, broker an agreement through the Tenant Opportunity to Purchase Act to buy the building, let renters buy their own units at cost if they had the money to do so, and sell the rest at market rate for a tidy profit. Everybody benefits. "What we are really are trying to do is make the tenants buy, even if they can't afford the mortgage," Tenacity's Eric Bolog told the Business Journal in 2006. "There is enough money to be made in many of these deals that we can do something good for tenants as well as doing something good for our company and our investors."
These seven buildings–most of them in rapidly-improving northwest neighborhoods like Columbia Heights–were actually purchased outright in the early 2000s. In the middle of the decade, Tenacity attempted to convert them to condos, which requires agreement from the tenant association. Tenacity, a vertically-integrated real estate services firm with an in-house mortgage lender, would happily sell at lower prices to renters interested in buying. But, according to tenant advocates, it would also try to persuade those who didn't want to buy to leave by neglecting building conditions. Several of the complexes have long lists of housing code violations and water and sewer liens; the Madeira at 1430 W Street NW is still in litigation over the management company's failure to resolve issues like rodent infestations and faulty heating.
And there were other tactics. At one building in Dupont Circle (not part of this particular group), the management company would refuse to accept tenants' rent checks, and then sue them for non-payment of rent.
As attempts to convert the rental buildings into condos failed, the ownership group represented by Tenacity–the buildings are registered to Tenacity's Dupont Circle address, but it's unclear how much equity the company has in each property–started loading the buildings up with debt. Several of them were used as collateral to back multi-million dollar loans, and their leases assigned directly to banks, including Wells Fargo, New York Community Bank, and Credit Suisse First Boston. Those lenders started putting Tenacity under pressure to sell the buildings last year, and bids did come in on a several of them, but Tenacity rejected them as too low, according to a person with knowledge of the proceedings.
This time, with the Concord and the Park Lee, Credit Suisse may mean business. $2.205 million is owed on the note for the Park Lee, which the Tenacity Group bought for only $1.25 million back in 2001, and $3.66 million is owed on the Concord, which was purchased in 2001 for $2.3 million. Both also owe tens of thousands of dollars in unpaid property taxes.
If the foreclosure sales go through–and they will, if the "TIME IS OF THE ESSENCE" part of the listing means anything–then the remaining tenants will not have right the purchase the buildings through the Tenant Opportunity to Purchase Act. They probably wouldn't have the money, either, since assessed values have risen dramatically, and little city financing is available for purchase assistance.
This isn't necessarily a bad thing. Three large, low-income apartment buildings have also gone through foreclosure sales recently–Fort Totten Station at 200 Hamilton Street NE, Victory Hills at 4211 2nd Street NW, and one at 1516 Marion Street in Shaw–and tenants are reasonably happy with the new landlords.
In the case of the Tenacity buildings, it would be good news to have someone as your landlord that's happy being your landlord, rather than trying to hustle you into either buying or leaving.
"I don’t think Tenacity wants to own low income rental housing," Fosse says. "Tenants would like to see ownership that’s more invested in long term ownership."