The Profit in Decay
Landlords Who Empty Buildings of Tenants Reap Extra Benefit Under Law

By Debbie Cenziper and Sarah Cohen
Washington Post Staff Writers
Sunday, March 9, 2008

Landlords determined to cash in on a lucrative real estate market pushed thousands of tenants out of apartments across the District in recent years and then reaped more than $328 million by converting the buildings into condominiums.

Dozens of landlords refused to make repairs, forcing families to live in filth -- at times without heat, hot water or electricity. Other landlords delivered urgent letters or mass notices demanding that tenants leave.

In the past four years, landlords emptied more than 200 buildings from Columbia Heights to Southeast, most of them rent-controlled, thwarting the intent of one of the nation's toughest tenant rights laws with the approval of the city government, a Washington Post investigation found.

It was the hidden toll of a frenzied condominium boom that turned aging neighborhoods into coveted urban communities.

At 3872 Ninth St. SE, three floors of misery in the heart of Southeast Washington, tenants lived for years with leaking pipes, crumbling ceilings and kitchens that reeked of rat urine. When Sherita Evans returned home from work with her young son, she'd shield his eyes and step over addicts who broke into vacant, unsecured apartments to get high or get warm.

After new owners took over in 2005, tenants pleaded for months for repairs. Most eventually moved out, allowing the owners to turn the rent-controlled apartments into a $9 million condominium complex.

"It was clear. They wanted us out," said Evans, among a handful of tenants who struck a deal with the owners to stay on as renters. "It got so bad, all I wanted to do was leave."

Nearly three decades ago, city leaders created a law that gave tenants extraordinary power: the right to vote on whether property owners could convert rental buildings into condominiums. The law also requires owners to pay the city a fee on the sale of new condominiums, which would help displaced renters with relocation costs.

But as the District's real estate market thrived, landlords found a way out: The law doesn't apply to vacant buildings.

By emptying buildings and taking advantage of a provision known as a "vacancy exemption," landlords can avoid the tenant vote and the tax and turn rental apartments into condominiums. City officials have granted the exemptions even when government records chronicled widespread evictions and buildings riddled with code violations.

In the past four years, nearly three-quarters of the landlords who received permission to begin converting apartment buildings into condominiums did so through a vacancy exemption, not a vote by tenants -- saving $16 million in condominium conversion fees while families across the city lost their homes.

"The exemption is providing every incentive for a landlord to be aggressive, in some instances bordering on actually being criminal," said Joel Cohn, legislative director with the District's Office of the Tenant Advocate. "You have a real concerted effort to get rid of tenants."

More than half of the buildings that received exemptions had code violations recorded in city records, while most buildings in the city had none. City housing inspectors found more than 3,000 infractions in the three years before tenants moved out, including leaks, busted stoves and toilets, splintered floors, broken windows and cracked walls.

In nearly 40 cases, buildings were cited for problems with heat, electricity, hot water or air conditioning. Inspectors found more than 400 damaged ceilings and walls, 40 leaking pipes and 212 broken windows, according to city records. In three cases, tenants had no place to bathe.

At the same time, some landlords have delivered a flurry of eviction notices or claimed that the properties would be renovated or no longer used for housing -- then moved to convert to condominiums once tenants were gone.

Clashes between tenants and landlords continue to erupt, even as District leaders promise to crack down on property owners who allow their buildings to fall apart.

A property manager for a building on Longfellow Street NW wrote three times to tenants in 2005 urging them to move out. One letter said: "Next year, it will be a miracle if you all have heat and water."

On Vernon Street NW, families twice reported strangers banging on doors in 2006, in one case yelling: "You have to move out. You have 48 hours." Both buildings have since become vacant, and in one case the new owner has applied for an exemption.

Some of the owners have prominent ties in the region, but tenant advocates say identities are often difficult to determine because the buildings are owned by limited liability companies or the owners hire property managers to represent them. The owners include Ellis Parker, son-in-law of the co-founder of Chevy Chase Bank; Providence Hospital doctor Pamela Coleman; and developers Aubrey Carter Nowell and Patrick Strauss, who offered a redevelopment proposal to the city last year with an official from the Clinton administration.

Property owners say District law is skewed in favor of tenants and places unfair restrictions on private enterprise.

"I think tenants need to be protected, but the laws are much too tenant-oriented," said Arnold Litman, whose company owns Evans's building on Ninth Street SE.

Landlords say they negotiate move-out deals with tenants and offer them money to leave. But, they say, tenants often exploit the law by reporting frivolous housing code violations for leverage in the negotiations. Landlords also describe the dilemma of owning aging buildings -- how to make major repairs that would cost millions of dollars without drastically raising rents or converting to condominiums.

Landlords, Litman said, "don't make an investment without expecting a return."

Tenant lawyers and advocates say landlords can make a profit within the law, which was meant to preserve affordable rental housing in a city filled with government employees, young families and low-wage workers. They argue that the city should do more to prevent abuses of the exemption, though city officials say the law is vague and their authority limited. Mayor Adrian M. Fenty (D) late last year took steps to tighten the law, submitting to the D.C. Council a proposal to keep landlords from converting buildings to condominiums if they have outstanding code violations.

"Tenants have amazing rights," said Natalie LeBeau, an advocate with the nonprofit Housing Counseling Services. "But some landlords are aggressively using building conditions to get rid of tenants. Their water is shut off. Their heat is shut off. And the next thing you know, they're gone."

* * *

In 1980, city leaders created a law that empowered tenants in two fundamental ways: giving them the right to decide whether apartments should convert to condominiums and the right to buy their buildings before they are sold to outside bidders. In recent years, the council has toughened controls on rent and evictions and twice closed loopholes that had helped landlords sidestep tenant rights.

But the flow of vacancy exemptions continued, with 2,500 rent-controlled units lost in the past four years. In some cases, entire sections of city blocks began converting to condominiums with approval from the District's watchdog agency, the Department of Consumer and Regulatory Affairs, or DCRA.

For property owners, vacancy exemptions have paid off: They have sold more than 1,200 condominiums, with a median price of $250,000 and reaching up to $1.1 million. Because the owners were exempted from the conversion fee, they saved an average of $180,000 per building. One owner saved more than $1 million.

Exemptions were originally given only to long-vacant properties, but in 1995 the D.C. Council dropped that requirement, saying in a report that "there do not appear to be the same incentives or ability for owners to illegally vacate their rental housing accommodations in order to establish condominiums."

Since 2004, more than 200 apartment buildings have received exemptions even though city records show that they had been occupied in recent years. Not all of the owners had code violations or disputes with tenants. In some cases, tenants accepted money to move out or struck a deal to buy a condo at below-market prices. Some building owners who received vacancy exemptions said their buildings were empty when they bought them.

Lawyers and housing advocates, however, have been pointing to evidence for years that tenants have been unlawfully forced out, but the government has seldom intervened. One landlord even stated on vacancy exemption applications for two properties that tenants had left because building conditions were so bad.

By law, landlords can ask the city for permission to raise rents to cover the cost of repairs, as well as when their return on investment dips below 12 percent. But only six of the owners with vacancy exemptions did so, city records show.

At Sherita Evans's complex, the owners were cited for more than 75 violations, including leaking sinks, uncollected garbage and damp floors and walls, in the months before they were granted a vacancy exemption.

Evans had moved into the building in 2001, enrolled her son in preschool and took the nearby subway every day to her job as a human resources representative in Arlington County. She decorated her son's bedroom with train posters and became friendly with the elderly neighbors who waved hello from their porches across the street.

She thought she had finally found a home.

By 2005, however, the 81-unit complex was run-down and dangerous, with just 18 families left. Evans started wedging steel wool into holes in the floors to keep the mice out. She made up stories when her son asked about the prostitutes and drug dealers who roamed the buildings, gaining access through unlocked doors.

In September 2005, the owner sold the property, giving the remaining tenants fresh hope that a new landlord would finally fix up the complex and rent vacant apartments.

They were wrong.

* * *

The new owner was a company controlled by Litman and Steven Madeoy, who were among more than 30 people convicted in the late 1980s of fraudulent property deals that cost taxpayers hundreds of millions of dollars. Madeoy served 2 1/2 years in a federal correctional institution in Virginia; Litman served seven months in a halfway house.

Soon after buying the property for $4.8 million, Madeoy, Litman and a third partner began advertising the complex in fliers as condominiums, with two bedrooms selling for $185,000. Evans, a single mother, didn't see how she could afford the mortgage on a $34,000 annual salary.

The owners offered tenants condominiums at reduced prices, the option to remain as renters or a move-out payment. But tenants worried that they couldn't afford even the lowered prices and that the offers were vague and wouldn't begin to cover the cost of giving up a rent-controlled apartment.

In the meantime, they tried to fix up the buildings themselves. Tangela Garnett, a Department of Labor secretary, used bleach to scrub hallways in her unsecured building after vagrants left condoms, feces and syringes on the floor.

By late 2005, just seven families were left.

"People just get tired of living in a place where conditions are so bad," said the tenants' attorney, Julie Becker of the Legal Aid Society of the District of Columbia.

In November of that year, the owners submitted through their attorney an application to DCRA claiming that the buildings were "entirely vacant" and that "none of the original tenants was requested, ordered or coerced to vacate and surrender his or her unit."

But the complex was not vacant; the landlords were still negotiating with the remaining tenants. Two days after submitting the application, Litman e-mailed Becker and others about an upcoming tenants' meeting, saying, "I would also like to add to the agenda a conversation about condo conversions."

DCRA quickly granted the vacancy exemption even though the tenants' association at the complex had registered with the agency just weeks before. When Becker pointed out the discrepancy, the agency rescinded the exemption.

In the meantime, another family moved out. In March 2006, Litman sent a letter to tenants, saying, "If you want to stop us from converting . . . what do you gain? Sure, I'll patch and paint your apartment, move in Section 8 tenants and just rerent the complex. If that is the victory you seek, then be careful, you might get it."

Two months later, the owners struck a deal with the remaining tenants, including Evans, paying their moving costs or allowing them to stay as renters in renovated condominiums.

DCRA reissued the vacancy exemption, paving the way for the owners to sell 46 condominiums so far, drawing almost $9 million in sales and saving $450,000 on the conversion fee.

Litman and Madeoy said they did not know why their attorney told DCRA the buildings were vacant while tenants were still living there. "Clearly, it was an error," Litman said.

He said tenants had been treated fairly, with move-out offers that included $1,000 and a month's rent at a new apartment complex. Litman said he had good reason to pay the money: The partners saved hundreds of thousands of dollars on the condominium conversion fee.

"Thirty thousand [on move-out offers] or $400,000 [in fees]? Let's see," Litman said. "I didn't go to business school for that one."

Records show that Madeoy has an interest in companies that own at least eight other apartment buildings in the city, several with a history of building code violations.

At 7436 Georgia Ave. NW., LaTreaviette Prailow and her husband lived for months without heat, huddling under blankets to stay warm. The heating unit caught fire in December 2006. It wasn't fixed until more than nine months later. Still, Prailow wants to stay because she fears that she won't find another affordable apartment close to public transportation, which her husband uses to get to his housekeeping job at George Washington University.

Tenants have resisted taking an offer of three months of free rent if they move to a neighboring building.

"I'm leaving it in God's hands," said Prailow, who is working with housing advocates from the nonprofit Latino Economic Development Corp. "I'm praying He puts me somewhere safe."

At two other properties, Madeoy claimed the buildings would be "completely renovated and then sold as a private home," telling the city he planned to vacate the buildings. At one of the buildings, he is now developing 14 condominiums at $299,000 apiece. He sold the other building once tenants were gone for $1.4 million, about $1 million more than he had paid in 2003. The new owner received a vacancy exemption and told DCRA she plans to sell condominiums.

Madeoy said he had planned to sell that building to a private owner but the deal fell through. At the other building, he said, he ended up giving tenants money to leave or deals to return as renters or buyers.

"We followed the law to the letter," Madeoy said, adding: "I'm trying to provide as much affordable housing as I can."

* * *

Records show that other landlords have delivered a flurry of eviction notices, often to tenants who had never received notices before. Housing advocates and lawyers say the notices can be a baseless form of harassment, but tenants must go to court and defend themselves. Some simply give up and move out.

On Brandywine Street SE, David Tolson's company paid $6.1 million in 2005 for a series of apartment buildings that had been cited for hundreds of code violations. Only about 18 families were left in a complex of more than 100 units.

A manager for Tolson sent a letter to tenants saying the company "wants to vacate apartments" and offering buy-out payments. Once again, tenants resisted, saying the offers were sketchy. They also complained that repairs weren't being made, with rats still running through their apartments. Within months of Tolson's buying the complex, tenants began receiving eviction notices for nonpayment of rent. Records show that in several cases, Tolson settled with tenants, paying them to leave.

By 2006, most tenants had left, with one striking a deal to stay on as a renter. When Tolson applied for vacancy exemptions, he said the property had been vacant when he bought it.

Tolson sold $14.9 million in condominiums, saving nearly $750,000 on the conversion fee.

"I thought, 'That man is sitting back there laughing at us,' " said tenant Yvania Flakes, a data entry specialist, who negotiated a deal to remain as a renter. She has since moved to Virginia. "I was hearing stories every day from tenants about how if they didn't move out, they'd get evicted. [Tolson] managed to get everybody to run."

Tolson, who had received a vacancy exemption on an earlier property as well, countered that the Brandywine project has been a success, with the buildings cleaned up and turned into affordable housing. He acknowledged that telling the government the buildings were vacant when he bought them was "a mistake," but he said that the eviction notices were legitimate and that he made repairs.

"Some of the tenants knew that we were emptying the project and just quit paying the rent," he said. Tolson said he didn't ask tenants to vote on a condominium conversion and opted instead to empty the buildings because "then the conversion tax doesn't apply." He said he gave tenants the chance to stay on as renters, but most took money to leave. "It's a low-income neighborhood, and they were happy to have that money," he said. "It was no big deal to get them vacant."

At 1417 N St. NW, tenants also resisted a condominium conversion. A company hired by the owner had approached them in 2006 about converting, also offering money to move out or the chance to stay as renters in the new condominium complex. Tenants instead called on the owner to make building repairs.

After the elevator in the building broke down last summer, tenants protested in the lobby, where they served lemonade. Shortly after, an attorney for the owner sent a letter to two tenants who had organized the protest, saying that they had breached the terms of their tenancy for "loitering in the common areas," among other things.

"For a minute, your heart stops," said tenant Silvia Salazar, who had worked with the tenants who received the letter. "You think, 'They're coming after me now.' "

Erik Bolog, managing partner with Tenacity Group, the asset manager for the owner, said that the company respects the right of tenants to meet but that the protest in the lobby wasn't properly scheduled and raised safety concerns.

"If by chance there was a fire in that building and people could not get out because a table was in the way, then people would be critical of the ownership for allowing that to be going on," Bolog said. " . . . If lemonade spills on the floor and people slip, it becomes a safety issue."

Bolog said the owner is repairing the elevator, a lengthy process because its age makes it difficult to get replacement parts.

* * *

Across the city, tenants are still locked in battles with landlords pushing to empty buildings. A vacant building not only qualifies for a vacancy exemption but is also often worth more on the market because a new owner can easily convert to condominiums or bring in tenants at higher rents.

At 1352 Longfellow St. NW, owner Pamela Coleman, a Providence Hospital doctor, hired a property manager who in April 2005 warned tenants in a letter that there may not be heat and water the following year: "It is going to become a health hazard and the city will shut [the building] down if that happens."

Two months later, the manager sent another letter to tenants: "We cannot keep the hot water heater going and the heat for next winter will be non-existent." On the same day, she wrote: "Your landlady will pay you $5,000 to vacate if you leave ASAP."

The manager told tenants that Coleman couldn't afford to make the repairs. Records show that Coleman never applied to raise rents to cover the costs.

Tenants said the apartments had no heat or hot water for much of 2004, 2005 and 2006. They directed a steady series of complaints to DCRA, which confirmed the problems. By February 2007, the pipes had deteriorated so badly that the water stopped working altogether.

When that happened, DCRA determined conditions were unsafe and forced the two remaining tenants to move, emptying the building. Coleman, who has not applied for a vacancy exemption, did not respond to calls and letters seeking comment.

"It was terrible, terrible," said tenant Asrat Ferede, who lived in the building for 12 years, including two years without a working refrigerator. In 2006, records show, Ferede received an eviction notice for nonpayment of rent, even though he had copies of his cashed checks showing that the rent had been paid.

"She was the coldest landlady I have ever seen," Ferede said.

He sued for wrongful eviction and this year received a $153,000 settlement, which his attorney said will likely help Ferede buy a place to live.

In Southeast, Angelia Chatman-Moat, a data analyst at Howard University, is one of fewer than 30 tenants left in a 108-unit complex at the Oak Hill Apartments on Wheeler Road SE, where boarded-up windows bear the spray-painted message: "Keep out."

In late 2006, a company owned by developers Aubrey Carter Nowell and Patrick Strauss bought the complex for $6 million. In mid-2007, records show, they started offering money to tenants to move out.

About the same time, they proposed to the city a redevelopment plan for the area, which would include the school property next door. They submitted the proposal with Meridian Hill Advisors LLC, a real estate investment firm whose managing director is Adam Kreisel, who served as assistant to President Bill Clinton's longtime chief of staff, Leon Panetta.

Dozens of tenants left. But Moat, who pays $769 a month in rent, feared she could not afford a more expensive apartment on a $28,000-a-year salary.

In February 2007, DCRA documented several dozen code violations at the complex, but inspectors never returned to inspect the whole complex, even after tenants sent a 25-page report last summer describing the lingering problems. DCRA officials said the property manager and tenants reported that repairs had been made.

Strauss said he and his partner responded to repair requests. He said the plan to redevelop the school site with Meridian Hill has been dropped but the partners are offering buyouts to tenants so the Oak Hill site can be renovated.

"After decades of neglect by previous owners, the Oak Hill Apartments are in need of a major renovation," Strauss said.

Moat said tenants are worried: The complex still needs repairs, and last fall, more than a dozen tenants received eviction notices for nonpayment of rent. Nine cases were dismissed in court after a lawyer with the nonprofit Bread for the City stepped in and the tenants showed that they had paid.

Moat fears that without more help from the city, she might be the last tenant left in an abandoned apartment complex that once bustled with life. Still, she refuses to go.

"I'm holding out because this is where I can afford," she said. "This is my home."

Staff researcher Meg Smith contributed to this report.

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