By Debbie Cenziper
Washington Post Staff Writer
Saturday, March 29, 2008
The owner of the Mount Pleasant apartment building recently destroyed by a five-alarm fire charged onto the District's real estate scene in 2001 scouting for opportunities.
NWJ Cos., based in Philadelphia, shopped for modest apartment buildings in budding Northwest and Northeast Washington neighborhoods, eager to pierce a thriving housing market. Within months, NWJ bought seven complexes for $15.5 million.
Lawsuits, accusations and widespread housing code violations have hounded the company ever since.
The 85-unit complex in Mount Pleasant that burned two weeks ago had been cited for 7,755 code violations, the highest count in the city, and tenants for years had been sparring with the company over building conditions and rent.
But bitter disputes and code violations have also surfaced at other NWJ buildings, which racked up a combined 2,000 code infractions for falling ceilings, crumbling walls, rat and roach infestations, broken appliances and inadequate heat, records show. By comparison, most D.C. apartment buildings have no violations recorded in city files.
Conditions grew so bad at a NWJ complex on Ontario Road NW last fall that tenants decided to paint filthy hallways themselves with help from advisory neighborhood commissioners. NWJ fired back, suing commissioner Wilson Reynolds for trespassing and seeking $100,000 in damages.
Company Vice President Eric Kretschman said that NWJ has not violated any laws or mistreated tenants and that he did not recall receiving notices for that many code violations. He said NWJ filed the suit against Reynolds because he did not have permission to enter the building and because the cleanup damaged the property. The suit is pending.
"Nobody is perfect, but I think we do a very good job year after year of improving these buildings," Kretschman said. "We are not the guys forcing people out. We're providing very good housing at a very good price."
In recent years, similar clashes between tenants and landlords have played out across the city as owners pushed to turn rental properties into condominiums. A Washington Post investigation published this month found that landlords emptied more than 200 buildings in the past four years, with many quickly converted to condominiums.
District law requires that property owners gain permission from tenants before converting to condominiums and pay a hefty conversion fee for every new unit. Those requirements, however, do not apply to vacant buildings that receive a pass from the government known as a "vacancy exemption." D.C. Council members are now trying to close the loophole, and the D.C. attorney general's office has promised to crack down on landlords who intentionally allow their buildings to fall apart to drive out tenants.
NWJ wasn't pushing condominiums and has never applied for a vacancy exemption, records show. Instead, the company eventually put four of its properties up for sale.
Tenants and some local politicians charge that NWJ didn't invest in repairs and allowed conditions to deteriorate in order to empty apartments, making the buildings more profitable to condominium developers.
"NWJ has shown their hands for years: profits over people," said Bryan Weaver, chairman of the advisory neighborhood commission that is helping the tenants on Ontario Road. "The best way to rid people from a building is to create a climate where they feel unsafe and unwelcome, and eventually they'll just leave."
Records show that in 2004, Kretschman and NWJ President Nickolas Jekogian III, under a series of limited liability companies, advertised the sale of four of its seven properties for roughly $12 million -- $4 million more than the company had paid for those buildings. In an interview this week, Kretschman said the company was not "buying and then flipping" buildings but adjusting its holdings by selling smaller properties.
Tenants in three of the buildings sued, saying the company's efforts to sell had violated their rights under District law, which also gives tenants the chance to buy their buildings before they are sold to outside bidders. One of the properties was the Mount Pleasant complex that burned, known as the Deauville, at 3145 Mount Pleasant St. NW.
In 2004, tenants discovered that NWJ was in negotiations to sell the building to another company for $6.5 million, about $2 million more than the purchase price. Tenants said they weren't offered the opportunity to buy it first and reached an agreement with NWJ in late 2004 to try to purchase the building. Tenants teamed up with a nonprofit developer and made a $326,000 down payment.
Over time, the building racked up thousands of code violations, including holes in ceilings, loose doors, broken cabinets, rotting floors and windows, and defective electrical outlets, records show. Officials with the city's Department of Consumer and Regulatory Affairs said the agency had spent $60,000 to help make repairs.
Kretschman said that NWJ had substantially renovated the entire building, installing a new elevator, a new roof and an updated fire alarm system, and that tenants were using the violation process for leverage.
In June 2005, tenants asked NWJ for more time to pull city funding together to buy the building. NWJ refused. Tenants asked for their deposit back. Again, NWJ refused, saying that tenants had not acted in good faith to buy the building and that the company had lost $400,000 in rental income over the eight-month negotiation period.
Tenants again filed suit, leading to a draft settlement dated last month. Under the agreement, NWJ would hire a neutral reviewer to inspect the building, return most of the deposit money, make repairs to unrenovated units and pay for the temporary relocation of tenants while the work was being done. NWJ also would reduce rents and make a one-time cash payment of roughly $230,000 to the tenants association.
"Both sides were fully committed to the deal," said tenants' attorney Richard Lucas, a partner at Arnold & Porter, which was handling the case pro bono.
Kretschman agreed that the settlement made sense. "We're not looking to make enemies out of tenants," he said.
Then came the fire in mid-March, the first five-alarm blaze in the city in 29 years, leaving 200 people homeless. The cause of the blaze has not been determined. Late last week, NWJ and the tenants reached a partial settlement; the company agreed to return to tenants $256,000 from the building deposit, keeping $70,000. But tenants might never get the chance to reap the benefits from the rest of the settlement, local leaders say, because NWJ estimates it will take 18 months or longer to restore the four-story building. The city has pledged to help speed up the rehabilitation. Kretschman said he did not know what the company would do with the building.
"It was a human tragedy," he said. "When I woke up that morning, I felt terrible for the tenants, and we all did here."
Similar tensions, meanwhile, have troubled other NWJ buildings.
Until recently, District property owners found that they could avoid offering tenants the chance to buy their buildings by transferring a majority interest to new owners. In 2005, the D.C. Council tightened the law to limit that type of transfer.
Before the change, however, NWJ transferred 99 percent interest in a building on Kenyon Street NW to new owners, taking in $2.5 million. Tenants sued and worked out a deal with the new buyer to try to purchase the building, although the price was $3.4 million -- almost $1 million more than what the buyer had paid.
In March 2005, tenant Eva Martinez wrote to D.C. Council member Jim Graham (D-Ward 1), saying, "All the landlords of this building have violated our rights. . . . We have been living in deplorable conditions (no hot water and heat, shoddy repairs or anything at all, cracked and peeled ceilings and walls etc.) We didn't even know that the building was on sale."
At another building, on Newton Street NW, the company transferred interest in the property in 2004 to a developer for $1.1 million, double what NWJ had paid two years earlier. Again, tenants sued.
In a 2006 deposition, Kretschman said NWJ did not set out to avoid tenants but wanted to sell the building quickly and get a firm closing date. He also said he had kept units vacant because empty properties are often worth more in the city. New owners can then buy with the freedom to convert to condominiums without needing tenant approval.
"I think it's no secret in Washington that to have tenants vacate the buildings, you have to pay them large sums of money," Kretschman said in the deposition. "Clearly, the fewer tenants . . . the more valuable your building is." Kretschman added in an interview that tenants were not coerced to leave the building.
In the Newton Street case, tenants agreed to a $300,000 settlement and moved out.
At a third building, on Kalorama Road NW, tenants sued in 2002 after learning that NWJ had bought the property. Tenants eventually struck a deal to buy it from NWJ for $1.8 million. Tenant Barry Weise, now deputy legislative director for council member Graham, said that until tenants took over, building conditions were unbearable. DCRA had documented 250 violations.
"Under NWJ, maintenance went from bad to nonexistent," Weise said. "NWJ would buy buildings in the market here, do no maintenance and then turn them over to somebody else for a quick profit."
Kretschman said the company bought many buildings in deteriorated conditions and responded "regularly and promptly" to maintenance requests.
Three of NWJ's properties have not been sold: two complexes in Northeast and the complex on Ontario Road NW, where on a chilly January morning, doors and windows were unsecured and roaches scampered through apartments. The stairwells smelled of urine, and vagrants had left a crack pipe, empty wine bottle and feces on a crumbling landing.
Across the street, "designer lofts" still under construction were selling for $300,000 and up.
"I can honestly say I was appalled at the condition of the building," said Delores Anderson of the D.C. Office of the Tenant Advocate, whose officials visited the Ontario Road building late last year. "I just kept shaking my head, like, 'What is this?' "
Until recently, NWJ had owned 75 percent of the building and the minority owner had resisted making renovations, Kretschman said. He said NWJ has repeatedly repaired the doors and has invested tens of thousands of dollars in the property, recently installing new lights. The company said it is also putting in a new security system and steel doors.
"There's probably about 15 guys in that building working on it on an ongoing basis," he said.
The complex has been cited for nearly 1,400 code violations, prompting the advisory neighborhood commission to pass a resolution calling for a building cleanup. Last fall, Weaver, Reynolds and others brought over donated white paint to clean up the building. NWJ filed suit against Reynolds, who is being represented by the D.C. attorney general's office.
"The owners just want to sell the place," said tenant Barbara Salinas, who lives with her mother, a housekeeper who pays $650 a month in rent. Salinas said many tenants grew tired of the blighted conditions and moved out. "They're not here anymore. The whole neighborhood -- swoosh -- it's gone."
Database editor Sarah Cohen and news researcher Meg Smith contributed to this report.