So he drove out the man and he placed at the east of the garden of Eden Cherubims, and a flaming sword which turned every way . . . Genesis 3:24
For years the woman who owned the apartment building on the hill had rented spacious apartments to anybody who was white. She didn't mind peeling paint and she could affort a good bit less than $200 a month for a two-bedroom apartment. But when she died, her heirs, as heirs are wont to do, decided to sell the building. Because the tenants had a duly incorporated tenants' association, by the laws of the community they had the first option to buy the building. And they went after it.
In the order of the universe, tenants' associations fulfill three functions: they meet, they pay through the nose, and they meet some more.
A scene from a tenants' meeting:
"I will be paying very high monthly payments," one tenant insisted to the backs of a dozen people sitting on the floor of an apartment filled with books and cat hairs. "I have a daughter so I have to be very careful. Last year I had to handle an estate, and I learned that you have to be very, very careful with contractors. I assure you, since I probably have more to lose in this than anybody else, I don't like . . ."
"Goddammit! I'm sick and tired of hearing about your goddamn personal problems!"
"All of us in this building have problems, and goddammit not all of us just inherited an estate!"
"How dare you talk to me like that! I would much rather have my brother alive!"
The chairman tried to sound cheery: "Well, we were discussing the amendment to the amendment . . ."
That stormy meeting was in the closing days of the tenants' attempt to buy the building. Long before that meeting there had been sunnier gatherings when almost all the tenants stated forthrightly that they wanted to buy it.
One of the many elderly tenants said in a gravelly voice: "We want to stay in this building. But you got to understand that lots of us are on fixed incomes and we can't go sinking money into something that's gonna leave us in trouble."
One of the many young tenants who had populist tracts on the tops of the piles of books in their apartments said, "Of course we want to stay, and we want everybody who wants to stay to stay. And what's also important is that all over this area tenants are struggling against this same problem. We have to remember that there is strength in unity."
There were thirtyish professionals who had enough money to buy a house or a condo somewher else, but they weren't foolish enough to ignore a good investment, either. One said, "We'd be fools not to try to buy this building. The price the heirs have offered us is low for a building like this. It will cost us money, but we can try to get government help for the older tenants and arrange personal loans for others."
A zany tenant wailed, "We gonna get this building. We got to. I'll do anything I can. Hell, I got people in Vegas I can call!"
Others less professional, less doctrinaire and less employed had varying
"What we can't forget in all of this is the potential of this
"Waht we can't forget in all of this is the potential of this building. The whole basement is going to waste. If we own it, think what we can do with it!"
"I'll stay if the numbers are right. If I can get an apartment for $2,500 down and the rent only goes up to $250, I can manage that, sublet and go to Paris."
"We've got to remember that this is not a charity operation. Already I've heard people talking about how we can subsidize certain tenants. This is the real world."
"And lawyers run the real world. We'll need lawyers, and lawyers cost money."
A man of 75 had been in the neighborhood for 50 years. "I've seen this neighborhood boom, and I've seen it bust, up and down, up and down -- five times," he said. "Sure, you'd be a fool not to buy if you got the chance. If I had bought when I was young, I'd be a rich man. I should have known. I can tell you about the plumbing in the White House. I knew bankers, all those people. I should have known all about it. Hell, I fixed all their pipes . . ."
At first all the tenants wanted to stay and buy the building. So they decided to shape up the tenants' association and elect officers. Their new president seemed to combine all the qualities needed for the job: Once a wild artist, he now was working as a housing consultant for a non-profit organization, and he liked to talk to old-timers. At first blush it seemed as if he might be able to do it all single-handedly. But in real estate, experience and good intentions are no substitute for lawyers. Everybody agreed the tenants needed a lawyer.
After confirming that the heirs' offer was official and that the tenants had 45 days to make a contract to buy, the president found a reputable firm that offered to take the case for a few thousand dollars in advance.
At a stirring meeting, almost all hands shot up to pledge $50 towards a fund for the lawyers, and by the next morning the checks were all written and off to the bank. So lawyers for the estate and lawyers for the tenants began negotiations, the results of which were reported at the next tenants' meeting.
The lawyer explained matters, like any good lawyer would, saying something like this: "Now at first their attorney wanted you to pay $120,000 in cash before they'd sign a contract that would give you the opportunity to try to raise money for the total purchase price. We talked them down to $30,000 to be put in escrow, and they will sign a contract giving you 90 business days to complete the purchase. And they added the condition that starting in two months you will all volunteer roughly a 20 percent rent increase. Also, alothough the $30,000 will be held in escrow, in case you don't settle within 90 days, you will get only $20,000 of the $30,000 back. So that's the deal. I think it's pretty good. You need time. Oh yeah, you have to pay the $30,000 within 15 days. Are there any questions?"
The tenants weren't quite sure if they had just been nailed to the wall or had swung the deal of the century. But they got into the spirit of the transactions and began looking for angles.
"Yes. Since this $30,000 will be held in escrow, which means no one will spend it, is it possible for a tenant to pay his share in diamonds?"
"You mean precisous gems?"
"Yes. They'd be right in the lawyer's safe."
"Well, I thought I was dealing with low-to-moderate-income people here! You could get a personal loan from a bank on your diamonds, but, no, I don't think the other lawyers would want your diamonds sitting in their safe."
The tenants' association president soon learned that of the many lending institutions in their area only one would even think of giving them a loan. The president asked that bank to send someone to a tenants' meeting to explain the bank's loan policy.
The banker: "Briefly, although we do have an interest in the social problems of the community, our reason for being in business is to make money. We don't make money by acquiring property. So when we make a loan what we chiefly look at is the ability of the group getting the loan to pay off the mortgage. We also have to look at the property and what you plan to do with it, because if you do default, God forbid, we don't want to be left holding a worthless bag. That's why, when you think of buying this building, you also have to realize that you have to renovate it. The building has to be brought up to code and it has to be in marketable condition. So when you think about what down payments you will be paying, you have to realize that not only will you need to cover the down payment for a loan to buy the building, but also the loan to renovate it. I've just looked at a few of the apartments, and they seem to be in fairly good shape. But with the loans you need I would expect that your monthly payments under a mortgage for purchase and renovation will be at least double the rent you're paying now, and probably triple. Start thinking of a two-bedroom going up to $500 to $600."
The tenants grew restive at that kind of talk. They had heard that this bank was eager to help residents in their area afford housing. Why the push to renovate a nice old building into luxury apartments?
"Don't worry too much about what he told us," a saucy tenant cautioned. "He's just trying to scare us. He's full of it. But if we play along with him, we'll be all right."
Saddled with lawyers and bankers, the tenants -- from those with populist persuasions to those with diamonds -- felt an equal burden. The president did more research and advised the tenants to hire an expert, a housing adviser with the reputation of a do-er. The expert had already converted umpteen hundreds of apartments into co-ops. He knew his way around HUD money.
The mild-mannered expert only managed to split the tenants in two: the Red Flag Wavers vs. the American Dreamers.
The Housing Adviser: "We have researched your situation and have come up with three possible courses. The first is to convert at least a portion of the building into a condominium. However, even under that plan your down payments will be sizable and your monthly payments high. Do you all have the information we handed out? Right now, we're talking about column C. The advantage of this is that you will be able to attract more investors to help you buy the building. The second course is a fee-simple co-operative in which you all as a group will have to come up with the down payment money and negotiate a mortgage as a group. The third course is a leasehold co-op. Essentially in this plan you will pay a nominal down payment, your monthly payments will be about as high as under fee-simple, and the mortgage will be financed by a syndicate of outside investors who will get a tax advantage out of the project."
Impressive. Pay an organization a few grand and in a month they come up with three proposals. As usual, the first was unthinkable. Long ago the tenants shied away from turning the building into a condominium because they were told that each person would have to negotiate a bank mortgage, and when the traffic in the halls of an apartment building is as heavy at 2 p.m. as it is at 5:30, bankers smell idleness.
The second proposal was the expensive traditional co-op conversion that frightened the tenants into hiring the housing expert anyway. But the third proposal!
"When I heard about lease-hold I cried, 'This is it!' Oh, it's so simple and cheap!" So said one who reconciled helping rich suburban loophole-hungry dentists get a tax break with keeping all the poor and downtrodden tenants in their apartments.
But the housing adviser and the populist forgot about the American Dream.
"Look," said one subscriber to it, "I know leashold sounds good. It means I wouldn't even have to ask my parents for money. But I want equity. Even if it means a struggle."
Early on the tenants took a demographic survey of themselves, and a computer printout determined that the tenants were, in the main, petitbourgeoisie. At least that's the way the resident Ph.D. candidate in sociology interpreted the data. Now that data indicated that half the tenants could afford a fee-simple co-op. All the tenants could afford leasehold. And at a monster meeting the lawyer said what any good lawyer would: "In my opinion, according to the spirit of the law under which you are trying to buy this building, you are obligated to purchase this building in a way that allows for the least displacement of tenants currently in this building."
"But!" hands said as they shot up into the air.
"Has this leasehold business been upheld in court! We have a contract to buy this building, not a syndicate of suburban dentists!"
"I can't afford to buy into this building under leasehold because I can't afford to throw my money away without getting equity ownership! So if you go leasehold, you'll be displacing me!"
Lawyer, housing expert and banker were nonplussed.
"Why is it that every time we come to one of these tenants' meetings we come under attack?"
"Not everybody feels the way the people that ask questions feel!"
"Then why doesn't the tenants' association decide the way it feels and then we can best try to do what you want."
"We want to buy the building as cheaply as possible and yet have as good an investment as possible."
"But cheaply doesn't mean leasehold!"
"What about displacement?"
"You can't displace rich people!"
But that was the polite side of the Great Debate. The issue was further discussed in smaller floor meetings.
Scene from a floor meeting:
A shout in the hall: "Bitch!"
A door slams.
"Go to hell!"
Another door slams.
"Well, thanks for coming," says a sniveling floor captain. "We won't have any more coming. . . . just came over and yelled at . . . for even thinking about leasehold. So neither of them will be here. I just don't have enough money and I'm sick. I'm leaving the building, so you'll have to pick a new floor captain."
One person said she was busy and another said he was an "anarchist," and the last person there said she'd be floor captain if she got a uniform . . .
The argument between lease and fee ranged in writing: " . . . if you want anything out of life, you have to work very hard for it . . . and anything in life is possible if you just say to yourself, 'I am strong enough and willing to work hard enough to make it possible.'" Vote Fee!
Enter HUD. At the height of the "struggle" -- as most tenants are wont to call the experience -- a Department of Housing and Urban Development official from the regional office toured the building to see if it qualified for HUD assistance. The regional official saw the paintings of one of the artists in the building and said she liked them, but to date she hasn't come back and bought any.
Exit HUD. They said that even if the tenants were given a 3 percent guaranteed mortgage or guaranteed renovation loan, that would all take at least 18 months to get through HUD. And, if the tenants did get HUD help, everyone would be required to leave the building during the year-long renovation, only families with children could live in large apartments, and nobody could make any profit (nobody living in the building that is; banks and contractors and lawyers outside the building, well, that's another matter).
Then, much to everyone's surprise, when HUD didn't "qualify" the building, the housing adviser's leasehold co-op scheme no longer worked. While tenants can't profit with HUD, rich investors looking for loopholes can't profit without HUD.
The Great Debate and the Great Decision, costing thousands in fees to lawyers and housing adviser, fizzled. But the tenants were not back where they started because during the months of pointless bickering they had also been working in committee. In the building committee, the fund-raising committee, the bylaws committee and, of course, the finance committee.
The housing adviser informed the tenants that the total package to buy and renovate the building would be around a million dollars. Assuming that the tenants could get a 20 percent mortgage and assuming closing and other costs could be held down, the tenants needed to raise $350,000 cash within two months.
The finance committee mulled over this problem and came up with a brainstorm: Determine how many current tenants would not join or could not afford to buy into a co-op and then market their units to outside buyers at prices high enough to raise the money needed.
The housing adviser said he didn't like the idea. It might be illegal. He couldn't work with the bank on such a basis. He wouldn't sign any loan application.
The tenants, in one of their shortest and happiest meetings, fired their housing adviser.
At cocktail parties all over Washington, the co-op conversion burned up much wine, cheese and crackers. The building attracted many figures, but mostly "a million eight," as in, "With a little renovation and the right marketing that place is worth at least a million, maybe a million eight." For individual apartments that figure broke down to something like, "Based on the prices of other co-ops in that area, a two-bedroom at that place is worth 40 to 80 thousand" -- at least at cocktail parties.
The tenants needed $350,000. Selling just a few of the big apartments at market value could raise that money. The lawyers snooped around the idea of selling something not quite owned, and as the days to closing grew shorter, their maybe became yes. They drew up the contracts.
With only 20 of the original 90 days left, the tenants' association offered all in-place tenants their apartments. Although none of the elderly tenants joined, a majority of the tenants did. Ten days later those tenants paid down payments on their apartments. The tenants' escrow account grew to a third of their goal.
The tenants hired a real estate agent to market the remaining units. They advertised in neighborhood newspapers. Yes, they needed money, but they did not forget their ideals (at least the populist-nonprofit contingent didn't, and even the resident capitalists heard what their president said the bank officer said, to wit: "He wants this to remain a building for low-and moderate-income tenants. I asked him how he expected us to raise the amount of money the bank required, and still sell to low-income buyers and he said we'd be surprised how much capital poor people have.") So come all you poor and downtrodden and leave you CD's and securities at the door. Although that wasn't what the manifesto to the community said. It rang out:
"Out struggle is now in it's [sic] 11th hour. We must buy our building or lose our option . . . and our homes.
"We are looking for new co-op members. We want to reflect the economic, ethnic and racial diversity of the neighborhood . . ."
Diversity, yes, but no rich people.
Applications poured in. Anyone making upwards of 20 grand made a quick trip to the C pile and were never looked at again. Blacks, Latinos and single women with children marched into the pile.
"It's so hard for a single woman with children to get any apartment!"
"Hold it! Artists need space, too!"
And artists sat on the screening committee, as did every other contingent, and slowly pile A swelled with graduate-student types with a populist bent, artists, non-profit professionals, people with ideas for the basement. The melting pot was ready to boil.
But first the prospective buyers had to see the apartments and receive a shock course in profit-limitation. Most of the elderly tenants bolted their doors to any prospective buyers. A few co-operated and planned to move to Florida. One woman screamed, but her friend said she could get her into a boarding house for the elderly. The old tenant still balked. She didn't like putting her dress on. She wanted her own kitchen. Her friend found out that the boarding house delivered meals to rooms for 50 cents. The door to the woman's apartment swung open, but as prospective buyers took the tour the tenant, true to her principles, lounged about in deshabille.
But that was only a momentary shock to buyers. In the Washington area real estate is almost synonymous with profitmaking. Apartment buildings are no exception. Turn a building into a condo and, presto, each apartment turns a profit of, on the average, $7,000. Co-ops can also soar in value. The co-op executive board regulates all sales, but the board members are tenants themselves and if, by mutual consent, everybody wants to make a killing, they can. Unless, of course, a bank wisely steps in and encourages restraint, which is what the only bank in the area that would finance the deal did to the building on the hill.
Instead of their usual 70 percent mortgage, they offered an 80 percent mortgage if profits were limited. The tenants decided that a 15 percent annual increase in down payment value would be a fair limit. The 15 percent limit drove at least two well-heeled in-place tenants away. It also drove away most of the black applicants in pile A. (As for the other two types of desirables, they were combined in a Latino woman with a large family. In any melting pot, clones stick.)
A local community organizer grumbled about the lack of black faces in the apartment building. A tenants' association officer pointed out "that young upwardly mobile blacks don't think it wise to tie themselves to a profit-limited situation."
At last the tenants with the help of their real estate agent drew up the loan application. They raised $300,000 and plopped it gently in an escrow account. Before, the bank had only been giving general opinions. Now, the bank acted officially.
Their first reply to the loan proposal went like this: "The bank is worried about our ability to support the mortgage," the tenants' association president reported. "So we need everyone to fill out a Fanny Mae form showing assets, income and debts. Self-employed will have to submit income tax returns from two years."
"But we were told the main reason for going co-op was that the bank wouldn't look at us all as individuals!"
"Well, they just want to make sure we won't default. And, of course, the bank is also worried that our profit limitation is not stringent enough."
A tough Zen master that bank. And there was no time for long debate. The deadline for closing was fast approaching. Tenants and tenants-to-be scurried to get income. One woman ran off and got a job as secretary to a shrink. (As a matter of fact, a lot of area shrinks were getting bored weekly by this building.) Other tenants asked: "Do we lie on these forms?" The lawyers replied with a firm "No!" No co-opgate on that hill.
The tenants orchestrated a chorus of letters to the bank begging it not to force the tenants to lower the profit ceiling. How could the tenants ever afford to move out and have the money to buy a better place? American Dream the building might be, but it was most unAmerican for a bank to force a body to live in an apartment building for his or her whole life.
Then it was as if the late owner spoke from heaven. The heirs decided that they wanted to sell to the tenants and not to a condo-converter. They asked their bank to help. So two banks began hobnobbing together. The heirs' lawyers gave the tenants a 30-day extension of closing provided, of course, that the tenants' association fork over $200 every day past the original closing deadline (and of course that new extension ran the full 30 days -- only another couple thousand dollars).
And the banks' lawyers talked all the way to the deadline. And, of course, the tenants paid for their time -- only a few thousand dollars. Finally, when all the legal recourse to talking ran out, the papers were signed by all at a chummy meeting. The tenants owned their building.
They drank six bottles of champagne and eve the tenants that yelled at each other hugged.
Not that it was Paradise Retained. Just ownership with a 12 percent profit limit and an 11.5 percent interest. The new monthly payments rose to almost double the old rent. The meetings would never end. Some co-op members hatched plans for work brigades while others planned long vacations. All of the elderly tenants were gone except the 75-year-old who liked to talk. Everybody agreed to chip in a dollar a month and let the fat in the loan pay his down payment.
One could say that for most of a year a group of people cried and screamed and worried and calculated and paid so that one old timer's bit of paradise wouldn't change at all, so he could sit on the stoop in front of the building and tell anybody who would listen: "I've been in this neighborhood for over 50 years. "I've seen this neighborhood boom and I've seen it bust, up and down, up and down, up and down, five times. Sure, you'd be a fool not to buy if you got the chance. If I had bought when I was young I'd be a rich man. I should have known. Hell, I fixed all their pipes . . ."