Months before the bomb threat and the prayer rally, the lavish parties and multimillion-dollar deals, there was just Nick Mason, a middle-aged corporate executive given to conservative suits and toothy grins, moving into apartment 1511 South at the Promenade.
Nobody even noticed. But then again, nobody at the mammoth Bethesda apartment complex knew that Mason worked for one of the corporate arms of American Invsco (pronounced Invesco), the condominium and cooperative kings of the country. That knowledge would not come until summer, but when it did it would create enough uproar to set off a congressional investigation of the entire conversion phenomenon.
The story of Invsco and the Promenade is a tale of a high-stakes conversion game played by the highest roller of all, the privately held Chicago corporation that is writing its own real estate rulebook.
Mason signed his lease last November and moved in later that winter, when the Promenade, at 5225 Pooks Hill Rd., in Bethesda, still belonged to multimillionaire Maryland builder and Carter fund-raiser Nathan Landow. On June 30-nine days before the more than 1,300 Promenade residents would be told that their building had been sold and was going co-op -- Mason put $1,000 down to buy his apartment. Another Invsco employe did the same on July 1, and later, a lawyer for a firm that represents Invsco in Maryland joined a tenant in buying yet another apartment.
On July 9, Invsco decided to tell the rest of the tenants that their apartments would be put on the block. Montgomery County moved to stop them with a moratorium on cooperative conversions.
Invsco rushed to court to challenge the moratorium, arguing, among other things, that it would be unfair to enforce the new law because five Promenade residents already had completed the purchase of their apartments. Three of those residents happened to be either employes or friends of the company -- a factor that was quite convenient for Invsco in its court battle.
Invsco won the case, a not-so-surprising coup for a company that in the past decade has converted 15,000 condominium units and 1,700 cooperative units in cities from Houston to New York.
In the Promenade deal alone, Invsco has demonstrated its political and financial finesse, circumventing the county's tough condominium conversion laws and avoiding more than $800,000 in real estate transfer and recording taxes. The company hopes to have sold all the apartments in the building within the next two years. Income from sales should be $100 million -- twice the $50 million it paid for the building.
The project also has spurred an investigation of the growing conversion phenomenon by a House Government Operations subcommittee, whose chairman, Rep. Benjamin Rosenthal (D-N.Y.), sees the Promenade as a "classic case of the evils of conversion."
Many Promenade tenants are angry because conversion could double or even triple their monthly housing costs, and the price tags are forcing some residents to flee. The situation has set of a tenant rebellion that has taken on the fervor of a religious cursade.
At a recent prayer rally, replete with blessings from a rabbi and a priest, Promenade tenants association president Herman Eig called for "spiritual inspiration to help see us through our battle against a force that considers our dollars far more important than our lives."
Promenade officials deny that they're doing anything different than dozens of other developers who convert buildings. "It's really a dissemination of wealth," said James Keane, Invsco's top man at the Promenade. "You have one person owning a building, we convert and then 100 people own a piece of the rock."
So why all the ruckus wherever Invsco goes? "We're the biggest and the best," said another executive. "We're a natural target."
Still, the company is moving steadily forward with its plans, enticing prospective buyers with the promise in their advertising: "Everything you ever wanted in a home . . . especially if you've wanted everything."
Mason says sales are "brisk," both to residents and outside purchasers. He has "good vibrations" about the project, he says, but he will not reveal how many units have been sold. Tenant leaders keep insisting that they are slowing Invsco down, and both they and the county are appealing their courtroom losses to higher courts.
Much of the Promenade tenants' ire is aimed at the company's adroit circumvention of the county's condominium laws, passed last year to stem the tide of conversions and to give tenants more leverage in dealing with developers. One statute also tacked a 4 percent transfer tax on any condominium sale. Playing by those rules made no sense to Invsco.
"To go under Montgomery County's condominium law would not have been a good business decision," Keane says simply. "it would have been crazy."
And Nicholas Gouletas, the one-time encyclopedia salesman who started Invsco 10 years ago in a storefront office with his brother and sister, did not build a nationwide condominium empire by doing crazy things.
Faced with Montgomery's condominium strictures, the company took another road along the profitable conversion route -- turning the Promenade into a cooperative, a slightly different form of apartment ownership plan whereby residents buy shares of stock in a corporation that owns their building.
Neither the county nor the state has any laws regulating the conversion of rental apartments to cooperatives.
It was three years ago when Invsco first turned its eye on the two brick towers, replete with balconies, set on 20 lushly landscaped acres on Pooks Hill Road. Jerrold Mathisen, their chief acquisition officer, spotted the building as he was driving on the Capital Beltway, and thought it might fit in well with Invsco's string of luxury highrises.
Mathisen, senior vice president of the Acquest Group -- the part of the "Invsco family" that roves the country finding and negotiaging deals on prime investment properties -- called Promenade owner Landow, whom he now describes as a "quite energetic" negotiator. Perhaps that's why Landow got a record-breaking price of $49.7 million when the sale agreement finally was reached in August 1979.
At that time, Invsco was planning to turn the building into a condominium. Within the next months, Invsco changed course, and by March 18, documents show, the company had decided to go co-op instead.
On that day Richard Waugh, a salesman up the road from the Promenade of Invsco's other big Maryland conversion, Grosvenor Park, signed the papers incorporating the Promenade Towers Mutual Housing Corporation -- the corporate entity that ultimately would handle converting the Promenade to a cooperative.
But before the deal would be consummated on June 23, it would involve a whold chain of new business entities -- either partially owned or staffed by Invsco.
With those players in place, Invsco turned its attention to acquiring the twin towers that rise 18 stories above tennis courts, terraces and an Olympic-sized pool.
In a complex series of transactions, the Invsco-related entities acquired the interests in the partnership that owned the building, thus avoiding costly transfer and recording taxes that normally are paid when a piece of real estate changes hands. Instead of buying a building and triggering the tax, the Invsco-related entities simply purchased the shares of a partnership. The building came along in that package.
This maneuver, which saved the company at least $830,000, was all perfectly legal, according to a Maryland attorney general's opinion last year on a similar transaction. And according to a local real estate expert, the whole transaction -- from the decision to go co-op to the execution of the deal -- deserved an Academy Award.
With that part of the performance over, it was now time for the entrance of Invsco's traveling road show, complete with bagel brunches, fruit baskets delivered door-to-door, a coterie of real estate agents and David Kaplan, their ex-saxophonist and B'nai Brith fund-raiser turned "consumer ombudsman" to the elderly.
Invsco burst on the Promenadescene with its announcement letter July 9, proclaiming to the tenants in the 1,071 apartments: "Certainly the change in status of the Promenade is the most exciting real estate story in the area."
Even the company didn't know how prophetic its words would be.
Within the next weeks Invsco was fighting one lawsuit against the county and defending itself in another brought by the tenants association. It won both. Meanwhile, tenants were picekting at the complex's front gates, and at the lobby's front desk a man with a deep voice called in a bomb threat, forcing a late night evacuation of the twin towers.
The situation quickly developed into a classic tenant-vs.-developer struggle, this time played out on an unusually grand scale.
The tenants are mainly well-heeled and well-educated Montgomeryties -- builders, lawyers, and retired businessmen -- who raised $40,000 to fight the conversion, hired a state senator to represent them in court and gained enough attention from their congressman to turn a congrssional spotlight on Invsco. Their adversary is a company that handled about $1 billion in real estate transactions in 1978 and fancies itself to be the General Motors of real estate someday.
Perhaps the company made its "one mistake -- an innocent mistake," as one Invsco executive sadly refers to it, in its second message to residents, the infamous July 10 letter. In it, the developer announced the introductory price of the apartments, noting that "the price as shown reflects neither the very substantial benefits and allowances you will receive as a resident nor the monthly costs."
The figure also did not include a special mortgage on the whole building that everyone would have to share in paying off. The letter failed to mention that this would incrase the listed price on individual apartments by about 28 percent. With quoted prices on the one-and two-bedroom apartments ranging from about $41,000 to $118,000, the difference was quite substantial. The price tags would end up ranging from about $54,000 to $150,000.
In discussing the letter weeks later, tenant leader Eig, a retired builder, would call the company "pushy, aggressive, deceptive. They forgot to left out on purpose the . . . underlying mortgage. They just wanted me to believe I could buy the apartment for less."
But Mason, the man who signed the July 10 letter, retorted that it did not include the discounts the tenants would receive either. "It was noted in big notes that there are additions and reductions. It wasn't meant to be controversial." Once residents came in to talk to the sales agents, they were told the full prices, Mason said. "There was no comfortable way to do it by mail."
After this lively start, the company moved into its well-oiled routine, throwing a lavish party for residents that is one of Invsco's conversion signatures. There have been fancy dinners at Lake Shore restaurants in Chicago and cocktail buffets on the roof of the St. Regis in Manhattan. The one was held along all 250 feet of the Promenade's underground arcade, lined with white linen-covered tables for the occasion.
"I never saw so much food in my whole life, not at any bar mitvah," tenant Jerry Davis later recalled. "We were dipping pineapple in chocolate. There were clams on the half shell, smoked salmon on tables, everything. Champagne and booze flowing all over the place, only the best brands. The entire arcade was food, silver service and waiters."
By this time, a phalanx of sales agents was quartered in an arcade offfice, and Home Marketing of America, Invsco's sales outfit, was serving up bagels, cream cheeseand co-op pitches for brunch in the party room next door. David Kaplan, a pudgy teddy bear of a man, was on the scene, too, warmly directing the company's "special assistance program" to grant two-year leases to the handicapped and certain senior citizens whose incones allowed them to qualify.
The tenants association countered with its own extravaganzas, including a Sunday picketing session and prayer rally in which tenants, clergy and local politicians called on everyone from government to God to deliver the Promenade from American Invsco.
All this time, Invsco headed with a frenzy toward the first deadline in its "residents program." Sept. 1 was the final day tenants would have the exclusive right to buy their own apartments. After that, all the apartments would be subject to outside sales. Tenants' price discounts would beging to diminish after that date, until they disappeared entirely on Nov. 30.
The tenants association called the disappearing discount plan "high-pressure." Invsco's people called it "an incentive program."
As the weeks wore on it became impossible to stroll down the arcade, sit in the crystal-chandeliered lobby or get in an elevator without feeling the force of the conversion.
"Divorce, I'm telling you, divorce," a well-coifed blond whispered to a friend as they whisked through the arcade. "I want to buy. My husband wants to leave. It'll be the first divorce in history on the grounds of co-op conversion." It was not an unusual admission in an atmosphere that one tenant described as "psychotic."
Indeed, the decision on whether to buy was a difficult one for many tenants, whose rents generally ranged from about $300 to $600 a month and whose monthly costs would double or even triple under the conversion plan. Still, some residents were deciding to buy and had been smitten by the Invsco style. One woman delivered home-baked cookies to Mason, and another told him she was offended by what the tenants association was doing. "Why can't they be happy for the rest of us -- for those who are buying?" she asked plaintively.
Meanwhile, Eig wondered what it was that made a building worth $49.7 million one day and suddenly worth a $100 million sellout price the next, when the developers planned to leave the apartments "as is" and do only minimal renovation to the rest of the building.
"What makes it? The marketplace," Keane answered matter-of-factly. "Our prices are comparable to similar places in Montgomery County," he added, failing to note that one of those similar places was Invsco's own nearby conversion, Grosvenor Park.
Keane asserted that the company would be "lucky" to make $15 million on a $100 million dollar sellout, despite the fact they would be putting only about $1.5 million into renovations. He said the rest of the difference would be eaten up by marketing expenses, sales commissions, legal and professional fees, real estate taxes and interest on their loans to buy the building.
For Invsco to make only $15 million in profits, the other costs Keane enumerated would have to total nearly $34 million.
So far the Invsco-related entities have left little to chance in their pursuit of profits. The 5225 corporation -- whose officers all happen to work for Invsco -- has captured the leases on about a dozen businesses in the Promenade arcade for the next 18 years. The price to 5225 Inc., regardless of inflation, is locked in at $70,000 a year for all the rental spaces. So 5225 may then turn around and sublease the spaces for whatever price it can get.
According to the Promenade Towers Mutual Housing Corporation's own property report, "the income from the current leases in 1979 was approximately $100,000."
Pretty smart for them," said Eig. "pretty lousy for the tenants in the building."
Invsco officials on hand in Bethesda just shake their heads and say they don't know anything about how the leases were negotiated. What the executives do know about and want to discuss is the "myth," as some say, that Invsco is a "high-pressure" outfit.
"Have you seen anything high pressure?" a company spokesman asked. "Are fruit baskets high pressure? No. Are parties high pressure? no. They're good will."
Keane said his company's conversions add to the tax base, bring new jobs into the area and disseminate wealth by allowing more people to own property in these buildings. "But we're never portrayed that way. We're always the guys in the black hats. . . ."
Still, the real estate community in Washington is watching Invsco to see if it can pull off the Promenade conversion, one that other developers thought couldn't be done.
"We're waiting to see if they're so smart and we're so dumb," said one local developer.
Keane had only one thing to say to that. "Envy," he grinned. "Just envy."