Some tenants at the Macomb House apartment building in Northwest Washington were given a chance recently to buy one-bedroom condominums for $32,500 -- a full 60 percent discount from the going rate for such units in the city's booming real estate market.
The discounts were negotiated with the building's new developer in exchange for the tenants' permission -- as required by recent city laws -- to convert the building to condominums.
This is but one example of the influence and muscle that tenants have developed, especially when they have banded together in associations.
For years the weak, voiceless victims of attempts to have their apartments sold out from under them, tenants and tenant associations have at times gained an upper hand over the owners.
One way they do this is to become the owners themselves.
At least eight tenant groups in the District of Columbia have purchased their buildings in the last year. More than 15 other groups are working to do the same with buildings that range from a small four-apartment building in Northwest Washington to a massive Foggy Bottom complex with more than 800 apartments and a $50 million price tag.
Tenants' groups in the District are not alone in their efforts to buy their buildings, although there is less such activity in the suburbs.Attorney Ira Lechner reports, for example, that he is working with two Arlington County tenants' groups that are trying to buy their multimillion-dollar complexes from their landlords. Both groups, he said, are trying to get mortgage assistance from the federal Department of Housing and Urban Development.
Montgomery County recently revised legislation that will give tenants there an opportunity to buy their apartment buildings before they can be sold to outside buyers. Tenants at one project in the county bought their building and converted it to a cooperative several years ago.
Some groups are parlaying small bake and rummage sales into the purchase of buildings costing hundreds of thousands of dollars. Some are wheeling and dealing to get huge discounts on the purchase of individual condominiums. Still others are challenging their landlords in court.
Tenants takeover will become more difficult in the coming months, as tight money and escalating interest rates force even bigtime developers to cool their heels. Yet, some groups have come up with enterprising ways to try to find financing.
Tenants at the Pylmouth, 1735 New Hampshire Ave. NW, for instance, advertised for investors in the condominium classified ads of a recent Sunday newspaper.
"Wanted: Creative Owners/Investors to join tenant group in limited partnership. . . . Must get our own financing. Act immediately if interested," the ad read in part. Two hundred people reportedly showed up to look at the building that day, and 35 expressed serious interest in investing.
As the tenants have become bolder, a small side industry has sprung up. They are the handful of lawyers, real estate brokers and financial consultants who find themselves "tenant takeover" specialists -- spending nearly all their time working in just this one lucrative area.
Since consultants are often paid a percentage of the sales price -- usually about 3 percent -- a multimillion-dollar conversion can produce a substantial commission.
The time required often is phenomenal, however. John R. Iwaniec, a 33-year-old comdominium specialist with one of the country's leading mortgage banking firms, said he logged more than 1,900 hours over a six-month period working with the tenants of the Bon Wit Plaza apartment building at 24th and H streets NW when they bought their building.
Iwaniec said the first met with about 60 of the tenants last winter to counsel them about buying their building and converting it to condominiums. The meeting, the first of many, was, appropriately, held in a church, he said.
"I stood up and told them that if we were going to be successful, we were going to have to say a lot of prayers," Iwaniec said. "I really felt like an evangelist -- no one had any confidence in the process then."
Six months later the BonWit tenantshad bought their building for $4.2 million and Iwaniec's firm, Walker and Dunlop, had received more than $125,000 as a 3 percent commission for its advisory role.
Even in buildings they don't actually buy, apartment dwellers often make shrewd deals with outside developers to get a huge share of conversion rights or discounts on individual condominiums.
At the Macomb House, at 2710 Macomb Street NW near the National Zoo, tenants were notified last April that their landlord had been offered a sales contract on their building and that they would be given a chance to match the offered price.
The tenants immediately incorporated, held 75 meetings, paid $10 dues plus up to $2,000 each to raise a $55,000 deposit -- and signed their own agreement with the purchaser, according to tenant association president Christine McElligott.
The agreement gave the developer the tenants' consent to conversion, provided the tenants are given 60 percent discounts on the price of the condominiums. That means current residents can get a typical one-bedroom unit for only about $32,000, while an "outsider" would have to pay about $80,000.
Those who have converted their buildings to condominiums or cooperatives say procedures should be established early because conflicts among the tenants are certain to arise. Usually, they say, one group of tenants sees conversion as an investment, while others see it as a way to stave off displacement.
"You have to deal with the populist factors who don't want to hear the word profit, and the peti-bourgeois speculator types," Iwaniec said. "You go from meetings where the heated discussion is whether to charge $2 or $5 in dues, to decisions about a multimilion-dollar project and ask whether you should be charging $5,000 per person."
Fiery debates also occur over whether to convert to condominiums -- where the buyers actually own their "apartments" and are responsible jointly for the grounds -- or to a cooperative. In a cooperative, a corporation owns the building and residents lease shares,-- their units --in that corporation, paying monthly assessments.
Hank Leland, chairman of the Beverly Court tenants association, recommends what he calls the "80 percent solution": Don't do anything unless at least 80 percent of the tenants agree to it. The Beverly Court became a tenant-sponsored cooperative this year.
Most groups are "accidental organizations with no specific purpose in mind," Leland said. "You're working with a group of people with a variety of interests, and it's often difficult to get a sense of purpose beyond 'Let's buy the building.'"
Despair is bound to creep in at times, said Walter McCabe, a Foreign Service Officer who presided over the tenants group at the BonWit.
At one point, District government red tape so slowed them down that the BonWit tenants couldn't meet their first settlement deadline, McCabe said.
The only way they could continue with their purchase plans was to put their $212,500 deposit "at risk," making it forfeitable if they missed their next deadline.
"Many of the tenants had a good hunk of their life savings in that amount," McCabe said. But when it came time for a vote, he said, "the vote something like 65 to 2 or 3 -- a clean sweep in favor. They went on to make their deadline."
Consequently, the BonWit tenants were able to give themselves substantial discounts. One tenant said he will pay $45,000 for his one-bedroom condominium with a sweeping view of the Kennedy Center in the popular downtown neighborhood. A similar one-bedroom condominium would cost a member of the public about $63,000 under the tenants' plan. Their accountants and attorneys currently are working to determine if tenants can give themselves greater discounts.
The role of the tenant conversion specialists is "to be a bridge between those two polar interests -- landlords and tenants," Iwaniec said.
Several years ago, such specialists wouldn't have been needed. Not until the spring of 1978 did legislation go into effect requiring landlords in the District to offer tenants a chance to buy their building before it could be sold to any outside purchaser. The curerent moratorium on condominium and cooperative conversions in the District allows tenant-supported conversions to be excluded from the moratorium.
Profits can be substantial for the original apartment owners. CBI (Chicago Bridge and Iron Works) Fairmac bought McLean Gardens in 1972, when it had about 1,400 apartments and dormitory units. At that time, the complex was assessed for tax purposes at about $8 million but was valued for sale at $15 million to $18 million, according to J. D. Lee, president of Fairmac Reality. The tenants and their developers bought the project this year for $25 million.
McLean Gardens tenants bought not only a 723-unit apartment complex but 10 acres of vacant land as well. Under the deal, tenants will get 27.5 percent of the development profits, with outside companies and individuals sharing the rest.
Jack Koczela, president of the McLean Gardens residents association who quit his job with the College Entrance Examination Board to work full time on the purchase project, will become the project's $30,000-a-year property manager. Financial consultant William P. McCulloch III left an $82,000-a-year position at the World Bank to work with the new McLean Gardens development project at $85,000 a year.
As a partner in the development McCulloch has a 7 percent share -- which means he may make $2 million if the development over the next four years earns the $25 million to $30 million McCulloch said he expects.
And California developer Dwight W. Mize, who signed a contract to buy McLean Gardens last year but found himself immediately entangled in a fight with the tenants, received more than $2 million from the tenants and their backers just to get out of the picture.
Condominium conversions are having an impact throughout the Washington metropolitan area, according to figures from the Metropolitan Washington Council of Governments. Their figures show that more than 8,000 apartments in the District and about 9,000 in Montgomery County have been converted to condominiums that already have been sold or are being marketed.
Alexandria had nearly 4,000 such conversions, Arlington County nearly 5,000, and Fairfax County, Falls Church and Fairfax City, combined had about 4,600. Prince George's County reported about 4,850 such conversions.
In Montgomery County, officials imposed a 120-day moratorium on conversions last July. Since then, the Montgomery County Council has enacted three laws to help stem the tide of conversions.
District officials also imposed an emergency condominium conversion moratorium this year, which has led to a fight in the courts over whether their action was legal. This week, a majority of the D.C. Council members introduced legislation that would give renters even greater say in whether or not their projects can be converted.
A recent study estimated that nearly 25,000 apartments in Washington -- about 12 percent of the city's 1970 rental housing stock -- have either been converted or their owners are in some stage of the conversion process.
Several tenant groups in Washington are involved in court fights over their right to purchase. For example, at Columbia Plaza, a massive Foggy Bottom apartment complex with more than 800 apartments, tenants are asking the courts for support in their battle to get their landlord -- a partner-ship that includes parking magnate Dominic F. Antonelli Jr. -- to accept their $2.5 million deposit and $50 million contract to buy the building.
And lower-income tenants at one building, who contend the city's laws primarily aid affluent tenants, also are in court to get their right to buy their building.
Other battles occur between renters and potential buyers in the same building. The renters want to remain as tenants and don't want their building converted by anyone, even a tenants' association.
The potential buyers, on the other hand, have the money to buy a reduced-price condominium and want to do so. Some even buy more than one apartment as an investment, a unit that later will be rented out.
Several organizations have been acting as technical consultants for lower income tenant groups that don't have money to buy high-powered consultants but want to buy their buildings. Groups offering free aid include the Metropolitan Washington Planning and Housing Association and the Ministries United to Support Community Life Endeavors (MUSCLE).
The city also has directly assisted two tenant conversions -- the Beecher Street complex in Glover Park and the Tel-Court cooperative in Southwest, according to Marie Nahikian of the city's Department of Housing and Community Development.
nahikian said the city also is assisting other projects with down payment aid and federal rent subsidies.
In addition, Nahikian said, the city plans to have millions of dollars available soon for apartment preservation and purchase assistance programs which should increase the number of tenant takeovers.
Under the apartment preservation program loans will be made for apartment maintenance, as well as to tenants converting their homes to cooperatives who need loans for such things as architectural and legal fees.
That money will be targeted to areas where lower-income families are in danger of being displaced, Nahikian said.
The "first right" purchas program will be available citywide, but will be targeted primarily to the Adams Morgan, Mt. Pleasant, Columbia Heights, Logan Circle, Shaw and Capitol Hill neighborhoods, Nahikian said.