Tenants of The Towers on Cathedral Avenue NW, who failed in an earlier attempt to buy the entire apartment complex, have lined up to purchase their own units -- for prices averaging $100,000.
The condominium conversion may set a record in this area both for prices and for the percentage of renters buying.
At this point, about 70 percent of the tenants in the two-building, 615-unit apartment complex at 4201 Cathedral Ave. NW are expected to become owners when settlements begin in November. They will be paying an extremely high price -- more than $75 a square foot on average. Many have been living at The Towers for more than a decade.
Many of the apartments, which range from studio units with less than 600 square feet to three-bedroom units with 2,000 square feet, are being sold at prices that begin at $57,000 and top $200,000. After special prices were offered to tenants interested in buying their own apartments, prices were raised several times. The units now sell for about $100 a square foot for outside buyers.
New owners have been told that they can expect to pay a monthly condo fee (including utilities) of 18 1/2 centers per square foot. That would be $166 for a 900-square-foot, one-bedroom dwelling. Parking spaces costs $8,500.
At this point nearly 85 percent of the available dwellings have been spoken for. The Lewis & Silverman firm, which is handling sales for the developer, estimates that all of the dwellings will be sold before the end of this year.
The Towers, one of the District's prestige rental complexes for 20 years, was built and developed by the late Melvin Gelman, who had a two-story apartment there. His widow continues to live in it.
Rents in the building have been relatively modest. A current tenant pays only $360 a month for a one-bedroom unit -- which is selling for $82,000. Over the years a number of well-to-do persons, including a gaggle of real estate professionals, lived there.
Even before Melvin Gelman died last August, there were persistent rumblings that The Towers would be sold and converted to condominium ownership. About a year ago California developer Dwight Mize signed a contract to buy the 9.6-acre property, for which a certificate of condominium conversion eligibility had been obtained, for about $40 million.
Early this year, Mize sold his contract to The Towers Limited Partnership and two subsidiary general partnerships headed by Chicago businessmen Jerrold Wexler and Barry Sidel. Sidel said this week that Mize made a "modest" profit on that transaction but wouldn't say how much. Wexler and Sidel have been involved in condominium conversions in Chicago and elsewhere.
Meanwhile, under District condominium regulations, Towers residents had the right to come up with a matching offer to the owner in 120 days.
A tenant association was organized and there were some stormy meetings. Some tenants wanted to buy the building as a group and others were opposed to it. Some were ready to offer the new owner rents 25 percent above the current level to maintain the buildings as rental properties. But that approach was not endorsed.
Instead the tenants hired attorney Benny L. Kass to represent their interests and to make a move toward buying the building themselves.
"Let's face it, it's difficult to get interim financing for a large group of persons, even if they are generally affluent," Kass said.
But Kass and the group did find a local development firm that was interested in handling the purchase for the tenants. At that point, according to Kass, Sidel threatened to sue the tenants because of their planned alliance with another developer.
Later, according to Kass, Sidel changed his approach. The developers offered the tenants more attractive prices than those originally set on their units.
"Instead of generally $78 a square foot, as discussed earlier, the price to tenants was set 10 percent lower," Kass said. "That offer was received warmly by most tenants and they voted July 3 to give up their right to buy the building as a group."
The outcome at The Towers is viewed as a compromise between long-term, affluent tenants and an out-of-town development team that recognized the clout of the tenant organization and individuals living in the buildings.
The tenants used their position to get better prices and the developer avoided the possibility of losing the deal and gained a strong cadre of tenant buyers. In addition, the tenants gained the pledge of a $2.6 million escrow fund to cover maintenance and improvements to the buildings.
William L. Bush Sr. and wife Emilie have occupied a three-bedroom apartment in The Towers for 19 years. Bush said the rent is now $760 a month, plus a garage fee. But the Bushes are buying their apartment for about $150,000 and say they have no complaints.
Because of his background in downtown development and construction (his firm did the building at 1250 Connecticut Ave. NW, for instance) Bush was chairman of the tenant committee. The committee examined the cost of putting the 20-year-old buildings in "first class condition," Bush said.
He said that the collective buyers of apartments in The Towers will have the right to approve expenditures for new roofs, rebuilding the heating and air conditioning equipment and improving public areas.
Henry Kaufman, a veteran Washington advertising executive, said that he and his wife are buying their three-bedroom apartment and that they may buy two others as investments.
Louis Young, who was president of the tenant association and a long-time tenant, said that he is buying his apartment "because we recognized that this is the best way to go to avoid headaches and stay here. This is a good news story; too much news is bad these days."
Of course, not all the tenants in The Towers are buying. Some found other rental apartments; others bought elsewhere.
"Some tenants were unable to afford the prices," said Lawrence Silverman, president of the firm handling sales. "But we learned that The Towers has a remarkable hold on its tenants. They felt more like owners than tenants; that's one reason why so many of them bought there. In addition, there are relatively few luxury rental apartments available today in the wake of the trend to condo conversions."
The Towers was assessed by the District at $16.7 million this year and property taxes on it as a rental property were $307,000. It is estimated that the apartments will sell for a total of $55 million; revised property taxes on individual dwellings will be in excess of $845,000.
Increases in property tax revenues to the District and other area jurisdictions with numerous condo conversions, have been substantial. It is estimated that at least 30,000 former rental dwellings have been converted to condo ownership in recent years and that the area housing stock also includes at least 35,000 relatively new condominium apartments and town houses.