In what could be a trend-setting arrangement for condominium conversion here, a developer and a downtown tenant organization have teamed up in an unusual joint venture that will give the residents a piece of the action.
Initially, tenants of two 10-story apartment buildings at 1420 and 1440 N. St. NW and the developer, David Clark & Associates, were at odds over Clark's plans for converting the 276 units, now known as Towne Terrace East and West. But recently the parties have come to an understanding that gives the tenants a 35 percent share in the profit Clark will make from the sale of remaining units.
As a result, 82 tenants have elected to buy units in the two buildings at what are described as below-market prices. For instance, C. E. (Chuck) Giesey, former president of the tenant association, and a partner are buying a one-bedroom apartment for $39,500.
The remaining units -- there were 96 studio and one-bedroom apartments available as of this week -- are being sold for higher prices, ranging from $35,000 to $83,000.
The buildings were previously owned by Town Towers Associates, a limited partnership that put them up for sale in 1978. Clark, who earlier converted Fairfax Village in Southeast and rejuvenated the old Iowa apartment building south of Logan Circle, became interested early last year.
Clark signed a contract to purchase the properties and the owners applied for certificates of eligibility for conversion to condo ownership. Clark eventually paid $5.6 million for the properties, which include 10 first-floor commercial units.
Then the tenants organized, with the aim of keeping the buildings as rental residence. Through bake sales and other events, they raised more than $1,000 to cover initial expenses, including the cost of incorporating the tenant association and hiring a real estate consultant and an attorney.
After months of negotiations with Clark, the tenant group signed a joint venture agreement with another developer who would have converted the buildings for them. But they kept the door open for negotiations with Clark -- and later decided to go with him because he lowered his prices and offered to share the profits.
Clark also agreed to pay off the interim developer hired by the tenants who, in turn, relinquished their objections to the issuance of a certificate of eligibility for conversion.
Units were offered to the tenants for prices that averaged $40 a square foot, compared with a citywide average of about $70. Tenant official Giesey described his own acquisition as a "steal" and attributed it to "bargaining the hell out of the developer."
Clark said his firm expects to clear 65 percent of the net profit -- which he described as a decent earning.
"It should work out favorably for all of us if we sell out the remaining 96 units before the end of this year," he said. Quick sales decrease the cost of interim development financing, he noted.
Giesey, who lived in the building for 10 years, complimented Clark for his ability to compromise.Tenants will share the costs of the consultants with the developer, Giesey added.
John Hoskinson, a real estate broker who represents tenants in condo conversions, said the Town Terrace East and West agreements may set the standard here for tenant conversions -- the kind that start out as antagonistic and resolve into pleasant partnerships. He called the business arrangement "enormously successful" for the tenants.
Clark said that some of the public sales in the 15-year-old buildings have been to investors. Ten of the units will continue to be rented to elderly tenants, he said.
Clark said he is aware of the increasing viability of the neighborhood. Part of what was the 14th Street NW riot corridor 12 years ago, the N Street block is north of an area where large office buildings are being completed. And just around the corner from the apartments is a newly opened high-rent building, The Latrobe at 15th Street and Rhode Island Avenue NW.