The tenants of a Dupont Circle apartment building were sent into a quandary two years ago when their landlord announced that he intended to sell the building. But they quickly formed a tenants' organization and eventually decided to turn their building into a cooperative.

Last November, with the help of a developer, Copley Plaza Cooperative Inc. officially took over the building at 1514 17th St. NW. The conversion took place after 16 months of tenant meetings, negotiations with the owner and developer, internal squabbles and bake and yard sales to pay attorney fees.

"Going co-op for me was a good opportunity," said Lucy Hoffman, a leader in the tenants group and now a member of the cooperative's board of directors. "I just turned 29, and I just assumed that I would never be able to afford my own place because interest rates are so high. I do now.

"It was a lot of work -- being on the board of directors and all that, I can't tell you how much time I put into it. It was a whole lot, but it was worth it."

Despite a long-standing reluctance among lenders here to make co-op mortgage loans, cooperatives have become an increasingly popular option for District renters, a result of condominium conversions that have forced more and more renters to buy or move.

In 1977, a survey by the National Association of Housing Cooperatives found 78 co-ops in the District, ranging from federally subsidized buildings to the exclusive Watergate complex. The city now has 116 cooperatives, with a total of 8,704 units, records in the District's assessor office show.

At least three co-ops were chartered in 1920 and are perhaps the city's oldest. They are Dumbarton Court Owners Inc., 1657 31st St, NW; Netherlands Owners Inc., 1852 Columbia Road NW; and Northumberland Apartments Inc., 2039 New Hampshire Ave. NW.

Nationally, about 500,000 families live in co-ops in about 40 states, according to the national cooperative association.

"We'll set a lot more co-ops in the future -- and I mean a lot more," predicted Edward F. Jesse, treasurer of, the Potomac Association of Housing Cooperatives, which represents co-ops from Baltimore to the Tidewater area.

"It's very simple economics: Cooperatives allow someone to live with a sense of ownership that is real and get [income tax] deductions for the [mortgage] interest and the real estate taxes [on the co-op], subject to tecnhical requirements of the law, and the cost can be significantly less" than other housing.

Like Copley Plaza, one of the city's newest co-ops, most cooperatives are born out of landlord decisions to sell their apartment buildings or convert them to condominiums, Jesse said. Under District law, the tenants get the first chance to buy their buildings.

Few buildings are built as cooperatives, he said, and even fewer become co-ops through tenant offers to their landlords.

Unlike condominiums, residents of cooperatives do not own their apartments. Instead, they buy a share or membership in the cooperative corporation, which owns all of the building, and receive the right to live in their units.

The price of a share or membership generally is based on the size of an apartment. Cooperative residents also pay a monthly fee covering utilities, taxes, maintenance and other operating costs of the building.

Tenants of a cooperative -- through an elected board of directors -- control their building's operation and set house rules. They generally must approve new residents and can oust members who violate the co-op's rules. Former president Richard Nixon was turned down by a New York City cooperative because its residents feared he would draw crowds to the building.

Co-op conversion is more appealing to apartment building residents than condominiums because it tends to be cheaper, according to the cooperative associations. In the District, co-ops average 80 percent of the cost of a comparable condominium, estimated Peter Merrill, executive director of the National Association of Housing Cooperatives.

Exceptions are market-rate co-ops, such as the Watergate, where membership "sells for anything anyone is willing to pay," he said.

For Copley Plaza, conversion to condominium ownership would have cost residents $30 to $40 more than the $53 per square foot they paid to go co-op, Huffman said. "It was just too expensive," she said.

Cooperatives' prices have been kept down partly because limited-equity or low-yield cooperatives restrict how much residents can sell their shares for, Merrill said. "The theory here is to keep it affordable for low-income to moderate-income people," he explained.

Another clamp on co-op prices is the difficulty that potential buyers have in arranging financing -- historically a point of weakness with cooperatives, Merrill said. Outside of New York, few financial institutions will lend to someone seeking to buy into a cooperative because if they must foreclose on the loan, they wind up owning a share of the co-op but not the apartment, he said.

"For banks, there's no collateral for them in a cooperative. Unless you have lots of money for collateral -- and if you have that, you might consider using that to buy your share -- banks are reluctant to lend to you," he said.

Loans could be easier to get if District law allowed lenders to gain title to individual units when forced to foreclose, contends a federal banking official who asked not to be named. In New York City, he noted, bankers willingly make co-op loans, because they can get the title.

A few years ago there was "vague talk" about the D.C. City Council considering legislation dealing with cooperative financing, but the bill was never introduced, said John Hoskinson, a District real estate broker.

Co-op financing "is not primarily a legal problem," he said. "It's primarily a problem of getting lenders interested in co-ops and having interest rates acceptable to anybody. No one wants to loan at 17 percent."

But financing will become easier in the near future, predicted Edmund C. Flynn, president of Edmund J. Flynn Co., a District real estate firm that has handled more than 50 co-op conversions. He said his firm is working to ease financing with a local bank. "I think if one gets into the business and proves that it can work, then the rest will follow," he said.

Merrill also foresees banks growing more favorable toward co-op loans in the next three to five years.

Some co-op residents have jumped the financing hurdles through the loans from banks and savings and loan associations, take-back mortgages by sellers, lump-sum payments or financing plans offered by some cooperatives. Merrill said some co-ops in other cities have their own credit unions that make loans to new buyers.

But financing can be a headache for tenant groups trying to buy their apartment buildings, particularly those dominated by low- to moderate-income residents, because they rarely meet loan requirements, the federal banking official said.

A stumbling point is that a cooperative corporation begins without any net worth, he said. "There's nothing to attach but the building. But the building and the land is not worth the loan" until the often-needed renovation work is completed, he said.

Co-op conversions of low-income apartment buildings "often is done to keep a roof over the residents' heads," he added. "That dosen't reassure a lender of the co-op's stability."

Local lenders cited as interested in or as having made co-op loans were D.C. National Bank and Perpetual-American Federal and Columbia First Federal savings and loan associations. Consumers United Insurance Corp. in Washington has announced it will provide up to $15 million in first mortgage loans to low- and moderate-income co-ops.

Loans to buy a building or renovate a co-op also may be available from the National Consumer Cooperative Bank, a congressionally chartered bank that opened in March 1980 in Washington.

"A lot of banks will say, 'Co-op? We don't lend to co-ops' and slam the door in your face. We consider ourselves a sympathetic bank," a spokesman said. "We'll listen to co-ops' needs and what they want to do with the money.

"We're interested in helping them, but we're also very interested in getting our money back. We're not interested in foreclosures. We don't want to end up managing a lot of properties like HUD."

But the Co-op Bank's willingness to lend may no longer apply to the District. The spokesman said much of the bank's loans are in the Washington area, and the bank wants to spread its lending more evenly nationally. Further loans for city cooperatives probably would depend upon their length and type, she said.

In the bank's two years, it loaned more than $2 million to Benning Heights Cooperative Inc., 4430 E St. SE, to help the residents buy the 476-unit building; about $500,000 to the 13-unit Massachusette Avenue Cooperative, 1210 Massachusetts Ave. NW, for acquisition; about $500,000 to the 80-unit Ruthland Court Owners Inc., 1725 17th St. NW, for renovation work; and $11 million to Town Center Inc., 1000 Sixth St. SW, for acquisition and rehabilitation of the 256-unit building.

When changing to cooperative, the tenants generally have the choice of sponsoring the conversion themselves or allowing a developer do it, according to the co-op associations. Conversions typically take a year or two, depending upon how much renovation is needed.

The conversion process is spelled out in a manual developed by the Metropolitan Washington Planning and Housing Association. The book, available free to tenant groups and at charge to others, covers formation of a tenant organization to co-op financing, including possible aid from the city and federal housing agencies to hiring a firm to manage the building.

"I wish we had this book when we converted" Benning Heights to co-op, sighed Robert Simon, a resident of the co-op who now works for the planning and housing association. "We had to learn everything ourselves. Every step."

The association, under a contract with the city, helped a dozen low- to moderate-income tenant groups turn their apartment buildings into cooperatives in the past two years. The contract was not renewed, but the association still provides some consulting for tenants.

Another District group contracted by the city to guide co-op conversions is MUSCLE -- Ministries United to Support Community Life Endeavors. In the past 3 1/2 years, MUSCLE has assisted about 30 tenant groups interested in co-ops, although not all lead to conversions, said Alice Vetter, MUSCLE's executive director.MUSCLE also advises tenants seeking condominium conversion.

"We help organize the tenants, incorporate them, do a final profile of the residents, do a feasibility study, help them get loans. We monitor the settlement. We do everything a developer does except we're nonprofit," she said.

A successful conversion requires time and joint work by the residents, she said. "For most tenants, the cooperative form of ownership is new to them," Vetter said. "It's not a common part of everyday living. It takes awhile for it to sink in, but is is amazing how quickly this sophistication can be learned."

Lucy Huffman recalled that Copley Plaza residents "pitched in" to investigate their options when their landlord announced he wanted to sell the six-story, 110-unit building for $3.6 million. Committies researched the various choices and later the different requirements of co-op conversion.

A small group of residents opposed conversion and wanted to fight the landlord's decision to sell. The dispute prompted hours of vocal debate and hearings but in the end the building's tenants overwhelmingly voted for co-op, said Huffman, Washington bureau chief for a newspaper covering the cable television industry.

About half of the residents bought shares in the co-op, while others moved and were paid $3,000 by the developer for their relocation and a dozen elderly residents elected to remain and continue renting as allowed under city law, Huffman said.