River Place in Rosslyn, the Promenade in Bethesda and the Buckingham in Arlington have several things in common: They are conversions, they are controversial, and they are cooperatives.
The last element also makes them a rare breed in Northern Virginia and suburban Maryland, where condominiums have been an increasingly dominant part of the housing market but where co-ops have been virtually unknown. This contrasts with the District of Columbia, where the cooperative concept has developed gradually but consistently.
State and county legislators in Virginia and Maryland until recently did not focus on cooperative housing, which is widely confused in the public's mind with condominiums. In a co-op, owners technically are shareholders in a housing corporation that owns the entire building, including the apartments and common areas; in a condominium, the buyer owns his or her own unit and has a share of common areas owned jointly by a condo association.
This difference left co-ops in a sort of legislative limbo. As a hybrid of housing and stock ownership, the few apartment complexes converted to co-ops recently in the suburban areas managed to slip between the legal cracks: they did not come under the growing number of condominium laws or under securities laws.
That is set to change in Virginia July 1 when a new co-op conversion law goes into effect, one of the first in the country and following closely on the heels of the adoption of a model cooperative housing act just last year by the National Conference of Commissioners on Uniform State Laws. The law--providing similar tenant and buyer protections as the state's condo conversion law--requires public disclosures on budgets, reserves, the structural condition of the building and costs; two-year warranties against structural defects; and tenant notification and purchase practices, according to state officials.
Virginia Delegate James Almand, author of the new co-op law, said that when he first proposed the legislation in early 1981 there had been no conversions of rental apartments by developers to cooperative ownership and no action was taken on his bill.
"As soon as the [Virginia legislative] session was over, the Buckingham decided to go co-op. Then River Place did," Almand said. These provided the first examples of why there was a need for co-op conversion legislation, and the measure was passed in this year's session, he said.
In Maryland, there still are no state laws governing conversions to cooperatives, though a series of condominium conversion laws have been passed, state housing and legal authorities said. Montgomery County has a tenant displacement law that applies to any changes in rental housing, including conversion to cooperatives, but that appears to be the only law relating specifically to co-op conversions in Maryland, they said.
Despite the notoriety of the Promenade conversion, where developer American Invsco got around a Montgomery County condominium conversion moratorium by going to the co-op form of ownership, the state legislature apparently has not seen an immediate need for a law governing co-ops because they are still such rarities.
"Co-ops have not posed a serious threat. They are not perceived as being a problem" in Maryland, said condominium law expert Roger D. Winston of Linowes and Blocher in Silver Spring.
One reason more have not been developed is the current lack of public understanding and acceptance of the cooperative form of ownership, housing experts said. This also put a crimp on sales at the Promenade, where the developer may have outfoxed itself by going co-op, they added. Slow sales there have contributed to the Chicago-based developer's serious financial troubles.
On the other hand, one of the oldest and largest--and most successful--housing cooperatives in the country was developed in Greenbelt. Built by the Roosevelt administration to provide employment during the Depression and as war-time housing, it was bought by a resident-controlled, non-profit housing corporation in 1952 and converted to cooperative ownership.
Since then, the owners at the 1,600-unit complex of rowhouses have built on the concept harmoniously, in sharp contrast to some of the more recent co-op conversions by developers who have found themselves pitted against resistant tenant groups.
Co-ops have advantages and disadvantages over condominiums in the way they are structured, housing experts say. The main disadvantage cited is lack of long-term financing to buy them, both because lenders in most areas are unfamiliar with cooperatives and because backing by the secondary mortgage markets is only beginning to develop. Potential buyers also may be wary because they do not understand the concept.
The notable exception is New York City, where co-ops are widely accepted and where lenders routinely provide long-term financing. Co-op advocates cite the New York experience as evidence that this form of homeownership is not only workable but desirable where financing is available.
Shekar Narasimhan, assistant manager at the Greenbelt co-op, said that in the past six months there has been an improvement in financing at the co-op, after 30 years of depending largely on one co-op savings and loan created especially to provide financing at Greenbelt and on two federal credit unions. Now the co-op is having discussions with other S&Ls and banks, and the Federal National Mortgage Association (Fannie Mae) may be interested in buying a package of loans there, he said.
Another boost for Greenbelt, as well as other developing cooperatives, came with the creation of the National Consumer Cooperative Bank, which opened in 1980 and has become the largest lender for tenant-sponsored co-ops in the country, according to the Cooperative League of the USA. That funding source will diminish, however, because the bank is under a congressional mandate to deemphasize housing loans after the first few years.
Co-op experts see one major potential advantage in the ability of a co-op, unlike a condominium, to assume low-interest blanket financing on an entire apartment complex, making interest rates lower for buyers.
At the newly converted High Pointe co-op in Alexandria, for example, the interest rate will be no higher than 12.2 percent over 30 years, the developer advertises. George Berman, director of sales, said this is possible because of an underlying 7 1/2 percent FHA mortgage, which is blended with market-rate loans for buyers.
In the past, it has sometimes also proved cheaper for the developer to convert to cooperatives because they have not had to adhere to condo conversion requirements.
At the 1,352-unit Buckingham, for example, developer Richard Stein said he was able to save $8 million to $11 million--and pass along savings of between $8,000 and $12,000 per apartment--by not having to make road and sewer repairs that the county was going to require if the complex was converted to condominiums. It is possible that he could decide later to turn the co-op into a condominium, Stein said, so buyers will have more financing options available.
The tenants were not substantially helped by the cost savings so far, however, according to Susan Korfanty, president of the Buckingham tenants association. The developer offered to sell the association 234 units at his cost, but the group has been unable to find a way to buy them, and 95 percent of the tenants have been displaced, she said.
At River Place, developer Gary Nordheimer said that the owner of the land on which the complex sits was demanding a large increase in the ground rent in exchange for the necessary approvals for a conversion to condos. The approvals weren't necessary to convert to cooperative status, however, and that means the ground rent will stay low, Nordheimer said.
But tenants at River Place argue that the developers also have been able to circumvent protections under the condominium laws by taking the cooperative route. They say they are concerned about displacement, particularly of elderly tenants, and have charged that they are not getting significant discounts to buy and that buyers are not receiving adequate warranties and guarantees.
A River Place tenants' group tried to get the state securities division to rule that the cooperative would come under securities laws, which requires certain disclosures, since stock was being sold, but the division ruled that those rules do not apply.
The Arlington County Board has stepped in, meanwhile, and mandated that the developer negotiate with River Place tenants and report back on progress there at the board's June 22 meeting.
Cooperatives have also started gaining more attention from local officials from another angle: for their potential as low-income, government-assisted housing. These may involve assistance in building low-income housing or in helping tenants buy their own apartment buildings. Many of these are structured as "limited-equity" cooperatives, where prices are kept down for future low-income buyers because shareholders sell their stock back to the housing corporation and do not get a profit on the sale.
Fairfax County has actively started to develop cooperative housing using federal assistance. Those already completed include Reflection Lake in Herndon, Island Walk in Reston, the Yorkville near Fairfax Circle, and Briarcliff in the Dunn Loring area near Wolf Trap, said Walter Webdale, Fairfax County executive director of housing. In addition, the county has rehabilitated the 136-unit Greenwood near Seven Corners, has built Robinson Square near Fairfax City and has plans to build the Westford co-op in the Gum Springs neighborhood, Webdale said.
In Arlington, tenants converted Arlington Village into a cooperative, and other limited-equity conversions are planned at Arlington View Terrace and Colonial Village with government assistance.
In Montgomery County, the Housing Opportunities Commission three years ago developed the Rosemary Village co-op with Section 8 funds, enabling all the low-income tenants there to stay, said HOC spokeswoman Joyce Siegel.
Cooperative housing still is no rival in popularity with condominiums in most areas of the country, including this one, but some national organizations already are planning for that eventuality.
One such group is the Cooperative League, where young and energetic Stewart Kohl and Matthew Slepin talk of a grand vision. What they hope to see sounds like a sort of cooperative's cooperative, where co-ops across the country would pool their resources to establish services for their own corporations and to help develop new ones.
"All cooperatives would be members," under the plan the league hopes to develop soon, Slepin said. "Now they don't work together . . . This would establish an indissolvable bond."