"A beautiful letter."
"Such a lovely letter."
"Really a nice letter."
What the delighted co-op owners at the Promenade in Bethesda are exclaiming over is a rather routine, three-paragraph epistle from Rose Associates of New York, marking the beginning of a new chapter in the saga of the 1,072-unit luxury high-rise that has been one of Washington's most controversial conversions.
While the content of the letter amounts to "Hi, good to see you," it took on far greater significance to the residents who have complained that over the past two years they had been treated with arrogance, dishonesty and indifference -- and in the end, silence -- by American Invsco, the Chicago-based developer that apparently had planned on making quick profits in its conversion of the Promenade to cooperative apartments.
But Invsco's plans failed. Partly because of continual tenant protests, partly because of congressional investigations, partly from Washington's relative inexperience with co-ops as opposed to condos and partly because of high interest rates, Invsco didn't even come close to selling all the units in the building.
Chase Manhattan Bank now owns majority interest in the Promenade, having taken over last week from Invsco after the developer defaulted on millions of dollars in loans. Chase in turn has turned over management and marketing of the building to Rose Associates, which separately is developing Pentagon City in Arlington.
Chase and Rose now have started the process of planning where to go next. The main issues to be decided are whether to turn the co-op into a condominium, whether to cut prices deeply to sell the remaining units, what kind of financing breaks to provide as a lure to buyers and how much work to do on the building.
Chase has committed itself to providing favorable financing of some kind, a spokesman said, and it has set aside funds to fulfill obligations left by Invsco, all welcome signs to co-op owners. If Chase decides to try large price cuts, however, it could spark some controversy among owners. The important co-op/condo question will take more careful analysis, Rose and Chase say.
The mood at the Promenade, in the meantime, has been jubilent. Owners and tenants alike are celebrating what they see as the slaying of the Invsco dragon and now are mainly anxious to see that their project works.
(Invsco officials did not return a reporter's phone calls for this story, as they have not answered numerous previous calls on other stories for months. When The Washington Post originally reported that Chase was negotiating the takeover of the Promenade, news services quoted Invsco President Douglas Crocker as calling the story "totally incorrect." Three weeks later the takeover was completed.)
Chase and Rose are the immediate beneficiaries of the residents' revulsion to Invsco and are starting with all the stored-up good will that a thousand-unit complex can muster over two years of battle.
So when residents found the three paragraphs of pleasantries from Rose in their mailboxes, they reacted as though they had discovered the Dead Sea Scrolls lying there, addressed to "Occupant."
"Everyone was thrilled," said Rebecca Barmack, a co-op owner and former tenant. "It's what we have wanted for so long."
A little more than two years ago, Promenade residents were receiving different kinds of letters -- from Invsco.
The Promenade consists of two 18-story, L-shaped towers on more than 20 acres of landscaped grounds near Wisconsin Avenue and the Beltway. The balconied building is steeped with an aura of luxury, from the uniformed guard in a booth at the entrance to the expansive chandeliered lobby to the shopping arcade and health club between the towers and the large pool and tennis courts outside.
In the summer of 1980, American Invsco announced it had bought the rental building from Washington developer Nathan Landow and planned to convert it to cooperative apartments. The sales price was about $50 million, and Invsco planned to sell out the building quickly for double that, with little renovation. By converting to cooperative ownership rather than to condominiums, Invsco escaped Montgomery County's 4 percent condo conversion fee and saved more than $800,000.
Residents soon received messages that they could buy their apartments for a certain price minus discounts; and some were anxious to buy.
But when tenants went into the sales office, they learned that the prices on the apartments really were close to 40 percent higher than they had been led to believe because the stated prices had not included the monthly cost of an underlying mortgage.
Invsco maintained that this was standard practice for a cooperative; residents maintained it was trickery. Tenants further resented a series of deadlines they were given, with their discounts dropping with each time limit. Invsco called this an incentive; tenants called it high-pressure tactics.
The battle between the tenants and Invsco soon shaped up, but this was no common conversion fight. The tenants there were well-to-do and had both resources and connections to draw from.
They had much at stake, as well. While Promenade rents had started at market rates nine years ago when it was built, Montgomery County's rent control law kept them below market for years. When Invsco arrived, rents on the plush apartments generally ranged from about $300 to $600 a month. For some, buying their apartments would mean a tripling of their monthly housing costs.
Invsco threw a lavish party and introduced bagel breakfasts for potential buyers. Some of the tenants, meanwhile, started lawsuits, set up pickets and held prayer rallies. "The Paper Wars" started throughout the hallways, with various factions shoving flyers until doors until they piled high at each doorstep. Tempers flared as some tenants wanted to buy, while others wanted to fight conversion.
In the end, the tenants could not prevent the conversion -- but they did hamper sales.
Before the protests started in earnest, Invsco had sales contracts on more than 800 of the 1,072 units in only about two months, said Robert G. Ramoy, a former sales manager there and a resident of the Promenade since it was first built. But the continuing pickets and the resulting negative publicity made people nervous, and many backed out, he said. This buy-then-cancel cycle continued at the project for the next two years, he added.
For one thing, the protesting tenants managed to make a federal case of it. Rep. Benjamin S. Rosenthal (D-N.Y.), chairman of the House Commerce, Consumer and Monetary Affairs Subcommittee, started hearings on condo conversions generally and American Invsco, then the country's largest converter, in particular. The well-publicized hearings, punctuated by head-to-head combat between Rosenthal and Invsco Chairman Nick Gouletas, further discouraged buyers.
For their part, the tenants took the opportunity to hand out flyers that told potential buyers that the federal government would investigate them if they bought at the Promenade.
The Promenade had other problems selling, as well. Washington-area residents, so familiar now with condominiums, were unfamiliar and wary of the co-op concept. Some were particularly concerned about the lack of financing available in this area for resales of cooperatives.
The project also was affected by soaring interest rates that sent the housing market into a nose dive nationwide. Invsco's commitment for financing for co-op buyers expired last October, and negotiations fell through for financing with another lender -- even though Invsco had agreed to pay more than a whopping six percentage points on each loan to bring rates down to below 13 percent.
By then, Invsco was running into trouble with yet another group at the complex. Not only were the tenants continuing their protests, but the new co-op owners were getting angry, as well. By the beginning of this year, the owners were claiming that Invsco had overbilled them for property tax assessments and was not maintaining the building properly.
But the owners had graver concerns than that. Knowing of Invsco's by-now-substantial financial difficulties, they started to fear that the developer might simply abandon them and leave them responsible for large remaining debts. They went to court asking that a receiver be appointed to take over control of the project.
To try to pull in more cash, Invsco resumed a rental program last year, and in the spring raised rents on original tenants about 50 percent.
By May of this year, less than half the units had been sold and there still were about 240 apartments vacant despite the rental program.
And nearly everyone was mad about something.
Daniel Rose, president of the company that will market and manage the Promenade now, sailed into this storm-tossed sea with the following understatement: "We're dealing with a job that needs a fresh approach."
Rose said his firm first would carefully study the property and then decide how to market it. Time is less important than quality, he added.
One of the key issues to be considered is whether to turn the building into a condominium rather than a co-op. This would require a great deal of legal work, and might not even be feasible, people familiar with the issue say. In addition, it would require the payment of Montgomery County's 4 percent transfer tax.
Still, most apartment owners would support such a transition if it could be done, said Jeffrey Cohen, president of the minority shareholders association that represents individual co-op owners (apartment owners in a co-op technically do not own their units but are shareholders in the housing corporation). Turning it into a condo would make it considerably easier to sell the units, most owners say.
A Chase spokesman said that Rose soon will announce a plan for financing purchases at the Promenade, a key element in selling the units. Cohen said that homeowners would object to any deep price cuts on the apartments because they would lose value on their own units, but that feeling is not unanimous among owners.
"They can sell my size apartment for half of what I paid," said Martin Barmack. "The price will just go right back up" after the units are all sold, he said.
How much Chase and Rose will put into maintaining and improving the building remains to be seen. A Chase spokesman said that the bank has assumed all obligations identified by American Invsco in the takeover agreement between the two and has set aside an additional sum for unidentified obligations that may arise. He declined to say how much was set aside.
In any event, the new team has substantial advantages over Invsco in that the tenants have already made their hardest decisions, rents have already been raised and owners have come to terms with the costs and co-op concept.
Former sales manager Ramoy, for one, believes that Rose "will be able to pull it out," particularly because the company has shown a willingness to consult with residents.
And the bank takeover has ended the owners' major fears. Invsco didn't leave any arrearages; and co-op owners feel they now have a financially strong and responsible partner in Chase, shareholder association president Cohen said.
"People feel it's a new lease on life," he concluded.