Nearly all of the vacant condominiums at the troubled McLean Gardens complex have been sold to an investment group that plans to put them on the rental market.
The first 202 apartments will be offered for rent next week with one- or two-year leases at rates that range from $450 a month for a studio apartment to $925 a month for a four-bedroom apartment.
McLean Gardens, a group of 31 three-story brick buildings of World War II vintage scattered on 43 acres near Wisconsin Avenue and Porter Street NW, was one of the largest concentrations of moderately priced rental housing in Washington until the protracted and stormy battle over its conversion to condominiums.
The new rental program was made possible by the sale of 202 unsold but already renovated condominiums by Stein & Co., which took over the units in June, to a Chicago-based investment partnership for $24.4 million.
This investment group is called McLean Gardens Associates. Its two principals are Douglas Crocker and Robert Bobb, whose company is McKinley Financial Group.
The group has also contracted to purchase another 209 unsold units as their renovation is completed, according to Julia M. Stasch, Stein's Senior Vice President. As those renovations are completed, which should be completed by July, they also will be available for rent, she added.
Although it is selling the units, Stein & Co. will continue to be involved with "The Gardens." A Stein subsidiary has entered into a management agreement with the partnership to rent out the apartments and continue to maintain the property, she noted.
Stein, also based in Chicago, had acquired the unsold condominiums in June after Continental Illinois National Bank and Trust Co. foreclosed on the property. Although Continental Illinois was the winning bidder at a June auction of the unsold units, it assigned its right to purchase the units to McLean Gardens Condominium Ventures, whose general partner is Stein & Co. of Washington, D.C., officials said. At that time there were 460 unsold units out of the total 720 apartments in the complex.
Richard A. Stein, president of Stein & Co., said in a telephone interview that the sale of the units as a group to investors and their rental will benefit the current condominium owners who have worried about their investments. "The market is in a depressed state; the only way to market the units today would be to reduce the prices well below what we consider the market value--and well below what other people paid there," he said. "It would be patently unfair."
Stein noted that his firm also would sustain losses if the condominiums were sold at reduced prices. "So we park the property for five, six, seven years to investors who buy it for the same reasons people have always bought real estate," he said. Until the units are sold, the investors will benefit from appreciation in the value of the property, cash flow and the tax benefits that flow from depreciation and interest expense, he noted. The group obviously bought the condo units with an eye eventually to sell out at a profit, he added.
The current condominium owners, who were notified of the sale by Stein in a letter last week, appear to be mixed in their reactions. Nancy L. Connors, for one, was upbeat about the development. "Rather than be in limbo, as we have been since April, we know what's going to happen and we know we'll have neighbors," she said. "People in Washington will be able to rent here."
Carol Currie, vice president of the McLean Gardens condominium board of directors, was also generally optimistic. Although she said there remain some question marks about how to apply the condo rules to renters, she said she was glad to see the housing be utilized again. Another bonus: the investor will be paying monthly condo fees on the units purchased. "There's no money coming in on empty condo units," she noted. Some owners weren't happy, and others were cautious. Carl Whitman said he was worried about the change in the nature of the Gardens. "I bought there wanting to be in a condo; that's different than a rental project," he said. He also was worried about the possibility that an investor owning a majority of the condo units could dictate the direction of the entire condominium project. He noted that 720 different owners could never have gotten together. "But one person now can have his way . . . and maybe his way will be terrific, but maybe it won't be," he said.
Another owner, who didn't want to be identified, was upset. She said she was especially worried about the impact the investment partnership's rental plans might have on the value of the condominiums that are currently owner-occupied. She noted that the Federal National Mortgage Association (Fannie Mae), which buys mortgages in the secondary market, has a general rule barring purchases in a development if more than 20 to 30 percent of the units are investor-owned. In that case, a buyer for a condo unit might not be able to get a mortgage if it couldn't be sold to Fannie Mae, she suggested.
Beth Van Houten, Fannie Mae's director of public relations, said Fannie Mae already had approved the first two sections of McLean Gardens--the two areas where units have been renovated--for mortgage purchases and was in the process of looking at the third section containing the 209 units now being renovated. Over time, Van Houten said, as Fannie Mae has had more experience with condos, it has revised its requirements. "If the project has more than 30 percent investor-owners, we look at it on a case-by-case project basis, and see if we think it would work in that instance," she added.
While the condo owner also questioned whether people would want to buy into a mostly rental project, another source said the fact that so many units will be rented and not available for sale may serve to boost the prices of the units that are, as the economy revives.
Questions were also raised about the participation of Douglas Crocker, one of the principals in the partnership. He was president of American Invsco, a large Chicago-based developer, that defaulted on millions of dollars of loans on the Promenade cooperative complex in Bethesda and lost ownership to Chase Manhattan Bank. Crocker could not be reached for comment.
Stein, who said he's already put $10 million into McLean Gardens to renovate the remaining units and landscape, was very optimistic about renting out the apartments and their sale down the line. He said he hoped to attract renters who will want to buy their apartments when they come available for sale. "We have first class apartments, well-maintained property and a super location," he said.
"We'll screen applicants well; we want people of a good social-economic caliber who would enjoy the benefits of home ownership and will be able to pay the prices when we decide to sell them," he said.
Stein expects to begin accepting rental applications for the first 202 rental apartments next Saturday.