Embattled owners of cooperative apartments at the Promenade in Bethesda have reached a tentative settlement with American Invsco Corp., a large Chicago-based developer that defaulted on millions of dollars of loans on the apartment complex.
Under the terms of the proposed agreement, awaiting approval in the Montgomery County Circuit Court, American Invsco will pay the co-op owners $200,000 to settle all remaining claims in their class action suits. About $145,700 of the total will go to the lawyers for hourly rates and expenses under an arrangement previously worked out. Co-op owners who contributed to the litigation fund will be reimbursed about $20,500, and the remaining $33,800, for damages, will go into a special fund to be used for improvements in the building to be determined by the apartment owners.
The settlement comes after 10 months of negotiations and litigation, during which time the status of the Promenade changed significantly. Chase Manhattan Bank took over majority ownership of the 1,071-unit luxury high-rise last September when American Invsco, which had bought the Promenade to convert it to cooperative status, defaulted on its loan payments to Chase. Chase then turned over management and marketing of the building to Rose Associates.
A cooperative like the Promenade is a form of housing ownership in which an owner of an apartment owns shares of stock in a corporation--in this case the Promenade Towers Mutual Housing Corp.--which in turn owns and manages the entire residential complex.
Before the default, Promenade owners had gone to court, charging that Invsco had abandoned management of the project and wouldn't be able to pay the bills for basic operation and maintenance of the complex, possibly leaving the owners with the liabilities. At one point, the owners asked for a court-appointed receiver to take over operation of the complex from Invsco, including financial management.
A lot has happened in the interim, according to a 10-page explanation of the settlement sent to Promenade apartment owners by the law firm of Van Ness, Feldman, Sutcliffe, Curtis & Levenberg. Besides American Invsco's removal as majority shareholder in the Promenade, the company had cured a delinquency of $534,000 in monthly carrying charges and was current by the time its involvement with the Promenade ended. In addition, certain necessary repairs and improvements were made in the complex, and an interest-earning escrow account for the portion of owners' carrying charges designated for taxes finally was set up, the document said.
"When you consider what has already been accomplished as a direct result of our negotiations and filing the suits, this settlement offer will give the minority shareholders all that they sought and more," the lawyers told the apartment owners. Minority shareholders are the 467 owners of apartments at the Promenade. Chase is the majority shareholder.
Also as a result of the settlement, the Promenade housing corporation stands to get a tax refund of about $270,000 from Montgomery County, stemming from a claim it had against the county for overpayment of property taxes for 1981. Ordinarily, 60 percent of the money would have belonged to Chase and 40 percent to the minority shareholders, the lawyers said. As part of the settlement, though, Chase agreed to relinguish any claim to the disputed refund and turn it over to the corporation for any repairs and improvements the owners designate.
The matter was in litigation because the county was seeking to apply the property tax refund to what it claimed was a transfer tax due on the original cooperative conversion. However, Peter D. Dickson, one of the owners' attorneys, said that, since the proposed settlement was reached, the county has told the court that it has ended its attempt to collect the transfer tax and will instead pay the housing corporation the total tax refund, with interest.
"I am satisfied that it was a just and fair settlement," said one Promenade owner who first filed, then withdrew, an objection to the settlement with the court.
In the meantime, Rosebeth Realty Corp, a management subsidiary of Rose Associates, is beginning to sell the remaining 600 unsold apartments. Residents who currently rent their apartments are being offered first crack at purchasing the apartments. Prices for renovated apartments range generally from $73,40 to $142,000. If a resident buys an apartment as is, a cash discount off the purchase price is offered.
Rosebeth, whose officials said they're very pleased that the litigation has been settled, will begin selling the apartments to the general public in April.