A partnership headed by David G. Clark, once one of the city's most successful condominium converters, filed a voluntary bankruptcy petition Monday to stop foreclosure on a downtown project that it owns.
The bankruptcy was filed in U.S. District Court on the eve of the foreclosure on the Mondrian, a 128-unit high-rise condominium project at 1200 N St. NW. that has been renting for nearly a year because the housing recession made sales virtually impossible.
Clark and his partners are the latest victims of the continuing dramatic downturn in the condominium sales market that began in l982. The Mondrian, a nine-story building a block from Logan Circle, is the sixth large city condominium building to face foreclosure since January.
During the first three months of this year, 391 condominiums were sold in Washington compared with 519 in the first quarter of last year, according to Rufus S. Lusk & Son Inc., a real estate information firm.
The Mondrian's owners, Clark and a group of Middle Eastern investors, filed for bankruptcy after they failed to reach an agreement with Metropolitan Savings Bank of New York, which holds the building's $8.5 million mortgage, said Francis Musselman, the attorney for the partnership.
"We could not work out an agreement with the bank," said Musselman. "There was not a meeting of the minds." He added that the partnership wanted to keep the building because it anticipates a pickup in sales. But other sources close to the negotiations said the developers wanted the bank to at least pay them back their equity in the project, which the bank was unwilling to do.
The partnership filed for bankruptcy under Chapter 11 of the U.S. Code that allows them to forestall creditors until they can reorganize the company, postpone, renegotiate and reschedule debts and reestablish a sound financing footing under court supervision.
According to the court papers, the partnership said that its debts include $684,000 owed Tiber Construction Co. of Fairfax, which built the Mondrian, $209,681 in delinquent District real estate taxes, and $300,000 on the construction loan from the New York bank.
Clark could not be reached for comment.
The partnership borrowed $8.5 million from Greenwich Savings Bank of New York in July l980 to construct the Mondrian, which began its sales in the teeth of high mortgage interest rates. Clark then borrowed another $1 million from the Middle Easterners, who became his partners, said Mitchell Cutler, who represents the overseas group.
A year after the Mondrian loan, Greenwich, itself in financial trouble, was merged with Metropolitan Savings Bank in a union supervised by the Federal Deposit Insurance Corp.
Earlier, Clark had a similar problem with another property on which the same bank held the mortgage, but that time a solution was found without foreclosure or a bankruptcy filing.
He successfully restructured his debt with Metropolitan on Envoy Towers at 2400 16th St. NW, another of his condominium projects that was having financial difficulties, said William Harris, a Clark attorney.
Harris said in that case, Clark, who had joined with the building's tenant association to convert the historic property to condominiums, was allowed to bring in a new limited partner to pump additional money into the project and the bank agreed. Bank representatives could not be reached for comment.
Clark, a North Carolina attorney, was one of the first city developers to pioneer the conversion of apartment buildings to condominiums at the beginning of the condo boom in the mid-1970s.
His reputation began when he transformed the aging 826-unit Fairfax Village apartment complex in the Hillcrest area of Southeast into one of the first condo projects for middle-class professional blacks beginning in l974. The quiet tree-laden sprawling development was owned by Clark's father-in-law, A. Lloyd Goode.
Next Clark realized the potential of Logan Circle, then an urban renewal area that city officials decided to renovate for middle-class families. Clark won the renovation rights to the Iowa Apartments, once an elegant city address that had stood vacant and forlorn for years.
His fame flourished after he refashioned the decaying apartments on Logan Circle into 44 modern condominiums at a time when middle-class whites primarily were discovering this inner city neighborhood and renovating the ornate but abused large Victorian homes that characterize this area.
Clark moved on to Envoy Towers and became one of the first developers to create a joint venture with a tenants group as a means of converting a building from apartments to condominiums. These kinds of agreements became popular around the city because of laws giving tenants the first rights to buy their buildings when they were put up for sale and required a majority of tenants to agree to a conversion.
Developers such as Clark found out that they could get the needed approval if existing tenants in the buildings were allowed to buy their renovated units at attractive below-market prices. In return, developers got the right to sell vacant units in the buildings at the going market prices.
The Mondrian was Clark's first and only new construction project. The building was under construction a block from Logan Circle when interest rates started up, knocking many potential condominium purchasers out of the market because they could not afford mortgage payments.
In addition, the renovations of single-family homes around the Mondrian slowed, leaving boarded up buildings and shabby housing around it.
The Mondrian's next-door neighbor, the Logan Park, developed by Poretsky and Starr and Lenny Greenberg, suffered much the same fate. This former condominium project also is renting units now.