Barbara Wishner has seen a lot of changes since she moved into Kenwood Place in Bethesda.
Her son, for example, was 3 months old when she took an apartment in what was then a new luxury rental building off Westbard Avenue near River Road. He has just celebrated his 45th birthday.
When Wishner moved in, the long, low brick building, with hallways that went on and on, and extra-spacious units, was the talk of the town.
Not only was it in the "middle of nowhere," way out two-lane River Road, she says, but it was conceived as just one piece of a new kind of community, a multi-use development. Behind Kenwood Place would be a regional shopping mall, with a Giant grocery store, a pharmacy, other mom-and-pop stores and a huge parking lot. Nearby would be gas stations, office buildings and more apartments. All the conveniences, right there.
Things have changed a lot since then for Wishner and her neighbors. Suburbia spreads miles farther out now. The strip malls of the 1950s have given way to new urbanism, where houses and apartments sit right on top of shopping. And the tenants of Kenwood Place are now condominium owners.
But one thing didn't change, until this year: The residents of Kenwood Place could never get control of the land below their homes. In April, however, they finally bought that land, for $10 million. And how that happened is a story of complex real estate law and simple persistence.
Kenwood Place and the nearby shopping center were the first major real estate developments of Laszlo Tauber, a Hungarian-born surgeon who became a billionaire real estate icon. He started investing in 1952 with $750, after surviving the Holocaust and making his way to the United States. By the time Tauber died in 2002, he was one of the Washington region's biggest property owners.
Although the 171 owners at Kenwood Place had bought the 174 units in the conversion to condos in 1981, Tauber and his management firm never gave up ownership of the three acres of ground beneath the building and the seven acres of green space and parking.
Instead, the company leased the land to the condo. Ground leases are rare for non-rental properties in the Washington area, development lawyers said. Buying them is even rarer.
So Wishner and most others at Kenwood Place are, to put it mildly, pretty darn pleased.
"We paid less to buy our condos because of the ground lease, but people never understood it," Wishner said. "People would say, 'Oh, I wouldn't live in your building because you have the highest condo fee in the city.' But it wasn't the condo fee, it was the ground rent added on."
Association leaders said the ground lease, which would have expired in 2069, had always made potential buyers skittish, kept property values under market levels and threatened some day to leave them owning nothing.
It took two years of focused work by the condo association, as well as a dedicated association president, a clever lawyer and a lot more money than anyone ever imagined. "You hear a lot about condo boards that don't work; this is the story of a condo board that did something right," said Robert Diamond, the association's lawyer.
Most of the owners are happy and relieved that they finally secured their principal asset, said Linda Egerton, president of the condo association.
And they're also somewhat amazed that their "little group of regular people" was able to match a competing bid from a big New York developer, who wanted the ground lease as part of a bigger offer for 40 acres of Tauber holdings. Developer Richard D. Cohen offered $100 million for the whole lot, including the Kenwood Park ground lease. The retail and office parcels off Westbard Avenue are considered ripe for redevelopment.
Tauber's estate said yes to Cohen, but the condo association said wait a minute.
The association claimed the lease gave them the right to match any offer. And since Cohen had given them the number to shoot for -- their percentage of the $100 million deal was about $9 million, excluding closing fees -- they were able to put together a realistic financing proposal and then copy Cohen's contract, Egerton said.
Over the years, the association had tried several times to buy the lease, but Tauber and his management company always said the offers were "too low," Egerton said. The association started with a bid of about $2 million and was up to $5.5 million in February 2004, in response to the estate's official announcement that Tauber's holdings were all on the market.
With Cohen's bigger bid on the table, it's not surprising that the association's $5.5 million proposal was rejected.
When Cohen's bid was accepted, though, the association had another chance. Under the lease, it could exercise its right of first refusal, as it is called, to match his bid.
And that's what the association did next, although lawyer Diamond, who's with Reed Smith in Falls Church, had to do some very fancy legal detective work on the original 1973 ground lease. Back then, Tauber had set it up so that his own ownership partnership paid ground rent to his own management company; years later, the association inherited that lease and continued to pay rent. Diamond needed to establish that the association, rather than each individual owner, now had the right of first refusal.
Diamond also had to puzzle out other complicated legal maneuvers.
For example, the contract had to be signed by all of the owners, but the deeds to the land and the deeds to the units, which were then separate legal documents, had to be combined. Diamond reached back into common law, to the "doctrine of merger," he said, to tie all the ends back together. As far as he was able to determine, it was the first time the merger principle was applied this way, he said.
"It was a very significant undertaking, and we're very happy it worked out," Egerton said recently, as she ran through the details of the complicated negotiating process. "This was the most arcane deal you could have ever had."
Because the association now owns the ground, "property values have already increased," she said. A unit recently sold for $50,000 more than would have been expected before the change.
But the group itself really had to pull together to win, Egerton said.
To make the offer, the association had to win the votes of at least 80 percent of the owners. So Egerton and her board organized a campaign to "educate" their fellow residents.
Meetings were held Saturday after Saturday to explain the financial and legal intricacies. E-mails flew among owners and board members and among board members and Egerton.
Coldwell Banker Residential Brokerage agent Jane Fairweather presented an analysis of the prices of comparable units and of future condo demand. She estimated that Kenwood Place units were selling for 26 percent less than similar condos, and that the situation would only worsen as the lease expiration date approached.
Her report concluded that if the condo association didn't buy the land, "it will remain the 'step sister at the ball that never gets to dance.' "
Delta Associates, a condo research firm, ran other numbers, with similar conclusions.
Before the vote, volunteer "floor captains" were assigned residents to check on, to ensure they understood the transaction and that they voted.
Egerton even had the ballots delivered by Federal Express, so that the association would know when the ballots had gone out and where they might be if they hadn't been returned.
The vote was 83 percent to 17 percent.
Some who opposed the deal are still upset.
"I thought they were paying too much for it, and I thought that if they'd been patient they wouldn't have had to pay so much," said Thomas J. O'Donnell, 75, a retired real estate professional and accountant. O'Donnell sent out his own flier outlining objections before the vote.
O'Donnell said he believed that Cohen would have come back later and offered to sell the lease because the return from the ground rents was low.
He also worried, he said, that some retirees on fixed incomes would not be able to afford the deal. O'Donnell said his ground rent payment of $214 a month is increasing to about $549 for a mortgage to meet his share of the $10 million purchase price.
While O'Donnell said he could afford the mortgage, he said he objected to being forced to take out a new loan. "We had worked for a long time to get in the position we were in, not owing anybody a dime," he said.
Egerton, however, said the condo board set up special provisions for those who could not afford to pay up front. The association will carry the loan for them until the unit is sold.
Egerton said she recognized that the change was upsetting and frightening to some of the residents, many of whom are older. However, she said, "Most people understood that it would be a very bad thing if the land was sold to someone else, because it would terminate our right of first refusal and because of the devaluation" of the condo units caused by the lease.
Egerton drew on her professional training in "change management" to try to reassure residents that the economics behind the move were sound. Change management, in the tech world, she said, basically means helping people who are getting new technology understand how their lives and their ways of doing business will shift. "That way people aren't frightened and are able to adjust," she said.
Diamond said, "There was angst among some of the older people over 'Can we afford this?' and 'Are we overpaying?,' " but he said the studies by Fairweather and Delta Associates supported the buyout.
"The property was certainly worth $9 million to the developer because he offered it," Diamond said. And Fairweather's analysis suggested removing the lease "could be worth $20 million more" in future sales.
Tim Hanlon, a retiree who has lived at Kenwood Place for 15 years and is a board member, said he backed the deal. "It was a dream to have this happen. . . . Now, it's ours," he said.
Helene Bress, a noted weaver and author who owns the five-bedroom apartment where Tauber and his family once lived, said: "If you were leaving anything behind to your children, buying the ground made a lot of sense, because there wouldn't be any value without it."
She said, "Of necessity the place would go downhill over time, because who would fix the roof in the 10 years before the lease expired? Who would fix anything, knowing that the land could be sold?"
Another owner, Wayne Blackmon, said money was not his motivation. Instead, he said, he worries about what could happen after Cohen moves ahead with redevelopment of the shopping center next door. "This is an unusual building. It would never be built today," said Blackmon, a psychiatrist and lawyer. "There are huge green spaces, including three courtyards, a park and a pool, and you just don't get that anymore."
He added: "At the end of the day, when you do all the numbers . . . it's a minimal increase in cost. But if we don't protect what we have, it would be a big loss. . . . I have no idea what [Cohen] wants to do, but it's going to be big."
The tenants of Kenwood Place are now condominium owners after buying the rights to the land on which their complex was standing.
Kenwood Place and a nearby shopping center were the first major real estate developments of Laszlo Tauber.