It started with a leak, just a little water on a hallway floor.
That led to questions about bathtub installation, then sprinkler issues and finally allegations of improper fireproofing. Now, all the residents of 3303 Water Street have to pack up their multimillion-dollar condominiums this summer and move out for repairs.
Cue the world’s smallest violin as the One Percent escape to their country homes — or to the Ritz-Carlton Hotel, where many are staying during the rehabilitation.
But consider, just for a moment, how you would feel if you paid $6 million for a huge loft-style condo in the building billed as Georgetown’s most prestigious address, home to tech millionaires, corporate leaders and power brokers such as presidential BFF Valerie Jarrett. (President Obama dropped by her former place a few times for casual dinners.) The striking red-brick building is sleek and sophisticated, with sweeping views of Key Bridge and the Potomac, a 24-hour concierge, a doorman, a fitness center, a rooftop pool and garage parking — all the status symbols of modern Washington wrapped in one expensive package.
The residents expected perfection, or something close to it. They assumed that paying millions for a luxury condo guaranteed a certain immunity from board politics, special assessments and other real estate nightmares. Instead, they spent three years embroiled in an expensive and nasty $30 million lawsuit, and now they have to vacate while construction workers drill holes in their carefully decorated walls. To say that the owners are not pleased would be a clenched-teeth understatement.
“It’s a matter of expectations,” testified John Bellingham, a contracting expert who was deposed on the delicate process of repairing the 72 units. “I think people who live at this address are going to have a lot more expectations than my other client that lives on M Street somewhere else. You know, they have a different understanding of their position in life, and they’re going to demand perhaps a little bit more from us.”
Perhaps. But did it have to come to this? Is the building, as the condo board alleged, defective and dangerous? Or is this a case of rich homeowners and their lawyers trying to squeeze a wealthy real estate tycoon because of some minor construction flaws? Depends on whom you ask.
“Litigation,” said the building’s developer, Anthony Lanier, “has more variables than the ‘Kama Sutra.’ ”
The epitome of Lanier’s vision for a modern, European-style building, 3303 Water Street is luxurious, expensive and filled with all the bells and whistles that mark a refined urban lifestyle. “We have never spent more attention to detail on a building than on this one,” he said. “It is the jewel it was supposed to be.”
Twenty years ago, a wealthy Washington buyer willing to spend $5 million typically bought a stately home in Georgetown or Kalorama, or maybe a McMansion in Potomac or McLean. There were a few high-end condominiums in Chevy Chase, but condos were mostly considered starter homes for those who couldn’t afford a single-family residence.
But as Washington becomes more urbanized, million-dollar condos are becoming the norm.
One of the first of its kind,
3303 Water Street opened in 2004 and sold out quickly to wealthy professionals looking for a chic, no-fuss place to hang their hat, including Eddie Frederick, co-founder of Living Social, and Bill Regardie, publisher of Washington business magazines.
It was Jarrett who really put the building on the map when she rented a unit after the 2008 election. She was quickly joined by former White House social secretary Desirée Rogers and Susan Sher, Michelle Obama’s former chief of staff. The three Chicago friends affectionately called their abode “The Dorm.” The Obamas, who rarely venture to private homes in Washington, were regular visitors. One night, the three women hosted a progressive dinner: cocktails at Jarrett’s, followed by a stop at Sher’s place, then a barbecue dinner hosted by Rogers, reported the Chicago Tribune.
It was apparently around this time that leaks — actual water, not political gossip — began to emerge. This wasn’t the first time that a prominent apartment building had construction problems: Fifteen years ago, owners at the Residences at the Ritz-Carlton on 23rd Street NW famously battled mold because of improperly installed plumbing; one of the Watergate buildings is relocating residents during repairs to its crumbling balconies. But the residents at 3303 Water Street were surprised to discover the flaws, then angry. Then they got litigious.
Multimillion-dollar condo fights don’t raise an eyebrow in New York, but they’re still a phenomenon in Washington. When the lawsuit, filed in 2011, was settled late last year, all owners were required to sign a confidentiality agreement that prevents them from discussing the case. A few, who asked not to be identified, told The Post that talking about the move and the repairs might affect resale of their condos, which are valued from just under $1 million to $9 million.
According to documents filed in D.C. Superior Court, the water leaks led to the discovery of improperly installed bathtubs. When the walls behind the tubs were opened, the condo board alleged, the fireproofing between the units was found to be inadequate and life-threatening; some owners even called the building a “death trap.”
After repair negotiations with the developer and contractors failed, the board sued for more than $30 million in actual and punitive damages.
Thus began a three-year slugfest that cost millions and required owners to pay at least three special assessments, adding tens of thousands of dollars to their annual condo fees. The ongoing legal battle allegedly scared off some buyers, making selling and financing mortgages more difficult.
“There’s no perfect building,” admits condo board president David Romm, who agreed to answer questions that did not breach the settlement’s confidentiality clause. But this one, he claims, had “significant” problems.
Romm purchased his $2.3 million unit in late 2011. He says he glanced at the lawsuit before buying but saw no red flags and didn’t think it was a big deal. “It was a fairly limited issue and not one that affected my unit,” he said.
As a lawyer who specializes in construction and engineering litigation, Romm said, all his previous experience with condos had taught him that “the homeowners always win. The question is how much money.”
It wasn’t until 2012, he said, that more serious issues with the fireproofing emerged after a sprinkler malfunction damaged several units and more walls were opened. Romm said he became so fearful that he stopped allowing his young daughter to spend the night and took what he calls “common sense” precautions: He kept a fire extinguisher in his bedroom and purchased “one of those telescoping ladders” to facilitate a quick exit if necessary.
In 2013, Charles Holliday, former chief executive of DuPont and former chairman of Bank of America, testified in a deposition that he owned two units in the building: 7L, which he purchased in 2011 for $4.5 million, and another on the fourth floor. The building wasn’t his primary residence — he and his wife spent only about 20 percent of their time in Washington — but he believed that it was unfit for occupancy. “The review I’ve seen from the professional engineer of the defects in the walls, the defects in the fire system, the total lack of response as to code and review as a professional engineer is the worst I’ve ever seen in my life,” he said.
Construction consultant Lisa Enloe testified that she had purchased two condos in the building — one for $1.1 million and another for $800,000 — and faced an uncertain financial future.
“I work hard,” she said. “I was finally able to afford a two-bedroom unit, and this happens in the most prestigious building, supposedly, in Washington, D.C.” She called the condos her retirement money: “This is everything I had in these units.” Enloe testified that as of 2013, she had spent more than $40,000 in special assessments and worried that she wouldn’t be able to sell the condos, or would be forced to take a loss. One person familiar with the case estimated that the assessments to pay legal fees totaled more than $4 million.
The plaintiffs asked Bellingham, president of Monarc Construction, to prepare a detailed estimate of the repairs — a “meticulous” job, he testified, that would cost almost $21 million, including $4 million to relocate residents to $400-per-night hotels.
“There is no question in my mind that the building was a fire hazard,” Bellingham said in an interview. “Somebody turned a blind eye or didn’t understand what they were doing.”
There’s another, very different, version of this story. In this telling, the construction flaws were minor and could have been easily and quickly repaired but for an overreaching, truculent condo board that dragged owners into a prolonged, expensive court battle. Once lawyers get involved, Lanier said, everything changes.
“To me, the difficulty with this kind of litigation is that the train leaves the station without a driver and there’s no way to stop it,” he said, sitting in his Georgetown office, just blocks from the building.
He concedes that there were problems with the bathtub installation, and when contractors went into the walls to check for mold, they discovered that small spaces between the condos were not fully sealed, which could have caused smoke to migrate between units during a fire.
Was there any safety risk to the residents? “In my personal opinion, no,” Lanier said. The repairs would have been minimal, he thinks, but there was no agreement on how much they would cost or who was responsible.
So matters, as they are wont to do when rich people disagree, turned legal.
And personal. The condo board asked the court to exclude all evidence of the owners’ wealth and professional background, arguing that it wasn’t relevant to the case. The defendants (Lanier, the contractors, the architect, the inspectors and more) strongly disagreed, claiming that the condo owners were not unsophisticated victims but savvy, wealthy buyers who had the education and resources to evaluate the building fairly.
Dozens of buyers, the defendants argued, spent millions even after the alleged defects were disclosed. Living Social’s Frederick dropped $6.25 million for a penthouse in 2011. Holliday, with 37 years of engineering experience, bought his $4.5 million condo the same year. Enloe, an expert with decades of working on construction projects and disputes, bought her second condo after the lawsuit was filed. They all continued to reside in the building.
Other owners said that they weren’t overly concerned because the building has state-of-the-art fire detectors in every unit and in all the common areas that trigger alarms and audio warnings.
For many residents, life apparently continued with little or no worries. After arts patron Peggy Cooper Cafritz lost her eight-bedroom home in a devastating fire in 2009, her insurance company moved her into 3303. During her two years there, she says, no neighbors expressed concerns about the building. “I didn’t hear anything at all,” she said. “The residents loved being there.”
In 2012, a seven-bedroom, seven-bath 6,621-square-foot penthouse sold for $6.5 million in one of the most expensive condo sales in District history. Real estate agents were thrilled: the mold problems at the Ritz had hurt resales there for three years; this sale proved that the ongoing lawsuit was unlikely to be a serious factor in future listings.
The suit was finally settled in November because, according to the main players on both sides, the other side was poised to lose. Neither side will disclose the amount and terms of the settlement, but the money is enough to pay for the repairs, the legal fees and to replenish the building’s capital reserves and refund most of the special assessments, Romm said.
“You know who really won?” one resident said. “The lawyers were the winners.”
The ongoing saga hasn’t stopped Skip Singleton, who owns a high-end real estate business, from embracing the building. He and his wife rented a condo and now intend to buy one. “We love this place,” he says. Donna Shalala, new head of the Clinton Foundation in New York, closed on an $862,500 one-bedroom pied-a-terre earlier this year.
The last chapter is the move-out, a process taking place on a staggered, floor-by-floor schedule. The original $4 million estimate for relocation and furniture storage has been reduced. One resident, who asked not to be named out of concern that her special assessments wouldn’t be repaid, said that the work is “not really a big deal. They cut a very small hole in the wall.” The resident also pointed out that “people who buy luxury condos tend to have second homes.”
As for the repairs, Romm said the cost will also be less than the lawsuit estimate of $21 million because some are contained to a relatively small area in the individual units. Work began last month and is expected to be completed by the end of the year.
There are four units for sale at 3303 Water Street: Two three-bedroom, three-bath penthouses listed at $9 million and $6.5 million; a two-bedroom, three-bath unit for $2.85 million; and a two-bedroom, two-bath unit for $2.1 million. Maggie Rhodes, the agent for the last unit, said that she did not want to discuss the lawsuit nor the impact on properties for resale in the building.
And developer Lanier? Looking back, he knows exactly what he’d do differently.
“Not build condominiums,” he said. “I’m done.”