- The Washington Times - Wednesday, March 14, 2007

What a difference a year makes.

Twelve or 14 months ago, the housing market was so hot that rental apartments were being converted to condominiums at near breakneck speeds. Today, though, things aren’t moving quite so fast. Some condominium projects have even been transformed to rentals, and some conversion plans have been scrapped.

But that doesn’t mean that renters don’t have to worry about their buildings “going condo.” In fact, the latest figures from the Federal Reserve’s Beige Book report on regional economic activity reveal that condominium sales in the District are rising. So it’s altogether possible that the next official-looking notice that you receive will have to do with the sale of your building.

The subtle signs of change, though, can appear well before the legal notice arrives, says Theresa Hill, deputy director of Housing Counseling Services Inc. (www.housingetc.org) a nonprofit community-based organization that provides comprehensive housing counseling, training and client advocacy services to low- and moderate-income renters, home buyers and tenants in the Washington metropolitan area.

“Service can slow down or come to an end completely,” Ms. Hill says. “They may stop picking up trash or repairing the building. These are signs that the landlord may be making some changes.”

Other signals might be a move to a month-to-month leasing arrangement, a change in building ownership, or the undertaking of major construction projects.

Interest in condominium conversions in the close-in Washington area remains high because there is so little space to develop new housing, says Cindy Clare, president of KSI Management Corp. (www. ksimanagement.com), which manages more than 9,000 rental apartments in the Washington area. And a lot of the spaces the developers are eyeing are lower-end to middle-of-the-road properties that offer potential for substantial upgrades.

“A lot of properties converted in the last few years are older properties in good locations with rentals in the $900 to $1,500 range,” Ms. Clare says.

So what’s a tenant to do? The answer depends upon a number of factors, including your location, age, income and financial situation. You can buy your unit, often for an “insider” price, making your new condo also a “rondo,” or one that has rolled over its tenant from its rental days. Rondos are usually in higher-end buildings.

You can leave entirely, taking with you a kind of severance package the owner may provide in the form of a housing allowance or moving costs. Or, you can form a tenant association with your fellow tenants and attempt to buy the entire building yourself.

But whether you’re a young professional just starting out in the area or an elderly resident worrying about being displaced from your longtime home, it’s important to know your rights, know the process, and understand your options thoroughly.

All jurisdictions in the greater Washington area offer some protection for tenants. These include the right to purchase; adjustments made for the amount of time a tenant can remain in the property; and special provisions for the elderly, handicapped, and low-income residents.

The degree of protection, however, does differ. The District offers tenants the most friendly scenario, with more protections in place. Tenants in the District can literally “kill the deal” — at least for a year — if the tenants’ association votes not to approve a sale. They also have the right to purchase their home at the market price, with special provisions for handicapped, elderly, and low-income residents.

In Maryland, tenants have 180 days to respond to the landlord’s notice of intent. Handicapped individuals, senior citizens, and those with an annual income that does not exceed 80 percent of the applicable median income are eligible to live at current rents for three years. Those individuals wishing to purchase their apartments can buy them for terms at least as favorable as those offered to the general public.

In Virginia, landlords must file paperwork and provide notices to tenants complete with the offering price for the unit, projected condominium expenses, and relocation services.

Whatever the jurisdiction, opportunities exist for tenants to buy where they had once rented.

“There’s been a huge groundswell of opportunity for tenants to purchase,” says Dominic T. Moulden, executive director of Organizing Neighborhood Equity, or ONE DC, formerly Manna CDC, an nti-poverty organization that promotes alternative economic projects.

“Housing is a human right, not an economic commodity,” he says. “We want to give residents the opportunity to buy properties and convert them to affordable condominiums and co-ops.”

The process begins with a legal notice of the owner’s intent to sell the building. From there, residents have a specified amount of time to respond. Essentially, there are three options: buy your unit, leave the building, or organize the tenants and try to purchase as a group.

Whatever you do, it’s helpful to find someone who knows the ropes.

A few years ago, residents of a building in Northwest balked at the prospect of losing their homes when the building was slated for sale to the National Cathedral, which wanted to turn it into a visitor’s center.

They contacted the Tenacity Group (www.tenacitygroup .com), a for-profit financing, real estate advisory and tenant-conversion company. Tenacity assisted them in purchasing the property (for more than $16,000,000) and renovating the low-rise apartments.

Organizations such as Tenacity, with its vertically integrated array of sales, conversions, mortgage and settlement services and capital opportunities, offer potential homeowners a sort of “one-stop shopping” experience.

Recently, Tenacity Group has been accused by District of Columbia Tenants Advocacy Coalition (www.tenac.org) of helping to reduce District affordable housing stock by more than 12,000 units in recent years by converting rental units into condominiums.

But Tenacity points to its significant numbers of first time home buyers who can then turn around and make money off the deal.

“We don’t put any restrictions on tenants,” says Erik Bolog, a managing partner with Tenacity Group. “You can buy on Monday and sell on Tuesday.

Even if you can’t afford to buy for the long term, you can buy and sell quickly and still get equity.

And that’s not to mention the tenants-turned homeowners who have managed to hang on to their property and their lifestyle.

“This is truly work-force housing,” says Mr. Bolog. “Each and every deal has a story.

For-profit companies like Tenacity make their money by a combination of market prices for things such as development and mortgage fees and by selling vacant units at market rates. Mr. Bolog says that allows them to be able to help low- and middle-income residents make the transition from rental to homeownership.

Not everyone can be happy with such arrangements, however.

Both Mr. Moulden and Mr. Bolog point out that tenants frequently have exaggerated senses of what their apartments will look like after the conversion or even how much money they can make from the deal. Some tenants will take a promised cash buyout, giving up ownership rights for a few thousand dollars.

“What’s going on in real estate culture is that people think money is falling from the sky,” Mr. Moulden says, “but you have to put a lot of money into keeping the building affordable.”

Patience helps. The entire process from notice to completed renovation can take more than three years.

No matter how simple it may seem on the surface, the condominium process is fraught with unexpected twists and turns. Should you buy your apartment even if you can’t afford it? Maybe, if the market is such that you can buy it and turn it over quickly enough to realize a profit.

What do you do if the developer doesn’t come through? What if you don’t want to join the tenant association but still want to stay in the apartment?

“We teach them what questions to ask,” Ms. Hill says. “But it’s always a good idea to work with an attorney for legal advice.”

Lower-income individuals may opt for a cooperative arrangement that limits equity but offers security and cost control. In this case, the group takes on the mortgage rather than the individual and down payments are generally lower than in a market-rate scenario.

“Most people will choose a condominium if they can afford it,” says Martha Davis, a housing consultant with ONE DC. “That’s feasible if you can take on financial responsibilities, if you are someone with stable employment, established credit and savings. But most apartments that go up for sale, the residents are usually not those people.”

One group in Petworth contacted ONE DC after their building went up for sale.

“Some people who lived there could not afford a condo,” says Ms. Davis, “but the group wanted everyone to be able to stay. So we were able to help them buy the building as a co-op, and they are currently planning renovations.”

Once you’re in your condo, you’ll have other issues to deal with, including fees, maintenance issues and security concerns. You should find out how the tenant-association-turned-condo-association plans on handling special and other assessments — in one lump sum, in installments, or as an amount added to the condo fees you already pay.

Meanwhile, you should also find out how maintenance issues would be handled, since that will have a bearing both on overall costs and your peace of mind.

You may also want to familiarize yourself with residency caps. If you’ve got several adults living in a one- or two-bedroom apartment, you’ll not only have to deal with more noise, but also higher utility costs that may result in budget shortfalls and unexpected increases in fees.

And finally, find out how many of your neighbors actually plan on staying in the building. A high proportion of owners who live in apartments generally mean better maintenance and better management.

Bottom line, Mr. Bolog says: Form a tenant association and hire a lawyer. Keep your expectations reasonable. Partner with the highest-quality developer you can afford.

And finally, enjoy your condo.

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