$20,000 to Move Out: Anatomy of a TOPA Sale

• March 29, 2012
• 13 Comments

by Bryce Baschuk

UrbanTurf has been getting a number of questions recently about the city’s Tenant Opportunity to Purchase Act (TOPA), so we decided to re-publish an article we ran in 2010 that provided a detailed account of the process. If this article doesn’t meet your TOPA needs, check out this one or this one.

(This article was originally published in April 2010.)

By the end of the month, a number of the residents at the Garden Towers apartment complex just north of U Street will be required to move out. And, thanks to the city’s Tenant Opportunity to Purchase Act (TOPA), they will be paid $20,000 to do so.

The origins of this lucrative deal started back in July 2009, when Urban Investment Partners (UIP) approached Dudley Pro Realty, the owner of the 73-unit apartment complex at 2325 15th Street NW (map), about buying the building. Marred by decades of neglect, the building had languished and fallen into disrepair. Tenants said that their units suffered from water damage, heating issues and a nagging vagrancy problem. Nevertheless, the Garden Towers is located blocks from the booming U Street Corridor, a prime area for developers looking for a new project.

It didn’t take long for Dudley Pro Realty and UIP to agree on terms, and soon a letter was sent to the building’s tenants stating that a sale was pending. Also included in the letter was a detailed explanation of the tenants’ rights under TOPA.

Established more than 30 years ago, TOPA gives DC tenants the right of first refusal if their building is contracted to sell. A prospective sale on the building triggers the tenants’ right to organize a tenant association to either acquire the building themselves or to negotiate a sales contract with a third party of their choosing. So, final execution of the sale between UIP and Dudley Pro Realty became subject to whether or not the Garden Towers tenants’ decided to exercise any of these rights.

They did decide to exercise their TOPA rights and formed a tenant association, and selected Kermit Turner, a 15-year resident of the building, to represent them in any negotiations. Though Mr. Turner had experience as a community organizer, he had never organized a tenant association and knew very little about TOPA rights.

“I’m not a person who can stand back and just let things happen,” Turner told UrbanTurf. “And I figured that if the tenants had not been organized, the building would be sold and we could have wound up on the street.”

Exterior of Garden Towers

Turner met with tenant advocacy groups and retained the legal services of Rick Eisen, a prominent TOPA attorney based in the District. As the process moved forward, tenants in the association were asked to contribute a small fee to pay for the attorney. In return, Eisen met with the tenants, advised them on their rights and surveyed their needs and demands. “The primary purpose [of TOPA] is to give tenants bargaining power,” Eisen said. “When there is a major change in the way a building operates, tenants should have a significant say.”

The first order of business was to hold a vote to determine whether to convert the building into condos, co-ops or keep it rentals. A majority of the tenants decided to keep the building rental and to negotiate the sale with a third party developer. “I was willing to go condo,” said Turner, who was one of six tenants who voted to convert the building to condos. “But most of the people were reluctant to enter into any form of ownership because it was a foreign idea to them.”

In January 2010, Eisen and the tenant association board approached several developers about bidding on the building. “At first we got offers from four or five developers and then we whittled it down to three,” Turner explained. The building was in such disrepair that one developer pulled out because it didn’t have the capital to bring it back up to code. That winter and into the spring, the tenant association negotiated offers between the final two would-be buyers, UIP (the original purchaser) and Adams Investment Group, a local DC development firm. “We wanted to choose between a good deal and a great deal, so we let them duke it out,” Turner said.

In August, the tenant association accepted Adams Investment Group’s terms and the building was sold for $6.2 million. Under the terms of the deal, the developer gave each tenant the option to stay or voluntarily end their lease. If a tenant decided to stay, the developer would provide $500 of custom upgrades to the unit, one month’s free rent and there could be no more than a once a year cost of living rent increase for as long as the tenant lived in the same unit. However, if a tenant agreed to leave the building, they would be given a $20,000 early termination fee.

“There was a tiered structure to the buyout to incentivize as many people as possible to leave,” said Will Smith, a tenant in the building. “If X amount of people took the buyout they would give each tenant $10,000, if Y amount they would pay $15,000. Eventually, if 20 or more people agreed to move out, the buyout reached $20,000.” At that point Smith, along with more than 20 of his neighbors, accepted the $20,000 buyout and made plans to move.

“It was pretty easy,” Rick Eisen remembers. “Everybody acted reasonably and the sale was remarkably smooth. UIP was disappointed but they understood that those were the rules of the game.” This July, UIP purchased the Warrington and Wilmington apartment buildings on Wyoming Avenue in Adams Morgan, and the firm began its $4.8 million renovation of the buildings this week. Both buildings were acquired as a result of a combined TOPA condo conversion agreement.

As for Kermit Turner, he decided to stay in his apartment at Garden Towers because he likes the neighborhood and couldn’t imagine living anywhere else. Plus, because the negotiated agreement also called for Adams to improve the building itself, Garden Towers should improve dramatically under the new ownership. Renovations to the interior and exterior have already begun.

“The board and I were able to get a pretty damn good deal,” he said.

Those who move in once Adams Investment Group completes the renovation of the vacant and occupied units will not be getting a deal. After all, the way Adams can afford to buy out exiting tenants for $20,000 is that the vacated units will be re-rented at market rates to new incoming tenants.

“The people who move in [after the renovation] will probably pay twice as much as the people who moved out,” Eisen said.

This article originally published at http://dc.urbanturf.com/articles/blog/20000_to_move_out_anatomy_of_a_topa_sale/2596

13 Comments

1. Juice said at 1:50 pm on Friday October 22, 2010:
   Fascinating. Calling all developers, please come and take a look at my building on 16th and Harvard!

1. Chris said at 2:42 pm on Friday October 22, 2010:
   How does someone in a rental unit not take $20,000 to leave?!?!? CRAZY!

1. Dan said at 2:52 pm on Friday October 22, 2010:
   Well done! My building (2000 Connecticut) fell victim to a board that was more interested in getting a good deal for tenants who wanted to stay than those who were willing to leave. After two and a half years of discussions with various developers (and the questionable service of DC tenant lawyer Benny Kass, who argued we could "never get $20k"), I left with a check for $7,500 from Keener Management. They're renting my former studio (previously ~$1200/month, with an expansive of the park) as a junior one bedroom for $1950; studios that weren't carved into junior one bedrooms are $1800. I'm happy I got something, but still annoyed by our poor leadership. Anyone contemplating a buyout offer: organize as quickly as possible and make sure to include your neighbors.

1. Ben said at 2:56 pm on Friday October 22, 2010:
   As has been shown on UrbanTurf over the past couple weeks, rents in DC are not cheap. I imagine many residents are still getting a good deal on rent relative to other buildings, and didn't want to move in the first place. $20,000 sounds great, but if you plan to rent an apt for a long time, that can be gone quickly in this market.

1. Will Smith said at 3:22 pm on Friday October 22, 2010:
   Chris, A few thoughts on that. Some folks in the building have been here for years and, because rent was regulated, had amazing rents. Think $800 for a one-bedroom or $1,200 for a big two-bedroom. Comparable units in this neighborhood go for about twice that. So, let's say you're paying $800 for a 1BR in Garden Towers. You take the $20,000, which becomes $15,000ish after taxes. If you want to stay in the neighborhood and live in a 1BR, your rent will jump to $1,600, or $800 more than you were paying. $800 goes into $15K about 18 times, which means that you'll blow through the buyout money in a year and a half. (Granted, people who stay in Garden Towers will also see their rents go up, but by a relatively modest amount.) Twenty grand is still a lot of money and a great deal, but you can see how, if you have amazing rent, it might make more financial sense to hold on to that rent than to take the buyout. That's even more true if the buyout is $15K or $10K. At $10K, you'd go through the money in less than a year, then be stuck paying twice the rent you were paying before. That's why many people only agreed to take the buyout once it got all the way up to 20. Also note that I'm just considering the hard economics here. Those people with amazing rents have been here for years; Garden Towers is their home, and they don't want to just leave. Finally, many feel like they've "earned" living in what is now a great neighborhood. Tenants who were here in the eighties and nineties have war stories about what the neighborhood (and building) was like then. Now that it's so much safer and cleaner, they want to enjoy the fruits of having endured the rough years. Will Smith

1. Colin Storm said at 5:09 am on Sunday October 24, 2010:
   Good in-depth piece on a topic that many tenants in DC don't understand, or realize is out there to benefit them.

1. hoos30 said at 4:07 pm on Monday October 25, 2010:
   Obligatory posting to state that TOPA and Rent Control are the devil's spawn.

1. roots said at 12:03 am on Tuesday October 26, 2010:
   I have to say, I'm a bit shocked of how much power renters have when it comes to the purchase/sale of private property. I always thought one of the selling points as a renter is you don't have to worry about anything in relation to what owners have to worry about. If the renter's contract has been honored, blows my mind that you'd actually have to pay a renter to vacate a property where they have zero amount of ownership.

1. DC RENTER said at 4:25 pm on Thursday November 4, 2010:
   I lived there and I took the buy-out. I am shocked by the people ( must be real estate or property management types) who are opposed to renters' rights. Only well-to-do people who feel like they are untouchable would oppose renters' rights. Thank GOD DC has the laws it does to protect people. Having said that I feel sorry for the people who decided to stay. The new company is rutheless and will eventually move those people out by any means necessary I am sure... think no heat, no water etc... they already have a situation where for going on nearly two months now the laundry facilities have been rendered useless due to a new card machine that does not work. If a landlord is willing to pay people $20k to leave what does that tell you? It tells you that they want the low paying renters GONE. The question is not so much whay the landlord was willing to pay $20k to those who left, it is why they were willing to let people stay at lower rents. Can you imagine someone paying $800 living next to someone paying $2000? Talk about odd couple. And as mentioned by the other blogger, the same principle applies... The landlord is basically "losing" half or more, the rental capacity of the building by having the lower paying renters there.Does anyone remember the "Winston" on Mt Pleasant? Renters were fighting with the new landlords over renovations and guess what... an "accidental" fire cleared the place of all renters. Hundreds of low income, mainly immigrant families were out on the street and the landlords cashed a big fat insurance check. Beware former Garden Towers neighbors... make sure you have an exit plan. I also want to know if anyone had any issues with the new landlords in terms of tiemly and proper payments etc or if existing tenants have ongoing issues.

1. lilkunta said at 3:15 pm on Friday March 30, 2012:
   I too agree that after making it through the rought desolate drug filled 70/80/90 I'd want to stay and enjoy the revitalised naeighborhood. I wouldnt take the 10/15/20k buyout. Also, is DC like NY in that one may add their kids to the lease so the apt stays in the family ?

1. K. said at 5:00 pm on Friday March 30, 2012:
   Nothing against the rights of renters, but the known economic fact is that the rent control apartments have to be subsidized by the rest. Therefore, the non-rent-control rent is outragesly high, and most people can’t afford it. This situation is even worse in New York, but I think it is ridiculous and a discrimination of people who actually want to live in the city.

1. anon said at 3:06 pm on Saturday March 31, 2012:
   $6.2 million divided by 73 units is approx. $85,000 per unit. I'm guessing the tenants could have negotiated purchase prices for a renovated 1 bedroom of $150K-$200K. They would have had $100K+ in equity instantly. The real shame is that real wealth could have been created for the tenants had they been able to understand this. Fear and lack of understanding kept these people from taking advantage of this situation to change their lifestyles forever.

1. Edward said at 1:43 am on Monday April 2, 2012:
   I'm curious if the constitutionality of these laws has ever been tested at the federal district level or Supreme Court level? On the surface it seems like a violation of the 5th amendment. The notion that renters can block a sale is absurd on its face.