City Paper is not for tourists
In the waning hours of 2017, a new chapter appeared to open in the enduring conflict over a set of prized properties around the Congress Heights Metro stop that are poised for redevelopment.
At stake is the fate of a steadfast group of longtime tenants. So too is the future of an ever-pricier D.C. neighborhood where, on Thursday, officials are scheduled to mark a construction milestone for the forthcoming Wizards practice facility.
“I’m hot about it,” says Ruth Barnwell, 73, one of the tenant leaders. “You could see that it’s fishy.”
On Dec. 27, Bethesda-based landlord Sanford Capital signed over three ailing properties along Alabama Avenue SE to an affiliate of CityPartners, a real estate firm headed by D.C. developer Geoffrey Griffis.
Griffis and Sanford’s co-founders, Carter Nowell and Patrick Strauss, planned to raze the buildings and transform the land after Sanford acquired the properties in 2009 and 2010. Their vision called for a modern mixed-use project to rise above the Metro. It would be similar to those in other gentrifying neighborhoods and it’d be be the first of its kind in Congress Heights.
Through a joint venture, in 2015 Sanford and CityPartners received approval for their plans from zoning officials. But work on the 89,000-square-foot site stalled due to tensions with the tenants.
As City Paper and other outlets have reported, Sanford allowed the buildings to fall into shambles, just like it did at more than 60 buildings across the city. Rats, roaches, squatters, broken appliances, poor heat, illicit activity, and mold became common problems for hundreds of Sanford’s tenants. Meanwhile, the company took in millions of dollars a year via market-rate rents and taxpayer-funded rental vouchers.
In Congress Heights, many tenants left the company’s properties, and only 13 households remain today. The atrocious conditions led D.C. Attorney General Karl Racine to sue Sanford Capital in 2016.
That case is ongoing and it has suddenly intensified. The transfer of the properties from Sanford to CityPartners blindsided Racine’s office, the tenants, their pro bono attorneys, and their chosen nonprofit developer partner, National Housing Trust-Enterprise Preservation Corp. NHT-Enterprise planned to build roughly 200 units of affordable housing on the site, and was working to persuade Nowell to sell the properties. (Strauss is no longer with the company.)
After almost two years in court, the tenants were hopeful this would happen. In November, D.C. Superior Court Judge John M. Mott ordered Sanford to “negotiate exclusively with the tenants, or the tenants’ representatives” about a potential sale, for a period that was to end earlier this week.
But now Griffis appears to own the properties, which have been in court-ordered receivership since September. Receivership usually occurs when a landlord is found unwilling or unable to manage its properties safely. Through it, a third party fixes issues and collects rent payments.
Under the receivership order at Congress Heights, Sanford faced up to $2 million in total repairs. Over half of that was the estimated cost of remediating toxic mold.
The abrupt change in ownership has caused consternation for the tenants and their backers. They note that Griffis is no stranger to Sanford. He and Strauss met the tenants to discuss the redevelopment plans in 2014 and he testified to the D.C. Zoning Commission in 2015.
Will Merrifield, an attorney for the Washington Legal Clinic for the Homeless who represents the tenants, calls Griffis the “alter ego” for Sanford and “the brains of this operation.” He says the transfer of the properties is “a clear move to usurp” the tenants’ rights under a District law that lets tenants try to buy their properties when they go up for sale or get slated for demolition.
“The ownership issue completely muddies the water on the receivership,” Merrifield explains. “They’re left without repairs.”
The tenants recently received notice of a new management company, Crescent, and directions on how to pay rent to it. A subsequently dated letter from Griffis declares “SANFORD CAPITAL IS OUT!” in large font at the top of the first page and outlines “three options for moving forward.”
Those options are for the tenants to “temporarily relocate” and move back with the same rents they currently pay once new apartments have been built; to move out and receive a negotiated buyout amount; or to invest that buyout amount in the project and become a partial owner in it.
“(Please note CityPartners can’t assure or guarantee any return on investment, so we advise you to discuss with a qualified professional),” the letter states. It adds that the “tenants will be given ample time to make an informed decision” and it touts job creation and other community benefits.
Sanford and CityPartners also offered tenants buyouts and the promise of returning to the site before the attorney general’s litigation. Barnwell, who serves as president of the tenant association, says the new offers are really “nothing new.” “Why should we trust you now?” she says. “If you were a right person and had so much concern, you would already end your thing with Sanford.”
The tenants aren’t the only ones who are skeptical about Sanford’s purported offloading of the properties. In new court filings, Racine’s office says it’s “deeply concerned” about the transfer.
Racine argues that Sanford, and possibly CityPartners, violated the court’s orders establishing the receivership and the exclusive sale negotiations with the tenants. He says Judge Mott gave the receiver “sole authority to enforce or avoid mortgages or other loans on the property,” and that the transaction documents suggest Nowell wasn’t negotiating with the tenants in good faith.
Property records show that Sanford executed what are called “deeds in lieu of foreclosure” with CityPartners on Dec. 27, the same day Sanford’s legal counsel appeared in court with a check to pay the balance it owed to receiver David Gilmore for initial maintenance and repair costs. Such a deed resembles a friendly takeover of a property by a lender when a borrower defaults on a loan.
Sanford didn’t disclose the transfer of the properties, per court papers Racine filed on Tuesday. NHT-Enterprise says this was a “surprise.” “By December the final offer was $3 million, and we believed negotiations were going well enough to begin preparing due diligence and financing in anticipation of closing on the properties in early 2018,” NHT explains in a statement.
Nevertheless, on Jan. 2, attorney Stephen Hessler, who represents Sanford in Superior Court, submitted a motion to dismiss the case and terminate the receivership, arguing that Sanford doesn’t own the properties anymore. Racine says the receivership “stays in place” until the court rules otherwise.
Hessler tells City Paper he can’t comment, and Nowell didn’t respond to a request for comment.
Property records show that CityPartners assumed underlying mortgage debt from Sanford and took out a new, consolidated purchase loan worth up to $1,944,830 from EagleBank. (City Paper previously found that EagleBank has loaned Sanford more than $46 million for at least a dozen properties.)
The Dec. 27 documents were all notarized by Ben Soto, a developer and former campaign treasurer for Mayor Muriel Bowser. He owns a high-volume title company and serves on EagleBank’s board. Soto’s development firm, Paramount, has partnered with Griffis on multiple projects in D.C., including the recently opened Wharf.
Racine is petitioning the court for a hearing where Nowell and Sanford’s affiliates would have to demonstrate why they should not be held in civil contempt for the alleged violations. In a lengthy footnote in its filing on Tuesday, Racine’s office even discusses the availability of criminal contempt.
In yet another footnote in that motion, the attorney general’s office says it “shortly intends” to ask the court to add “CityPartners and any other appropriate parties” as defendants in the 2016 lawsuit. Racine is additionally asking for broad discovery powers “to take depositions and request documents” from Sanford, Nowell, CityPartners, Griffis, Soto, EagleBank, and Revere Bank, another Sanford lender.
In an interview on Monday, Griffis distanced himself from Sanford and said he’s committed to regaining the tenants’ trust. He said he’d like to meet with them soon.
“I’ll take all the grief they want to give me,” Griffis said. “I told them years ago this isn’t going to be comfortable or easy, their lives are going to change. I hope they’ll realize [it’s] for the better.”
He said he plans to issue demolition notices “fairly soon” and expects to request permits from the District by May. CityPartners’ anticipated schedule is to break ground in 2019.
Griffis claimed he was “very limited” in what he could do when Sanford owned the properties, and he called the situation “regrettable.” He cast himself and CityPartners as the “master developer” in the partnership, versus Sanford being the “property owners” in “more of an equity position.”
“I can’t tell you why Sanford Capital did what they did because it wasn’t part of the protocol we had set up for this project,” Griffis said. “My sight was always on the larger potential at this site.”
He added that he’d been unfamiliar with Sanford’s other properties before reading news reports. Over the past year or so, Sanford has gradually begun to sell off its portfolio. In some cases, it has done so via bankruptcies.
As for how the Congress Heights properties came into CityPartners’ possession, Griffis said that after Sanford stopped paying its mortgages and bills, a bank asked him if he wanted to purchase the loans on the properties. (He declined to specify which bank. EagleBank holds the lion’s share of the mortgage debt on the properties.) Then, Griffis said, Nowell proposed handing over the deeds in lieu of foreclosure. Of the receivership, Griffis said it’d be worked out in due course.
In a statement on Wednesday, Griffis said the transfer of the properties was “legal and proper” and that the tenants’ rights would be preserved. “We look forward to clarifying this to all interested and appropriate stakeholders,” he said. He did not address specific questions about whether he was aware of the court’s previous orders and whether he objects to Racine’s desire to add CityPartners to the case.
But there’s another piece of the puzzle lying in wait. On the corner of the site is an abandoned building now owned by the District, which has said it would put that property up for bid once an ongoing 2014 lawsuit over its ownership is resolved. Both the tenants and Griffis consider the property as crucial for their respective redevelopment plans and are ready to lobby the District to acquire the parcel.
The tenants seem to have a strong ally on the D.C. Council. Ward 8 Councilmember Trayon White says he’s organizing a meeting between them, Merrifield, activist Eugene Puryear, the attorney general’s office, and the D.C. Department of Housing and Community Development, which controls the property.
“The residents have been in a terrible position living in these dilapidated properties for too long, and they deserve to get treated better,” says White. “And I want to use everything in my power to have them taken care of, regardless of who the owner or who the property manager is.”