Two real estate companies are vying for a chance to buy Terrace Manor, a ravaged apartment complex in Southeast D.C. that slumlord Sanford Capital has owned for more than four years. Sanford has declared bankruptcy on the property, so the companies wait under the watch of a federal bankruptcy judge—and about as many attorneys as there are tenants.

Terrace Manor is a ghost town, save for the dozen or so people still who live in the 61-unit complex. When Sanford Capital acquired it in late 2012, it was almost fully occupied. But it was already declining, and the tenants, hoping to restore a place they loved, negotiated an agreement with the help of their pro bono attorneys outlining the most serious conditions and a schedule for repairing them. Sanford Capital co-founder Carter Nowell signed it, even though the agreement wasn’t required to purchase the property. 

But under Sanford, conditions worsened. People moved out in droves, some evicted for non-payment of rent and others fed up with the squalor. Sanford did not fill the vacancies. In an effort to mediate tensions, tenant representatives began periodic meetings with Sanford at a law office downtown. Tenant association leader Monica Jackson recalls trying to explain that she wanted the place to feel like a community again. “[Nowell] expressed that he very much wanted to get back to that, and he was going to do everything he could to get back to that,” she remembers.

Nothing changed. In October 2016, D.C. Attorney General Karl Racine sued Sanford over building conditions, and in March 2017, Nowell declared bankruptcy at Terrace Manor. The mortgage for the property now stands at $2.8 million, and the two prospective buyers are each offering close to $6 million. 

By selling Terrace Manor through bankruptcy, Nowell could both profit handsomely and circumvent the tenants’ right to choose their own buyer under D.C.’s Tenant Opportunity to Purchase Act, or TOPA. An exemption to the longstanding law permits that outcome, even when the District is suing a landlord for neglect and aiming to win back rents that tenants have paid.

So the stakes are high and go far beyond Sanford. If Nowell succeeds in his bankruptcy sale, he could potentially offload the rest of the company’s buildings—more than 65 that house over 1,000 mostly low-income residents—through bankruptcy and without having to provide decent living conditions. That’s despite roughly 1,100 code violations D.C. cited Sanford for this year.

“Up until recently, this has not been a widespread problem,” says veteran D.C. housing attorney Eric Rome. “And by ‘this,’ I mean landlords filing for bankruptcy for the main purpose or partial purpose of avoiding TOPA. However, over the past few years we’ve seen an increase in these filings.” 

Related to the bankruptcy case, in April a D.C. Superior Court judge put Terrace Manor in receivership, meaning an outside party is responsible for resolving housing code issues using company funds. The receiver, an experienced attorney named Marc Albert, submitted an assessment of Terrace Manor to the court in June, which determined that restoring the occupied units and associated common areas in the 11-building complex will cost somewhere between $418,000 and $565,000.

He found that most of the property’s HVAC units were inoperable (“yet had active but exposed electrical lines … which could pose a fire and safety hazard”). He also found a tenant who uses a wrench to open her window, severe bedbug infestations, and standing water in several basements, among other issues. 

Nowell is frustrated with the receiver and blames D.C. for his bankruptcy. “The District has used every novel legal tactic possible to delay our ability to sell buildings and instead has decided to use hundreds of thousands of taxpayer resources to drive these buildings into bankruptcies,” he asserts in a statement to City Paper. “It does not help the current tenants, prevents progress, and delays the ability of new buyers to invest necessary resources in the buildings.”

Enter the two prospective buyers: Equilibrium Properties and Kaye Stern Properties. Both operate locally, though most of Equilibrium’s real estate is in Arizona. Kaye Stern, founded in 2012, owns nearly 300 residential units across D.C., with another 100 in development. 

Terrace Manor tenants and their attorneys say they know little about these companies or their plans for the property beyond what has emerged through the bankruptcy process, which is focused on the purchase price and whether it would cover all creditors’ financial claims. 

“We’re left guessing who’s going to rehabilitate the property,” said Rosa Evergreen, an attorney for the Terrace Manor tenants association, at a recent court hearing. “The biggest issue that has to be addressed is this entire scheme of how this property is going to be [fixed], and how are the tenants and the association going to be given notice of who the purchaser is, and issues with their leases, with significant time in advance.” 

It’s unclear which (if either) bidder will gain Terrace Manor. But Sanford’s lawyers have written in recent court papers that Kaye Stern’s offer of $5.9 million is the “best and highest.” The contract that company principal Jason Stern signed with Nowell on June 23 stipulates that the deal can be voided if the two parties don’t agree on “capital expenditures for protection of the tenants” leading up to the property’s transfer. But Stern and his business partner Jesse Kaye say they don’t anticipate backing out.

“This property is going to get sold one way or another [because] it’s in bankruptcy,” Stern explains. He and Kaye say they have discussed acquiring Terrace Manor since early 2016, and Kaye says he has known Nowell for several years. He was once part of a team that advised Sanford on selling apartments it owns on Wheeler Road SE (the sale never transpired) and also introduced Nowell to the G Street Apartments, which Sanford bought in 2009 and has let fall into disrepair. 

The duo is quick to say they plan to work with tenants and make Terrace Manor habitable. “We don’t displace,” Kaye insists. They have not yet held a meeting with the remaining residents, but their plan is to spend about $16,000 a unit on restoration, not including repairs in common areas. Equilibrium, meanwhile, proposed spending approximately $20,000 a unit, according to a presentation the company gave to tenants last year. 

But a third developer—one who has not appeared in the bankruptcy proceedings—says that per-unit renovation would realistically cost four times that much.

“Eighty to $90,000 per unit would be the minimum to do a gut rehab of the property,” says Rozanne Look, director of project development at MANNA, a local nonprofit affordable housing developer. “Ten to $20,000 is really a drop in the bucket. Of the units that we saw, they were in pretty rough shape—not really habitable for someone.” She’d like to work with the tenants on restoring the property “if they can ever resolve the legal nightmare that they’re in,” she says.

Equilibrium managing partner Sofonias Astatke remains interested in buying Terrace Manor despite the competing contract. “We will have to wait and see if we are afforded the opportunity,” he says. His offer was just below Kaye Stern’s, at $5.86 million. But because he signed that contract more than a year ago, the financial agreements supporting it had become “stale,” the company’s attorney Bruce Henry told the bankruptcy court in May. 

Like Kaye Stern, Equilibrium also has a preexisting Sanford connection. One of the brokers for its realty arm, Dan Crosby, previously worked for Sanford’s Oakmont Management and was at Terrace Manor regularly for much of the time the property was falling apart. Crosby is listed as the buying broker on their 2016 purchase agreement and stands to profit from the sale.

No one expects a resolution soon. The bankruptcy process is scheduled to stretch into October.

Alexa Mills contributed reporting.