1331-1333 Alabama Ave. SE (File) Credit: Darrow Montgomery

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Infamous D.C. landlord Sanford Capital recently agreed to leave the District by this fall. But the battle over the future of some of the company’s most valuable former holdings is now entering a new stage.

Sanford abruptly unloaded three properties that surround the Congress Heights Metro station last December, handing them off to D.C. developer Geoffrey Griffis‘ company, CityPartners. The tenants had selected NHT-Enterprise, a major affordable housing entity, to redevelop their buildings, in line with their rights under D.C.’s Tenant Opportunity to Purchase Act. TOPA guarantees renters the right of first refusal to acquire their homes when their homes go up for sale or demolition, either through direct purchases or by assigning their rights to third-parties.

On Thursday, the tenants filed a lawsuit against CityPartners and Bethesda-based Sanford. They are challenging the transfer of the properties from Sanford to CityPartners on the grounds that the companies violated their rights to buy the properties under TOPA.

Represented by white-shoe law firm Arnold & Porter Kaye Scholer and the nonprofit Washington Legal Clinic for the Homeless, the tenants are asking D.C. Superior Court to declare the transfer of the properties “null and void.” They are also requesting that the ownership of the properties—dilapidated buildings that are only 27 percent occupied—revert back to Sanford and that Sanford be barred from offloading the properties until the company provides TOPA notices to the tenants “and otherwise fully complies with TOPA.”

The lawsuit notes that “for many of the tenants, these apartment buildings represent one of the few affordable-housing options in a city with an acute and growing shortage of affordable housing.” William Merrifield, an attorney at WLCH who represents the tenants association for the properties, says in a statement that Sanford and CityPartners have collaborated for years to prevent the tenants from exercising their TOPA rights “through the intentional neglect of the properties—and most recently—through the improper land transfer” at issue.

“The lawsuit seeks to make clear that the Defendants cannot be allowed to circumvent the law and deprive D.C. residents of the opportunity to meaningfully participate in the redevelopment process,” Merrifield says. Sanford Capital’s principal, Carter Nowell, did not immediately respond to a request for comment, but City Paper will update this post should he respond.

In a statement, Griffis says the redevelopment project will include affordable housing and produce a variety of new amenities for the neighborhood. “We carefully followed the law and, in the process, removed Sanford Capital entirely from the project,” he says. “CityPartners respects the existing tenants at the properties, and will of course honor their TOPA rights.”

The properties fell into serious disrepair under Sanford’s ownership from 2009 through 2017. About a decade ago, they were nearly fully occupied by elderly or low-income tenants, but many of the tenants moved out because of the squalid conditions that emerged. Those conditions included lack of heat and air conditioning, defective plumbing, bedbugs, broken doors, appliances that did not work, and rodents, among others. Although the tenants complained about them to the properties’ management and the District, little improved.

As early as 2011, according to the lawsuit, Sanford Capital and CityPartners organized a joint venture “to acquire and merge all of the parcels” at the site for redevelopment into a 445,000-square-foot mixed-use project with more than 200 residential units, office space, and ground-floor retail. The properties are located on Alabama Avenue SE, across from the St. Elizabeths East Campus, which is undergoing massive redevelopment by the District and private developers, and will soon include a practice facility for the Washington Wizards, among other amenities.

The parcels under the redevelopment plans include the apartment buildings, which are subject to rent control, as well as four others. Three of them are owned by Metro and have been under contract with the Sanford-CityPartners joint venture since 2013, but have not changed hands. The fourth—where a vacant building sits—is owned by the District and is critical to any redevelopment of the area. The District repossessed this parcel early last year from a delinquent company that had failed to provide affordable housing there.

In an interview with City Paper on Friday, D.C. Council Chairman Phil Mendelson said he “would like to see the tenants kind of in the drivers’ seat” with respect to the District-owned parcel and the redevelopment of the site generally. Mayor Muriel Bowser‘s administration has said it intends to dispose of the vacant property through a competitive solicitation process, as it does for other vacant properties managed by the Department of Housing and Community Development.

The tenants allege that Sanford and CityPartners sought to avoid TOPA by “emptying the buildings, via a strategy of attrition through neglect” that resulted in dozens of housing code violations at the properties and a 2016 lawsuit over them by D.C. Attorney General Karl Racine. That lawsuit is ongoing and only 13 of 47 total units remain occupied.

The attorney general’s litigation led to a court-ordered abatement plan that Sanford allegedly did not comply with and, last September, a court-ordered appointment of a third-party management entity known as a receiver. The receiver is charged with bringing the properties up to code and has estimated costs for repairs to be worth more than $2 million, much of which would go toward remediating pervasive mold and leaks.

Then, last November, by the parties’ mutual agreement, Superior Court Judge John M. Mott ordered that the tenants and Sanford enter into exclusive negotiations over the sale of the properties for a 60-day period. The tenants and NHT-Enterprise aimed to build roughly 200 units of affordable housing at the site. They offered Sanford Capital $3 million for the properties and expected to receive the title to them in early 2018.

But in the final week of 2017, on Dec. 27, Sanford quietly transferred the properties to CityPartners through deeds-in-lieu of foreclosure, which are real-estate instruments typically used by lenders when borrowers default on their loans. CityPartners had taken over the mortgage debt on the properties held by EagleBank and Revere Bank, and then took out new mortgages on them with EagleBank. (In the past, EagleBank lent Sanford millions of dollars to purchase and refinance many of its D.C. properties.)

The tenants argue that this transaction left CityPartners “in substantially the same economic position as if it had simply taken title to the Properties” through a regular deed.

Like bankruptcy sales, bona fide deed-in-lieu of foreclosure transactions are exempt from TOPA, and Sanford did not issue the tenants TOPA notices when it transferred the properties to CityPartners. Neither it nor CityPartners disclosed the transfer to the tenants, Racine’s office, or the court in advance.

“The Defendants executed these transfers of ownership as part of their long-running and ongoing scheme to circumvent the tenants’ rights under TOPA so that the Defendants can continue their strategy of attrition and rid themselves of the remaining tenants—thereby expediting the Defendants’ redevelopment plan of office buildings and market-rate residential units,” the lawsuit states.

Griffis, the principal of CityPartners, has said the transfers were “legal and proper” and that the tenants’ rights will be protected under the company’s redevelopment plan. In recent court papers in Sanford’s litigation with the attorney general’s office, CityPartners has said its prior relationship with Sanford Capital had soured.

It has also promised to allow the tenants to move back into the redeveloped properties at the same rents they are currently paying, or take negotiated buyout amounts to leave the properties. Another option would let the tenants become limited owners in the project by investing their buyout amounts in it. (CityPartners was added to Racine’s complaint earlier this year.)

“We have asked multiple times to meet and discuss all these options with the tenants and their attorneys,” Griffis says in his statement. “The redevelopment at the Congress Heights Metro site is a crucial project that will enhance safety and a sense of community along Alabama Avenue. We look forward to working with the Congress Heights residents to make their neighborhood a centerpiece of the city.”

In early January, Sanford asked the court to dismiss the attorney general’s case and the receivership as moot, arguing that it no longer owned the properties in question. Mott denied this request and is considering whether to hold Sanford and CityPartners in contempt of the order that mandated exclusive sale negotiations between Sanford and the tenants.

This post has been updated with comment from Griffis.