Credit: Darrow Montgomery

Almost six months after it began, a controversial Chapter 11 bankruptcy case involving notorious local landlord Sanford Capital, a group of a dozen tenants, and the D.C. attorney general’s office could soon come to a close.

Aubrey Carter Nowell‘s Bethesda-based Sanford has recently agreed to sell its distressed Terrace Manor complex to respected D.C. real estate company WC Smith for $6 million, according to federal court documents and three sources familiar with the matter, who spoke on background because the bankruptcy hasn’t been finalized.

Smith has promised to rehabilitate the 61-unit property to the tune of $10.7 million, or roughly $175,000 per unit, whereas the two previous buyers Sanford lined up, Equilibrium and Kaye Stern Properties, both proposed rehabs at approximately $20,000 per unit.

WC Smith’s renovations are to include the removal of environmental hazards like mold and lead; the addition of security cameras and controlled-access systems for the property’s 11 buildings; and new roofs, lobby areas, lighting, fencing, HVACs, laundry machines, kitchens, bathrooms, appliances, and other significant improvements.

The transfer would effectively conclude a five-year saga in which the tenants of Terrace Manor, like those living at Sanford’s many other properties across the District, have suffered from vermin, lack of heat and air conditioning, and raw sewage leaks.

Attorneys for Sanford Capital, the tenants, and the city deliberated over such a settlement during a confirmation hearing for the case, held last Tuesday at the U.S. Bankruptcy Court for D.C. Judge S. Martin Teel Jr. presided.

A spokeswoman for WC Smith declined to comment on the prospective purchase. (City Paper has reached out to Nowell and his legal counsel, too.)

As an affordable complex that receives federal low-income housing tax credits, Terrace Manor represents what some advocates characterize as a severe dearth of decent affordable housing in the District that’s only growing. By the time necessary renovations are completed, the advocates say, many families have had to leave their communities.

Terrace Manor’s tenants, some of whom are elderly and have lived at the property for more than a decade, have waited for major upgrades since late 2012. That’s when Sanford Capital bought their buildings for $3.2 million and signed a memorandum of understanding that guaranteed certain refurbishments would be done.

Instead, the property fell into further disrepair. About 40 households have since vacated Terrace Manor, leading the tenants and the attorney general’s office to allege that Sanford tried to force out residents through neglect.

An agreement between Smith and the tenants also stipulates that annual rent increases would not exceed those allowed by D.C.’s rent control laws, which generally restrict them to 2 percent plus the Consumer Price Index (a measure of inflation). In addition, off-duty police officers would patrol the site, and Smith would provide residents of the property access to the amenities at Smith’s adjacent Villages of Parklands complex, such as a shuttle bus.

Nowell declared bankruptcy at Terrace Manor in late March, just two months after Sanford—in a concurrent civil case launched by D.C. Attorney General Karl Racinehad consented to receivership, a situation where a third-party repairs a property deemed unsafe. Receivership remains ongoing at the site, although Sanford’s attorneys initially challenged a report the receiver compiled on Terrace Manor’s conditions as “a startling and expensive departure” from the scope of work Sanford had agreed to during negotiations with District attorneys.

At first, Racine and the Terrace Manor tenant association had opposed the bankruptcy declaration. They alleged that Sanford was making it “in bad faith,” as an attempt both to avoid responsibility for the property’s state and to evade a D.C. law that gives tenants the right of first refusal to buy a property their landlord wants to sell. That law, known as the Tenant Opportunity to Purchase Act, doesn’t apply in bankruptcies.

Sanford denied those charges, originally seeking to transfer Terrace Manor to development firm Equilibrium, then pursuing another prospective buyer, Kaye Stern Properties, through a bankruptcy sale. The two contracts were worth approximately $5.9 million each.

But now they are effectively moot. On Aug. 18, Sanford entered an agreement with WC Smith, which owns nearly 70 residential properties in the District, and much of the land surrounding Terrace Manor.

All the parties in the case agree that Smith’s is “the highest and best offer” for the property,” and so it will satisfy Sanford Capital’s creditors. Those creditors include EagleBank, which holds a mortgage on Terrace Manor worth just under $3 million, as well as small lenders, utility companies, and the city.

Per a preliminary settlement between Sanford and the tenants, the latter would receive monetary claims that total about $340,000—or roughly 75 percent of the rent they’ve paid over a three-year period. This amount is separate from the $325,000 that Sanford has provisionally agreed to pay the D.C. attorney general’s office as back rent to both current and former Terrace Manor tenants who lived there during Sanford’s ownership, and civil penalties.

The present tenants would also not have to pay rent for October, while the sale to WC Smith approaches closing. Tentatively by November 1, they would relocate to other WC Smith properties to make way for repairs. And under an agreement with the company that has yet to be formalized, they would be allowed to return after work is done.

In a statement, Racine says the resolution to the case will benefit the Terrace Manor tenants and deter landlords across D.C. from neglecting their properties.

“These agreements will provide tenants with the return of a substantial percentage of the rent they paid, temporary relocation to a safe and habitable building while their units are rehabilitated to code, and ongoing court supervision to ensure compliance,” the attorney general says. “The restitution we have negotiated also puts unscrupulous landlords in the District on notice that they cannot force tenants to live in unsafe and unlawful conditions or push tenants out of their homes through neglect.”

The arrangement, though, does not resolve all cases against Sanford Capital. Racine’s litigation against the company, its management arm, and the affiliate that controls Terrace Manor is still pending in D.C. Superior Court—as is a separate case related to the 47-unit complex around the Congress Heights Metro station that Sanford owns. Moreover, although the District and Sanford have reached an agreement on a piece of the Terrace Manor lawsuit regarding consumer-protection issues, they continue to negotiate around a potential court injunction.

This post has been updated with comment from Racine.