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In a breathtaking display of hubris, notorious landlord Sanford Capital argues in new court papers that the District is actually at fault for current living conditions at the company’s Terrace Manor property, the subject of an ongoing lawsuit that Attorney General Karl Racine brought last year. Yet, simultaneously, Bethesda-based Sanford says it’s made all necessary repairs to resolve housing-code violations there.
What the papers do not mention is that when it bought Terrace Manor in December 2012 after promising to perform a series of specific renovations, tenants inhabited more than 50 of the complex’s 61 units. As of today, only 13 apartments remain occupied—the result, Racine’s office alleges, of deliberate neglect.
Missing heat in the winter, rats and roaches, broken stoves, and squatters have plagued Terrace Manor, which is located in Ward 8, as well as the company’s 17 other D.C. properties. On Tuesday, lawyers for Sanford and the District reached an agreement in a Superior Court case, establishing that a third party known as a receiver will get the property up to code and swiftly abate any threats to tenants’ life, health, or safety. Sanford must fund the receiver’s work. (Marc Albert, an experienced lawyer, is filling the role.)
But the company’s affiliate that controls the 11-building property—Terrace Manor LLC—is still pursuing bankruptcy in federal court, purportedly because its financial losses over the past couple of years “are not sustainable on a long-term basis.” The LLC claims that with only 13 occupied units producing about $9,500 a month in rental income, and monthly expenses of between three and four times that amount, it needs to reorganize to pay off debt. Principally, the affiliate owes more than $2.8 million on its mortgage.
Just one day after consenting to receivership at Terrace Manor, though, Sanford Capital suggested that it won’t yield what the tenants and the District want: decent housing conditions. “The receiver sought by the District in the Superior Court Litigation is not a long-term solution,” attorneys for the affiliate state in a bankruptcy court document submitted Wednesday. “Under D.C. law, a receiver is permitted by statute only to cure any violations of the housing code and to maintain the Property at that minimum level.”
“The tenants undoubtedly do not wish to be provided with the bare minimum accommodations required by law for the indefinite future,” they write. In the same document—and as they have in Superior Court—the company’s attorneys say it has made “all of the repairs necessary to address the alleged code violations identified by the District.” It cites an April 24 inspection by the Department of Consumer and Regulatory Affairs during which a staffer “informed the Debtor that all housing code violations had been remedied.” (City Paper has contacted DCRA to verify that inspection and will update this post if we hear back.)
The affiliate plans to cover its debt by selling the property and says bankruptcy would expedite a sale. Last June, it drew up a $5.8 million contract with developer Sofonias Astatke, who directs a firm called Equilibrium, and told City Paper this month that he remains interested in acquiring Terrace Manor despite the property’s state of disrepair. The affiliate’s bankruptcy filings explain that a sale to Equilibrium would leave nearly $3 million in equity in the site after the affiliate pays off its debt, owed mostly to EagleBank.
These documents say that such a sale is subject to “better and higher offers” but notes that Equilibrium “intends to commit in excess of $1.3 million to rehabilitate” Terrace Manor, or more than $20,000 per unit. Astatke has said the deal would benefit investors, current and future tenants, and the overall community. With court approval, according to the affiliate, the sale may be finalized by the beginning of the summer.
Still, the District opposes Terrace Manor LLC’s bankruptcy petition—launched at the end of last month—and alleges that the affiliate is strategically attempting to circumvent the civil lawsuit against it by using bankruptcy as a legal shield. It further asserts that the LLC is applying for bankruptcy “in bad faith” and seeking to evade the tenants’ rights to buy the property under D.C. law. Earlier in April, Racine moved to dismiss the bankruptcy case. Judge S. Martin Teel, Jr. could rule on that motion in the next two weeks.
“There is simply no reason why the sale of the property cannot proceed outside of these bankruptcy proceedings,” attorneys within Racine’s office contend. “Simply put, the bankruptcy system should not be used by a landlord in order to sell its building as quickly as possible for millions of dollars of profit while ignoring a court order, and failing to provide housing with heat and free of rats, mice and roaches.”
Terrace Manor LLC denies that’s what’s going on. Now, they say D.C. is obstructing progress for the tenants. “The District has filed a litany of pleadings seeking to undermine this bankruptcy case and continue the status quo for tenants,” attorneys for the affiliate maintain in an objection filed Wednesday.
“The Debtor is seeking to improve the tenants’ living conditions, but, ironically, is being prevented from doing so by the District,” that objection continues. “The long-term living conditions of the tenants will drastically improve under the Debtor’s proposal. …It is a long-term solution that will benefit all parties.”
That claim doesn’t pass the smell test for the tenants of Terrace Manor. In a new filing today, lawyers for the site’s tenant association call the affiliate’s statements “almost comi[c] (and also patently offensive).”
“The District is the one who has been fighting to help the tenants despite the Debtor putting up roadblocks at every turn,” they write, requesting that court dismiss the bankruptcy petition. “Of course, the tenants do not wish to be provided ‘the bare minimum accommodations’—they have been fighting for habitable conditions ever since the Debtor’s purchase of the property—but frankly ‘even bare minimum’ would be a vast and significant improvement from the current accommodations provided by the Debtor.”
Attached to the tenant association’s motion is a mold report by an independent, licensed inspector who surveyed the property on April 20. William Spearman of Arrowhead Consulting Inc. found that “fungal growth is evident in all areas” of several Terrace Manor buildings, with mold on walls and on ceilings as well as “highly elevated spore counts,” some airborne. Spearman wrote “water intrusions” were an issue.
“During the inspection, there was an ongoing attempt to seal/block multiple units’ doors with [Oriented Strand Board] wood panels which in turn prevented access to those units for inspection,” he concluded.
Attorneys for Sanford Capital and its co-founder, Aubrey Carter Nowell, have declined to comment to reporters. Nowell is the sole-member of Terrace Manor LLC and has infused the affiliate with more than $1.2 million in cash from Sanford Capital to cover its operating costs, the bankruptcy documents state. Racine’s office argues that this means Sanford can keep the property afloat while any sale is pending.
But with “no end to losses in sight, Sanford is no longer willing to fund the operations of Terrace Manor,” attorneys for the LLC say. “A parent company has no duty or obligation to continue to pump funds into a money-losing business simply because it has the ability to do so. Such a requirement would only result in the failure of both companies.” Still to be seen is how much the receiver can rehabilitate the property.
Also active in Racine’s lawsuit are claims under the District’s consumer protection laws arguing that the tenants are entitled to recover rents they paid while the site was neglected. The parties are in discovery.
Photos taken during Arrowhead Consulting Inc.’s recent mold inspection of Terrace Manor follow below.