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Condo conversions are so 2005. These days, District landlords looking to squeeze more cash out of their rent-controlled apartment buildings are turning to a more recessionary tactic: the so-called hardship petition.
Perhaps no one knows this better than Cornelius C. Dudley of Dudley Pro Realty, who ranks among the most prolific at claiming a handicap.
Dudley, 69, a former Navy engineer and self-described “country boy” hailing from North Carolina, has amassed dozens of properties in low-income areas of Northeast and Southeast D.C. over the past three decades. But rent control laws, he says, are preventing him from charging enough to cover his skyrocketing tax and utility bills. The margins on this modest empire are so slim, he says, that he’s been forced to sell off about a quarter of his entire portfolio in order to maintain the rest.
Consider the 50-unit brick housing complex at 1521-1529 28th St. SE in Randle Highlands, which Dudley’s Twepen LLC purchased for $625,000 in 2002, according to property records. The city now values the complex at a whopping $2.6 million and assesses its tax rate accordingly.“The taxes themselves, over the last five years, have gone up 157 percent,” Dudley says. “[City regulators] have allowed rents to go up 15 percent. You can’t support that!”
Last September, Dudley and his team of lawyers and accountants compiled all the bills for the Randle Highlands complex—nearly 2,000 pages worth—into a formal hardship claim, which was then submitted to the Department of Housing and Community Development’s Rental Accomodation Division.
Municipal regulations entitle landlords like Dudley to recover a 12 percent annual return on their investment. That’s more than twice the Dow Jones industrial average’s yearly gains of 5.3 percent over the last century—Dudley describes it as “just compensation.” If rent controls are preventing property owners from reaching that considerable rate of return, the law allows them to petition for an increase.
During an interview at his company’s office on Rhode Island Avenue NE last week, Dudley leafed through his hefty claim on the 28th Street property with a sense of pride. Just compiling the hardship documentation is itself something of a tribulation. It takes weeks to put one together, he says, at an average cost of about $15,000. “One time, I had three people working full time doing nothing but that,” he says. Then it can take the rent administrator more than a year to come back with a verdict.
“I heard one guy say he’d rather let it go to foreclosure rather than get a hardship,” Dudley says. “It’s too time-consuming, too expensive.”
But the payoff is huge: The administrator often grants a 30 to 40 percent hike in rent. And, in the meantime, the landlord can enforce a “conditional rent ceiling adjustment” of however much he requested only 90 days after filing the petition.
In other words, a landlord could ask for the moon—and potentially get it, at least in the short term.
In the last two years, Dudley has filed hardship petitions for about 25 of his buildings. Most tenants either pay the increase or move out. It’s helped his bottom line “tremendously,” he says.
Naturally, tenant advocates view the whole hardship issue a bit differently. “It is a subtle way to turn a property full of low-income tenants into a property full of not-so-low-income tenants,” says Julie Becker, an attorney for the Legal Aid Society, who saw her first hardship case only two years ago and has dealt with about a dozen since. “I’ve never yet had tenants who could afford to pay the conditional rent increase.” Sometimes, it’s the last step in a process that started with the landlord’s attempted sale of a building, or other types of rent-control end-runs, in a persistent offensive that tenants get tired of dealing with, she says.
“We see in these instances where the landlord is trying by hook or by crook, filing a number of petitions, to get them to move out,” adds Joel Cohn, legislative director at the city’s Office of the Tenant Advocate.
Many affordable housing proponents also protest the landlords’ 12-percent-return privilege as excessive. On the backs of low-income tenants, it becomes unsustainable, they argue. “I still have a hard time saying with a straight face that a landlord is guaranteed a 12 percent return on their investment,” says attorney Vytas Vergeer of the social-services group Bread for the City.
Last year, Vergeer saw one of the most eye-popping hardship claims—a requested increase of 217 percent. (The case involved another landlord, not Dudley.) Amid a grueling battle in landlord-tenant court, which is still ongoing, he brought the issue to the offices of Councilmembers Marion Barry and Jim Graham.
In December, Barry introduced legislation. The proposed Rent Increase Amendment Act of 2009 would do away with the controversial conditional rent ceiling adjustment. The 12 percent threshold would remain intact. On April 1, City Council’s Housing and Workforce Development Committee convened a hearing on the matter, setting the scene for a showdown between tenant advocates and lawyers for property owners, who defended the hardship petition as an essential relief mechanism for struggling landlords.
Three tenants of Dudley’s Randle Highlands complex showed up to testify. The hardship king himself was a no-show. (Later, Dudley told Housing Complex he wasn’t even aware of the pending legislation. “They cut the legs out from under me!” he replied when told of the bill.)
Beverly Freeman, a 70-year-old retired nurse who has lived at 1521-1529 28th St. for the past four decades, described a prolonged battle with Dudley, beginning about three years ago when the landlord had attempted to sell the building. In 2008, she noted, he asked tenants to temporarily vacate the building in order to remove lead-based paint, which they interpreted as attempt to get them to leave. “We saw the handwriting on the wall,” Freeman said. “Then he came up with the hardship.”
Last month, the rent administrator granted Dudley a 37 percent increase, scheduled to go into effect on May 3. But Dudley told Housing Complex he will cap rent hikes at no more than 25 percent.
Tenants are appealing the ruling. To be eligible for a hardship petition, the building must be in “substantial compliance” with housing code. So, to protest the claim, the tenants association, represented by attorney and D.C. Shadow Senator Paul Strauss, put together a photo album filled with snapshots of cracked floors, moldy walls, rodents and roaches. Earlier this year, they called on the Department of Consumer and Regulatory Affairs to inspect the building, which ultimately issued several code violations, from vermin to rotted window frames.
Dudley dismisses the tenants’ complaints about conditions as dishonest. “If you listen to them, they’ll say the building’s about to fall down,” he says. “But, if I’ve got a building that’s about to fall down, I’m not going to live there 30 years. I’m going to go someplace else.”
The current rent might just be too good to budge. Dudley pointed to one tenant paying only $400 per month for a one bedroom unit within the complex.
“Yes, we are asking for a substantial increase,” Dudley goes on, “but, on the other hand, we’ve got Washington Gas, WASA, and the electric people saying, ‘We’re going to close your building down! We’re going to put it in receivership because you can’t pay your bills.’” (Dudley says he’s a bit behind on his bills but is paying just enough to keep the lights on.)
Now, he’s worried about a possible rent strike tying up his remaining cash flow. “This is what always happens,” he says. “They do a rent strike. They put the money in the court register. You’ve got to wait four years, five years, before you can get the money out.”
Amid all this economic uncertainty, Dudley says he’s owed a little relief.
“Those individuals who don’t have income, that should not be the housing provider’s responsibility,” he says.
“That should be the city’s responsibility. They don’t tell Safeway, ‘Hey, reduce the food price.’ They say, ‘Hey, here’s some food stamps.’”