TOPA Has Tanked D.C.'s Multifamily Sales Market

When Mayor Muriel Bowser enacted an emergency citywide eviction moratorium and rent freeze during the pandemic, she strengthened what were some of the country's strongest renter protections, the centerpiece of which is the Tenant Opportunity to Purchase Act, which lets renters of a building organize to intervene when a landlord wants to sell the property.

The TOPA process was paused until August, and the yearlong freeze depressed the investment market for multifamily buildings in the District as its neighbors in Maryland and Virginia saw a dramatic uptick in activity, new data provided to Bisnow shows.

According to Newmark research, $782M worth of multifamily properties changed hands last year in Washington, D.C., roughly half of the volume in 2019, when there were more than $1.5B in multifamily sales.

“The regulations have, in effect, frozen the market,” said Peter Bonnell, principal at major D.C. apartment operator UIP Cos.

Meanwhile, multifamily investment volume in suburban Maryland and Northern Virginia roared back last year beyond 2019 levels, Newmark found: It grew from $2.9B in 2019 to $4.9B last year in Maryland's suburbs and from $4.8B to $5.6B in Northern Virginia.

Nevertheless, when the omicron variant pushed case counts to their peak earlier this month, the D.C. Council approved a new emergency extension of TOPA, giving renters of a building with an offer for purchase until Feb. 15 to organize and decide whether they want to buy it themselves or seek a competing offer. The measure has further infuriated multifamily owners already exasperated with the city’s emergency housing measures. 

In a letter to the council, Dean Hunter, a real estate broker and CEO of the Small Multifamily Owners Association, said the change was part of a “leftist agenda” to stifle the business of multifamily housing in D.C.

“This is reckless, it's irresponsible and this is how they legislate,” Hunter told Bisnow. "This is the key here: They give the activists the pen." 

Council Member Anita Bonds introduced the rule change as an amendment to D.C.’s emergency foreclosure moratorium last week. At a D.C. Council meeting where the amendment was adopted, Bonds cited numbers from the Housing Counseling Service, a tenant education and technical assistance agency, which found that roughly 30 buildings totaling 1,500 units would be affected by the change.

“With the onset of the [omicron] variant, tenants and organizers alike should not have to risk their health,” Bonds said at the meeting. “This is an effort to extend the time period, the tolling, so that we give the tenants and organizers for the tenant organizations time to put their organizations together.”

This latest change has reignited longstanding gripes with TOPA. Organizations like the Apartment and Office Building Association of Metropolitan Washington and Washington Housing Conservancy also sent letters to council members, warning further delaying deals could torpedo a market that has only just begun to recover from the restrictions and uncertainty of the pandemic.

“The bigger issue here is you have a city council that has good intentions but often doesn’t really think through the consequences of what’s often done for emergency legislation,” Bernstein Management Corp. CEO Josh Bernstein said. 

When the pandemic first struck, the D.C. Council coordinated with Bowser to pass a series of emergency measures designed to keep tenants in place and rents static through the duration of the crisis. That included an eviction and rent moratorium, but it also included a pause on the TOPA process that only expired at the end of August.

Market data shows that Washington's multifamily market has suffered relative to its Maryland and Virginia neighbors during the pandemic. While the total sales volume for Class-A residential buildings was up slightly in 2021 compared to 2019, the number of older, Class-B residential buildings sold with 50-plus units went from 10 in 2019 to five in 2020 to zero in 2021, according to Delta Associates research provided to Bisnow.

Meanwhile, the D.C. market is stuck in the pandemic doldrums at a time when the regional market has seen a significant uptick. Monthly sales data from Newmark shows that multifamily sales began trending upward in the region last July, but D.C. proper only saw an uptick in sales beginning in October, which tapered off again in December.

Since the pandemic restrictions went into effect, several multifamily operators in the District say they have pivoted to the Maryland and Virginia suburbs to take advantage of a friendlier regulatory environment. Bonnell said D.C.-based UIP is expanding into Northern Virginia in part because the regulatory market within D.C. could spook investors.

“The issue in D.C. has always been that there's this assumption that investment and investors will always be interested in investing in the District of Columbia,” Bonnell said. “They're highly aware that rent increases were banned for a long time, there's confusion about how rent increases may be taken now. That leads to a nervousness among investors. If it isn't a predictable place to do business, then investors are going to go somewhere else.”

Bernstein, who also sits on the board of nonprofit affordable housing developer Washington Housing Conservancy, said it didn’t make sense that the TOPA process treats affordable housing nonprofits the same as market-rate housing developers, hindering the chances of an affordable property to remain affordable after changing hands.

He said WHC had previously been thwarted by the TOPA process when it tried to acquire a 100-unit property in Mount Pleasant, with the deal ultimately falling through after Bernstein said the tenants didn’t trust WHC’s intentions and sought to sell their right of first refusal to another developer.

The nonprofit's first D.C. acquisition, the Huntwood Courts complex in Deanwood, came about in part because the seven-building complex’s tenants chose not to organize through the TOPA process, Bernstein said. WHC has pledged to maintain the property’s current level of affordability through 2036.

“I think that we're missing the forest for the trees,” Bernstein said. “D.C. has a shortage of affordable housing … and what's going to solve the problem is more housing and promoting investment and investors in that housing, and the city's policies, unfortunately, are driving investors and that capital away.” 

Yesim Sayin Taylor, executive director of the D.C. Policy Center, said the city should consider how it wants TOPA to influence its affordable housing priorities. She said a shortened timeline or even waiver of the TOPA process for housing operators with a commitment to affordability should be on the table as the city moves out of the pandemic.

“If the ultimate goal of TOPA is to keep low-income residents in place, there should at least be a more relaxed way for an affordable housing developer to go about the process,” Taylor said.

Tenant organizers aren’t so sure. Lauren Taylor, a tenant organizer and manager of the Affordable Housing Preservation Program at the Latino Economic Development Center, declined to comment on the idea that affordable housing nonprofits aren’t getting a fair shake on TOPA.

But LEDC's Taylor said the actions the D.C. Council have taken so far to protect tenant rights have been “absolutely essential” to their work, which requires advocates and neighbors to have in-person conversations with residents who aren’t able to access virtual meeting platforms.

“I understand the opposition, absolutely, to an open-ended indefinite tolling, but that’s not what we asked for,” LEDC's Taylor said. “I think getting us through to the spring where we can safely social distance and meet outdoors is what we’re really looking for with this.”

Taylor said their work could only move forward in fits and starts during the pre-vaccine period of the pandemic, subject to fluctuating case counts and difficult conversations around health and safety. They were grateful for the council’s initial pause and said their actions last week were once again necessary due to omicron.

“The latest decision to toll TOPA timelines is absolutely essential,” Taylor said. “Unfortunately, we’re in such a surge with the omicron variant that tenants are really having to choose between protecting their rights and their health.” 

Ultimately, the policy fight last week resulted in something that parties on both sides of the issue agree is a compromise. Bonds’ initial amendment would have pushed the deadline back until March 31, but reduced that date to Feb. 28 and finally Feb. 15 after receiving feedback.

During discussion of the amendment, Council Member Elissa Silverman acknowledged that both real estate players and tenant advocates were having a rough go of it during the pandemic, but decided that this measure was necessary before the city could return to some kind of status quo on TOPA.

“I think this is sensible, it's nimble, it's flexible, and it moves us to hopefully getting to having sales happen again,” Silverman said. “But we just need to do reasonable, sensible things right now, and I think this fits the bill.”