The federal government is preparing a potentially multi-billion-dollar bailout for landlords who claim diminished income due to the national eviction moratorium declared by Congress and extended by the Centers for Disease Control and Prevention (CDC) during the COVID pandemic. The “highly likely” windfall would end a five-year-long legal battle waged between the Department of Justice and a coalition of rental property owners that grew from a few dozen to several thousand. The potential beneficiaries of the settlement, according to their lead counsel, run the gamut from “single-dwelling owners to mom-and-pop operations.” However, an enormous swath is owned by multi-billion-dollar asset managers and private equity firms, who stand to gain the most from an impending payday.
In the summer of 2021, around the time when the federal eviction moratorium elapsed, a group of landlords, led by South Carolina-based apartment owner Darby Development, sued the government, claiming the national eviction moratorium had resulted in massive monetary damages.
The DOJ asked the federal claims court to toss the suit on jurisdictional grounds, citing a Supreme Court ruling earlier that summer that said the CDC moratorium extension had constituted an overreach of executive authority. Because the CDC order had been declared unconstitutional, the DOJ argued, the federal government wasn’t liable for its downstream effects. The claims court bought that argument, but it didn’t hold up on appeal, and late last year the DOJ declined to ask the Supreme Court to review the case. The Department and the property owners have been in settlement discussions since.
Earlier this year, the settlement amount was estimated at $1.5 billion, covering about 1,500 property owners—though, according to Creighton Magid, who serves as counsel for the plaintiffs, the final figure may differ. The lawsuit has grown to include “more than 2,000 plaintiffs,” he said, and the sheer scale of the group will require renewed estimation.
“We have expert economists who are working on a damages model that will apply across all plaintiffs,” Magid told the Prospect. “What our economists are working on is a conservative model that can be applied across properties, so that the Justice Department does not have to dig into every rent roll and every income statement of every single property.”
The protracted litigation resurfaced old battles about the federal government’s response to the social and economic crisis caused by the pandemic.
The protracted litigation resurfaced old battles about the federal government’s response to the social and economic crisis caused by the pandemic, with landlords arguing the feds had effectively staged an “invasion, occupation, or appropriation” of their property by preventing them from evicting tenants. When the second national eviction moratorium took effect in September 2020, after tens of millions of job losses in the first months of the pandemic, the CDC estimated between 30 and 40 million people were at risk of falling behind on rent and being removed from their homes. A Census Bureau survey found that roughly 10 million households already owed rent at the time, leading to rent shortfalls of between $7 billion and $57 billion, depending on whom you ask. (In their lawsuit, the landlords have cited the $57 billion figure.)
On top of forgivable loans and hundreds of billions of dollars in grants, tax breaks, and aid, the federal government responded by pumping nearly $50 billion of rental assistance funding into state-run programs, covering between 12 and 18 months of back rent, which both landlords and tenants could apply for, in the midst of, or in order to, avoid court proceedings. Meanwhile, rental property owners, granted extended mortgage forbearances, had managed to ferret away sizable cash balances despite losing rental income thanks to cost-cutting measures at the margins, according to a study by the JPMorganChase Institute. National and local-level eviction moratoria also included exceptions, and data from Princeton’s Eviction Lab, despite reflecting massive downward trends in evictions in 2020 in particular, show a patchwork of enforcement across the country.
According to a source familiar with national eviction trends, the eviction moratorium, while preventing a surge of homelessness and the excess mortality likely to ensue, may have effectively codified a situation that landlords ultimately would have been forced to face one way or another. Amid historic unemployment, landlords may have had limited confidence that trying to fill empty apartments would have made them whole in the long-run—or at least, more whole than simply deferring rent payments from their income-shy tenants and waiting for federal aid to kick in. “Could you have replaced them with paying tenants during this period? That’s not at all clear to me,” the source said. “There’s sort of a natural ceiling to the amount of eviction that any given property manager can process in a given time.”
The statistics since national and local moratoria elapsed seem to have borne out the source’s argument: Eviction rates have rebounded to where they had been before the pandemic but on average have not exceeded them. “If you look at our data, there is incredible stability in eviction trends,” the source said. “Look at our data around 2008, 2009 [at the peak of the Great Recession]. Evictions don’t spike, and I think that is evidence that landlords can read the room and know that they’re not going to be able to kick out all of their tenants and replace them with people who can pay more.”
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Thousands of property owners have now made the case that the federal government is to blame for their losses during the pandemic, arguing that they missed out on income they otherwise would have been able to collect had it not been for the national moratorium. “We’ve got a number of––and again, these are either husband-and-wife or individual owners or individuals who have built a small business renting properties––and in some cases they lost virtually everything,” said Magid, the lead attorney for the rental owners. “Often, they had loan payments or mortgage payments to make on properties. They had no income during this period. In some cases, their properties were foreclosed upon. A lot of people lost their shirts.”
Though it does include some small proprietors, the plaintiff class is dominated by LLCs and investment vehicles controlled by a handful of multi-billion-dollar asset managers and private equity groups. Chief among them are Starwood Capital Group, a Miami-based private equity giant that manages $115 billion, and real estate firms Dominium and Morgan Properties, which together own hundreds of rental properties named in the case. The timing of the potential settlement may be particularly welcome for Starwood, which just this month received a $1 billion infusion from Apollo Global Management to help with liquidity troubles in one of its major real estate funds. Starwood declined to comment; Dominium and Morgan Properties did not immediately respond to a request for comment.
“The overall amount and degree of just flagrant corruption, especially in the federal government, at the current time period is just really outrageous,” said Eric Dunn, director of litigation at the National Housing Law Project. “Cases like this seem to be decided by who the parties are and who the system wants to help, and not reason and logic.” The DOJ did not respond to a request for comment.
