Last month, I reported on a “highly likely” multibillion-dollar federal bailout that would settle a five-year-long court battle between predominantly corporate landlords and the feds over the national eviction moratorium imposed during the COVID-19 pandemic. Since that time, the number of rental property owners seeking a piece of the action has grown, with nearly a thousand landlords signing on over the past few months. Plaintiffs in the case initially sought $26 billion, though that’s come down over the years. In all likelihood, the final number will fall between $2 billion and $3 billion, which still would rank among the biggest payouts of its kind.
Though marketed as relief for “mom-and-pop” lessors, private equity groups and other large institutional real estate investors have lined up hundreds of LLCs in the class action suit, demanding compensation over income they claim they lost during the eviction moratorium. Property owners in the suit––with few exceptions subsidiaries of larger investment firms––on average control more than 250 rental units each, per the most recent data.
Chief among the litigants is Florida-based Starwood Capital Group, the country’s third-largest private equity apartment owner, whose LLCs account for more than 10 percent of the property owners and investment vehicles suing the feds, and close to 15 percent of rental units covered so far. Starwood’s national footprint is smaller: The firm’s multifamily investments account for less than 1 percent of all rental units in the country, though that portfolio is concentrated in a handful of metro areas, giving Starwood greater market power over its tenants.
By the end of 2021, Starwood’s rental portfolio was posting “record” profits.
The past few years haven’t exactly been smooth sailing for Starwood, which declined to comment for this article. Right as the pandemic began, the firm saw its credit rating downgraded, and months later it defaulted on debts owed on its portfolio of shopping malls. The headwinds at the time didn’t deter Starwood’s CEO Barry Sternlicht from mobilizing the firm’s substantial cash reserves and access to emergency liquidity to double down on apartment investments. “When it’s really ugly, it’s a good time to invest,” Sternlicht said in May 2020 at the apex of the pandemic.
By the end of 2021, Starwood’s rental portfolio was posting “record” profits, as the firm hiked rents, in some cases by more than 20 percent, buoyed by significant government support during lockdowns and increased demand for housing. “It is a very healthy market and tenants seem capable and willing to pay these rent increases,” Sternlicht told investors on an early-2022 earnings call. The rent increases would continue throughout the year, at some properties reaching more than 90 percent, boosting evictions and leading Starwood to a banner year, with net income of close to $900 million, up from roughly the $450 million it reported in 2021.
Yet the eviction moratorium lawsuit, dominated by Starwood-owned properties, paints a different picture of the economic environment at the time, alleging that landlords “suffered significant financial damage” at the hands of the federal government.
With the pending lawsuit entering potential settlement discussions, the landlords and the feds are in the process of developing a method to determine how the government might compensate each plaintiff in the case. The parties don’t expect to go through “every rent roll and every income statement of every single property,” Creighton Magid, lead attorney for the property owners, told the Prospect last month, and will instead be developing a generalizable economic model.
Despite the feds asserting earlier this month that the landlords had “failed to take reasonable steps to mitigate any just compensation due including by failing to seek back rent, fees and costs from their tenants,” at a time when the federal government was providing billions of dollars in rental assistance for exactly that purpose, all signs point to a settlement. The landlords and the feds, per a recent court filing, are now seeking the “most efficient way to resolve the case” in the coming months.
For Starwood and other property owners, any windfall from the case would come as gravy atop substantial federal assistance received during the pandemic. During and in the aftermath of the pandemic, state and local agencies worked to distribute billions of dollars of rental assistance to property owners and tenants facing mountains of rental debt. In Florida, where almost a quarter of the plaintiffs and most of the listed Starwood properties are based, agencies distributed more than $1 billion in rental assistance, which, according to Alexei Alexandrov, a former chief economist at the Federal Housing Finance Agency, by various means “percolated down to the landlords.”
About $200 million of that came through Florida’s housing finance agency, which offered direct relief to property owners who had originally been funded by the agency. According to publicly available documents, dozens of Starwood properties now seeking a piece of the bailout were approved for more than $10 million in federal disaster relief in Florida through that pot of money alone. That figure does not include other federal assistance that may have been distributed to Starwood’s tenants to help them pay rent. Starwood did not answer questions about the amount of federal assistance the firm received during the pandemic.
According to a crisis management expert who worked closely with states, localities, and property owners to distribute federal rental assistance during the pandemic, the investment firms, like Starwood, that stand to benefit the most from a potential settlement also happen to be the ones that were best equipped to rake in federal aid during the pandemic.
“In most programs we administered, the large developers had the greatest incentive to participate in the program, and so they came to the table with bulk data,” the source said. Instead of having to go to every tenant one by one to see how much rent they owed, “there were multiple programs in which we built API connections directly into [companies’] property management solutions to be able to systematically validate data.”
A settlement, which according to court filings would likely be announced between November 2026 and May 2027, would come at an opportune moment for Starwood. Despite recent banner years, the firm has been facing new pressures, after a stock market correction in 2022 and post-pandemic inflation that spiked interest rates. Starwood’s net income for the first half of the year dipped substantially to less than $60 million, and the firm has struggled to service a $265 million loan covering part of its hotel portfolio. The $130 billion private equity giant meanwhile has raised a new $10 billion fund to make plays in the data center market.
“This case is pretty troubling,” said Sam Garin of the Private Equity Stakeholder Project, a watchdog group. “But unfortunately, it is yet another example of the super private equity–friendly Trump administration being unwilling to stand up for tenants and consumers against corporate interests.”
