Affordable Housing Owner Sues City of Seattle: Unpacking the Lawsuit
Last week, GRE Downtowner, LLC (GRE) filed a lawsuit against the City of Seattle, arguing that the city’s policies have destroyed the livability and economic viability of GRE’s Addison on Fourth apartment building. The Addison on Fourth is an affordable housing building nestled between Seattle’s historic Pioneer Square and Chinatown-International District. The lawsuit alleges that the city has forced the Addison to either continue operations in service of a public good at a massive private loss, or to shut down operations entirely. Both options GRE describes as “disastrous.”
To understand why a privately-owned housing building is in default, facing over $40 million in liabilities, and “hemorrhaging money,” in an affluent west-coast city, we must look at a series of Seattle ordinances that, while well-intended, have heaped negative consequences on housing providers with compounding effects. The lawsuit asks the courts to do the same, and the question before the court is this: do the city’s ordinances amount to an unconstitutional “taking” of private property without compensation?
According to the lawsuit, the Addison was purchased in 2012 for $12.5 million and redeveloped for $26.5 million. With $39 million invested, the Addison maintained an occupancy rate at or above 90% and brought in just enough revenue to cover losses and make a few hundred thousand in surplus each year from 2015-2019 as forecasted by operating projections. Then things started to change dramatically.
In 2018, two years before the Addison hit a financial inflection point, the City of Seattle passed the Fair Chance Housing Ordinance. The ordinance prohibits housing providers from rejecting an applicant on the grounds of their criminal history. The good intention was to increase access to housing by preventing a criminal background from becoming a lifelong barrier to stable living. Instead, GRE claims, “the city has forced GRE Downtowner [the Addison] to accept as tenants dangerous criminals.”
Security costs at the Addison increased from $115,830 during 2015-2018, to $486,926 in 2019 and $833,353 in 2022. Now, the Seattle Police Department won’t respond to calls at the building without a minimum of three officers present. In 2019, a resident stabbed a guest in the chest. Only when arrested, did staff learn that the tenant had several outstanding arrest warrants. Another resident — recently released from jail — destroyed security cameras, assaulted staff, and threatened to murder staff with a weapon. When evicted a year later, the tenant left their unit with $10,000 in damages.
The unintended consequences of the Fair Chance Housing Ordinance were exacerbated in 2019 by the passage of the “Roommate Ordinance.” The law allows past and current roommates and family members to become legal tenants of a residence without approval of the landlord. As a result, according to the lawsuit, tenants have asked Seattle Police to remove a threatening non-resident only to be told that the roommate may have established legal residency in the apartment. GRE claims that the effects of both ordinances have “destroyed” their ability “to uphold the tenants’ rights to peaceful and quiet enjoyment of their residencies.”
The natural consequence of restrictions on landlord knowledge of and control over who resides on their property is an increased reliance on evictions. Evictions are a “last resort,” says GRE, because the process offers little hope of recuperating losses. And yet, the lawsuit states, “the city has made eviction difficult or impossible as well, through the adoption of two other ordinances.”
In 2020, the city passed a Covid-19 eviction moratorium, halting evictions for the next two years and giving residents, according to the lawsuit, “carte blanche to refuse to pay their rent.” The city also passed a winter eviction ban to prohibit evictions every year from March until December. The Addison’s bad debt from unpaid rent shot up from $42,000 during 2015-2018 to $515,846 in 2022.
In effect, the Fair Chance Housing Ordinance and the Roommate Ordinance prevented landlords from excluding bad actors from their property and the Covid-19 moratorium and winter eviction ban prevented them from removing bad actors from their property. Describing the city’s policies as “experimental ordinances,” the lawsuit claims that the policies are “trapping housing providers in a situation where [they] must subsidize the cost of housing recidivist criminals to the tune of millions per year.” The Addison has faced 5.8 million in losses between 2019 and 2023.
As the lawsuit notes, “if the above were not enough to destroy the financial viability of any low-income housing development in Seattle, the city has also passed two ordinances penalizing landlords for implementing often necessary rent increases.” In 2021, the city passed a 180 Day Rent Increase Ordinance. The six-month requirement removes landlords’ ability to adjust to current market conditions.
Following that, the city passed an Economic Displacement Relocation Assistance Ordinance which requires landlords to pay for three months of accommodation for their tenants if they move following a rent increase of 10% or more. As detailed in the lawsuit, the Addison increased rent in one unit by $184-per-month, or $2,208 per year. Because the rent increase was more than 10%, GRE was required to pay $3,990 to the former tenant, constituting “almost two years’ worth of the rent increase on the unit.”
Policies intended to increase housing access and stability have done the opposite. The Addison has been net cash flow negative every year starting in 2020 and “cannot derive enough revenue . . . to operate at anything other than a significant yearly loss.” Occupancy rates hit a low of 55% in 2023. Unable to pay the mortgage, the Addison has been in default since November 2023. The property owes $4.7 million in developer fees and $5 million in interest. GRE anticipates a “21-million-dollar downward swing” in the property’s value come 2028 when its Low-Income Housing Tax Credit compliance period ends. The lawsuit describes the Addison as “functionally valueless” and “unsaleable.”
This direness is despite the fact that five “institutional entities,” four with a financial stake in the success of the Addison, signed off on the building’s projections at the time of purchase and redevelopment. The stakeholders had good reason to do so — the projections played out for the first four years. The Addison’s residents are stakeholders too, and now, GRE says, its “lease compliant residents ultimately must cover the cost of non-lease-compliant residents.”
“It’s lamentable that GRE had to resort to the courts to help alleviate the issues created by the former Seattle city council,” says Sean Flynn, President of the Rental Housing Association of Washington. “From an industry perspective this lawsuit is a prime example of the damage being done to the whole industry and especially low-income housing providers.”
Forced to operate at high-vacancy rates to stymie financial loss, access to housing at the Addison has decreased, not increased since the city’s first ordinance was passed. Forced to house bad actors with limited use of eviction, housing safety and stability at the Addison has decreased, not increased since the city’s first ordinance was passed. “As an industry, I hope to see rental housing policies either rolled back or eliminated entirely,” Flynn says. “Seattle once again needs to be a housing market that allows housing providers to operate their buildings in a way that leads to the long-term stability and safety of their residents.”
But the question of whether the good intentions behind the series of ordinances have been met is distinct from the question the lawsuit poses to the court. Do the city’s ordinances amount to a regulatory and physical taking of private property? If so, the Washington State Constitution demands that just compensation be paid. GRE’s stance on that question is clear, amounting the ordinances to a “functional commandeering of low-income housing properties” in a manner “so pervasive and intrusive as to be tantamount to a physical invasion.” A trial date has been set for October 2025.
Watch coverage of the press conference and footage inside the Addison: