Tenant protections blamed for crippling $39 million investment in affordable housing

Seattle’s efforts to protect tenants reportedly helped destroy a $39 million investment intended to provide affordable housing, putting a 254-unit apartment complex that served low-income residents in receivership. Today, its owners won a legal victory in a battle that could influence similar fights in Philadelphia and other Democratic-led cities.

The Washington Court of Appeals ruled Monday that GRE Downtowner LLC, the company behind the 254-unit Addison on Fourth affordable housing project in Seattle, can pursue claims that the city’s sweeping rental regulations amount to an unconstitutional expropriation of private property. GRE alleges that the restrictions, including an order requiring landlords to accommodate certain additional occupants without their consent, depressed rent collections, triggered millions in losses and ultimately made once-viable investment in affordable housing financially unsustainable.

The complex operates under the federal Low-Income Housing Tax Credit program, which provides tax incentives to private investors in exchange for providing rent-restricted apartments to low-income residents. Sean Flynn, executive director of the Rental Housing Association of Washington, explained that although such developments typically generate relatively modest profits, federal tax credits make them financially attractive to investors, helping to attract private funds to affordable housing projects that would otherwise struggle to be built.

Flynn, who is working with GRE Downtowner in its lawsuit against the city of Seattle, told Fox News Digital that successive city ordinances targeting landlords ultimately created a “toxic cocktail of legislation” that took affordable, functional housing and “destroyed” it.

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A photo of a subdivision in Washington State. (Wolfgang Kaehler/LightRocket via Getty Images)

According to court filings, GRE’s investment initially proved financially viable, with the property generating positive cash flow from 2015 to 2018. But as Seattle enacted a series of ordinances restricting criminal background checks, expanding tenants’ ability to accommodate additional occupants in their apartments, limiting certain evictions and requiring relocation assistance following qualifying rent increases, GRE alleges that its rent collections collapsed from 93.9% in 2018 to just 44.1% in 2023, contributing to nearly $5.8 million in cumulative operating losses.

The financial deterioration ultimately culminated when a federal judge appointed a receiver in January 2026 to take control of the property following a mortgage default.

“The policies they are adopting are harmful to the people they are actually trying to help,” Flynn warned, arguing that excessive restrictions on landlords end up hurting renters by discouraging real estate investment. “No one will invest in building more housing if they believe the government can step in and do an appropriation – to take away ownership – and they have no legal recourse.”

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Sean Flynn is a Seattle-based real estate attorney and president and executive director of the Rental Housing Association of Washington (RHAWA). (Fox News Digital)

“What this decision says is that the government, you can regulate, you can regulate as you wish,” Flynn added. “But if your settlements go to the point where you take my real estate, I have the right to sue you for it.”

Ilya Somin, a law professor at George Mason University who specializes in constitutional law and property rights, told Fox News Digital that the ruling was more consequential than a routine procedural decision, but cautioned against exaggerating its broader impact.

“It’s only moderately significant, but it’s more important than just a routine legal decision that only affects those immediately involved,” Somin said, explaining that courts in other states might consider Washington’s decision when weighing similar constitutional challenges. He also said the case could theoretically go to the U.S. Supreme Court, but that was rather unlikely.

Seattle isn’t alone in imposing sweeping restrictions on landlords. San Francisco has long imposed rent controls and limits on evictions, and New York City expanded eviction protections in 2024 under the state’s just-cause eviction law, limiting landlords’ ability to evict certain tenants or refuse lease renewals while allowing tenants to challenge excessive rent increases. Portland, Oregon, limits landlords’ use of criminal history when screening potential tenants and requires relocation payments after certain rent increases of 10 percent or more. Philadelphia also adopted restrictions on criminal background checks. The policies reflect a broader push to strengthen tenants’ rights in big, Democratic-led cities, even as property owners worry about the consequences of increasingly restrictive housing regulations.

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Former Clinton adviser Mark Penn warns Democrats against Zohran Mamdani’s victory in New York, calling the socialist agenda “extreme” and calling for a focus on the issues rather than Trump. (Getty Images)

Flynn warned that the consequences of Seattle’s housing policies extend far beyond Addison on Fourth, arguing that growing restrictions have driven developers and small landlords away from Seattle — a city once bustling with residential construction.

“Once upon a time in Seattle, from my office you could see crane after crane after crane building housing,” Flynn said. “They’re gone and they’re not coming back.”

Flynn argued that the resulting drop in investment ultimately hurts ordinary renters, leaving them with fewer housing options and higher costs.

“When you remove the investment incentive of providing a product, you get lower quality products at a higher cost,” he said. “Investors listen and vote with their feet. Result: there is less housing and the available housing is of lower quality.”

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GRE’s lawsuit seeks compensation under a legal principle known as reverse condemnation, which allows property owners to pursue payment when they believe the government’s actions actually took or damaged their property without providing just compensation. GRE argues that Seattle’s ordinances, individually and collectively, went so far in restricting its property rights that the city should be held financially responsible for the resulting losses.

The Seattle City Attorney’s Office told Fox News Digital that officials are reviewing the appeal ruling and evaluating next steps. “We have not yet made a decision regarding an appeal,” Chief of Staff Dan Nolte said in an email Thursday.

Housing in front of the Atlanta skyline in Atlanta, Georgia, United States, on Sunday, November 13, 2022. (Elie Nouvelage/Bloomberg via Getty Images)

“I think the plaintiffs in this case deserve to win at least on this roommate provision,” Somin told Fox News Digital, referring to Seattle’s restrictions on landlords’ ability to exclude certain additional occupants from rental properties.

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Somin pointed to the Supreme Court’s 6-3 decision in Cedar Point Nursery v. Hassid, who ruled that a California regulation requiring agricultural employers to allow union organizers onto their private property constituted physical taking under the Fifth Amendment. He argued that Seattle’s roommate ordinance raises a similar constitutional question because it requires landlords to accommodate additional occupants with whom they never entered into a rental agreement.

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“I think the strongest argument in itself is simply an argument against this provision of the ordinance, which says they have to take these people who they’ve never contracted with, who have never been selected, and so on,” Somin said. “The additional requirement to let them access their land goes beyond what is in the contract, and the same thing, as you know, would apply here in the Seattle case.”