King County Judge Dismisses GRE Downtowner’s Lawsuit Against the City of Seattle
Goodman Real Estate’s lawsuit was dismissed on a cold and blustery Valentine's Day where there was no love lost in the courtroom and the only warmth of the day came from the heating duct system of the King County Courthouse building. A ship called The Demeter was thrown into the harbor by intense storms… wait, wrong story. We will get back to that later.
For those who are not familiar with the GRE Downtowner lawsuit, please check out my article from the November 2024 issue of Current. You can also watch a great video on the RHAWA YouTube channel which goes into extreme detail on data used for the lawsuit. Also, on the RHAWA YouTube channel, you will find my interview with George Petrie, the CEO of Goodman Real Estate, which owns and operates the Addison affordable housing building.
The lawsuit, initially filed in October 2024 by Stoel Rives, LLC on behalf of GRE Downtowner, LLC, argued that the crippling rental regulation ordinances passed by the Seattle City Council between 2018 and 2022 have led to the destruction of the living environment for the community and residents, and has resulted in a taking of GRE Downtowner property. A taking generally means devaluing a property and/or an inability to operate the property for the intended purpose. Just for quick review, the policies passed in the City of Seattle were:
The main complaint outlined by Stoel Rives on behalf of GRE was a per se taking by the City of Seattle as they vastly changed the landlord-tenant rules after the Addison opened its doors in 2015 and, because of the financial issues, lost almost all value due to high vacancy rates and high costs. The City has financially taken from GRE by forcing them to abide by rental policies that do not work, especially for low-income housing buildings that already must abide by HUD rental guidelines.
Even if GRE Downtowner wished to sell the building, the buyer pool would be extremely shallow. The list would be short as a result of the Low-Income Housing Tax Credit (LIHTC) requirements for the building and because of increased security costs, inability to evict non-paying tenants, and increased security and operations costs. The Addison building lost over $2 million in 2023. Any buyer that wanted to purchase the building would first have to overlook all the financial squalls and additionally would need to continue the fulfillment of the LIHTC obligations.
In his ruling, Judge Jason Poydras referred to a 1978 case Penn Central Transportation v. City of New York, where the City of New York prevented the Penn Central train company from building a structure above Grand Central Terminal after the city adopted a Landmarks Preservation Law. Penn Central wanted to build an office tower on top of the terminal to increase the usage of their property and argued that barring them from doing so was a taking by the City of New York. The court decided that the New York Landmark Preservation Law did not deter the original usage of the structure or significantly devalue the current building.
In this case, the court relied on a three-factor test to determine a governmental taking:
- Economic Impact – Has the regulation significantly reduced the market value of the property?
- Investment-Backed Expectations – Do the regulations significantly interfere with the property owners’ reasonable expectations to use the property for its intended purpose?
- Character of the Government Action – Are the rules broadly applicable, or do they seem to focus and target one area or property?
“There's insufficient information contained in the record to support GRE’s claim that the cumulative effect of the ordinances named in the complaint has affected a partial regulatory taking of the Addison.” Said Judge Poydras as he ruled to dismiss the case. “The ordinance at issue, for example, are the results of the City’s efforts to reduce the number of individuals unhoused in the winter months and reducing housing barriers to persons with criminal records. The ordinances at issue, to the extent they impact GRE Downtowner’s property interest in the Addison, do so in the wake of the City’s broader efforts to regulate landlord-tenant relationships by adjusting the benefits and burdens of economic life to promote the common good.”
There seems to be a loose agreement amongst legal scholars that the Penn Central case is not applied in a black-or-white way. Rather, it is a very fact-specific test, which results in different courts applying the test differently. Property owners generally do not fare well in cases put to the Penn Central Test.
Another issue from the lawsuit that is rolled into the economic taking factor is the question over a housing provider’s right to exclude tenants from the property. The Fair Chance Housing and the Roommate Ordinance make this nearly impossible to effectively manage for housing providers as these policies prohibit proper background screening and who is granted residency at the Addison.
In his ruling, Judge Poydras said: “… because the rights, including but not limited to the right to exclude the public from the Addison, was already modified when GRE opened up the Addison to the public by establishing landlord-tenant relationships.”
Now I want to take everyone back to my Demeter crashing into the bay and let’s go way back to 1897 when a now classic gothic horror novel written by Mr. Bram Stoker was first published. That novel was Dracula, where the Transylvanian vampire lives in a castle with many locked doors and mysteries. There were many rules established for vampires in the novel, such as their ability to only transform into different shapes during the dawn and dusk hours and the now classic adornment of the garlic necklaces for protection. Another rule described in the novel is that vampires, even Dracula, are not allowed to cross the threshold of any dwelling without being expressly invited to enter. Dracula has multiple points where he simply hovers outside of a window in bat form because he is unable to enter the structure. However, once allowed to enter, as the unfortunate Lucy Westenra does when in a trance, she lifts the window to allow the Transylvanian bat in, the Count can come and go as he pleases for all time. Or in other words, the book’s characters living in that coastal cottage in Whitby, England no longer had the ability to exclude that supernatural being from the premises.
This brings me to another case cited in this decision, and that is Yee v. City of Escondido, where Yee was the owner of two mobile home parks and a mobile home park rent control law was passed in 1988. This rent control law set limits for how much Yee could raise his rents. This limitation on raising rents, along with other regulations limiting causes for eviction and mobile home ownership changes, he argued, was a personal taking of his property. The case made it all the way to the California Supreme Court where the court ruled 9-0 against Yee. In their decision, the Court distinguished between regulations that merely limit the use of property (such as rent control) and those that physically take possession of the property. Since Yee still had the right to sell the property and evict tenants under certain conditions, the ordinance was not a taking.
This decision reinforced the idea that economic regulations, such as rent control, do not automatically violate property rights under the Takings Clause. This case was also taken up to the Supreme Court in the 9th District, which is why it applies outside of the state of California.
The court in the GRE case seemed to imply that if that law in question caused the alleged taking, under a Yee analysis, regulating a landlord-tenant relationship, then a takings claim could not satisfy a Penn Central Analysis Test. Hence, like Dracula invited across the threshold, once a property owner invites a tenant into a unit, the government may drain the owner’s property rights with no recourse in the form of a takings suit.
RHAWA was able to talk with George Petrie, CEO of Goodman Real Estate, after the lawsuit was dismissed.
“We, and other affordable housing providers, are experiencing many of the unintended consequences of decisions by previous city councils, and we have real concerns for the stability of the residents and our building operations with this dismissal,” said Petrie. “We hope that the city will work to provide real housing solutions for the residents’ well-being as well as guidance to other affordable housing providers so that we can continue to operate in Seattle.”
When RHAWA spoke with Petrie, a decision had not been made as to whether an appeal would be filed. “We are disappointed that our suit was dismissed and will be taking time to strategize with our legal team how to best advocate for the residents of Addison, the community, the lenders, and the investors.”
So, what does this all mean for housing providers? It appears that by the court framing homelessness, eviction issues, and other housing policies as shaped around these broad issues for the greater social good, then these policies will override property rights every time. Once you begin a landlord-tenant relationship, your rights to your property can change very rapidly with a very low opportunity for recourse. If a regulation is framed in the context of addressing a crisis, the government can do what it wants.
With the legal framework in place that heavily favors the government in takings cases, one would be wise to continue the fight against bad policy on a political and legislative level. Passing bad policy is not illegal, and if the courts continue to apply Penn Central and Yee as this court did, our legal options remain limited.
We could even bring this back to the bipartisan bill making its way through the state legislature with SB 5434, which would allow the legislature to terminate a governor’s emergency powers with a majority vote of the legislature, a tool that was not in the tool belt when former Governor Jay Inslee held on to his emergency powers for over three years. We need a lot of Dr. Van Helsings to show everyone the way.
My point with all this is that these types of policies and laws can only effectively be remedied at the legislative level. It is clear the courts will not be with housing providers on these issues in any sense, and so these laws must be changed at the state level for any real change. It will take GRE and all other affordable housing providers rallying and illustrating how Seattle-like policies destroy tenant safety and future housing and community investment.
We will keep a vigilant watch on how this case progresses further. Again, if you wish to learn more about the lawsuit and GRE, please check out the RHAWA YouTube Channel.