Attorney General Schwalb Sues Real Estate Lender for Illegal Housing Discrimination Scheme

Attorney General Brian L. Schwalb today sued real estate lending and investment firm Red Oak Capital Holdings, LLC (Red Oak) for illegal lending practices that discriminate against tenants without housing subsidies.

In its lawsuit, the Office of the Attorney General (OAG) alleges that Red Oak has engaged in an illegal lending strategy, providing inflated loans to developers on the basis of explicit promises that they would circumvent District rent-control requirements and engage in source of income housing discrimination. Red Oak provided funding to multiple developers whose business plans and revenue projections were built around leasing apartments exclusively to tenants with government-provided housing vouchers or other subsidies so they could charge more in rent than rent-controlled rates. OAG alleges that Red Oak's practices have had the effect of discriminating against DC tenants who do not use housing subsidies to pay their rent, shutting them out from renting more than 300 rent-controlled apartments in seven buildings in Wards 4, 5, 6, 7 and 8. Red Oak has provided loans to multiple DC developers, including Sam Razjooyan, a defendant in multiple suits brought by OAG. OAG is seeking to put a stop to the business's illegal and discriminatory conduct.

"Red Oak and the developers it finances have worsened the District's affordable housing crisis while profiting by flouting our laws," said Attorney General Schwalb. "We will not allow Red Oak-or others like it-to limit access to rent-stabilized housing by engaging in source of income discrimination and abusing programs intended to create more housing options for Washingtonians."

Red Oak is an investment and lending firm that provides loans to buyers and developers of multifamily residential properties in multiple jurisdictions around the country, including in the District of Columbia. The company raises private capital to invest in commercial real estate loans, generating predictable income for investors via interest payments on the loans.

Under DC law, all residential units built before 1976 are subject to rent control unless certain exemptions apply. Landlords may obtain an exemption from rent control for a particular unit-meaning that they are permitted to charge a higher rental rate not limited to the rent-controlled rate-when that unit is rented to a tenant who receives housing vouchers or other subsidies.

Some District developers have attempted to unlawfully exploit this exemption to maximize profits: they buy rent-controlled properties and seek to rent only to voucher-holders at higher rates, while shutting out low- and moderate-income tenants who do not receive subsidies and who are eligible to rent at normal, rent-controlled rates. This practice violates DC's Human Rights Act (HRA), which prohibits housing discrimination based on source of income. OAG has filed multiple lawsuits against developers who have engaged in this illegal practice.

OAG's lawsuit that the company has intentionally provided funding for District developers to engage in this illegal and discriminatory scheme, violating the HRA by:

• Funding business plans for rent-controlled apartment buildings that require developers to charge more than rent-controlled rates. Red Oak has appraised multiple rent-controlled DC properties, and provided loans to developers seeking to acquire those properties, based on the developer's representations that tenants who do not receive housing subsidies will be excluded from all or most of the units. The appraisals explicitly note that rents paid through the District's subsidized voucher programs are almost always higher than rents in the District's rent-controlled market and are guaranteed by the government subsidized voucher. And, to ensure that developers meet their inflated revenue projections, Red Oak reserves the ability to dictate rent rates for all units.
  
• Effectively shutting out DC tenants who do not use housing subsidies from renting more than 300 rent-controlled apartments across the District. Red Oak has provided loans for the purchase of at least seven apartment buildings in Wards 4, 5, 6, 7 and 8 based on the representations from developers that they would only rent to tenants who receive housing subsidies moving forward-and, in some cases, based on promises that developers would actively remove existing rent-controlled tenants and replace them with voucher-holders. This practice has had the effect of denying prospective tenants opportunities to lease units at those buildings because of their source of income, which is illegal discrimination.

The buildings Red Oak has provided loans to purchase include the Jennifer Apartments (1413-1415 Tuckerman St NW), 1017 17th Place NE, The Wiltshire Apartments (819 E Capitol Street SE), Hawaii Avenue (89-93 Hawaii Ave NE), Minnesota Commons (4069-4089 Minnesota Ave NE), 1525 19th St SE, and Wilmington Place SE (102-108 Wilmington Pl SE, Washington).

With this lawsuit, OAG is seeking to put an end to Red Oak's illegal and discriminatory lending practices, and to secure civil penalties, costs, and fees for violating District law.

A copy of the lawsuit is available here.

This matter is being handled by Assistant Attorneys General Griffin Simpson and Nadeen J. Saqer and Investigator Nicole Jankovitz, under the supervision of Civil Rights and Elder Justice Section Chief Alicia M. Lendon.

Report Discrimination
District residents who believe that they have experienced or witnessed housing discrimination, or any other form of discrimination, may report it to OAG's Civil Rights & Elder Justice Section by:

• Calling (202) 727-3400
• E-mailing [email protected]
• Mailing OAG, ATTN: Civil Rights & Elder Justice Section at 400 6th Street, NW, Washington, DC 20001

OAG's civil rights work complements the work of the District's Office of Human Rights (OHR), which is the primary District agency that investigates individual discrimination complaints. You can file a complaint with OHR at ohr.dc.gov/service/file-discrimination-complaint or call 202-727-4559.

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