D.C. Sues Real Estate Lender, Alleging Voucher-Only Strategy Shut Out Unsubsidized Renters

Washington’s aging brick apartment buildings along Minnesota Avenue NE have long served as a foothold for low- and moderate-income renters in one of the District’s poorest wards. Today, nearly all of the 123 units at Minnesota Commons are leased to tenants whose rent is paid largely by government vouchers. For families holding those vouchers, the complex can be one of the few places where a landlord will take them. For renters without subsidies, the doors are effectively shut.

That shift is now at the center of a lawsuit that pulls a private lender into the District’s intensifying battle over who can access its shrinking supply of rent-controlled housing.

Lawsuit targets lender’s role in “voucher-only” conversions

On Feb. 20, District of Columbia Attorney General Brian L. Schwalb sued Red Oak Capital Holdings LLC, a Charlotte, North Carolina-based real estate lender, accusing the company of designing a financing model that relies on converting rent-controlled buildings into “voucher-only” properties and unlawfully excluding unsubsidized tenants.

Filed in D.C. Superior Court, the complaint alleges that Red Oak violated the D.C. Human Rights Act by appraising and underwriting loans based on the source of income of future tenants and by helping lock in policies that prevent non-voucher renters from leasing more than 300 rent-controlled apartments across the city.

“Red Oak and the developers it finances have worsened the District’s affordable housing crisis while profiting by flouting our laws,” Schwalb said in announcing the suit. “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.”

The case targets a link in the housing chain that is rarely the focus of civil rights enforcement: the lender rather than the landlord. At issue is whether a lender’s internal appraisals and loan terms—structured around renting primarily or exclusively to tenants with subsidies—can amount to unlawful “source of income” discrimination under District law.

More than 300 units across multiple wards

Red Oak, which specializes in short-term “bridge” financing for commercial properties, is accused of using that model across at least seven rent-controlled buildings in Wards 4, 5, 6, 7 and 8. In each, according to the complaint, Red Oak projected returns on the assumption that unsubsidized tenants would be pushed out or turned away and that units would instead be filled with households using Housing Choice Vouchers or similar subsidies.

The properties identified include Minnesota Commons on Minnesota Avenue NE; the Jennifer Apartments on Tuckerman Street NW; the Wiltshire Apartments on East Capitol Street SE; smaller buildings on Hawaii Avenue NE and 17th Place NE; and complexes on Wilmington Place SE and 19th Street SE. Together, the lawsuit says, they represent more than 300 units that are nominally rent-controlled but effectively removed from the pool of housing available to renters who do not receive subsidies.

How vouchers can change rent-control rules

Under the District’s Rental Housing Act, most apartments built before 1976 are subject to rent stabilization. Landlords are limited in how much they can raise rent each year and when a unit turns over.

However, when a rent-controlled unit is leased to a tenant with a housing subsidy, the owner can apply to exempt that unit from rent control for as long as the subsidy is in place. In practice, rent levels are then governed by voucher payment standards rather than rent-control caps.

Those voucher standards—set by the D.C. Housing Authority and federal guidelines—often allow higher rents, especially in older buildings, than what would be permitted under rent control. Schwalb’s office argues that this gap has created a powerful financial incentive.

“The District of Columbia faces a housing crisis,” the complaint states. “Affordable housing stock has trended downward while rents have trended upward, squeezing out low- and moderate-income renters.”

In that environment, the lawsuit alleges, Red Oak and its borrowers “prevent unsubsidized tenants who need affordable housing from renting more than 300 rent-controlled units across the District” while “pocketing public dollars intended to create more affordable housing options, not less.”

A novel “source of income” discrimination theory

The Human Rights Act prohibits discrimination in housing based on “source of income,” a term that covers salaries, benefits and housing subsidies such as vouchers. It bars not only refusing to rent to people because of how they pay, but also appraising property based on the actual or perceived income source of prospective tenants, and adopting practices that have a discriminatory effect.

Most recent “source of income” cases in the District have focused on landlords or property managers who refused to accept vouchers or made the process more difficult for voucher holders. In 2022, Schwalb’s predecessor, Karl Racine, announced a multimillion-dollar settlement with property manager DARO for allegedly steering away tenants with vouchers and posting discriminatory advertisements. In 2024, Schwalb’s office reached an agreement requiring AIR Property Management to change tenant-screening policies that were said to disadvantage voucher users.

The Red Oak lawsuit flips that script. Instead of alleging discrimination against voucher holders, the complaint argues that structuring buildings so they are occupied almost exclusively by voucher tenants—and priced accordingly—can be discriminatory against renters who do not receive subsidies but still rely on rent-controlled units to stay in the city.

Allegations about underwriting and marketing

According to the complaint, Red Oak performed in-house appraisals that explicitly valued properties on the basis that voucher holders, not unsubsidized tenants, would occupy nearly every unit. In one project, a Wilmington Place SE complex, Red Oak is quoted as highlighting recent increases in voucher caps and the developer’s promise that those higher subsidized rents “will be in effect at 100% of the completed units.”

In its marketing materials, the company has emphasized the revenue potential of D.C.’s voucher program. A transaction summary for Minnesota Commons describes a $15.5 million bridge loan and notes that the sponsors “plan to operate the garden community under the DC Housing Authority’s Housing Choice Voucher Program.” In another deal for an 8th Street NW building, Red Oak touted that all 41 units “will ultimately be leased to residents through the federally funded Housing Choice Voucher Program.”

At a 2022 real estate conference, Red Oak CEO Gary Bechtel described the D.C. voucher landscape as especially attractive, according to the attorney general’s complaint. “D.C., from what we’ve seen, is the best at this program,” he is quoted as saying. “They have the most money.”

Red Oak did not immediately respond to a request for comment about the lawsuit or its D.C. lending strategy. The company has previously presented its deals as helping recapitalize and renovate distressed properties while ensuring guaranteed rent streams backed by public funds. District law explicitly allows landlords to exempt voucher-leased units from rent control, and lenders have treated that exemption as part of the financial calculus.

The attorney general’s lawsuit argues that using that legal framework to underwrite loans solely on the basis of voucher revenue—and to adopt loan terms that depend on excluding unsubsidized tenants—crosses the line into civil rights violations.

What the District is asking for

The District is asking the court to:

• Declare that Red Oak’s conduct violates the Human Rights Act
• Permanently bar the firm from appraising or structuring loans based on tenants’ income source
• Impose civil penalties of $10,000 for each violation, along with attorneys’ fees and other relief

Broader enforcement push amid a tightening rental market

Housing advocates say the case fits into a broader pattern in which public subsidies and rent-control rules, intended to protect low-income residents, interact in ways that can instead fuel displacement.

Separate from the Red Oak suit, Schwalb recently brought a racketeering case against landlord Ali “Sam” Razjooyan, accusing him and his companies of running a “corrupt enterprise” across about 70 mostly rent-controlled buildings, many occupied by voucher holders. Earlier, the office sued developer Petra over allegations that it used a voucher-only model at several rent-controlled properties to bypass rent caps.

Those enforcement actions, along with investigative reports that have documented overpayments to landlords and poor conditions in voucher-heavy buildings, have raised questions about who ultimately benefits from D.C.’s housing subsidies.

Behind the legal arguments are pressing numbers. The District has only a fraction of the affordable units needed for its lowest-income renters, and more than one in five renter households spend at least half their income on housing, according to figures cited by the attorney general’s office. About 11,500 families use Housing Choice Vouchers in the city, according to federal and advocacy data, and many struggle to find landlords willing to accept them.

The Red Oak case suggests a different problem: buildings where voucher holders are welcomed, but others who cannot secure subsidies are effectively walled off from rent-stabilized homes.

The lawsuit is in its early stages, and it may be months or longer before a judge rules on whether a lender’s internal spreadsheets and financing terms can be treated as discriminatory housing practices. Regardless of the outcome, the case is likely to intensify debate over how the District’s voucher rules and rent-control exemptions are structured—and whether they need to change to prevent more of the city’s rent-controlled stock from becoming off-limits to tenants without subsidies.