A possible multibillion dollar federal settlement could end a five year court fight between rental property owners and the federal government over the national eviction moratorium imposed during the COVID-19 pandemic. Nearly 1,000 landlords have joined the litigation in recent months.

Plaintiffs initially sought $26 billion, although that demand has declined over the years. The final amount will likely fall between $2 billion and $3 billion, which would still make it one of the largest payouts of its kind.

The promised relief has been marketed as help for small property owners, but private equity firms and other institutional real estate investors have placed hundreds of LLCs into the class action case. With few exceptions, the property owners are subsidiaries of larger investment firms and control more than 250 rental units each on average.

Florida based Starwood Capital Group stands at the front of that line. The country’s third largest private equity apartment owner accounts for more than 10% of the property owners and investment vehicles suing the federal government, along with nearly 15% of the rental units covered so far.

Starwood’s multifamily investments represent less than 1% of rental units nationwide. However, those properties are concentrated in several metropolitan areas, giving the company greater market power over its tenants in those places.

The pandemic brought financial pressure to Starwood, including a credit rating downgrade and a default on debts tied to its shopping mall portfolio. Yet CEO Barry Sternlicht drew upon the firm’s cash reserves and access to emergency liquidity to pursue additional apartment investments, declaring, “When it’s really ugly, it’s a good time to invest.”

By the end of 2021, Starwood’s rental portfolio was producing “record” profits. The company raised rents, sometimes by more than 20%, while benefiting from government support during lockdowns and increased housing demand.

“It is a very healthy market and tenants seem capable and willing to pay these rent increases,” Sternlicht told investors during an earnings call in early 2022. Rent increases continued throughout that year, reaching more than 90% at some properties, while evictions increased and Starwood’s net income approached $900 million, up from roughly $450 million in 2021.

The eviction moratorium lawsuit offers a sharply different account of that economic period. The case, which is dominated by Starwood owned properties, alleges that landlords “suffered significant financial damage” because of the federal government.

The parties are now discussing how compensation for each plaintiff could be calculated without reviewing every property’s rent rolls and income statements. Creighton Magid, the lead attorney for property owners, said they would instead develop a general economic model.

Federal officials recently argued that landlords had “failed to take reasonable steps to mitigate any just compensation due including by failing to seek back rent, fees and costs from their tenants,” even as the government provided billions of dollars in rental assistance. Despite that argument, court filings say both parties are seeking the “most efficient way to resolve the case” in the coming months.

Any settlement would arrive on top of substantial federal assistance distributed during and after the pandemic. In Florida, home to almost one quarter of the plaintiffs and most listed Starwood properties, agencies distributed more than $1 billion in rental assistance that former Federal Housing Finance Agency chief economist Alexei Alexandrov said “percolated down to the landlords.”

About $200 million went through Florida’s housing finance agency, which provided direct relief to property owners originally funded by the agency. Public documents show that dozens of Starwood properties now pursuing settlement money were approved for more than $10 million in federal disaster relief through that program alone.

That amount does not include other federal assistance that may have reached Starwood tenants to help cover rent. Starwood declined to comment for the article and did not answer questions about how much federal assistance it received during the pandemic.

A crisis management expert who worked with states, localities, and property owners said major investment firms were particularly equipped to secure federal assistance. Large developers supplied bulk data, while some programs established API connections with company property management systems to validate information systematically.

Court filings indicate that a settlement would likely be announced between November 2026 and May 2027. It would come as Starwood faces pressure following a 2022 stock market correction and inflation that drove interest rates higher, with first half net income falling below $60 million and the firm struggling to service a $265 million hotel portfolio loan.

The $130 billion private equity company has also raised a new $10 billion fund for data center investments. Sam Garin of the Private Equity Stakeholder Project called the case “pretty troubling” and described it as “yet another example of the super private equity–friendly Trump administration being unwilling to stand up for tenants and consumers against corporate interests.”