It appears that there is a company running a propriety software used by many property management firms to continually raise rents to maximize yield. Sounds a lot like a monopolistic practice that is driving rents up across the nation How a Secret Rent Algorithm Pushes Rents Higher — ProPublica In one neighborhood in Seattle, ProPublica found, 70% of apartments were overseen by just 10 property managers, every single one of which used pricing software sold by RealPage. To arrive at a recommended rent, the software deploys an algorithm — a set of mathematical rules — to analyze a trove of data RealPage gathers from clients, including private information on what nearby competitors charge. For tenants, the system upends the practice of negotiating with apartment building staff. RealPage discourages bargaining with renters and has even recommended that landlords in some cases accept a lower occupancy rate in order to raise rents and make more money. One of the algorithm’s developers told ProPublica that leasing agents had “too much empathy” compared to computer generated pricing. The software’s design and growing reach have raised questions among real estate and legal experts about whether RealPage has birthed a new kind of cartel that allows the nation’s largest landlords to indirectly coordinate pricing, potentially in violation of federal law. Experts say RealPage and its clients invite scrutiny from antitrust enforcers for several reasons, including their use of private data on what competitors charge in rent. In particular, RealPage’s creation of work groups that meet privately and include landlords who are otherwise rivals could be a red flag of potential collusion, a former federal prosecutor said. At a minimum, critics said, the software’s algorithm may be artificially inflating rents and stifling competition.
Great. Computer algorithms screw retail investors in the stock market and now in the rental market as well. Awesome!
I had a price controlled apartment after my accident. I thought I would try the apartment lifestyle. No yard maintenance, if anything breaks call the office it was awful. First thing was they tried to raise rent twice a year once when their legal rate increase was set once when the lease renewed. The apartment building was owned by Concorde management. It was beautiful and nice but management sucked when they decided to start taking title 9 (I think) and the sleazebags moved in I left.
Confusing. If an apartment seeker goes to one of the many apartments websites, many options come up. Why would the apartment owner / manager not just use that data? It seems this is more impactful for an existing tenet that has a rent increase. More frequency of moves. Time to invest in local moving companies??! Why is the collusion? The apartment manager is using market data to set his/her pricing strategy and overall apartment complex profitability. Has been going on in airline industry for decades. Lots of analytics and sophisticated AI that manipulate prices as you search for tickets.
Troubling, but not sure if it rises to the level of illegal price fixing, though, since basing prices on "comps" is a long standing practice in RE. Rivals companies meeting -- if they discussed pricing, or all agreed to strictly follow the same software -- could open them up to a criminal charges.
FBI Raids Corporate Landlord in Major Rent Price-Fixing Probe: What It Means for You - Uprise RI At the heart of this investigation is RealPage, a software and consulting firm that allegedly orchestrates price-fixing among large corporate landlords. RealPage’s system, which is owned by Thoma Bravo, one of the largest private equity firms in the U.S., provides rental price recommendations to landlords. These recommendations are based on detailed real-time data shared by landlords, including pricing, inventory, and occupancy rates. RealPage’s influence is extensive, affecting rents for 70% of multi-family apartment buildings and 16 million units across the country. The scheme allegedly works by encouraging landlords to adopt RealPage’s pricing recommendations, which they do 80-90% of the time. This coordinated effort among landlords to follow the software’s suggestions drives up rental prices by reducing the availability of units. As one of RealPage’s architects reportedly stated, the goal is to prevent landlords from undervaluing their properties, thereby ensuring higher rents nationwide. Cortland Management, which owns 85,000 rental units across thirteen states, is a significant player in this alleged conspiracy. The impact of such practices is starkly evident in Atlanta, where 81% of multifamily rental unit prices are set using software, and rents have skyrocketed by 80% since 2016. This price surge has occurred despite increasing vacancy rates, which would typically lead to lower rents. The adoption of RealPage’s pricing recommendations by numerous landlords between 2015 and 2017, followed by RealPage’s acquisition of its main rival Lease Rent Option in 2017, has given it unparalleled control over rental pricing. The DOJ’s investigation isn’t limited to Cortland and RealPage. It has expanded to include dozens of property owners and managers across the country. The investigation has escalated from a civil matter to a criminal probe, reflecting the seriousness of the allegations. The DOJ and Federal Trade Commission are key players in this crackdown on anti-competitive behavior.
How an ‘Algorithm’ Turned Apartment Pools Green By now, you have probably heard of Yieldstar, the private equity–owned software that numerous plaintiff’s attorneys, tenant advocates, and state attorneys general say is actually a front for a sprawling nationwide cartel that fixes rent prices to ludicrous heights and has caused the cost of an apartment to surge between 50 and 80 percent over the past seven years in several of the markets where the software is employed. In theory, and in its early days, Yieldstar offered property managers “recommendations” for pricing and duration of leases based on real-time data on what competitors were offering. But by the time Yieldstar parent RealPage acquired its biggest competitor, Lease Rent Options, from the hotel price-fixing giant Rainmaker in 2017, the algorithm had metamorphosed from a tool for informing pricing decisions into a weapon for systemically and liberally hiking them to “way too high” levels, to quote a leasing manager in one of the many lawsuits. RealPage has also been accused of retaliating against anyone who balked or attempted to circumvent the program, with newer “clients” especially singled out for indoctrination and surveillance to root out “rogue” leasing agents and ensure maximum compliance with the system’s demands. Reading the most recent version of a class action complaint, brought by 12 tenants in federal court in Tennessee, it’s easy to see why the FBI is digging into the case. The effect of Yieldstar’s market dominance and discipline has been utterly staggering, and neither RealPage nor its clients betray any uncertainty over the role the company has played in gouging tenants. Since 2016, rents have climbed 76 percent in Phoenix, 63 percent in Las Vegas, 80 percent in Atlanta, 66 percent in Wilmington, North Carolina, and more than 50 percent in Portland, Seattle, Charlotte, Nashville, and Dallas. One multifamily executive quoted in an antitrust lawsuit recalls, “We let [Yieldstar] push as hard as it would go, and we saw increases as high as 20 percent … Left to our own devices, I can assure you we would have never pushed rents that hard.” And in a 2021 promotional video cheering on the nation’s unprecedented 14 percent year-over-year average rent increase, RealPage executive Andrew Bowen said, “I think [Yieldstar is] driving it, quite honestly.” And yet, to blame RealPage for the fact that rents are too [darn] high may actually understate the company’s impact on the state of apartment living in America. Because as the Morningstar DBRS report—and multiple others that directly reference Yieldstar—suggests, RealPage not only raised the rent, but it baked eternal rent hyperinflation into the forecasting math of multifamily housing, fueling a dramatic plunge in underwriting standards (and attendant rise in valuations) that lined the pockets of every manner of real estate speculator in 2021 and 2022. This maneuver led to extreme blowback when interest rates—and the floating-rate interest payments owed on the thousands of apartment buildings that changed hands during those years—began to balloon. Perhaps even more insidiously, when mortgage payments rose in 2022 and landlords should have, by conventional market logic, been jumping to fill empty apartments, RealPage instead gave them the tools to extract ever-higher revenues out of powerless renters, no matter how trash-strewn, roach-infested, or crime-ridden their homes had become. ... But keeping a robust inventory of empty apartments is at the very core of the philosophy in which RealPage indoctrinates its clients, according to the class action lawsuit, in which one former RealPage pricing adviser explains that vacancies were not an “acceptable business reason” for overriding the pricing system, because “the algorithm had already taken vacancy rates into account when making its daily pricing recommendation.” A former revenue officer at Cortland Management, a large institutional landlord and longtime RealPage client whose Atlanta headquarters was raided late last month by the FBI in conjunction with the RealPage investigation, says leasing managers were expected to raise rents by at least $300 per year and were barred from offering discounts or concessions to cope with flagging occupancy outside the slowest weeks of the year.
I would be pleasantly surprised if the bolded part is true one of the groups already settled with the DOJ U.S. Expands RealPage Price-Fixing Lawsuit to Include Six Big Landlords | News | Holland & Knight Antitrust attorney David Kully was quoted in an article published by The Wall Street Journal recapping the latest developments in the federal government's lawsuit against real estate software company RealPage. The U.S. Department of Justice (DOJ) filed an amended complaint adding six major apartment landlords as defendants, alleging the companies used RealPage's pricing algorithm to engage in illegal price-fixing through sharing confidential information and artificially raising rents. The move comes weeks before President-Elect Donald Trump takes office, marking one of the last opportunities for the Biden Administration to push its regulatory agenda. However, industry professionals including Mr. Kully, who spent 18 years at the DOJ's Antitrust Division, say they don't expect antitrust enforcement to slow under the new administration. "I wouldn't expect to see a big shift in the enforcement posture," he remarked.
DOJ files amended complaint against RealPage In addition to RealPage, defendants now include six major rental investment or management companies — Greystar, LivCor, Camden, Cushman, Willow Bridge and Cortland — which operate more than 1.3 million units in 43 states and the District of Columbia, according to a news release from the DOJ. The firms used RealPage's pricing algorithms — which the agency considers to be anticompetitive — and "participated in an unlawful scheme to decrease competition among landlords in apartment pricing, harming millions of American renters," the release stated. "While Americans across the country struggled to afford housing, the landlords named in today's lawsuit shared sensitive information about rental prices and used algorithms to coordinate to keep the price of rent high," said Doha Mekki, acting assistant attorney general of the Justice Department's antitrust division. "Today's action against RealPage and six major landlords seeks to end their practice of putting profits over people and make housing more affordable for millions of people across the country," Mekki added. In addition to the new defendants, attorneys general from two more states — Illinois and Massachusetts — have joined the group of plaintiffs.
RealPage AI has spiked rents in Atlanta more than anywhere in the US - Atlanta Civic Circle The artificial intelligence-powered rent-pricing programs from RealPage boosted metro Atlantans’ monthly rents by $181 — more than in any other major US city — in 2023, according to an alarming new White House report. The property-management software company enables individual landlords — corporate or otherwise — to act as cartels in local rental markets by providing them with vast amounts of aggregated rent-price data. That allows landlords in markets like metro Atlanta to “act as if they are a single dominant landlord, and use their collective market power to increase profits by setting higher prices,” the White House Council of Economic Advisers (CEA) found., Nearly one in every four rentals nationally uses a RealPage pricing algorithm to set rates nationally, the report adds, which has prompted a Department of Justice lawsuit accusing the company of monopolizing the nation’s multifamily rental market. In metro Atlanta, that figure is even higher, the report found: Over 70% of multifamily units locally are priced based on the RealPage software’s recommendations. “Algorithmic pricing weakens competition because it can facilitate price coordination among landlords who would otherwise be competing [for tenants],” the report explains. It’s a practice that the CEA estimates cost renters at least $3.8 billion in higher rents for 2023 alone, boosting the average US renter’s monthly housing payment by $70.
Fascinating legal issue. I think the DOJ has a really strong case. The 70% usage rate for pricing in Atlanta is going to be really hard to defend. I know when we are filing HSR with the DOJ (a requirement for any merger over $120mm) their focus is always on “regional monopolies”. Very few real national monopolies exist, so the DOJ looks very closely at regional monopolies (when approving M&A at least). I think that is absolutely what they should be looking at as well. In one of the first articles above, the CEO said they only had 10% of the national market so they couldn’t exert pricing power. Completely irrelevant if 70% of Atlanta property managers are using your formula to set rent prices. No value was created in the process of using the software, no improvements to the apartments or increased service level, literally just working with your competitors to increase prices. I think they are in trouble…
That’s impossible to predict in my opinion. Just because it involves apartments and Trump owns numerous apartment buildings, I’m guessing this will one of the 2 things out of 100 that he pays attention to in a morning brief. The Holland & Knight lawyer cited in one of your WSJ articles above knows better than my guess, so hope he is correct that Trump’s DOJ won’t materially change the approach to this issue versus Biden’s DOJ.
So is the main issue that the companies were sharing non-public, proprietary, actual data on their rent prices on the website with each other? Versus the website pulling the information off of what was advertised on publicly available websites?
No, the problem is that they were all using the same software’s formula to determine rent prices and not using their knowledge of local dynamics (regardless of how they obtained it) to set prices. The software formula was universally used (70% does not equal universally but it is enough to set market prices in a major metro area like Atlanta). The software used knowledge from competing property managers to tell BOTH of those property managers how to set price. In a lot of markets all ten of the ten largest property managers used the software and made their pricing decisions based on the software’s formula which could use the data from all ten of the property managers and to tell them all to raise prices. I doubt that any property manager or the software company intended to use the “revenue optimization algorithm” to directly work with most of the other property managers in key markets to collectively set prices for the market. But that is what happened and even if they had the best of intentions at the get go, they all realize what is going on now.
