FILE PHOTO
Imagine a system in which your city’s major landlords work together to raise rents, using detailed, otherwise confidential information about their competitors’ prices.
Such a scheme is already underway, according to a series of lawsuits filed by renters and prosecutors across the country. Plaintiffs argue that apartment owners are using real estate software from a company called RealPage to hike up rents.
Through the Texas company’s YieldStar product, the plaintiffs say, landlords share data on rental prices and occupancy rates – information that the company runs through algorithms to spit out suggestions about how much landlords should charge their tenants. Those numbers are often higher than they would be in a competitive market.
In the vast majority of cases, landlords accept the suggested prices and pass the costs on to tenants, the plaintiffs claim. RealPage, owned by private equity firm Thoma Bravo, promotes its software to landlords as a tool that allows them to beat the market by 3 to 7 percent.
RealPage has denied that its software facilitates collusion. In a statement on its website in June, the company blamed the nationwide rent increases on “a series of complex economic and political forces,” including an undersupply of rental apartments.
A company spokeswoman, Jennifer Bowcock, said by email that the lawsuits are based on a fundamental misunderstanding of how revenue management software works. The software often recommends rent reductions, she added.
The use of RealPage’s software to set rents was the subject of a ProPublica investigation in 2022. Antitrust experts say the allegations in the lawsuits, if proven true, paint a clear picture of violations of federal antitrust law, which prohibits price-fixing among competitors.
“There is a growing view that this sharing of confidential business information raises significant competition concerns,” said Peter Carstensen, a professor emeritus at the University of Wisconsin who specializes in antitrust and competition policy. The use of algorithmic software, he added, “speeds up coordination and allows many more players with really good information to coordinate.”
The legal battles come after a period in which rent increases have caused unusually high inflation. Annual rent growth peaked at nearly 16% nationwide in early 2022, according to Zillow data.
The pressure on RealPage began in late 2022 with lawsuits on behalf of renters in cities such as Seattle, Albuquerque, New Mexico, and Austin, Texas, seeking class action litigation. Then-District of Columbia Attorney General Brian Schwalb sued the company and 14 of the district’s largest landlords, the first such lawsuit by a public agency.
The Justice Department has not taken legal action against the company, but its antitrust division filed a brief in November in support of the tenants’ lawsuit, underscoring the federal authorities’ interest in the issue and their position that using an algorithm to set prices is unlawful.
Property owners and managers use RealPage’s software “with the express and common goal of raising rents,” tenants’ lawyers allege in a lawsuit filed in federal court in Tennessee, where several cases were consolidated last year. RealPage, they claim, effectively enforces compliance with the software’s recommended rates and requires approval to deviate from the recommended rate.
A leasing manager cited in the lawsuit reported that rents for the building’s standard two-bedroom apartments were raised by about 27% when her property began using RealPage in 2021, with no improvements. That’s well above average annual rent increases in metropolitan areas, which are typically in the single digits.
RealPage customers publicly attribute revenue increases to the software. According to RealPage’s website, the former CEO of Texas-based property management company Pinnacle said his company’s revenue increased 4 percent at the height of a recession in 2009.
“The tool has honestly really helped us get through this, not just as a company but as an industry,” said Rick Graf, the Pinnacle executive, in the video on the website. A spokesman for Pinnacle’s parent company declined to comment.
The District of Columbia’s lawsuit, filed in November, revealed the ubiquity of RealPage’s software: In the district, about 60 percent of housing units in large buildings are priced using the software, the lawsuit says. In the Washington metropolitan area, that number rises to 90 percent.
“It’s a housing cartel, and that housing cartel is causing the already high market rents in our city to rise even further,” Schwalb, the district attorney general, said in an interview.
According to the National Multifamily Housing Council, the landlords against whom Schwalb’s law firm filed suit included Greystar, the largest apartment owner in the United States.
Greystar did not respond to a request for comment.
After the District of Columbia filed its lawsuit, Attorney General Kris Mayes of Arizona did the same in February, accusing RealPage and nine landlords of illegally conspiring to raise rents for hundreds of thousands of tenants in the Phoenix and Tucson areas. In March, Attorney General Josh Stein of North Carolina opened an antitrust investigation into RealPage.
And the Justice Department has hinted at a broader review of large landlords beyond its statement on the tenant lawsuits. In May, the FBI executed a limited search warrant at the Atlanta headquarters of property management firm Cortland in connection with a Justice Department investigation into possible antitrust violations in the multifamily housing industry.
“We are fully cooperating with this investigation and are clear that neither Cortland nor any of our employees are ‘targets’ of this investigation,” the company said. Cortland is a defendant in the tenants’ lawsuit, but it is unclear if and how the RealPage software will factor into the federal investigation.
A representative of the Justice Department declined to comment.
The government has a legal advantage over private lawyers: It can use civil warrants to “take a closer look” at RealPage’s software and analyze how the algorithm works before going to court, says Sandeep Vaheesan, legal director at the Open Markets Institute, a research and advocacy group that focuses on antitrust issues.
Bowcock said property managers find RealPage’s software “valuable.” But there are signs that some clients are worried about the legal pitfalls. In February, Pinnacle and another multifamily property owner named as defendants in the suit in federal court in Tennessee agreed to settle claims in the lawsuit that they used RealPage’s software to inflate rent prices.
Although a federal judge in Tennessee allowed the tenants’ lawsuit to proceed, none of the pending cases have yet come to trial. To succeed, the tenants must present enough evidence of collusion through RealPage’s software to convince the courts to deem the information sharing illegal.
Some antitrust lawyers believe that these facts need to be clarified and examined in court.
“We are currently fighting on a hypothetical battlefield,” said Douglas Ross, who teaches antitrust law at the University of Washington.
