RealPage accused of colluding with landlords to raise rents — ProPublica

A Texas-based real estate technology company is facing a new barrage of questions about whether its software helps landlords coordinate rental prices in violation of antitrust laws.

Seventeen Democratic members of the U.S. House of Representatives sent a letter Monday to the Justice Department and the Federal Trade Commission asking the agencies to investigate RealPage’s rent-setting software. In an October 15 post, ProPublica detailed how RealPage’s pricing algorithm uses competitor data offer daily new prices for available apartments.

In the letterReps. Jesús “Chuy” García and Jan Schakowsky, both of Illinois, and other Democratic leaders said if big property managers and RealPage form a cartel to artificially inflate rents and reduce the supply of apartments , they could face “potential criminal prosecution”. ”

Representatives noted that RealPage became dominant in the industry after buying its biggest competitor in 2017. The Justice Department reviewed the merger but allowed it to proceed.

“Our constituents cannot afford to have anti-competitive – and potentially illegal in themselves – practices that drive up the prices of essential goods and services at a time when a full-time minimum wage salary does not provide enough money. to a worker to rent a two-bedroom apartment. apartment in any city in the country,” they said.

A major driver of inflation, U.S. median asking rents rose 18% year-over-year this spring, before the rate of growth slowed this fall, according to a study by real estate firm Redfin. This happened, the representatives noted, after the 10 largest publicly listed apartment companies saw profits increase by more than 50% last year, nearly $5 billion.

The Justice Department and the Federal Trade Commission did not respond to requests for comment.

The letter to the House adds to growing legal and regulatory pressure on RealPage. US Senator Sherrod Brown recently sent a similar request to the FTC requesting a review of company practices. Last month, the tenants lodged a complaint in San Diego alleging the company facilitated collusion between nine of the nation’s largest property managers. Two other lawsuits have since been filed. All are seeking class action status.

A lawsuit filed Friday on behalf of two Seattle tenants alleges a wide range of collusive behavior by RealPage and a group of top 10 property managers.

He says that in addition to using RealPage software to inflate rents in downtown Seattle, property managers were asking employees to regularly call competitors for detailed, non-public information about what they were charging – why employees would change their prices. The lawsuit cited what he said was a former employee of Greystar, the nation’s largest property management company.

“You would call the competition in the area,” the former employee said, according to the lawsuit. “Sometimes there was a list of 10 people to call. Sometimes just one. You ask what they charge for their apartments. Then you would literally change the prices on RealPage. Raise it manually.

“It was price-fixing,” the employee continued, according to the lawsuit. “How else can you call it when you literally call your competitors and change your rate based on what they say?”

The lawsuit cited another former Greystar employee who described making similar calls in Seattle. The worker said someone from another property manager called for price information two or three times a day, and added, “If someone called me for numbers, I would tell them, then I would turn around and say, “Now it’s your turn.” . What are your numbers? »

The lawsuit said publicly available data showed advertised rates for properties offered by defendants in the lawsuit in the Seattle area were “consistently higher” than those of non-defendants.

Greystar and nine other companies named in the lawsuit did not immediately respond to requests for comment.

ProPublica found that RealPage’s pricing software was widely used in downtown Seattle, where rents have risen sharply in recent years. In one neighborhood, ProPublica found that 70% of apartments were overseen by just 10 property managers, each of whom used RealPage’s pricing software.

Another lawsuit, filed by the same group of lawyers earlier this month in US District Court in Seattle, accused RealPage of helping owners engage in anti-competitive behavior in the student housing market.

This lawsuit alleges that a University of Washington student paid higher rents due to collusion between landlords using RealPage software.

The lawsuit names some of the world’s largest real estate companies, including Greystar and Cushman & Wakefield, as defendants. He accuses them of artificially inflating rents in college towns like Seattle; Eugene, Oregon; Tucson, Ariz.; Salt Lake City, Utah; Ann Arbor, Michigan; Columbus, Ohio; and Gainesville, Florida.

A spokesperson for Cushman & Wakefield, which also owns another company named in the lawsuit, declined to comment.

In response to the San Diego lawsuit alleging collusion, a representative for RealPage said the company “strongly denies the allegations and will vigorously defend itself against the lawsuit.” RealPage said the company “uses aggregated market data from various sources in a lawful manner.” RealPage did not immediately respond to a request for comment on the new lawsuits and the letter from Congress.

RealPage has previously said its revenue management software prioritizes a property’s internal supply and demand dynamics over external factors such as competitors’ rents. In an earlier statement, the company said its software helps eliminate the risk of collusion that could arise with manual pricing involving telephone surveys of competitors’ prices.

RealPage’s software uses an algorithm to sift through a wealth of data to suggest rental prices. The software not only uses information about the price of the apartment and the property where it is located, but also private data about the rents of nearby competitors. The software considers the actual rents paid to those rivals, not just what they advertise, the company told ProPublica.

ProPublica’s investigation found that the software’s design and scope have raised questions among experts about whether it helps the nation’s largest landlords indirectly coordinate pricing — potentially in violation of federal law.

Six other companies named in the student housing lawsuit did not immediately respond to requests for comment. One could not be reached.

The lawsuit alleges that before property managers began using RealPage’s software around 2009, the student housing market in the United States was competitive, with landlords offering concessions and freebies as incentives. He says RealPage has called such maneuvers leaving “money on the table”.

With the software, landlords in the highly concentrated student accommodation market found they could set a “prime price,” the lawsuit says. He adds that the company claims to have a comprehensive dataset that includes key performance indicators for nearly 1,000 universities. YieldStar Student, a pricing software designed for student housing, served more than 50 customers in 2019, the company said, according to the lawsuit.

Customers submit detailed internal data to RealPage about the rent they charge for each unit, the lawsuit says, citing the company. The company’s software recommends a price for each unit, he says, giving owners “the courage to charge an inflated price with the implicit assurance that all of their competitors were doing the same.”

ProPublica previously reported that RealPage said its software helped customers outperform the market by 3-7%.

The lawsuit said collusion between property managers using the software eliminated the need for discounts or lower rental prices even at the start of the school year – traditionally a time when competition for student tenants is fiercest.

“Even though some beds remained empty, the monopoly rents that RealPage helped extract from the rented units justified the unrented units,” the lawsuit states.

Once RealPage was widely adopted by student housing providers, according to the lawsuit, landlords shifted “from the old competitive ‘market share over price’ strategy to a collusive new ‘price over volume’ strategy.”

Pushing prices on volume “is characteristic of a cartelized market,” the lawsuit states.

The new strategy raised prices regardless of market conditions and asked landlords to tolerate some unrented units, the lawsuit said — an approach that would fail in a competitive market.

“In the marketplace created by RealPage and the lessors, each lessor had mutual assurance that the other lessors would also keep prices high, leaving students with no choice but to pay what the lessors demanded,” the lawsuit states.

A study of 2017-2018 data by RealPage and defendant Campus Advantage found that a 576-bed resort outperformed its market by 14.1%, despite a “negative” year-over-year occupancy change. another, the lawsuit says. He adds: “RealPage advised landlords and potential clients: ‘If you want to outperform the market term after term, focus less on occupancy and more on strategic lease pricing.’ “”

In a statement emailed to ProPublica, Campus Advantage said it “strongly disagrees with the unsubstantiated allegations in the lawsuit and intends to vigorously defend itself against these allegations. Campus Advantage is proud of its track record of building thriving communities.”

The lawsuit says the defendants had the opportunity to conspire through RealPage’s User Group forum, which is made up of customers who want to work together to help the company improve its products, as well as at other functions. RealPage and industry trade association meetings.

RealPage advisers are also said to be in regular contact with the owners “to update them on their competition,” according to the lawsuit.

RealPage’s actions were not widely known, according to the lawsuit. “It was only after the recent publication in October 2022 of an article in ProPublica that there was a complete presentation of the set of confidential services that RealPage provides to its customers in the real estate sector,” it indicates. -he.