By Carlos Waters—
CNBC
A group of tenants in the United States claimed that their landlords use software to set inflated rents.
“As tenants, Equity employees have told us that
the software takes empathy out of the equation.
So they can charge whatever I tell them,” said Kevin Weller, a resident of Portside Towers since 2021.
Tenants claimed that property owners began raising prices substantially after giving them certain concessions during the pandemic.
A 'for rent' sign on a building in Hollywood, California.Robyn Beck / AFP via Getty Images file
The 527-unit building is located about 20 minutes from the World Trade Center on the coast of Jersey City, New Jersey.
The tenant group filed a class-action lawsuit against RealPage,
a property management technology company, and 34 other landlords.
The United States Department of Justice released a statement of interest in the case in December 2023, arguing that the complaints adequately alleged violations of the Sherman Antitrust Act.
In November 2023, the attorney general of Washington, D.C., filed a similar, but more limited, complaint against RealPage and 14 landlords who collectively manage more than 50,000 apartments in the district.
“Effectively, RealPage is facilitating a real estate cartel,” said the Attorney General of the District of Columbia, Brian Schwalb, in an interview with CNBC.
His office filed the complaint on antitrust grounds, alleging that landlords share competitively sensitive data through the company, which then sets artificially high rents in a key portion of the local market.
“Instead of making independent decisions about what the market here in DC is asking to fill vacant units, landlords are forced, under the terms of their agreement with RealPage, to charge what RealPage tells them,” Schwalb said. .
RealPage said its revenue management products use anonymized, aggregated data to provide price recommendations on about 4.5 million homes in the country.
The company indicated that its tools can increase owners' income by 2% to 7%.
“Just by turning on the system, you will outperform your manual analyst.
It's almost impossible not to,” said Jeffrey Roper, former RealPage employee and inventor of YieldStar.
YieldStar is one of three key revenue management tools offered by RealPage.
The program balances pricing, occupancy and lease lengths to help property managers optimize their portfolio performance.
The company feeds data from its models into another newer tool called “AIRM,” which takes into account the effect of credit, marketing and income efficiency.
RealPage told CNBC that its landlord clients are not obligated to accept its pricing suggestions.
The company also said it charges a flat fee for each apartment managed with its software.
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RealPage was acquired in 2021 by Miami-based venture capital firm Thoma Bravo for $10.2 billion.
In court filings, Thoma Bravo has asserted that it is not responsible for the alleged acts of its subsidiary outlined by plaintiffs in the class-action complaints.
Tenants told CNBC that they discovered how income management software is used in real estate after reading a 2022 ProPublica investigation. Investor materials from Equity Residential showed that the company began experimenting with Lease Rent Options among 2005 and 2008. RealPage acquired the product in 2017.
“How would we know?” asked Harry Gural, a tenant at an Equity Residential property in the Van Ness neighborhood of Washington, D.C. Gural explained that he has been involved in legal issues against his landlord's pricing practices. for more than seven years.
Equity Residential affiliates challenged another decision made by a Jersey City local housing authority regarding pricing at the Portside Towers property.
The company filed a lawsuit in federal court challenging the move, saying it could result in millions of dollars in refunds to tenants.
Equity Residential and other defendant landlords declined to comment on RealPage's ongoing litigation.
Redfin reports that asking rents in the US fell to $1,964 per month in December 2023, down from recent highs.
Prices are falling in markets like Atlanta and Austin, Texas, where housing construction is high.
But analysts believe low home construction rates on the country's East Coast could give well-located homeowners more pricing power.
“Guys like us, who own 80,000 well-located apartments, are still in a pretty good situation,” said Equity Residential CEO Mark Parrell in an interview with CNBC in June 2023.