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One summer day last year, a group of real estate tech executives gathered in a Nashville conference room to brag about one of their company’s signature products: software that uses a mysterious algorithm to help landlords. to impose the highest possible rents on tenants.
“Never before have we seen these numbers,” said Jay Parsons, a vice president of RealPage, as convention attendees walked past. Apartment rents had recently risen by a whopping 14.5%, he said in a video touting the company’s services. Parsons turned to his colleague and asked: What role had the software played?
“I think it’s the engine, honestly,” replied Andrew Bowen, another director of RealPage. “As a property manager, few of us would be willing to double-digit rents within a month by doing it manually.”
The celebratory comments were more than swagger. RealPage has been selling software that uses data analytics to suggest daily prices for open units for years. Real estate managers in the United States have been googling about how the company’s algorithm boosts profits.
“The great thing about YieldStar is that it forces you to go places you wouldn’t have been if you hadn’t used it,” said Kortney Balas, director of revenue management at JVM Realty, referring to RealPage’s software in a testimonial video on the company website.
The nation’s largest property management firm, Greystar, found that even in a recession, buildings using YieldStar “outperformed their markets by 4.8%,” a significant premium over competitors, RealPage said in material on its website. Greystar uses RealPage’s software to price tens of thousands of apartments.
RealPage became the nation’s dominant provider of such rent-setting software after federal regulators approved a controversial merger in 2017, a ProPublica investigation found, significantly increasing the company’s influence over apartment prices. The move helped the Texas-based firm push the customer base for its range of technical real estate services past 31,700 clients.
The impact is significant in some markets.
In a Seattle neighborhood, ProPublica found that 70% of apartments were overseen by just 10 property managers, all of whom used pricing software sold by RealPage.
To arrive at a recommended rental price, the software uses an algorithm — a set of mathematical rules — to analyze a wealth of data RealPage collects from customers, including private information about what nearby competitors are charging.
For tenants, the system puts an end to the practice of negotiating with apartment complex staff. RealPage discourages negotiation with tenants and has even recommended that landlords accept lower occupancy rates in some cases to increase rents and make more money.
One of the algorithm’s developers told ProPublica that leasing agents had “too much empathy” compared to computer-generated prices.
Apartment managers can reject the software’s suggestions, but according to former RealPage employees, as many as 90% are adopted.
The software’s design and growing reach has raised questions among real estate and legal experts as to whether RealPage has spawned a new kind of cartel that would allow the nation’s largest landlords to indirectly coordinate prices, possibly in violation of federal law. .
Experts say RealPage and its customers invite scrutiny from antitrust enforcement for a variety of reasons, including their use of private information about what competitors are charging for rent. In particular, RealPage’s creation of working groups that meet privately and with landlords who are otherwise rivals could be a red flag of potential collusion, a former federal prosecutor said.
At the very least, critics say the software’s algorithm could artificially inflate rents and stifle competition.
“Machines quickly learn that the only way to win is to drive prices above competitive levels,” said Maurice Stucke, a University of Tennessee law professor, former prosecutor in the Department of Justice’s antitrust division.
RealPage acknowledged that it feeds its customers’ internal rental data into its pricing software, giving landlords an aggregated, anonymous view of what their nearby competitors are charging.
A company representative said in an email that RealPage “uses aggregated market data from various sources in a legally compliant manner.”
The company noted that landlords who use employees to manually set prices “usually” conduct telephone surveys to monitor competitors’ rents, which the company said could lead to anticompetitive behavior.
“RealPage’s revenue management solutions prioritize a home’s own internal supply and demand dynamics over external factors such as competitors’ rents,” said a company statement, “and therefore help eliminate the risk of collusion that could occur with manual pricing. “
The statement said RealPage’s software also helps prevent rents from reaching unaffordable levels because it detects slumps in demand, such as seasonality, and can respond by lowering rents.
RealPage did not make Parsons, Bowen or the company’s current CEO, Dana Jones, available for interviews. Balas and a Greystar representative declined to comment on the YieldStar data. The National Multifamily Housing Council, an industry group, also declined to comment.
Proponents say the software does not distort the market. RealPage’s CEO told investors five years ago that even after the merger, the company wouldn’t be big enough to hurt the competition. The CEO of one of YieldStar’s early users, Ric Campo of Camden Property Trust, told ProPublica that the apartment market in his company’s home city alone is so large and diverse that “it would be hard to argue that there is any sort of price-fixing.”
