Legal pressure is mounting on a property-management software company facing allegations that it illegally fixes apartment rent prices at buildings across the U.S.
State and district attorneys general in Arizona and Washington, D.C., are suing RealPage, and more than a dozen of its landlord customers. North Carolina’s attorney general is also investigating whether the company’s technology breaks antitrust laws.
The Justice Department in November said a civil lawsuit in Tennessee alleging that RealPage illegally fixes rents should go forward. Justice officials have been considering their own civil enforcement action and opened a criminal investigation into the company, according to people familiar with the matter.
The department is investigating whether RealPage is facilitating price-fixing, these people said.
RealPage’s algorithmic pricing system analyzes huge troves of information about the apartment rental market. It then recommends to landlords how much to increase rent for each lease renewal, or what to ask for newly vacated apartments.
At issue is whether the use of this pricing system amounts to an illegal rent-setting cartel among landlords, artificially boosting the rents paid by apartment tenants over many years.
RealPage denies any wrongdoing.
The legal heat on RealPage and apartment building owners is part of a government effort to police business practices it deems anticompetitive and that result in higher prices for consumers.
The Justice Department and Federal Trade Commission have brought antitrust charges against tech companies such as Amazon and Google, while pursuing price-fixing cases in more obscure corners of the American economy, such as poultry processing and vehicle exporting.
But President Biden has made rental building owners a particular focus. “We’re cracking down on big landlords who break antitrust laws by price-fixing and driving up rents,” he said last month during his State of the Union address.
In the U.S. Senate, meanwhile, Sen. Ron Wyden (D., Ore.) introduced the Preventing the Algorithmic Facilitation of Rental Housing Cartels Act in January.
Any rulings against RealPage could have legal ramifications for other business sectors, such as online retail, where companies also use algorithms to make pricing decisions.
Wider business implications
“The amount that this could impact consumers, you’re looking at billions of dollars potentially,” said Maurice Stucke, a former federal antitrust prosecutor and a law professor at the University of Tennessee, Knoxville.
Arizona Attorney General Kris Mayes alleges that, in Phoenix and Tucson, RealPage pooled nonpublic pricing data from competing building owners, then fed the data into an algorithm that told landlords to push rents higher than they might have otherwise. RealPage then discouraged landlords from deviating from the algorithm’s suggested rents, according to the attorney general’s filing.
“There is no competitive rental market in Arizona anymore, ” Mayes said in an interview. “Because RealPage sets the price.”
In a statement, a RealPage spokeswoman said its pricing systems were designed to be compliant with federal laws.
Any nonpublic rent data, RealPage said, isn’t tied to any particular firm and plays a secondary role in determining rents. The company said its algorithms sometimes recommend lowering rents.
“A severe shortage of supply in the rental market has led to rising housing costs,” the spokeswoman said, “not the use of revenue management software.”
Texas-based RealPage was founded in 1998. It acquired the YieldStar pricing platform from publicly traded landlord Camden Property Trust in 2002. Private-equity firm Thoma Bravo purchased RealPage in 2021 for nearly $10 billion.
RealPage’s legal troubles began with more than two dozen class-action lawsuits brought by renters from Seattle to New Jersey. Other tenants have since sued a competing software firm, Yardi Systems, making similar allegations, which Yardi also denies. The lawsuits seek monetary damages for renters.
Federal charges could prove disastrous not only for RealPage but also for the many landlords and property managers who use its technology. That includes some of the largest real-estate companies on Wall Street.
Publicly traded apartment owners, such as Equity Residential and UDR, are among the companies named in the complaint brought by the Washington, D.C., attorney general. Equity, UDR and other landlords have denied participating in a rent-setting cartel.
It is unclear which landlords the Justice Department might be targeting in its investigation. RealPage said its software is used to price about 4.5 million rental apartments nationwide.
Landlords pulling the plug?
RealPage’s assurances that its technology complies with federal laws might not ease the fears of property owners open to litigation. Some apartment developers are now weighing the new risks of using the technology at recently constructed buildings, said Parker Miller, an antitrust attorney representing corporate clients at the Alston & Bird law firm.
“We are certainly advising clients to be prepared for a world without RealPage-style revenue management,” he said.
In a class-action lawsuit brought by tenants in Tennessee, three real-estate companies recently made preliminary settlement agreements, though the terms aren’t yet public. Another large property firm, publicly traded AvalonBay Communities, was dropped from the lawsuit because its contract with RealPage had prohibited the use of nonpublic pricing data.
In Colorado, a state bill would ban landlords from using certain algorithmic pricing systems to set rents. Drew Hamrick, general counsel for the Apartment Association of Metro Denver, a landlord group, says he could see a compromise in which software companies would make the same information they use to set rents available to prospective tenants.
“You’ve got a situation where the housing provider has more sophisticated information about real-time pricing than does the consumer,” Hamrick said. “Disproportionate information is not good for a free market.”