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On a summer time day final yr, a gaggle of actual property tech executives gathered at a convention corridor in Nashville to boast about one in every of their firm’s signature merchandise: software program that makes use of a mysterious algorithm to assist landlords push the best doable rents on tenants.
“By no means earlier than have we seen these numbers,” stated Jay Parsons, a vice chairman of RealPage, as conventiongoers wandered by. Condominium rents had just lately shot up by as a lot as 14.5 %, he stated in a video touting the corporate’s providers. Turning to his colleague, Parsons requested: What position had the software program performed?
“I feel it’s driving it, fairly truthfully,” answered Andrew Bowen, one other RealPage government. “As a property supervisor, only a few of us can be keen to truly elevate rents double digits inside a single month by doing it manually.”
The celebratory remarks had been greater than swagger. For years, RealPage has bought software program that makes use of information analytics to recommend every day costs for open items. Property managers throughout the US have gushed about how the corporate’s algorithm boosts income.
“The fantastic thing about YieldStar is that it pushes you to go locations that you just wouldn’t have gone when you weren’t utilizing it,” stated Kortney Balas, director of income administration at JVM Realty, referring to RealPage’s software program in a testimonial video on the corporate’s web site.
The nation’s largest property administration agency, Greystar, discovered that even in a single downturn, its buildings utilizing YieldStar “outperformed their markets by 4.8 %,” a major premium above opponents, RealPage stated in supplies on its web site. Greystar makes use of RealPage’s software program to cost tens of hundreds of residences.
RealPage grew to become the nation’s dominant supplier of such rent-setting software program after federal regulators accredited a controversial merger in 2017, a ProPublica investigation discovered, vastly increasing the corporate’s affect over condo costs. The transfer helped the Texas-based firm push the consumer base for its array of actual property tech providers previous 31,700 clients.
The influence is stark in some markets.
In a single neighborhood in Seattle, ProPublica discovered, 70 % of residences had been overseen by simply 10 property managers, each single one in every of which used pricing software program bought by RealPage.
To reach at a advisable lease, the software program deploys an algorithm—a set of mathematical guidelines—to investigate a trove of knowledge RealPage gathers from shoppers, together with personal info on what close by opponents cost.
For tenants, the system upends the observe of negotiating with condo constructing workers. RealPage discourages bargaining with renters and has even advisable that landlords in some instances settle for a decrease occupancy fee with a view to elevate rents and make more cash.
One of many algorithm’s builders informed ProPublica that leasing brokers had “an excessive amount of empathy” in comparison with computer-generated pricing.
Condominium managers can reject the software program’s options, however as many as 90 % are adopted, in keeping with former RealPage staff.
The software program’s design and rising attain have raised questions amongst actual property and authorized specialists about whether or not RealPage has birthed a brand new form of cartel that permits the nation’s largest landlords to not directly coordinate pricing, probably in violation of federal legislation.
Specialists say RealPage and its shoppers invite scrutiny from antitrust enforcers for a number of causes, together with their use of personal information on what opponents cost in lease. Particularly, RealPage’s creation of labor teams that meet privately and embrace landlords who’re in any other case rivals could possibly be a pink flag of potential collusion, a former federal prosecutor stated.
At a minimal, critics stated, the software program’s algorithm could also be artificially inflating rents and stifling competitors.
“Machines shortly be taught the one method to win is to push costs above aggressive ranges,” stated College of Tennessee legislation professor Maurice Stucke, a former prosecutor within the Justice Division’s antitrust division.
RealPage acknowledged that it feeds its shoppers’ inner lease information into its pricing software program, giving landlords an aggregated, nameless take a look at what their opponents close by are charging.
An organization consultant stated in an e-mail that RealPage “makes use of aggregated market information from a wide range of sources in a legally compliant method.”
The corporate famous that landlords who use staff to manually set costs “usually” conduct cellphone surveys to examine opponents’ rents, which the corporate says may lead to anti-competitive conduct.
“RealPage’s income administration options prioritize a property’s personal inner provide/demand dynamics over exterior components comparable to opponents’ rents,” an organization assertion stated, “and subsequently assist remove the danger of collusion that would happen with handbook pricing.”
The assertion stated RealPage’s software program additionally helps stop rents from reaching unaffordable ranges as a result of it detects drops in demand, like those who occur seasonally, and may reply to them by decreasing rents.
RealPage didn’t make Parsons, Bowen, or the corporate’s present CEO, Dana Jones, obtainable for interviews. Balas and a Greystar consultant declined to touch upon the file about YieldStar. The Nationwide Multifamily Housing Council, an trade group, additionally declined to remark.
Proponents say the software program shouldn’t be distorting the market. RealPage’s CEO informed buyers 5 years in the past that the corporate wouldn’t be sufficiently big to hurt competitors even after the merger. The CEO of one in every of YieldStar’s earliest customers, Ric Campo of Camden Property Belief, informed ProPublica that the condo market in his firm’s house metropolis alone is so massive and numerous that “it will be arduous to argue there was some form of worth fixing.”