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On a summer time day final yr, a bunch 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,” mentioned Jay Parsons, a vp of RealPage, as conventiongoers wandered by. Condominium rents had lately shot up by as a lot as 14.5 %, he mentioned in a video touting the corporate’s companies. Turning to his colleague, Parsons requested: What position had the software program performed?
“I believe it’s driving it, fairly actually,” answered Andrew Bowen, one other RealPage govt. “As a property supervisor, only a few of us can be prepared to truly increase rents double digits inside a single month by doing it manually.”
The celebratory remarks have been greater than swagger. For years, RealPage has offered software program that makes use of information analytics to recommend each day costs for open models. Property managers throughout america have gushed about how the corporate’s algorithm boosts earnings.
“The fantastic thing about YieldStar is that it pushes you to go locations that you simply wouldn’t have gone in the event you weren’t utilizing it,” mentioned 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 big premium above rivals, RealPage mentioned in supplies on its web site. Greystar makes use of RealPage’s software program to price tens of thousands of apartments.
RealPage grew to become the nation’s dominant supplier of such rent-setting software program after federal regulators accepted a controversial merger in 2017, a ProPublica investigation discovered, enormously increasing the corporate’s affect over condo costs. The transfer helped the Texas-based firm push the shopper base for its array of actual property tech companies previous 31,700 prospects.
The affect is stark in some markets.
In a single neighborhood in Seattle, ProPublica discovered, 70 % of flats have been overseen by simply 10 property managers, each single one in every of which used pricing software program offered by RealPage.
To reach at a beneficial lease, the software program deploys an algorithm—a set of mathematical guidelines—to research a trove of information RealPage gathers from purchasers, together with personal info on what close by rivals cost.
For tenants, the system upends the apply of negotiating with condo constructing workers. RealPage discourages bargaining with renters and has even beneficial that landlords in some circumstances settle for a decrease occupancy fee to be able to increase rents and earn more money.
One of many algorithm’s builders advised ProPublica that leasing brokers had “an excessive amount of empathy” in comparison with computer-generated pricing.
Condominium managers can reject the software program’s strategies, however as many as 90 % are adopted, in line with former RealPage workers.
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 sort of cartel that enables the nation’s largest landlords to not directly coordinate pricing, probably in violation of federal legislation.
Consultants say RealPage and its purchasers invite scrutiny from antitrust enforcers for a number of causes, together with their use of personal information on what rivals cost in lease. Specifically, RealPage’s creation of labor teams that meet privately and embody landlords who’re in any other case rivals might be a crimson flag of potential collusion, a former federal prosecutor mentioned.
At a minimal, critics mentioned, the software program’s algorithm could also be artificially inflating rents and stifling competitors.
“Machines rapidly be taught the one technique to win is to push costs above aggressive ranges,” mentioned College of Tennessee legislation professor Maurice Stucke, a former prosecutor within the Justice Division’s antitrust division.
RealPage acknowledged that it feeds its purchasers’ inner lease information into its pricing software program, giving landlords an aggregated, nameless have a look at what their rivals close by are charging.
An organization consultant mentioned in an electronic 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 workers to manually set costs “sometimes” conduct telephone surveys to verify rivals’ 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 elements reminiscent of rivals’ rents,” a company statement mentioned, “and due to this fact assist remove the danger of collusion that might happen with guide pricing.”
The assertion mentioned RealPage’s software program additionally helps stop rents from reaching unaffordable ranges as a result of it detects drops in demand, like people who occur seasonally, and may reply to them by reducing 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 just isn’t distorting the market. RealPage’s CEO advised traders 5 years in the past that the corporate wouldn’t be large enough to hurt competitors even after the merger. The CEO of one in every of YieldStar’s earliest customers, Ric Campo of Camden Property Belief, advised ProPublica that the condo market in his firm’s house metropolis alone is so huge and various that “it might be arduous to argue there was some sort of value fixing.”
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