A group of US tenants says their landlords are using software to offer inflated rent increases.
“We’ve been told as tenants by Equity employees that the software takes empathy out of the equation. So they can charge whatever the software tells them to charge,” said Kevin Weller, a Portside Towers tenant since 2021.
Tenants say the management started raising prices significantly after giving tenants concessions during the Covid-19 pandemic.
The 527-unit building is located approximately 20 minutes from the World Trade Center on the Jersey City, New Jersey waterfront. A group of tenants in the tower is embroiled in a sprawling class-action lawsuit against RealPage and 34 co-defendant landlords. The US Department of Justice filed a declaration of interest in the case in December 2023, arguing that the complaints sufficiently allege violations of the Sherman Antitrust Act.
In November 2023, the Washington, DC, attorney general filed a similar but more limited complaint against RealPage and 14 landlords who collectively manage more than 50,000 apartment units in the District.
“Essentially, RealPage is facilitating a housing cartel,” District of Columbia Attorney General Brian Schwalb said in an interview with CNBC. His office filed the complaint on antitrust grounds. They allege that landlords share competitively sensitive data through RealPage, which then sets artificially high rents in a key part of the local rental market.
Office of the Attorney General for the District of Columbia, November 2023
“Instead of making independent decisions about what the market here in DC demands in terms of filling vacant units, landlords are required, under the terms of their agreement with RealPage, to charge what RealPage tells them to,” said Schwalb.
RealPage says its revenue management products use anonymous, aggregated data to provide pricing recommendations to approximately 4.5 million U.S. residential units. The company says its tools can increase owners’ revenue by between 2% and 7%.
“Just turning the system on will outperform your manual analyzer. There’s almost no way it won’t,” said Jeffrey Roper, former RealPage employee and inventor of YieldStar.
YieldStar is one of three core revenue management tools offered by RealPage. The software balances rates, occupancy and lease duration to help property managers optimize their portfolio performance. The company feeds data from its models into a newer tool called “AIRM” which examines the effect of credit, marketing and leasing efficiency.
RealPage told CNBC that its owner customers are not obligated to take their price suggestions. The company also said it charges a flat fee for each apartment unit it manages with its software.
RealPage was acquired by Miami-based private equity firm Thoma Bravo for $10.2 billion in 2021. court filingsThoma Bravo has claimed that it is not liable for the alleged acts of its subsidiary described by the plaintiffs in the class action complaints.
The tenants told CNBC that they discovered how the revenue management software was being used in the properties after reading a 2022 ProPublica investigation. Housing investor stock materials show the company began experimenting with Leasehold Options between 2005 and 2008. RealPage acquired the product in 2017.
“How could we know?” said Harry Gural, a tenant at an Equity Residential property located in the Van Ness neighborhood of Washington, D.C. Gural says he has been involved in legal issues against his landlord’s pricing practices more than seven years.
Affiliates of Equity Residential are challenging a separate decision made by a local housing authority in Jersey City regarding prices set on the Portside Towers property. The company has filed a lawsuit in federal court challenging the decision, saying the ruling could result in millions of dollars in refunds for tenants.
Equity Residential and other defendant landlords declined to comment on RealPage’s ongoing litigation.
Redfin reports that rental demand in the U.S $1,964 per month in December 2023, down from recent highs. Prices are falling in markets like Atlanta and Austin, Texas, where home construction is high. But analysts believe low homebuilding rates on the US East Coast could give well-located landlords more pricing power.
“People like us who have 80,000 well-located apartments, we’re still in a very good spot,” Equity Residential CEO Mark Parrell said in a June 2023 interview with CNBC.
Watch it video above to learn about the growing wave of lawsuits against US business owners.
CORRECTION: An earlier version of this article was incorrect when Equity Residential bought Portside Towers.