Last month, the FBI reportedly conducted an unannounced raid of Cortland Management, a major corporate landlord based in Atlanta. The surprise search appears to be part of a Department of Justice criminal investigation, first reported by Politico in March, into an alleged scheme among many corporate landlords to artificially increase rents through collusion.
The investigation centers around the use of RealPage, advanced property management software used by many corporate landlords. Following a 2022 exposé by ProPublica, RealPage and landlords that use the software have been named defendants in multiple class action lawsuits, as well as actions filed by the Attorneys General of Arizona and Washington, DC.
According to the lawsuit filed by the State of Arizona in February, landlords that are supposed to be in competition with each other "outsource daily pricing and ongoing revenue oversight" to RealPage. The company allegedly facilitates and encourages landlords to work cooperatively to increase rents. An e-book produced by RealPage says that the company allows corporate landlords who are “technically competitors” to "work together . . . to make us all more successful in our pricing." RealPage bragged that landlords that use its software “continually outpace the market in good times and bad.” In other words, RealPage helps landlords charge higher rates than they would in a truly competitive market. An executive for Camden Property Trust, a corporate landlord based in Houston, said deploying RealPage's software resulted in "pushing people out" with higher rents but ultimately increased revenue by $10 million.
Mentions RealPage
It all began with the new world of aviation that followed the Airline Deregulation Act, signed into law in 1978 by President Jimmy Carter. By gutting the Civil Aeronautics Board, which had tightly managed airlines, Carter did away with a slew of regulations, including price controls capping airfares.
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The airlines reorganized an existing quasi-independent service they owned called the Airline Tariff Publishing Company (ATPCO), headquartered near Dulles Airport outside of Washington, D.C. By today’s standards, ATPCO wasn’t especially high-tech, but it essentially functioned as a clearinghouse to share information across the industry, helping airlines to set airfares. Weeks in advance, airlines would send ATPCO scheduled airfares along with detailed route information, seat numbers, and discount loyalty offers. None of this was public information. ATPCO in turn compiled this data and made it available to other airlines, so they could respond accordingly.
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In hindsight, by not enforcing major penalties or banning ATPCO entirely, the DOJ effectively greenlit conduct that its own legal team deemed unlawful. Other actors across the economy took the hint and a proliferation of third-party price-fixing schemes sprung up, now seen in housing, agriculture, hospitality, and even health care.
These new pricing intermediaries are similar to ATPCO, but don’t just act as information exchanges between competitors. They actually set the prices for an entire industry by using machine-learning algorithms and artificial intelligence, which are programmed to maximize profits. To arrive at optimal prices, these software applications aggregate vast amounts of relevant market data, some of which is public and much of which is competitively sensitive information given to them by their clients.
Each algorithmic scheme has its own distinct features, but they all share the same underlying philosophy: Competing on price in an open market is a race to the bottom, so why not instead coordinate together to grow industry’s profits? In other words, it’s another version of the notorious Peter Thiel adage that “competition is for losers.”
On a summer day last year, a group of real estate tech executives gathered at a conference hall in Nashville to boast about one of their company’s signature products: software that uses a mysterious algorithm to help landlords push the highest possible rents on tenants.
“Never before have we seen these numbers,” said Jay Parsons, a vice president of RealPage, as conventiongoers wandered by. Apartment rents had recently shot up by as much as 14.5%, he said in a video touting the company’s services. Turning to his colleague, Parsons asked: What role had the software played?
“I think it’s driving it, quite honestly,” answered Andrew Bowen, another RealPage executive. “As a property manager, very few of us would be willing to actually raise rents double digits within a single month by doing it manually.”
RealPage software is used to set rental prices on 4.5 million housing units in the U.S. A series of lawsuits allege that a group of landlords are sharing sensitive data with RealPage, which then artificially inflates rents. The complaints surface as housing supply in the U.S. lags behind demand. Some of the defendant landlords report high occupancy within their buildings, alongside strong jobs growth in their operating regions and slow home construction.