Massachusetts Property Owners Face Lawsuits Over Pricing Algorithm

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The Justice Department, eight states and tenants allege that RealPage’s software violated antitrust laws and caused rent increases.

Author: Jim Morrison – Boston.com correspondent

September 5, 2024 | 10:55 AM

The U.S. Department of Justice and attorneys general of eight states are suing popular AI-powered property management software, accusing it of violating antitrust laws.

The Justice Department — and the states of North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee and Washington — accuse RealPage Inc. of violating the Sherman Act and harming “millions of Americans” by reducing competition among landlords in housing prices. RealPage uses the data to “maintain a monopoly in the commercial revenue management software market,” the complaint filed in North Carolina says.

“RealPage’s egregious anticompetitive conduct allows landlords to undermine fair prices and limit housing options while stifling vital competition,” Acting Assistant Attorney General Benjamin C. Mizer said in an Aug. 23 press release announcing the action. “The department remains committed to rooting out illegal schemes and practices that are designed to advance corporate interests at the expense of consumers.”

More than 30 cases against RealPage accusing the company of violating antitrust laws have been consolidated in federal court, Bisnow reported.

A ProPublica investigation found that rents in buildings using AIRM software from RealPage (formerly YieldStar) have skyrocketed in some markets across the country. At issue is the Lease Rent Option, which collects confidential rent data from landlords, analyzes it, and uses it to suggest new rents to other customers. The ProPublica article, published in October 2022, quoted Boston landlord Kaylee Hutchinson, who faced a 6.5 percent rent increase during the COVID-19 pandemic, a time of urban exodus when units in her building sat empty.

Citing housing industry experts, National Public Radio reported on August 23 that “in some markets across the country, half or more of all landlords use RealPage’s pricing algorithm.”

RealPage posted a six-page response to the allegations on its website, arguing that its management software offers prospective residents and housing providers more options and flexibility in terms of lease terms, helps comply with Fair Housing Laws… does not use any personal or demographic information to generate rental price recommendations and helps ensure prospective residents have access to the best prices available to all.” It claims that landlords set their own prices and that the acceptance rates of those recommendations “have been greatly exaggerated.”

A RealPage spokesperson declined to provide a list of the company’s clients in Massachusetts, but said in an email: “In Boston, AIRM/YieldStar market penetration is just 8.0% and LRO (Lease Rent Option) market penetration is just 5.1%. AIRM/YieldStar client acceptance rates are less than 50%.”

Tenants and prospective tenants in Massachusetts have no way of knowing whether their landlords are using the software and lease option feature. Some tenants have filed their own lawsuits against RealPage.

Some of RealPage’s Massachusetts customers are named in the lawsuits.

WinnResidential Manager Corp. — a company that, according to a map on its website, owns 18 apartments in Massachusetts — is named in the lawsuit.

“WinnCompanies does not use this revenue management software anywhere in the country and has not done so for almost a year,” a spokesperson for the developer wrote. “The company denies the allegations in this lawsuit and currently argues that it should be removed from the proceedings. It is important to note that, unlike the other defendants named in this lawsuit, 90 percent of the apartments managed by WinnResidential are income- or rent-restricted, meaning rents are set based on household income and thresholds set annually by the government.”

Equity Residential, which owns 25 rental properties in Massachusetts, was also named but did not respond to the Globe’s request for comment.

Bell Partners Inc. and Lincoln Property Co. have properties in Massachusetts and are named in the lawsuits. Neither responded to requests for comment.

Avalon Bay, which has 35 properties in Massachusetts, uses the software but not Lease Rent Option. In a second-quarter earnings call, the company said it had been removed from the consolidated lawsuits, Bisnow reported Aug. 10.

All entities named in the lawsuits disputed the allegations.

Doug Quattrochi, executive director of trade group Mass Landlords, said his organization “doesn’t talk about what our rents are. We don’t ask people to report their finances to us, although that would be incredibly interesting.”

Tenants are already at a disadvantage in the current market because the market favors landlords. Real estate attorney Richard D. Vetstein of the Vetstein Law Group in Framingham said there is little tenants can do when a landlord raises rent.

“You rarely see it, but every once in a while, a tenant will negotiate a limit on how high their renewal increases can be before they sign the lease,” Vetstein said. “But that’s very, very rare because landlords don’t want to be locked into what is essentially rent control, especially in this market.”

Besides, he added, a tenant facing a significant increase has only one option.

“Don’t renew your contract and don’t move elsewhere,” he said.

Jim Morrison can be contacted at (email protected). Follow him on X @jimmorrison617.