Justice Department lawsuit against RealPage forcing change in how landlords set rent prices

Less than a month has passed since the U.S. Department of Justice filed a motion antitrust lawsuit against RealPage over its revenue management algorithm, but the move has already spooked some apartment managers into changing the way they set rents.

Landlords and third-party managers are becoming increasingly sensitive to whether algorithms used to set rents are using private, proprietary data from other competitors.

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Concern over the Justice Department’s antitrust allegations against RealPage has prompted many landlords to change their pricing tactics.

Those concerns are driving a radical shift in how landlords and managers set market rents. The Justice Department accused RealPage of designing its revenue management software to help users “bypass” rental competition by relying on the “most sensitive, nonpublic” metrics of apartment performance to suggest rents.

Many multifamily companies are “moving away from RealPage products, moving away from revenue management software that uses private information, and moving away from revenue management software altogether,” said Kenneth Racowski, an antitrust attorney and partner at Holland & Knight.

The issue comes down to whether the information used to set apartment rents comes exclusively from public sources, said Racowski, who helped two multifamily companies avoid charges of price fixing using algorithm-based pricing software.

“The most conservative risk mitigation advice is to not use revenue management software that uses confidential and non-public information,” he said.

While RealPage has continued to maintain the legality of its product and defend itself against the DOJ allegations, the software company, owned by private equity firm Thoma Bravo, has stated that it will work with the DOJ to find solutions to the antitrust issues shortly after the lawsuit was filed. According to Racowski, this statement could indicate that RealPage intends to settle the allegations.

Still, fear of government prosecution is reverberating through the multifamily housing industry, forcing some companies to change the way they set rents.

Many apartment owners and managers rely on information that anyone can easily find online, on sites like Apartments.com, or by calling a telephone number to avoid suspicion of price-fixing.

Bisnow/Jarred Schenke

Shawn Geagan of Hotwire Communications, Leslie Mathis of Streamline Multifamily, Layne Spencer of Luxer One, Melissa White of Perennial Properties and Purvi Amin of Google Fiber.

Leslie Mathis, owner and founder of Streamline Multifamily, said during Bisnow During the Southeast Multifamily Summit on Sept. 17, it emerged that both rents and special offers offered by competitors can be easily found online, allowing them to set rents without relying on proprietary data.

“Some equity partners are more tolerant than others. I’ve worked with equity partners who have asked us to stop using revenue management. Others have simply asked us to use public data. And in some places, there’s been no change at all,” Mathis said.

Melissa White, chairwoman of the board of the Atlanta Apartment Association, an organization representing more than 300 companies that manage more than 415,000 apartments, said during Bisnow multifamily event that even the methods by which landlords conduct basic competitive market research are perceived as risky in connection with this.

“Something as simple as market research, which we’ve always done, is now viewed in a negative way and can impact any engagement companies have with it,” said White, a partner at Perennial Properties, an Atlanta-based mixed-use urban development firm.

“It’s definitely a topic we should all be discussing if you don’t have your priorities set for 2025 yet,” she told the audience at the event.

Businesses that rely on revenue management software may need to start adopting tactics used by companies that don’t have RealPage or Yardi software.

Moonstone Realty Group, which manages more than 500 rental units, has never used RealPage to set rents, said founder Katherine Langevin Bisnow in an interview. Langevin said other apartment operators that used software algorithms to manage revenue are instead moving to other metrics to determine rents.

“I think we lean more towards public information, rely on our own data and analyze our results throughout the year,” Langevin said.

Marissa Phipps, Chief Development Officer at The Benoit Group, said: Bisnow on Thursday that the company does not use revenue management software at properties it develops and owns that are designed for affordable tenants. Instead, the company sets rents by looking at area median income levels in the U.S. Housing and Urban Development and bank valuations.

When it comes to Benoit’s market communities, Phipps said she uses detective tactics to gather information about the competition.

“I’ve even gone so far as to pick up the phone and call other apartments. If I think the rents are higher, I call and act like a tenant,” Phipps said. “I can’t speak for others. I just know that for us, when it comes to market rates, the most accurate data is to call a real person who’s in the community. By the time the data is released in the report, it’s pretty out of date.”

Racowski said he started getting calls from multifamily clients two years ago after ProPublica exposed RealPage’s YieldStar revenue management software system. In the article, ProPublica detailed how the algorithm prompted landlords and managers to raise rents higher than they thought they could, helping to drive up rents overall in some markets.

Those concerns have only grown stronger after several states — including North Carolina, California, Tennessee and Oregon — and a group of tenants filed multiple lawsuits against Yardi and its Revenue IQ platform, as well as several apartment management companies, alleging price fixing across the United States.

Reuters reported that in February, both Apartment Income REIT Corp and Pinnacle Property Management Services, owned by Cushman & Wakefield, reached settlements in disputes with tenants who alleged they used RealPage software to artificially inflate apartment rents.

In July, the San Francisco Board of Supervisors unanimously passed an ordinance banning the sale and use of algorithmic devices to set multifamily rents or manage occupancy levels, including technology developed by RealPage, Yardi and other third-party revenue management firms.

In response, RealPage announced a feature earlier this month that allows users to remove “non-public competitor data” from results.

Racowski said investors are now asking condo sellers what methods and data they used to determine rents during due diligence. And some condo owners who use outside management firms have told those firms to stop using certain revenue management platforms to avoid using proprietary data.

Both changes are a result of the Justice Department’s antitrust action against RealPage, Racowski said.

“These cases are at the beginning of the second round,” he said. “We have a long way to go.”