The average rent in the
United States across all forms of housing, is over
$1,950 a month. Prices are falling in the
west and south, but still rising in the midwest and
northeast. When we moved here, it was
around $4,000. In 2023, it's over
$6,700. We were going to get a 23%
increase, which we felt was like an eviction
notice. It was an eviction notice. Experts say the U.S. needs to build over 4
million new apartment homes by 2035 to keep
pace with demand. Otherwise, the pricing
power of landlords may grow. There's not enough housing
in the U.S., so guys like us that own 80,000
well-located apartments, we're still in a pretty
good spot. A group of large landlords
is now being sued for their approach to
business. The lawsuits focus on their agreements
with RealPage, a major provider of property
management software. Effectively, RealPage is
facilitating a housing cartel. If that's true, will
landlords owe their tenants money? And what
will that mean for the future of home rental
prices in the United States? The lawsuit,
brought by the D.C. attorney general, covers
over 50,000 apartment units in the district,
which were allegedly charged inflated rents
for years. In the District of
Columbia, we're confronting, like many
communities, an affordability challenge
in housing. Our housing supply
doesn't keep up with the demand. So as a result,
we have ever increasing pressure on pricing and
rents are already high. But what's of
significance for the District of Columbia is
the concentration of multifamily units,
particularly in large apartment buildings with
more than 50 units in them. For example, see the
portfolio of Bozzuto. The company and its
affiliates allegedly use RealPage recommendations
to set prices on over 15,000 housing units in
the district, according to this complaint. Landlords
like JBG Associates, AvalonBay, Mid-America
Apartment Communities and Equity Residential were
also named in the complaint, which was
filed in November 2023. If you talk about the
large apartment buildings in our city, the market
concentration is north of 5,060%. And then if you
add in that type of market with the total DMV, you
have close to an 80 or 90% concentration of units in
these named defendants. They are not only
providing housing in the District of Columbia,
these are national players. For example, Greystar
managed over 700,000 units in 2023. Three of the 14 named
defendant landlords filed motions to dismiss the
case in January 2024, according to D.C.
Superior Court records. An initial conference for
the case is scheduled for May 2024. The defendant landlords
declined to comment on pending RealPage
litigation. This lawsuit and others focus on the
software that's provided by Richardson,
Texas-based RealPage. RealPage products are
used to set prices on roughly 4.5 million
housing units in the United States. That includes the units
in this complex, some of which had rents starting
at just under $3,000 a month in January 2024. We've been told, as
tenants by employees of equity, that the software
takes empathy out of the equation so they can
charge whatever the software tells them to
charge. Property managers started
to price apartments with RealPage products in the
mid 2000s. It's pretty much
unequivocal, just turning the system on and letting
it perform will outperform your manual analyst. There's almost no way it
can't. Jeffrey Roper is the
inventor of YieldStar. The product was acquired
by RealPage in 2002. Its model was combined
with another software Lease Rent Options and
reintroduced in a new AI tool dubbed AIRM for
short. So you're going to find a
large REITs and portfolios out there. Absolutely. It's everywhere. You
know, I can tell you from the design of YieldStar,
it is not directly looking at what the guy across
the street is doing in order to determine my
rents. He has pieces falling
into vacancy points in time that I do not have. The company says its
software can increase a landlord's revenues by 2%
to 7%. RealPage told CNBC that
it charges landlords a fixed fee for each unit
that it helps manage, regardless of its rent
price. What happens with the
proceeds is up to private equity giant Thoma Bravo,
which acquired RealPage for $10.2 billion in
2021. In court filings, Thoma
Bravo claimed that it's not liable for the acts
of its subsidiary. The attorney general in
D.C. says local landlords
complied with RealPage's recommended prices over
90% of the time. Our complaint alleges that
the terms of agreement that the landlords and
property owners agree to compel those landlords to
charge the rents that the algorithm that RealPage
creates spits out. So rather than making
independent decisions on what the market here in
D.C. calls for, in terms of
filling vacant units, landlords are compelled,
under the terms of their agreement with RealPage,
to charge what RealPage tells them. RealPage told CNBC that
its landlord customers are under no obligation to
take their price suggestions. It also says
that the algorithm may suggest downward price
revisions depending on the context. That could
depend on how much housing gets built, according to
expert testimony in Congress. The problem is that as
prices have gone up since 2011, we have not seen an
entry of new developers that compete with those
that are incumbent. New construction in key
housing markets like Orange County, San
Francisco and New York is low, according to
forecasts shared by companies like Equity
Residential. Or 96% occupied. We raised the dividend 6%
a few months ago. So the story is housing
is expensive and undersupplied. That could give landlords
more power to increase rents. This dynamic of one tenant
to a massive landlord, when it's one on one, you
really have almost no hope. They can basically
crush you. Equities Investor
Materials say the company started to implement
apartment pricing software between 2005 and 2008. They were using some kind
of system that every day would check and see what
the rents were. The entire process had
always been stressful, but over the last couple of
years, especially after Covid, it just got so
much worse. Rita Botello says she
moved into Portside Towers beginning in 2004. She moved out after a
2022 rent hike, which left her living with
relatives. Even in the area that
we're in right now, my step kids' apartment, the
rents here are also going up. They're also now
fearful. It affects people whether
they have rent control or not. It's manipulating
what the market rate is. Tenants across the United
States have launched numerous lawsuits against
their landlords for using RealPage. At least 34
landlords were involved in litigation. In 2023, the
Justice Department filed a statement of interest in
the class action, arguing that the complaints
adequately alleged violations of the Sherman
Antitrust Act. The Honorable Judge
Waverly Crenshaw in Tennessee will preside
over the case. He set a February
deadline for a response from the defendants. The lawsuits ask if the
conduct of RealPage and the defendant landlords
violate antitrust laws or otherwise meet a legal
definition of collusion. The lawsuit we brought is
under our D.C. antitrust statute. Our lawsuit is aiming to
do three things. First and foremost, it's
to put an end to this practice. We're also
seeking a monitor to come in and put fresh eyes on
these landlords and the RealPage practices. And then finally we're
seeking monetary damages, penalties, but also
restitution for tenants who have been unfairly
and illegally required to pay inflated rents,
higher than what a naturally competitive
market would have set for them. These systems are
carefully designed to avoid collusion, to avoid
conflict with fair housing and any other regulatory
environment. As we analyze the
markets, we find the opportunity for pricing
dominance to be really questionable. There's
just not as much concentration as we like
to see in the markets. Roper, the inventor of
YieldStar, now develops revenue management
software for the e-commerce industry. Similar products are also
used in hotels, grocery stores, and to set prices
on toll roads. Back in Jersey City,
tenants at Portside Towers believe their building is
subject to rent control. The local housing
authority agreed, ordering restitution that's
potentially worth millions of dollars. Equity
residential told CNBC it's filed a lawsuit in
federal courts challenging that decision, which was
separate from the real page complaints. But for the city's
non-enforcement, we wouldn't be subject to
RealPage software or even market rate. There is no
market rate under rent control. We not only lost our home,
but we lost our community. We lost everything. The attorney general in
D.C. hopes his case will preserve housing
affordability in the district. It's not only illegal and
unlawful in this day and age, it's just immoral
and wrong. And that's why we felt it
necessary to bring this antitrust lawsuit when we
did.
