The rent goes up? One company’s algorithm could explain why – CNET – ApparelGeek

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One summer day last year, a group of real estate tech executives gathered in a Nashville boardroom to brag about one of their company’s flagship products: software that uses a mysterious algorithm to help landlords raise the highest possible rents for tenants.

“Never before have we seen these numbers,” said Jay Parsons, vice president of RealPage, as congressmen walked around. Apartment rents recently increased by 14.5%, he said in a video touting the company’s services. Turning to his colleague, Parsons asked: What role did the software play?

“I think it’s the engine, quite honestly,” replied Andrew Bowen, another RealPage executive. “As a property manager, very few of us would be willing to raise double-digit rents in a month by doing it manually.”

The celebratory remarks were more than boastful. For years, RealPage has sold software that uses data analysis to suggest daily prices for open units. Property managers across the US have gushed about how the company’s algorithm boosts profits.

“The beauty of YieldStar is that it pushes you to go places you wouldn’t have gone if you weren’t using it,” said Kortney Balas, director of revenue management at JVM Realty, referring to the software. of RealPage in a testimonial video on the company’s website.

The nation’s largest property management company, Greystar, found that even in a single downturn, its buildings using YieldStar “outperformed their markets by 4.8%,” a significant premium over competitors, RealPage said in documents on its website. Greystar uses RealPage software to price tens of thousands of apartments.

RealPage became the nation’s leading provider of such rent-setting software after federal regulators approved a controversial merger in 2017, according to a ProPublica investigation, dramatically expanding the company’s influence over apartment prices. The move helped the Texas-based company grow its customer base for its real estate technology services line past 31,700 customers.

The impact is brutal on certain markets.

In one Seattle neighborhood, ProPublica found that 70% of apartments were overseen by just 10 property managers, each of whom used pricing software sold by RealPage.

To arrive at a recommended rent, the software deploys an algorithm — a set of mathematical rules — to analyze a wealth of data that RealPage collects from customers, including private information about what nearby competitors charge.

For tenants, the system upsets the practice of negotiating with building staff. RealPage discourages negotiation with tenants and has even recommended that landlords, in some cases, accept lower occupancy in order to raise rents and make more money.

One of the algorithm’s developers told ProPublica that rental agents have “too much empathy” with computer-generated prices.

Apartment managers may reject the software’s suggestions, but up to 90% are adopted, according to former RealPage employees.

The design and growing reach of the software has raised questions among real estate and legal experts as to whether RealPage has spawned a new type of cartel allowing the nation’s largest landlords to indirectly coordinate prices, potentially in violation of the federal law.

Experts say RealPage and its customers invite scrutiny from antitrust authorities for several reasons, including their use of private data about what competitors charge in rent. In particular, RealPage’s creation of task forces that meet privately and include owners who are otherwise rivals could be a red flag of potential collusion, a former federal prosecutor said.

At a minimum, critics say, the software’s algorithm could artificially inflate rents and stifle competition.

“Machines quickly learn that the only way to win is to push prices above competitive levels,” said University of Tennessee law professor Maurice Stucke, a former prosecutor in the Justice Department’s antitrust division. .

RealPage acknowledged that it feeds its customers’ internal rental data into its pricing software, giving landlords aggregated and anonymous insight into what their nearby competitors are charging.

A company representative said in an email that RealPage “uses aggregated market data from various sources in a lawful manner.”

The company noted that landlords who use employees to manually set prices “typically” conduct telephone surveys to verify competitors’ rents, which the company says could lead to anti-competitive behavior.

“RealPage’s revenue management solutions prioritize a property’s internal supply/demand dynamics over external factors such as competitors’ rents,” a company statement said, “ and therefore help to eliminate the risk of collusion that could arise with manual pricing”.

The release said RealPage’s software also helps prevent rents from reaching unaffordable levels because it detects drops in demand, such as those that occur seasonally, and can respond to them by lowering rents.

RealPage has not made Parsons, Bowen, or the company’s current CEO, Dana Jones, available for interviews. Balas and a representative for Greystar declined to comment on the YieldStar filing. The National Multifamily Housing Council, an industry group, also declined to comment.

Proponents say the software does not distort the market. RealPage’s CEO told investors five years ago that the company wouldn’t be big enough to hurt competition even after the merger. The CEO of one of YieldStar’s early adopters, Ric Campo of Camden Property Trust, told ProPublica that the apartment market in his company’s hometown alone is so large and diverse that “it would be hard to say that there was a kind of price fixing”.