DOJ Lawsuit Against RealPage Forcing Change In How Landlords Price Rents

It has been less than a month since the U.S. Department of Justice filed an antitrust lawsuit against RealPage for its revenue management algorithm, but that action has already spooked some apartment managers into changing the way they set rents.

Apartment landlords and third-party managers are increasingly sensitive to whether the algorithms used to determine rental rates are being fed private proprietary data from other competitors.

That concern is fostering a sea change in the way apartment landlords and managers derive market-rate rents. The DOJ accused RealPage of designing its revenue management software to help users “sidestep” market rent competition by relying on the “most sensitive, non-public” apartment performance metrics to suggest rental rates.

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

The issue comes down to whether the information used to establish apartment rents is coming from exclusively public sources, said Racowski, who has helped two multifamily companies get dismissals from charges of price fixing using algorithmic price setting software.

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

While RealPage has continued to maintain the legality of its product and defended against the DOJ's claims, the software firm, owned by the private equity shop Thoma Bravo, said it would work with the DOJ to find solutions to antitrust issues soon after the lawsuit was filed, a statement Racowski said could signal that RealPage is looking to settle the charges.

Still, the fear over the government’s allegations is rippling through the multifamily industry, forcing some firms to change the methods they use to determine rents.

Many apartment owners and managers are pivoting to relying on information that can easily be found by anyone on the Internet on sites like Apartments.com or a phone call to avoid the appearance of engaging in price fixing.

Streamline Multifamily owner and founder Leslie Mathis said during the Bisnow Southeast Multifamily Summit on Sept. 17 that both rents and specials being offered by competitors are easily found online, allowing them to set rents without relying on proprietary data.

“Some equity partners have more tolerance to it than others. I work with equity partners who have required us to stop using revenue management. Others have just required us to use public data. Then in some places, there is no change,” Mathis said.

Melissa White, the chair of the board of directors for the Atlanta Apartment Association, an organization representing more than 300 companies managing more than 415,000 apartment units, said during the Bisnow multifamily event that even the methods by which apartment owners conduct basic competitive market studies are seen as risky by association.

“Something as simple as a market survey that we have been doing forever is now looked at in a negative manner, and it could impact any involvement companies are having related to this issue,” said White, a partner with the Atlanta-based urban mixed-use development firm Perennial Properties.

“It’s definitely a conversation that you should all be having if you don’t have priorities established for 2025,” she told the audience at the event.

Companies that rely on revenue management software may have to start using the tactics used by firms that don’t have software from RealPage or Yardi.

Moonstone Realty Group, a firm that manages more than 500 rental units, never used RealPage to set rents, its founder Katherine Langevin told Bisnow in an interview. Langevin said other apartment operators that had been using revenue management software algorithms instead are pivoting to other metrics to determine rents.

“I think we’re leaning more towards public information and relying on our own data and analyzing our performance over the year,” Langevin said.

Marissa Phipps, the director of development for The Benoit Group, told Bisnow on Thursday that the firm doesn’t use revenue management software on the properties they develop and own that are geared to affordable renters. Instead, the company derives rents by checking area median income levels with the U.S. Housing and Urban Development and bank appraisals. 

As for Benoit’s market-rate communities, Phipps said she uses gumshoe tactics to get competitive information.

“I’ve even gone as far as to pick up a phone and call other apartments. If I think [rents are] higher, I’ll call and act like a renter,” Phipps said. “I can’t speak for what others are doing. I just know for us for market rate, we know the most accurate data is by getting the real person on the phone that’s at the community. By the time it's published in a report, the data is pretty stale.”

Racowski said he began receiving calls from multifamily clients two years ago after ProPublica’s exposé of RealPage’s revenue management software system YieldStar. In the story, ProPublica detailed how the algorithm prompted apartment owners and managers to push rents higher than they thought they could achieve, helping to push up rents overall in some markets.

The concerns have only grown more acute after numerous lawsuits were filed by several states – including North Carolina, California, Tennessee and Oregon — and by a collection of tenants against the company, Yardi and its Revenue IQ platform, and several apartment management firms over price-fixing allegations across the U.S.

In February, both Apartment Income REIT Corp and Pinnacle Property Management Services, owned by Cushman & Wakefield, settled lawsuits with renters over claims they used RealPage software to artificially inflate apartment rents, Reuters reported.

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

In response, RealPage announced earlier this month a feature that allowed users to remove “nonpublic competitor data” from the results.

Racowski said investors are now asking sellers of apartments what methods and data they used to determine rents during due diligence. And some apartment owners who are using third-party management firms ordered those firms to no longer use certain revenue management platforms in an effort to steer away from using proprietary data.

Both changes have come in the wake of the DOJ’s antitrust actions against RealPage, Racowski said. 

“These cases are in the top of the second inning,” he said. “There’s a long way to go.”