Last week, the FBI raided a real estate corporation in Atlanta. Raided. Meaning, sent agents in to gather documents and equipment to aid in an ongoing criminal price-fixing conspiracy investigation.
The company, Cortland Management, controls 85,000 rental units across 13 states, according to Matt Stoller, who writes about monopolies.
Cortland, though, is not the only - or even central - subject of the investigation. The FBI is targeting the software Cortland uses, made by RealPage.
RealPage, through it’s software - called YieldStar - requires each of its clients to share granular data about all its rental properties, then it facilitates collusion to automatically adjust the rents of those properties, sometimes in defiance of market forces.
According to a lawsuit filed by Arizona Attorney General Kris Mayes, RealPage’s CEO has said on the record that the data the company gets from clients “includes occupancy rates, rents charged for each unit and each floor plan, lease terms, amenities, move-in dates, and move-out dates—‘literally hundreds of variables,’ according RealPage’s founder and former CEO Steve Winn” (not the casino mogul).
RealPage’s aim, according to the Arizona complaint, is “to push prices beyond competitive levels; in its words, RealPage aims to ‘achieve revenue lift between 3% to 7%’ even in economic downturns.”
The company, the complaint notes, calls this “revenue management.”
But, says Mayes: “The State and antitrust scholars call it price fixing.”
I shouldn’t have to say this, but price fixing to stop competition is not legal.
RealPage first gained attention - as so much corruption does - in a ProPublica story. The investigation, published in 2022, detailed how the software company uses an algorithm to manipulate rental prices in it’s various markets.
ProPublica highlighted a renter named Kaylee Hutchinson, whose rent in Boston went up at the beginning of the pandemic, even though “people were fleeing the city.”
But the algorithm fluctuates, and Hutchinson and her fiancé saw another unit in their building that had suddenly come on the market at a lower price, so they moved.
Same apartment layout. Same building. But they couldn’t negotiate with the landlord to let them stay where they already lived. RealPage doesn’t allow its landlord clients to negotiate.
That would be a weak link in the monopoly, price-fixing chain.
“A normal mom-and-pop landlord, they’re worried about having a good tenant and protecting their interest in the agreement,” Hutchinson told ProPublica. “These companies, they’ll just replace you.”
In fact, replacement seems to be the point. RealPage has been focusing on raising prices overall rather than keeping rental vacancy rates low.
They brag about it.
“The beauty of [RealPage software] is that it pushes you to go places that you wouldn’t have gone if you weren’t using it.”
That quote in the ProPublica story came from Kortney Balas, director of revenue management at JVM Realty, which uses RealPage’s software. Balas appeared in a testimonial video that ProPublica got from RealPage’s website.
Jeffrey Roper, who developed RealPage’s software, told ProPublica that “leasing agents had ‘too much empathy’ compared to computer generated pricing.”
The Houston real estate company that served as the test case for Roper’s algorithm, Camden Property Trust, saw tenant turnover rates increase by 15 percent in the first year it used the software, 2006, ProPublica reports. Despite having to replace more renters, revenue grew that year by 7.4 percent.
“The net effect of driving revenue and pushing people out was $10 million in income,” ProPublica quoted Camden CEO Ric Campo about those early years. “I think that shows keeping the heads in the beds above all else is not always the best strategy.”
In other words, “When we let software override our humanity, we get rich!”
Isn’t there a whole genre of dystopian ‘80s movies that predicted this?
There are quite a few civil lawsuits that are pending against RealPage. In addition to the Arizona investigation, and another by the city of Washington, D.C., numerous class action lawsuits have been filed by renters in various states, including Washington State and California.
Tellingly, the lawsuits call RealPage a “cartel.” And many of the economic journalists who have picked up the story have echoed that language.
When you start seeing drug gang nomenclature to refer to a publicly traded U.S. company, you know something serious has shifted in the world.
The Cortland raid was the first public move in the DOJ criminal investigation. The Feds clearly see real estate companies that use RealPage as co-conspirators WITH RealPage.
Various sources suggest that between 6,000 and 10,000 independent companies use RealPage all over the country.
The implications of this are mind boggling.
Which is why this is such an interesting story. It isn’t that the U.S. government is cracking down - with both civil and criminal investigations - on a giant real estate price fixing scam. It’s that the federal government is cracking down on anything at all.
This has rarely happened in the last few decades.
A couple of weeks ago, I wrote about the Justice Department’s civil lawsuit against Ticket Master for price fixing.
Ticket Master and Live Nation merged in 2011. Even though many economics people noted it was probably a bad idea to allow one company to control 70 percent of the ticketing market - and own many of the concert venues, to boot - regulators let it go through. And now the Biden Administration is trying to undo what Obama allowed.
That’s also what happened with RealPage. According to ProPublica, “RealPage became the nation’s dominant provider of… rent-setting software after federal regulators approved a controversial merger in 2017… greatly expanding the company’s influence over apartment prices.”
Roper - who developed the software at the heart of these lawsuits and criminal inquiries - told ProPublica that regulatory approval “allowed RealPage to acquire its only significant competitor,” adding, “I was surprised the DOJ let that go through.”
Such is the economic reality we’ve been living with for four decades: “Hey, I have this idea that is highly illegal. But the regulators are so captured by industry that they will literally turn the other cheek and let us kick people out of their apartments.”
What concerns me about this is that I’ve seen far more stories in the past week about a grifter who defied a Congressional subpoena going to jail for four months than I have seen coverage of the FBI raid in Atlanta. Even though the FBI cracking down on corporations colluding with one another to fleece ordinary people will have a far greater impact than the gruel Steve Bannon will have to eat in a federal prison.
Part of the problem is that we need characters when we report stories. This is one of the oddest revelations I had when I went into public radio. The narrative stories you hear on the national NPR shows are always pegged around a person. The story: “this person, who at one point held counsel with the President of the United States, is being punished for defying a subpoena” is easier to tell than, “this corporation, using this software, that does this thing, is the reason you don’t have a place to live (or live in a shitty place).”
And so, people are just angry. Rent is too high. Groceries are too high. They blame the amorphous and highly blamable government. I’m not hearing a “rent is too high because landlords are allowed to break the law” lament from people who are struggling with rent. I’m not hearing, “Kroger is making record profits and charging us more for smaller portions” coming from people who are shocked at the cash register.
I don’t hear, “This is my very clear plan to fix these pricing issues” from local leaders, and or people running for office.
Except Elizabeth Warren. Even so, people made fun of her for always having a plan.
Again, I fear we are too cynical and too angry to notice a small shoot growing out of the dystopian rubble we’ve been compiling for decades. But it’s there. Our better nature is starting to fight back. Let’s keep that growing.