In a shocking revelation that has rocked the real estate industry, the FBI has uncovered evidence of widespread illegal price-fixing and collusion facilitated by RealPage, an AI-based platform used by many of the nation’s largest property management companies. The investigation, which culminated in a surprise raid on the Atlanta offices of national developer and property manager Cortland on June 4, 2024, has exposed a vast conspiracy that artificially inflated rental prices in major cities across the United States.
The Rise of RealPage
Founded in 1998, RealPage is a Texas-based software company that provides a suite of services to the real estate industry, including an AI-driven revenue management platform called YieldStar. YieldStar uses an algorithm to analyze a wide range of data points, such as market trends, competitor pricing, and housing supply and demand, to recommend optimal rental prices for apartment units.
Over the past decade, RealPage has become a dominant force in the industry, particularly after its $300 million acquisition of its largest competitor, Lease Rent Options (LRO), in 2017. This merger, which was approved by the Trump administration despite antitrust concerns, gave RealPage an unprecedented level of market power. As of 2022, the company’s software was being used to price over 4.5 million rental units nationwide.
This Cartel’s “Operations”
According to lawsuits filed by the attorneys general of Arizona and Washington D.C., as well as a class-action lawsuit brought by renters in San Diego, RealPage’s YieldStar software served as a “hub” for a price-fixing cartel that involved some of the nation’s largest property management firms, including Greystar, Lincoln Property, and Cushman & Wakefield.
Here’s how the alleged scheme worked: property managers would provide RealPage with detailed, non-public data on their properties, including current rental rates, occupancy levels, and lease terms. RealPage’s algorithm would then use this data to recommend new prices for each unit, which the property managers would adopt en masse.
By sharing sensitive pricing information through RealPage, the cartel members were able to coordinate their pricing decisions and avoid competing with each other, leading to artificially inflated rents across the board. In some cases, RealPage’s software even recommended that property managers accept lower occupancy rates in order to maintain higher prices.
The impact of this scheme was staggering. In the Phoenix and Tucson metro areas, for example, rents increased by as much as 30% in just two years, according to the Arizona Attorney General’s lawsuit. In Washington D.C., nearly 60% of all apartments were priced using RealPage’s software, leading to rent hikes that far outpaced inflation.
The FBI’s Smoking Gun
The FBI’s raid on Cortland’s offices appears to have been a major breakthrough in the case against RealPage and its clients. While the details of the evidence seized have not yet been made public, experts say that the fact that the raid was conducted at all suggests that the FBI has strong reason to believe that criminal activity took place.
In particular, the fact that the raid targeted Cortland, which owns a large portfolio of properties in Arizona, suggests that the FBI may have uncovered evidence specifically related to the Arizona Attorney General’s case. It’s also possible that a whistleblower from within Cortland tipped off investigators about the location of incriminating documents.
A Nationwide Problem
The RealPage case is not an isolated incident, but rather part of a broader trend of algorithmic price-fixing in the rental market. According to a 2022 investigation by ProPublica, the use of AI-driven pricing software has become widespread in the industry, with many of the nation’s largest property management firms using similar platforms to coordinate their prices.
The impact of this trend has been devastating for renters, particularly in high-cost markets like New York, San Francisco, and Seattle. In some neighborhoods, as many as 70% of all apartments are now priced using algorithmic software, leading to rent hikes that have far outpaced wage growth.
The problem is compounded by the fact that many renters have little choice but to accept these inflated prices, as the supply of affordable housing has failed to keep up with demand in many cities. This has led to a growing affordability crisis, with millions of Americans now spending more than half of their income on rent.
The Legal Fallout
The RealPage case has already sparked a wave of legal action, with multiple class-action lawsuits and state attorneys general investigations now underway. In addition to the Arizona and Washington D.C. cases, renters in California, Washington state, and several other states have filed suits accusing RealPage and its clients of violating antitrust laws.
At the federal level, the Department of Justice has also gotten involved, filing a statement of interest in the San Diego class-action case arguing that the use of a shared algorithm to set prices is a per se violation of antitrust law. The DOJ’s Antitrust Division has also opened its own criminal investigation into RealPage’s practices.
If these cases are successful, the legal and financial fallout for RealPage and its clients could be significant. Under federal antitrust law, companies found to have engaged in price-fixing can face hefty fines and even criminal charges for their executives. In the civil cases, plaintiffs are seeking damages that could run into the billions of dollars.
As the legal cases against RealPage move forward, the company and its clients are likely to face increasing scrutiny from regulators, lawmakers, and the public. Already, there are calls for stronger antitrust enforcement and new regulations to prevent the abuse of algorithmic pricing software in the rental market.
At the same time, the RealPage case has also highlighted the urgent need for more affordable housing in many parts of the country. With rents continuing to rise faster than wages, many experts argue that the only long-term solution is to build more housing, particularly in high-cost markets where supply has failed to keep up with demand.
For now, however, the focus remains on holding RealPage and its clients accountable for their alleged misdeeds. As the FBI’s investigation continues and the legal cases move forward, the full extent of the scheme – and its impact on renters across the country – is likely to become even clearer.
Only by shining a light on these practices and taking strong action to prevent them can we hope to create a fairer, more transparent rental market that works for everyone.