BAM Key Details: 

  • On May 22, 2024, the Federal Bureau of Investigation (FBI) conducted an unannounced raid of national apartment operator Cortland Management as part of a ramped-up investigation into rental price fixing. 
  • The main target of this investigation is RealPage, a Texas-based company that provides suggestions for rent increases based on its YieldStar software. 
  • Rent increases suggested by the YieldStar algorithm are based not on demand but rather on data collected from landlords. And for one example, rents in Atlanta, GA, are going up despite higher vacancy rates. 

Could one company be the reason for soaring rent prices across the U.S.? 

And if rent increases for the vast majority of apartments across the country are based on that one company’s software recommendations rather than rental demand, what are the implications for shelter inflation measures?

While the answers to these questions probably won’t factor into next week’s FOMC meeting and the timing of the next Fed rate cut, a possible collusion between corporate landlords and a company that keeps rents climbing faster than demand is still a very big deal. 

This is why, on May 22, 2024, the Federal Bureau of Investigation (FBI) conducted an unannounced raid on national apartment operator Cortland Management. The raid was part of a ramped-up criminal antitrust investigation by the U.S. Department of Justice (DOJ)

According to a Tuesday article on Entrepreneur, the real target of this investigation is RealPage—a $9 billion Texas-based software company used by corporate landlords like Cortland. RealPage recommends rent increases on millions of housing units across the country. 

From what Cortland Management told the press, the FBI executed a limited search warrant at the company’s Atlanta office as part of the DOJ’s investigation “into potential antitrust violations in the multifamily housing industry.”

The question is whether RealPage and corporate landlords are guilty of an alleged rental price-fixing conspiracy that could already be affecting millions of American renters.

More than 16 million rental units in the U.S., out of about 22 million in total, use RealPage’s YieldStar software. 

Here’s what we know so far. 

Cortland’s ties to RealPage

According to the RealPage blog, Cortland Management, which owned close to 85,000 apartment units as of June 2022, used the RealPage algorithm to “ensure consistent vendor pricing for their communities from Arizona to Georgia.”

RealPage’s impact on the rental market is most noticeable in Atlanta, GA, where pricing for over 80% of rentals is software-based. Since 2016, rents in the area have gone up by 80%. And higher vacancy rates have not brought any relief. 

According to multiple lawsuits filed in the last two years (in California, Arizona, and New York, among other states), the issue with RealPage is that its YieldStar algorithm suggests rental price increases based on data collected from landlords—not based on demand. 

In a February (2024) lawsuit announcement, Arizona Attorney General Kris Mayes put it more clearly, saying landlords “were not competing at all… They were colluding with one another.” 

According to that lawsuit (and others), landlords using RealPage gave the company detailed information on rent prices, lease terms, amenities, move-out dates, and occupancy rates. 

Using this sensitive data RealPage directed the competitors on which units to rent, when to rent them, and at what price. This was not a fair market at work, this was a fixed market.

Kris Mayes

Arizona Attorney General

Rising Rents

According to a D.C. lawsuit, 60% of area apartment buildings set prices based on RealPage recommendations. In Phoenix, AZ, companies relying on RealPage owned or managed 70% of apartment units. 

Nationwide, more than 16 million rental units are priced according to the RealPage algorithm as of a 2020 blog post

As the same blog post points out, there are roughly 22 million investment-grade apartments in the U.S., which means RealPage is being used to steer rent increases for more than 72% of those units. 

A report on ProPublica (the same source we use for data on NAR executive compensation), offers a glimpse into how the YieldStar software works: 

“Each day, the software recommends a new price for every available unit. To determine the new rate, it draws from competitor data on the actual rent tenants paid, as opposed to the publicly advertised rent. The use of private competitor data—though it is aggregated and anonymized—to set prices is one of the concerns experts raised. The practice could allow RealPage to stifle rental competition, they said, driving up rents across the country and, potentially, even violating antitrust laws. 

“Experts said that RealPage also sponsors meetings that gather competitors together to talk about pricing, which could also be a warning sign of collusion.” 

Impact on renters

Even RealPage executives are aware of their YieldStar software’s impact on renters.  

Company executive Andrew Bowen admitted, when asked about how big a role RealPage played in the steady rise of apartment rents, that the software was “driving it.”  

“As a property manager, very few of us would be willing to actually raise rents double digits within a single month by doing it manually.” 

So, YieldStar has “empowered” property managers to raise rents even when vacancy rates go up as more multifamily units hit the market. 

Are landlords required to implement the rent increases recommended by the YieldStar algorithm? No. But according to ProPublica’s 2022 investigation, landlords acted on 80-90% of the software’s suggestions. 

(*Note: Props to ProPublica for making this information available sans paywall.)

According to a February Arizona lawsuit, RealPage sent out “pricing advisors” to meet with corporate landlords to “follow up” on their use of the rates recommended by YieldStar. 

So, one could speculate that landlords may have felt pressured to fall in line. Outliers in the rental market could endanger profits for those who raise rents according to the algorithm. 

Seems that hasn’t been much of an issue, though, for RealPage users. In the past decade, rent inflation has exceeded overall inflation numbers by 40.7%