RealPage could face real trouble with antitrust suits

There’s an antitrust battle brewing. Unlike the Department of Justice’s recent investigation into Ticketmaster’s parent company however, Taylor Swift is not involved.

Just days after an explosive ProPublica exposé about its YieldStar software, Texas-based RealPage was slapped with a class action lawsuit… and then another… and another. At least seven class action suits against RealPage have been filed since Oct. 18.

The antitrust complaints on behalf of tenants also name some of the biggest players in multifamily real estate — Greystar, Lincoln Property Co., Cushman & Wakefield, Equity Residential and Trammell Crow, to name a few — and they’re all accused of artificially raising rents through RealPage’s revenue management software.

RealPage’s software enabled landlords to “set and keep rents artificially high and defy fundamental supply and demand dynamics,” according to one complaint.

Here’s the timeline of what happened.

• Oct. 18, the first class action suit, Bason v. RealPage, et al is filed in the Southern District of California
• Nov. 1, U.S. Sen. Sherrod Brown, a Democrat from Ohio who chairs the Committee on Banking, Housing, and Urban Affairs, publicly calls for an FTC investigation into RealPage’s pricing software.
• Nov. 2, a University of Washington student files the second class action suit, Navarro v. RealPage et al, in the Western District of Washington. Navarro specifically goes after RealPage and its clients’ manipulation of student housing.
• Nov. 4, in Northern California, Lazarte, et al v. RealPage, et al is filed.
• Nov. 10, again in the Western District of Washington, Alvarez, et al v. RealPage, et al, is filed.
• Nov. 11, Cherry, et al v. RealPage, et al, Western District of Washington
• Nov. 14, Northern District of Illinois, Bohn, et al v. RealPage, et al
• Nov. 18, Silverman et al v. Realpage, et al, is filed in the Southern District of New York demanding $5 million. The complaint claims RealPage clients manage over 19 million of the United States’ total 48.5 million rental units.

The allegations

All seven lawsuits allege anti competitiveness, specifically, violations of Section 1 of the Sherman Antitrust Act, which “sets forth the basic antitrust prohibition against contracts, combinations, and conspiracies in restraint of trade or commerce.” The Lazarte case tacks on violations of the Cartwright Act, which is “basically the California state version of the Sherman Act,” according to Dan Hedlund, an attorney with Gustafson Gluek, representing Lazarte.

Hedlund declined to comment on whether the lawsuit was inspired by ProPublica’s reporting, or if RealPage was already on the firm’s radar.

But he did say he expects more of these lawsuits.

RealPage shared otherwise private data between its landlord clients and encouraged them to fix prices, effectively eliminating competition in these markets, the lawsuits allege. Sharing private, real-time pricing and supply data to RealPage and its client base was a condition of using the service, one lawsuit states.

Data on competitors was exclusively available to the alleged co-conspirators. In other words, RealPage offered landlords a way to circumvent the market at the expense of their tenants, the lawsuits allege.

Supply and demand

RealPage allegedly led numerous trade associations and summits where landlords representing the vast majority of the rental market agreed on prices — often dictated by RealPage itself. The RealPage User Group Forum has thousands of members exchanging rental data and collaborating on optimal prices. It encouraged executives from lessors like Greystar, Lincoln and Cushman to serve on subcommittees, where they attended summits like RealPage’s annual, multi-day RealWorld conference.

Many of the lawsuits also implicate the National Multifamily Housing Council, the Pension and Real Estate Association, the Urban Land Institute, and the National Apartment Association as places where RealPage and its landlord clientele collaborated on price fixing.

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RealPage, headquartered in the Dallas suburb of Richardson, also encouraged its clients to allow certain multifamily units to sit empty to manipulate the market supply, Hedlund’s case alleges. Sharing the data is one thing, but making recommendations on “the amount of the supply the landlord should open up … or the amount they should charge,” is explicitly anti-competition, he said.

RealPage’s former CEO Steve Winn (LinkedIn)

A property company managing more than 40,000 units once learned it could make more profit by operating at a lower occupancy level that “would have made management uncomfortable before,” as RealPage’s then-CEO Steve Winn reportedly boasted during a 2017 earnings call.

That RealPage discouraged its customers from bargaining with renters is among the allegations. In fact, Jeffrey Roper, the architect of RealPage’s software whose name appears in all five suits, allegedly stated that the software was meant to circumvent agents who had “way too much empathy” and hesitated to push rents higher.

“RealPage seemed pretty proud of it,” Hedlund said. “I suspect now with the lawsuits out there, people are going to be a bit more judicious in what they say.”

What these attorneys claim to be collusion and potential conspiracy was the biggest draw for RealPage’s clients. In the words of one property manager, “we are all technically competitors … [but RealPage] helps us work together … to work with a community in pricing strategies, not to work separately.”

“You’d call up the competition in the area. Sometimes there’d be a list of 10 people to call,” says a confidential witness in the Cherry suit, who used to work for Greystar in Seattle. “You’d ask what they are charging for their apartments. Then you’d literally change the prices right there on RealPage. Manually bump it up.”
“It was price-fixing … what else can you call it when you’re literally calling your competition and changing your rate based on what they say?”

Other legal matters

In addition to its pricing solutions, RealPage also offers credit and background checks for landlords to screen tenant applicants.

The tech company has at least 18 open lawsuits against it for violations under the Fair Credit Reporting Act, according to CourtLink data. One cases alleges that, while providing a credit check for an applicant, RealPage mistakenly identified an Angel Mendez Jr. from Chicago as a sex offender by the name of Angel Reyes Mendez, who at the time was serving prison a prison sentence in Kenosha, Wisconsin.

“It’s horrifying,” said attorney Larry Smith. “Even if you just did a quick little search of the person that’s in jail … you can see he’s 5’7, 170 pounds. My Angel is 6’5, 200.”

That case of mistaken identity, which got Mendez unjustly rejected from a Chicago apartment, happened this past July.

The YieldStar suits, which could consolidate in Washington or California, aren’t RealPage’s first. Court records show the company settled a class action in 2009, when plaintiffs alleged their potential landlords were provided false credit and background reports.