If other landlords follow suit, what does this mean for the future of the algorithmic rental pricing juggernaut?
Cortland Management LLC, a landlord that owns 80,000 units in 13 states, became the first of six landlords named in a joint federal-state antitrust action to stop them from feeding private data into the nation’s leading algorithmic rental pricing service, that operated by RealPage Inc. Data collected from competing landlords is the secret sauce behind the success of the company, which has an estimated enterprise value of $3.5 billion, according to FitchRatings. Cortland settled with North Carolina and Colorado, agreeing to enter into a consent decree that addresses the anti-competitive aspects of rent management software.
In January, the Department of Justice and states named Cortland — along with Greystar, BlackStone’s LivCor LLC, Camden, Cushman & Wakefield, Pinnacle, and Willow Bridge — in its lawsuit over algorithmic price fixing. Several states joined as plaintiffs. Simultaneously, the DOJ offered Cortland a preliminary version of the consent decree that was finalized last month. The two states’ attorneys general hailed the settlement as a victory for renters and markets.
This casts a cloud over the outlook for RealPage. In addition to a joint lawsuit by multiple states and the federal government, the Texas-based company has also been flooded with legal actions from renters who claim that its software, YieldStar, enables large landlords to jack up rents based on shared nonpublic, competitive pricing information.
Some large cities, including San Francisco, have banned the use of algorithmic rent-setting programs like YieldStar, and more are said to be doing the same. Between the bans and the waves of litigation it is hard to imagine RealPage’s current business model will still be intact once the dust settles.
Cortland’s exit from the lawsuit could trigger a chain reaction, providing an exit for the other five real estate giants to also be dismissed with minimal repercussions. The consent decree was a good one for Cortland. The company admitted no liability and was not on the hook for any damages. It was only required to pay about $100,000 in attorney’s fees. Cortland was even allowed to continue using third-party rent management software, provided its algorithm was only trained on publicly available rental data. It is also subject to monitoring and other compliance measures to ensure it is not misusing rent management software in an anti-competitive manner.
Another component of the consent decree is that Cortland must cooperate with the ongoing lawsuit against RealPage. The DOJ can cut similar deals with each of the defendant landlords, flipping them one by one and building a strong case until RealPage is the last defendant standing.
In its defense, RealPage claims that it is being unfairly scapegoated for the nation’s housing affordability crisis. While RealPage has repeatedly asserted that its clients use its pricing recommendations less than half the time, this is contradicted by a report from the investigative journalism nonprofit ProPublica, which cites former employees as saying it’s closer to 90 percent. By default, YieldStar is configured to accept pricing recommendations, according to the DOJ and the states. Further, RealPage organizes user groups that allegedly encourage landlords to share competitively sensitive, nonpublic rent information.
The use of private information pooled among competitors to fix rents is central to the federal-state Sherman Antitrust Act case, and the Cortland settlement points to a possible remedy. In a final settlement, RealPage could agree to stop using nonpublic rent data, no longer configure its software to accept recommendations by default, and end practices that encourage collusion among clients.
In fact, after the passage of San Francisco’s ordinance banning algorithmic pricing last year, RealPage announced that it would comply with the law by eliminating nonpublic competitor data from its software within the city. As the company notes, it could configure its entire software to only use public data nationwide, but doing so would eliminate its primary advantage.
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