Real Estate Giants Accused of Rigging Florida Rental Markets
A slew of economic factors have been blamed for skyrocketing Miami home prices since 2020.
Construction costs kept creeping up, making large-scale affordable housing projects too often a pipe dream. Meanwhile, housing demand was bolstered by an influx of high-income tech professionals, South American investors fleeing socioeconomic turmoil in their home countries, and new arrivals who viewed South Florida as a haven from COVID-19 restrictions.
All natural market forces at work, right?
Not exactly, according to an antitrust lawsuit recently filed in Miami federal court.
The class action claims that some of the most powerful residential property owners and building managers in the nation perpetrated a price-fixing scheme that exacerbated housing affordability crises in metro areas of Miami, Orlando, Jacksonville, and Tampa.
Instead of competing with each other in the rental market, the class action alleges, the defendants colluded to inch up tenants’ rent while using pricing tools created by the software company RealPage. According to the complaint, the “cartel” had an agreement, unspoken or not, to set inventory and rent prices in lockstep with recommendations generated by a RealPage artificial intelligence program.
The plaintiffs, Zachary Corradino and Samantha Taylor Reyes, claim they wound up paying inflated rent at Residences at the Village of Merrick Park in Coral Gables beginning in 2022 as a result of the scheme. The pair say the apartment community was managed by ZRS, a company that handles more than 50,000 rental units across multiple states for institutional clients.
Corradino and Reyes say mass-market property managers would normally be vying for tenants and striving to keep vacancy rates as low as possible but have backed off the competitive bumrush thanks to the profits reaped on the RealPage price coordination. According to the complaint, residential rental markets are ripe for anti-competitive practices because of the often long-term nature of leases and steep penalties against tenants who want to move out early.
“With the assurance that their competitors are respectively setting Miami, Orlando, Jacksonville, and Tampa rental prices using the same algorithm, each defendant property manager could allow a larger share of their units to remain vacant while maintaining higher rental prices across their properties,” Corradino and Reyes claim. “This increased their revenue at the expense of renters.”
The plaintiffs claim the AI software allows property managers to share bulk rental data and develop a cohesive strategy for collectively maximizing rent.
“RealPage requires client property managers to input data on actual rents paid and occupancy rates, along with detailed records of lease transactions. This data, which would normally be kept private, is fed into the algorithm which sets coordinated rents among competing property managers,” the Miami lawsuit states.
In addition to RealPage, the case names real estate behemoths Avalon Bay, GreyStar, Camden Property Trust, and Lincoln Property Co. as defendants, among others.
The lawsuit claims the “strategy only succeeded because of the pricing coordination” in the cartel.
“Defendant RealPage repeatedly and explicitly emphasizes that for the software to work properly, everyone needs to accept its suggested price at least 80 – 90 percent of the time,” the lawsuit claims.
One property manager cited in the case allegedly stated, “We are all technically competitors… [but RealPage] helps us work together.”
While RealPage may not be a household name among tenants, the company’s property management software is a mainstay among mass-market real estate companies across the nation. Its artificial intelligence program, which gained popularity under the YieldStar brand, analyzes rental data to provide finely tuned recommendations on how to maximize landlord revenue.
The complaint is part of a wave of lawsuits against RealPage spawned in the wake of an October 2022 ProPublica report on YieldStar and how it could be used to further price-fixing schemes. The first class actions over the matter were filed in Missouri and California, with more than three dozen cases following nationwide.
In response to the ProPublica piece (before the wave of lawsuits), the company released a statement maintaining that its software “helps prevent rents from reaching unaffordable levels.”
“RealPage’s revenue-management solutions produce a matrix of options that gives renters flexibility to pick their preferred term length and associated rent. Our solutions help ensure compliance with fair housing rules by giving all potential renters equal access to that matrix of rent options – including the lowest available rent,” the company argued.
RealPage pointed out that the lease data it amasses is sometimes public information, disclosed in financial filings of publicly traded companies.
In a statement provided to New Times, the company says it “will vigorously defend against the lawsuits” as it “believes the allegations are completely without merit.”
“The complaints filed are wrong on both the facts and the law. Beyond that, we do not comment on pending litigation,” RealPage counters.
Spokespeople for BH Management and Bell Partners, two defendants in the Miami case, declined to comment when reached by New Times. Several of the remaining defendants in the Miami lawsuit have not responded to emails requesting a statement.
At a 2021 real estate conference, RealPage executives acknowledged the company’s potential role in rising rents but attributed it to having an effective product that optimizes the rental market. One of the designers of the company’s popular software reportedly told Ars Technica last year, “If you have idiots undervaluing, it costs the whole system.”
According to court documents, RealPage software manages 19 million rental units worldwide. This past December, the company was bought out for some $10 billion by Thoma Bravo, a private equity giant with offices in Chicago, London, Miami, and San Francisco.
U.S. Representatives Cori Bush, Chuy Garcia, Pramila Jayapal, and Jan Schakowsky penned a letter to the Federal Trade Commission and the Department of Justice last November, urging an investigation into landlords’ alleged use of RealPage tools to coordinate rental prices.
