As previously mentioned on the Private Equity Stakeholder Project blog, technology can be utilized by private equity firms, landlords, and other corporate actors to drive up profit at the expense of tenants. One example of this is RealPage, a corporation that creates software programs for property management and real estate. Real Page is currently owned by Thoma Bravo, a Chicago-based real estate investment firm that currently maintains over $130 billion in assets. The Thoma Bravo website boasts that the firm invests in and partners with “great technology companies to do even greater things.” RealPage’s software offerings include AI screenings that landlords can use to eliminate potential tenants, renters insurance for owners and residents, and resident portals that tenants can use to contact their landlord or pay rent. Real Page also sells YieldStar, a software that assists landlords in setting rental prices.
For several years, YieldStar has been the subject of controversy, especially due to a 2022 expose by ProPublica titled “Rent Going Up? One Company’s Algorithm Could Be Why.” The article details RealPage’s semi-monopoly over rental prices, for example in one Seattle neighborhood 70% of properties were owned by 10 property managers who all used Yieldstar.
According to Bravo, YieldStar simplifies rent-setting through utilizing an algorithm that analyzes collected data from clients, along with real-time data about competitor’s rent prices. While property managers are not forced to abide by RealPage’s recommendations, 90% of them follow the software company’s guidance. In a 2022 statement from RealPage lawyers, the corporation claimed that ProPublica’s reports “badly distort and overstate the role that non-public data about other properties plays in YieldStar’s algorithm, while also misunderstanding the level of visibility that YieldStar provides to its customers about such data.”
Yet tenants impacted by RealPage view the situation differently. Empowered by the ProPublica research, over 20 lawsuits have been filed against RealPage and their clients for inflating rent prices and engaging in anti-competitive business practices. The list of clients accused in the cases include Greystar, the country’s largest property management companies. As of August 2023, one of the lawsuits, in Nashville federal court, was allowed to move forward, with some RealPage clients already claiming that they have decreased their usage of YieldStar software.
Concerned about RealPage’s involvement in the housing crisis, in November of 2022, Senators Elizabeth Warren, Bernie Sanders, Tina Smith, and Edward Markey released a public letter to RealPage CEO Dana Jones. Claiming the corporation birthed “a new kind of cartel,” the senators took issue with the amount of private information RealPage provided to landlords. Disabled people, tenants of color, and low income tenants were named by the senators as some of the hardest hit by RealPage software keeping prices “artificially” high. The senators also expressed issues with the incentives that RealPage provides landlords to maintain empty units, which counteracts attempts by the federal government to increase housing supply. The lawmakers claimed that RealPage software was “facilitating a never-ending race to setting the highest possible rents.”
After their initial letter to RealPage, Smith, Warren, Markey, and Sanders embarked on an investigation into YieldStar specifically. Some of the findings of the investigation included a possible correlation between usage of YieldStar, and the targeting of corporate buyers in certain regions. These regions also experienced some of the highest rent increases. The investigation also found that YieldStar software could possibly be assisting with rent-setting in approximately 8% of all rental units. In March of 2023 the Senators wrote another public letter, this time to Johnathan Kanter, the Assistant Attorney General of the Antitrust Division at the Department of Justice. The letter warned that YieldStar could be “facilitating de-facto price setting and driving rapid inflation.” The Senators argued that their investigation could be used to assist the Department as they embarked on additional scrutiny of the practices companies use for information sharing and the possible enabling of “illegal collusion.”
Despite the lawsuits against RealPage, more than 30 US public employee pension funds have invested a total of almost $4 billion in Bravo’s Fund XIV, the fund that acquired RealPage. These pension funds include the California Public Employees Retirement System, New York State Common Retirement Fund, and the Washington State Investment Board. The University of Texas Investment Management Company (UTIMCO) has been a large investor in Thoma Bravo, making six separate commitments into the company totaling $425 million. These commitments included a $125 million commitment to Bravo’s Fund XIV, (the fund which acquired RealPage in 2021). The University of Texas at Austin is also collaborating with Steve Winn, the founder of RealPage, to develop $200 million sustainable research facilities. Winn claims that Texas has “a fragile ecosystem that we need to protect,” and states that preserving the “land and the water for future generations of Texans is important.” However, The Real Deal notes that the facilities would be adjacent to Winn’s Mirasol Springs, a 1,400 acre development that has been the subject of concerns about ecological harm. The collaboration appears to be an opportunity for some positive press for the billionaire.
As the subject of dozens of lawsuits, and multiple public letters and inquiries from elected officials, RealPage and YieldStar appear to maintain a large headline risk for investors. The negative press along with public demands for an investigation by the Department of Justice means that the situation is most likely not improving anytime soon. In addition, there are numerous ethical concerns with investments into RealPage. As millions of working class people still deal with economic instability due to the COVID-19 pandemic, RealPage’s software programs are dramatically changing the housing market and ensuring that tenants will be forced to pay inflated rates to secure housing. The country’s supply should not be beholden to the interests of corporations such as RealPage, which prioritizes profit for landlords over tenants. By continuing to invest in RealPage, UTIMCO is supporting a corporation that has potentially broken antitrust laws for financial gain.