How an 'Algorithm' Turned Apartment Pools Green

[Passages]

RealPage, the rent-fixing software company currently under FBI investigation, also has apps for bogus fees, monetizing vacant apartments and inflating toxic property bubbles.

BY MAUREEN TKACIK JUNE 18, 2024

In 2021, an Austin-based real estate finfluencer named Monte Lee-Wen made what was likely the quickest $50 million of his career selling the “Chronos portfolio,” a group of five working-class Dallas-area apartment complexes he’d purchased the year earlier, to a consortium of investors for $201 million, or $188,785 per unit. This was a nosebleed valuation given that nearly half the apartments were studios and one-bedrooms. The buyers, an upstart private equity firm called WindMass Capital Partners founded by a former investment banker and the massive Fortress Investment Group, which owns more than 110,000 units of multifamily housing, were ostensibly sophisticated investors.

But the economics of the transaction made no sense: Even at 95 percent occupancy, the five buildings were only generating 79 cents for every dollar in debt service they owed in early 2022—and that was on an interest-only loan. Even before the 500 basis points’ worth of rate hikes that would follow in the year and a half after the sale closed, the mortgage seemed dead on arrival.

But an analyst with the credit rating agency Morningstar DBRS who visited the five complexes had a rosier view of the portfolio’s future. Management had replaced the cabinet fronts and installed stainless steel appliances and a backsplash in a few dozen of the units, and the refreshes had been “so well received that it planned to market its July renewals at 23% rental increases,” the agency’s presale report noted. More crucially for Morningstar, the properties’ new owners were hell-bent on raising rents across the board, backsplashes or no: “Management quoted target monthly premiums of $100 to $200 and started to use Yieldstar to help monitor market comparable rates.”

By now, you have probably heard of Yieldstar, the private equity–owned software that numerous plaintiff’s attorneys, tenant advocates, and state attorneys general say is actually a front for a sprawling nationwide cartel that fixes rent prices to ludicrous heights and has caused the cost of an apartment to surge between 50 and 80 percent over the past seven years in several of the markets where the software is employed. In theory, and in its early days, Yieldstar offered property managers “recommendations” for pricing and duration of leases based on real-time data on what competitors were offering. But by the time Yieldstar parent RealPage acquired its biggest competitor, Lease Rent Options, from the hotel price-fixing giant Rainmaker in 2017, the algorithm had metamorphosed from a tool for informing pricing decisions into a weapon for systemically and liberally hiking them to “way too high” levels, to quote a leasing manager in one of the many lawsuits. RealPage has also been accused of retaliating against anyone who balked or attempted to circumvent the program, with newer “clients” especially singled out for indoctrination and surveillance to root out “rogue” leasing agents and ensure maximum compliance with the system’s demands.
https://prospect.org/infrastructure/housing/2024-06-18-how-algorithm-turned-apartment-pools-green/

[Celerity]

1. K & R for visibility

[Scruffy1]

2. Good article.

I think this is just the tip of the iceberg and could apply to about everything we buy. In essence it creates a monopoly. The same kind of approach is used by many retailers. It boils down to sell less make more. They use real time price information from competitors and programs that automatically raise prices. I know of one example where a used book went from $15.00 t several hundred dollars with no human being involved.