Conduct Forced Tens of Thousands of NJ Renters to Pay Unlawfully Inflated Prices

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TRENTON — Attorney General Matthew J. Platkin and the Division of Consumer Affairs today announced a lawsuit against property management software company RealPage, Inc. (“RealPage”) and 10 of New Jersey’s largest landlords for allegedly colluding in a rent-raising scheme that violated state and federal antitrust and consumer protection laws and forced tens of thousands of New Jerseyans to overpay for rent month after month.

RealPage and the landlords (collectively “defendants”) allegedly agreed to set rents for multifamily housing properties statewide based on RealPage’s algorithmic pricing software and to exchange sensitive, non-public information to align their prices and avoid competition that would otherwise keep rent prices down.

The complaint, filed partially under seal today in the United States District Court for the District of New Jersey, alleges the defendants engaged in multiple violations of the federal Sherman Act, the New Jersey Antitrust Act, and the New Jersey Consumer Fraud Act (“CFA”).

“The defendants in this case unlawfully lined their pockets at the expense of New Jersey renters who struggled to pay the increasingly unlivable price levels imposed by this cartel,” said Attorney General Platkin. “Today we’re holding them accountable for unlawful conduct that fueled the state’s affordable housing crisis and deprived New Jerseyans of their fundamental right to shelter.”

Average rents in New Jersey are among the highest in the nation and the state currently has a shortage of over 200,000 affordable rental homes. The situation in North Jersey, where a significant amount of the alleged activity occurred, is particularly dire. Half of low-income renters are cost-burdened–meaning they pay more than 30% of their income on rent–as are nearly a quarter of middle-income renters. Renters in locales throughout the state face a highly concentrated market, where individual landlords control thousands of apartments in the State.

Despite all of this, demand for multifamily housing is highly inelastic, meaning even as prices skyrocket, the demand for rentals remains relatively constant: renters need someplace to live and cannot forgo the essential human need of shelter.

“This lawsuit is about putting a stop to corporate greed at its worst,” said Jeremy Hollander, Acting Director of the Division of Consumer Affairs. “The housing market in New Jersey is already stacked in favor of landlords but the defendants wanted more. Together they conspired to replace normal market forces with pricing software designed to drive rents to levels that exceed what would prevail in a competitive market. Their unlawful conduct forced New Jersey residents to pay unlawfully inflated prices for what is often the largest single expense in their lives: rent.”

Along with the Texas-based RealPage, the complaint names Morgan Properties Management Company LLC; AvalonBay Communities, Inc.; Kamson Corp.; LeFrak Estates, L.P. (“LeFrak”) and its subsidiary, Realty Operations Group LLC; Greystar Management Services, LLC (“Greystar”); Aion Management LLC; Cammeby’s Management Co. of New Jersey L.P.; Veris Residential, Inc.(“Veris”); Russo Property Management, LLC ; and Bozzuto Management Company (“Bozzuto”) (collectively, “defendant landlords”), who collectively own and manage at least tens of thousands of rental units statewide.

The complaint also references additional New Jersey landlords as unnamed co-conspirators. These are landlords owning or managing multifamily rental properties who are believed to have also unlawfully colluded to raise rents by collectively setting rents based on RealPage’s software and unlawfully agreed to exchange competitively sensitive information (collectively “participating landlords”). The investigation into the alleged conspiracy is ongoing and additional defendants may be named.

According to the complaint, at the heart of the price-fixing scheme is RealPage’s Revenue Management (“RM”) Software. RealPage offers three RM products to landlords—YieldStar, AI Revenue Management (“AIRM”), and Lease Rent Options (“LRO”). The products are functionally similar in that they automate pricing of multifamily units using algorithms fueled by RealPage’s vast data repositories.

Stated simply, these products employ statistical models that use data—including proprietary, non-public data—to estimate supply and demand for multifamily housing that is specific to particular geographic areas and unit types, and then generate a price to charge for renting those units that maximizes the landlord’s revenue. RealPage charges the landlord an initial setup fee and then a monthly fee for each multifamily residential unit. In addition to fees, participating landlords compensate RealPage by providing their valuable proprietary data.

Specifically, participating landlords, including defendant landlords, agree to share their non-public information with competitors and know that their competitors’ information is being used to generate the rents they charge. For example, a “One Master Agreement” with RealPage expressly obligates the landlord to provide RealPage with “correct and accurate” data and acknowledge that RealPage may use that data to operate its products (including the RealPage RM Software), according to the complaint.

The complaint asserts the RealPage software is anticompetitive by design because it restricts meaningful price reductions and facilitates collective action to push rents higher. RealPage enforces strict adherence by landlords to its prices using tools like automatic price acceptance, compliance tracking, “secret shop” tests, and direct oversight by RealPage employees to ensure landlords stay in line. In the rare instance when landlords do deviate, they risk corrective action—both from RealPage and from their peers in the cartel, the complaint alleges.

The landlords using RealPage’s RM Software not only agreed to use RealPage’s anticompetitive RM Software and impose its artificially high—or “supracompetitive”—rents, but they also collaborated directly with one another, the complaint alleges. They shared sensitive, real-time data on occupancy rates, leasing activity, concessions, and pricing strategies. They participated in user groups, secret shops, and industry meetings where they coordinated tactics and reinforced their collective commitment to the scheme. And they worked actively to recruit other landlords into the scheme, knowing that broader participation would drive rents even higher, according to the complaint.

The complaint asserts that in some instances, landlords’ employees may disclose the use of RealPage’s RM Software, but they misrepresent the nature of the algorithm to renters. Specifically, these employees mislead consumers to believe that the RM Software merely determines what the “market rate” is. In truth, RealPage’s RM Software does not merely determine a “market rate” but instead generates a supra-competitive price designed to push the entire market higher, the complaint alleges.

Overall, the complaint alleges the defendants violated the Sherman Act and the New Jersey Antitrust Act by engaging in conduct that includes:

• entering into contracts, combinations, or conspiracies that unreasonably restrain trade or commerce;

• agreeing to have RealPage set prices for multifamily residential real estate leases in New Jersey rather than competing with other landlords on the basis of price, and agreeing not to override these prices the vast majority of the time;

• conspiring to reduce the supply of multifamily housing units in the form of limited target occupancy rates, and to fix and increase the price of leases for multifamily housing units in New Jersey; and

• further advancing the anticompetitive scheme by agreeing to share and in fact sharing competitively sensitive, non-public information with their competitors, through RealPage and directly with each other.

The complaint also alleges the defendants violated the New Jersey Consumer Fraud Act by engaging in commercial practices that violate state and federal antitrust laws, which constitute unlawful commercial conduct under the law. Each violation of the Sherman Act and New Jersey Antitrust Act constitutes a separate unlawful practice and violation of the New Jersey Consumer Fraud Act.

The complaint also alleges that RealPage engaged in unconscionable commercial practices and acts of deception, including:

• engaging in an unlawful rent-setting scheme to inflate prices for multifamily real estate leases in New Jersey by offering the RM software and related services to participating landlords;

• providing consumer-facing communications in connection with advertising and offering rates for apartment leases that contained misrepresentations that were disseminated by the participating landlords and further instructing the participating landlords how to communicate to renters about RealPage-generated prices, which limited the information available to consumers and undermined consumers’ ability to make informed choices;

• directly causing supracompetitive prices generated pursuant to the unlawful scheme to be pushed to Internet listing services, where they are displayed directly to consumers to advertise the apartments whose prices have been unlawfully inflated;

• promulgating instructions to participating landlords to misrepresent the nature of their pricing decisions to renters and conducting secret shops to ensure that participating landlords did not disclose the existence of the RM software and instead misrepresented to and/or omitted from renters the truth of their pricing decisions as previously instructed by RealPage; and

• enforcing participating landlords’ compliance in the scheme through RealPage’s directions and training on consumer-facing messaging, including through secret shops

Finally, the complaint alleges that certain landlords engaged in unconscionable practices, acts of deception, or misrepresentations under the Consumer Fraud Act. Among other allegations, the complaint alleges that the defendant landlords engaged in an unlawful conspiracy to set prices for multifamily apartment leases in New Jersey through the advertising and offering of rates for apartment leases to New Jersey consumers and employed misleading consumer-facing communications strategies designed to obfuscate the cause of rent increases and limit the information available to consumers.

Through these unconscionable commercial practices and acts of deception, the defendants deprived consumers of a competitive multifamily housing market, instead imposing exorbitant and unjustified prices on New Jersey renters who need access to an essential human need: shelter. Their conduct also undermines the ability of consumers to make informed decisions in the rental market by limiting the information available to consumers, the complaint asserts.

The lawsuit seeks a number of remedies, including:

• an injunction to stop the defendants from engaging in anticompetitive and consumer fraud practices;

• the appointment of a corporate monitor—at defendants’ expense—to ensure implementation of all structural or practice remedies ordered by the Court and to not engage in further unlawful conduct;

• equitable relief, civil penalties, and damages; and

• the disgorgement of any profits generated in New Jersey through this unlawful behavior.

Deputy Attorneys General Blair Gerold and Leslie Prentice under the supervision of Antitrust Section Chief David Reichenberg and Consumer Fraud Prosecution Section Chief Jesse Sierant and Assistant Attorney General Brian McDonough within the Division of Law’s Affirmative Civil Enforcement Practice Group represent the Attorney General in the matter.

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