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I thought what they did was this: Get Apartment A to raise rents and enforce these increased rates. Then go to Apartment B and say “look you gotta raise your

I thought what they did was this: Get Apartment A to raise rents and enforce these increased rates. Then go to Apartment B and say “look you gotta raise your prices to the market rate, apartment A is doing it so you can too”. Then go back to A and say “hey the market can bear this price, why don’t you raise your rent?” They also encourage owners to keep units vacant (which they should be able to afford if they’re getting prices to go up) rather than rent at a cheaper price. So this feels like collusion to me. But they also say “Everything we do is legal!” - and if that’s the case we need better laws and regulation to avoid this type of behavior. It’s like a distributed cartel - you can’t charge SF rates in Baltimore but what if you could get Baltimore rates to go up by X% YoY with this tactic? Seems unfair.

lsmeducation 3y ago
And higher rent means the valuation of the property goes up. All the incentives are there for them to do this, we just all need to really convince ourselves they would never do such a thing. ...
- bko 3y ago
  Investors aren't stupid. If you're financing a building with high rents but high vacancy, it's pretty obv and their revenue will necessarily be lower than charging market price (which is by definition the profit maximizing price to charge). If someone can figure out the con on a message board unrelated to real estate I'm pretty sure investors financing this stuff could figure it out as well
  - uoaei 3y ago
    Investors have heard of such a thing as "diversification" and will surely look at their entire portfolio before jumping to short-sighted conclusions. It's very likely real-estate investors have an intimate knowledge of rental markets. There's a nontrivial cost to acquiring tenants and maintaining the buildings. If they did the math after all the various factors are considered and this happened, then clearly this is the best play from their perspective. It's not even malice it's just "economic sense", except the way the economics works out just happens to screw people with barely enough money to afford rent. That still doesn't mean they're not culpable under the textbook legal definition of collusion.
  - trgn 3y ago
    Banks are that stupid. For loans, you demonstrate expected rental income, based on rents of comps. We were in that exact situation. Just provided estimates based on a listing search. Question of vacancy rates or whatever did not come up.
    - lotsofpulp 3y ago
      Did you have a stipulation of maintaining a certain debt service coverage ratio, otherwise the lender can consider you to have defaulted?
      - trgn 3y ago
        No. This was multifamily, and we occupied one unit. Wrt default, not sure wrt all the details with property liens, but isn't that only when you don't make your monthly payment, regardless of income?
  - afuchs 3y ago
    An asset can be owned by multiple investors who have competing interests with some wanting to take a large amount of risk by allowing real estate to remain vacant if it can mean a larger reward later. Louis Rossmann has made numerous videos about vacant properties where asking prices for rent are significantly above what he considers to be market value. Notably, https://www.youtube.com/watch?v=NdfmMB1E_qk https://www.youtube.com/watch?v=NdfmMB1E_qk and the Reddit post which that video comments on: https://www.reddit.com/r/nyc/comments/innhah/comment/g4ai27m/?context=3 https://www.reddit.com/r/nyc/comments/innhah/comment/g4ai27m... The TL;DR is that there's weak evidence that the contractual conditions attached to financing from investors who seek high risk and high reward makes those landlords ignore local market conditions and incentivizes those landlords to leave commercial units vacant instead of renting them out at market value.
bko 3y ago
Sure they can try that. And helps if there are only two options, when in reality there are many (same town, other town, live at home with parents, move in with partner, etc). But that first person takes a Big risk raising prices since he is necessarily losing money relative to charging market price in the hopes others come along in significant numbers. Leaving rooms vacant is incredibly expensive. Profit margins are not that high. So think if you're making 15% margin eating a single month of rent would cost you profit over 6 units. It's a hell of a gamble
- burkaman 3y ago
  This is not hypothetical, it actually happened, and a lot more than two landlords were involved. 14 companies, and "Across a wider Washington-Arlington-Alexandria area, more than 90 percent of units in large buildings are subject to RealPage pricing, according to Schwalb's office." Profit margins are high if you collude with 90% of the market to artificially raise prices.
  - bko 3y ago
    Where did you get that from the article? > The complaint, filed earlier today by Attorney General Brian Schwalb, focuses on the multifamily landlords' use of software from Texas-based firm RealPage, which suggests rental prices based on a pricing algorithm. Key to those models, according to the suit, is the data fed in from the landlords and the pressure RealPage puts on them to stick to the code-derived rental rates. It's a complaint. Nothing was filed yet. And it looks like they used a pricing algo to suggest a price? Im suggested a price when I sell on eBay, or StubHub or Facebook marketplace, or pretty much anywhere. I don't know how they "pressured" landlords but maybe a box like "we suggest market price to maximize returns!" eBay similarly warns me when I stray too far away. The pricing algo is actually a fabulous service. And if they're a property manager then their job is to find the market price and rent out apartments at the behest of landlords. I really don't see the technical issue here. You can say collude and conspire, but what does that mean in technical terms. And what does "being subject to" the algo mean? Exposed?
    - 3y ago
s1artibartfast 3y ago
none of that is collusion. This IS collusion because RealPage goes to apartment A and B and says "give us control and we will list your prices together to get the highest price"

lsmeducation 3y ago

And higher rent means the valuation of the property goes up. All the incentives are there for them to do this, we just all need to really convince ourselves they would never do such a thing. ...

bko 3y ago
Investors aren't stupid. If you're financing a building with high rents but high vacancy, it's pretty obv and their revenue will necessarily be lower than charging market price (which is by definition the profit maximizing price to charge). If someone can figure out the con on a message board unrelated to real estate I'm pretty sure investors financing this stuff could figure it out as well
- uoaei 3y ago
  Investors have heard of such a thing as "diversification" and will surely look at their entire portfolio before jumping to short-sighted conclusions. It's very likely real-estate investors have an intimate knowledge of rental markets. There's a nontrivial cost to acquiring tenants and maintaining the buildings. If they did the math after all the various factors are considered and this happened, then clearly this is the best play from their perspective. It's not even malice it's just "economic sense", except the way the economics works out just happens to screw people with barely enough money to afford rent. That still doesn't mean they're not culpable under the textbook legal definition of collusion.
- trgn 3y ago
  Banks are that stupid. For loans, you demonstrate expected rental income, based on rents of comps. We were in that exact situation. Just provided estimates based on a listing search. Question of vacancy rates or whatever did not come up.
  - lotsofpulp 3y ago
    Did you have a stipulation of maintaining a certain debt service coverage ratio, otherwise the lender can consider you to have defaulted?
    - trgn 3y ago
      No. This was multifamily, and we occupied one unit. Wrt default, not sure wrt all the details with property liens, but isn't that only when you don't make your monthly payment, regardless of income?
- afuchs 3y ago
  An asset can be owned by multiple investors who have competing interests with some wanting to take a large amount of risk by allowing real estate to remain vacant if it can mean a larger reward later. Louis Rossmann has made numerous videos about vacant properties where asking prices for rent are significantly above what he considers to be market value. Notably, https://www.youtube.com/watch?v=NdfmMB1E_qk https://www.youtube.com/watch?v=NdfmMB1E_qk and the Reddit post which that video comments on: https://www.reddit.com/r/nyc/comments/innhah/comment/g4ai27m/?context=3 https://www.reddit.com/r/nyc/comments/innhah/comment/g4ai27m... The TL;DR is that there's weak evidence that the contractual conditions attached to financing from investors who seek high risk and high reward makes those landlords ignore local market conditions and incentivizes those landlords to leave commercial units vacant instead of renting them out at market value.

bko 3y ago

Sure they can try that. And helps if there are only two options, when in reality there are many (same town, other town, live at home with parents, move in with partner, etc). But that first person takes a Big risk raising prices since he is necessarily losing money relative to charging market price in the hopes others come along in significant numbers. Leaving rooms vacant is incredibly expensive. Profit margins are not that high. So think if you're making 15% margin eating a single month of rent would cost you profit over 6 units. It's a hell of a gamble

burkaman 3y ago
This is not hypothetical, it actually happened, and a lot more than two landlords were involved. 14 companies, and "Across a wider Washington-Arlington-Alexandria area, more than 90 percent of units in large buildings are subject to RealPage pricing, according to Schwalb's office." Profit margins are high if you collude with 90% of the market to artificially raise prices.
- bko 3y ago
  Where did you get that from the article? > The complaint, filed earlier today by Attorney General Brian Schwalb, focuses on the multifamily landlords' use of software from Texas-based firm RealPage, which suggests rental prices based on a pricing algorithm. Key to those models, according to the suit, is the data fed in from the landlords and the pressure RealPage puts on them to stick to the code-derived rental rates. It's a complaint. Nothing was filed yet. And it looks like they used a pricing algo to suggest a price? Im suggested a price when I sell on eBay, or StubHub or Facebook marketplace, or pretty much anywhere. I don't know how they "pressured" landlords but maybe a box like "we suggest market price to maximize returns!" eBay similarly warns me when I stray too far away. The pricing algo is actually a fabulous service. And if they're a property manager then their job is to find the market price and rent out apartments at the behest of landlords. I really don't see the technical issue here. You can say collude and conspire, but what does that mean in technical terms. And what does "being subject to" the algo mean? Exposed?
  - 3y ago

s1artibartfast 3y ago

none of that is collusion. This IS collusion because RealPage goes to apartment A and B and says "give us control and we will list your prices together to get the highest price"