CHARLOTTE, N.C. — The federal government has been cracking down on price gouging in recent months. In May, the Federal Trade Commission (FTC) implemented a rule to ban “junk fees” from live event platforms like Ticketmaster, as well as hotels and other short-term lodging. This rule precludes the vendor or property owner/management firm from being able to charge hidden fees on the back end by requiring them to put the total cost upfront, inclusive of all mandatory fees and charges.
And in January, the U.S. Justice Department (DOJ), along with 10 state attorneys general, followed up on its 2023 antitrust lawsuit with RealPage by adding six of the nation’s largest property managers to the lawsuit.
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The amended complaint alleges that the companies — Greystar; Blackstone’s LivCor LLC; Camden Property Trust; Cushman & Wakefield Inc. (formerly operating independently as Pinnacle); Willow Bridge Property Co. (formerly Lincoln Residential); and Cortland Management LLC (Cortland) — used RealPage’s pricing algorithms via the company’s YieldStar platform to share sensitive data and coordinate pricing strategies, which the DOJ claims resulted in artificially inflated rents. Collectively, these six companies own (or manage) 1.3 million apartments in the United States.
Sherry Yarborough, director of multifamily management for Drucker + Falk’s Southeast division, said that providing clarity on all fees during the application process is an easy way for property managers to gain trust with prospective renters from day one.
“Transparency is always important; renters just want to know what they’re paying,” said Yarborough. “They don’t want to find out on move-in day that they’ve got a $35 monthly trash fee. They want to know everything upfront.”
Yarborough made her comments during a leasing and operations panel at this year’s InterFace Carolinas Multifamily, an annual networking and information conference held on May 21 at the Hilton Charlotte Uptown. Jared Schmidt, supervising partner at Loebsack & Brownlee PLLC, moderated the discussion.
Becky Ross, director of property management at RangeWater Real Estate, said that listing fees or installing an interactive rent calculator on an apartment building’s website aren’t detrimental to business activity, but there are some practical downsides resulting from the federal investigation.
“The biggest thing that affected our business was market surveys,” said Ross. “We’re not supposed to call around and ask for comps anymore because it can be considered collusion. We’re having to work in a vacuum more than ever before.”
Concessions Here to Stay?
Ross went on to mention that all apartment owners and property managers are trying to gauge how long and extensively they need to offer concessions, which come mostly in the form of free rent. The panelists said that the use of free or reduced rent as a means to get prospective renters in the door is unavoidable in current market conditions.
“Concessions have been the expectation for so long now, and right now they’re the baseline to get people in your door,” said Ross. “The summer is prime leasing season, so if you want to set yourself up for the fourth quarter, you’ve got to offer concessions now. And if that means being competitive and having some concessions that burn off just to bring folks in the door, then that’s what you have to do.”
Yarborough reminded the crowd that concessions are a tool that are used cyclically, which is easy to forget since they’ve been a mainstay method for attracting new renters for going on three years.
“In 2022 we weren’t running specials, we were increasing rent 18 to 22 percent,” said Yarborough. “The market will dictate what we do.”
John DeMario, regional vice president at RKW Residential, referred to 2021 to 2022 as the era of “The Great Gatsby rent increases” alluding to the novel The Great Gatsby, set in the Roaring 20’s. The panelists said that some markets are seeing negative rent growth, with DeMario emphasizing that lease trade-outs — the rental rate charged to a new tenant compared to the rent charged to the previous tenant of the same unit — are trending negative.
“We are seeing better trade-out numbers on renewals than we are new move-ins,” said DeMario. “If we can get new lease trade-outs back up, we might be able to break even before the end of the year.”
The panelists agreed that top markets in the region, like Charlotte, have several more months of new deliveries to contend with, but that overall construction starts have slowed, and apartment landlords should be able to stabilize their properties by mid- or late 2026.
“It’s not a small number [of units] in the pipeline that we need to get through, but there is a sightline to brighter days,” said DeMario.
“We know it’s going to be tough for a little while, but with construction starts down, there is a light at the end of the tunnel,” added Ross.
Fraud is Still a Pain
A thorn in the side of multifamily landlords and property managers, especially in recent years, is fraudulent applications for available units. Fraudsters are able to enjoy free rent the first two or three months and then can drag out the eviction process thanks to The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was passed in 2020 in an effort to keep people in their homes while contending with the fallout of the COVID-19 outbreak.
The panelists said that renters are finding ways to trick their way into new units by manipulating bank statements, paystubs, IDs and even visas. DeMario said that the issue has been exacerbated by social media.
“If you go on TikTok, there are feeds offering ways to get around property managers or even third-party ID vendors,” said DeMario.
DeMario and the other panelists said that investing in new technology is an essential tool to combat fraud. Yarborough agreed that investing in software and tech-centric third-party vendors also lets property managers focus on their main job.
“Technology has kept our site managers from being detectives and spending an hour on every application trying to figure out if it’s real or not,” she said. “They’re able to focus on leasing.”
While essential, the use of new technology or hiring third-party vendors for the application process is unfortunately expensive, thus owners and property managers have to raise rates to offset the increased costs.
“That’s one thing fraudsters are doing for everyone, they’re increasing expenses on so many levels,” said Ross.
DeMario explained that it’s a necessary evil, adding that the short-term pain on the front end is worth the headache saved trying to evict a tenant who refuses to pay rent.
“We’re trying to put the safety net in the front before we hand them the keys, instead of trying to chase them to get the keys back,” said DeMario.
— John Nelson