/ Modified may 17, 2024 12:10 p.m.

The Buzz: Large corporate homeownership and housing prices

As the cost to rent or buy a home in Southern Arizona skyrockets, corporate ownership can receive blame.

for rent sign hero A "for rent" sign.
Via Wikimedia Commons
The Buzz

The Buzz for May 10, 2024

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This episode is the first of three that are a part of AZPM's reporting series Where to Live?

In February, Arizona Attorney General Kris Mayes filed a lawsuit against property management software company RealPage and eleven companies who own or manage apartment complexes in Arizona.

The suit alleges violations of the state's antitrust law and fraud based on RealPage's products that collect the rent prices from its clients and use that data to maximize profitability, often resulting in rent increases for tenants.

The Buzz offered interviews to the Attorney General's office, RealPage, and the plaintiff companies that operate within our listening area. They either declined our request or did not respond to multiple messages.

Barak Orbach, a professor and antitrust law scholar at the University of Arizona Eller College of Management who recently wrote about this and other similar lawsuits, said this is a traditional hub and spoke conspiracy.

"RealPage is the hub, its agreements with each landlord are the spokes, and they're all on the same rim," he said. "The claim is such because each landlord provides RealPage with its sensitive business information, that is information that you would not share with competitors. So the claim is that we have RealPage, which orchestrates a collusion among large landlords in certain geographic areas."

Prof. Orbach said revenue management systems and price optimization have been around since the 1960s when American Airlines began using the model for plane ticket pricing. The difference is that RealPage's model uses AI and data from multiple companies in the same industry.

"Many small companies cannot have in-house optimization, so they go to a third party to provide optimization such as RealPage. So we have companies that specialize in optimization for specific industries, whether these are landlords or healthcare or casinos, etc. But if they commingle information of competitions, this is where things can become unlawful under antitrust law. In order not to commingle it in AI models, you need to create some rail guards. RealPage was unwise to say on its website plenty of times that they use the information of rivals to optimize your own."

Prof. Orbach said price optimization affects the prices people pay in a variety of industries beyond real estate, including healthcare and gambling. However, he thinks that the business model of mixing data from a number of competitors will likely go away eventually.

"It should be understood that RealPage is only one [business], perhaps particularly dumb because they have admissions on their websites. But in many other industries, we have the same thing. How it will happen? We know the legal process is slow and messy and consists of tactical defeats and victories and parties make mistakes, but I'm confident some lawsuits will win and this business model will go away."

Another issue that this problem highlights is the consolidation of businesses into large conglomerates.

"That's one of the issues of our time," he said. "So we see consolidation in many industries. And on the one hand, it is clear that they can use power to increase prices. On the other hand, it comes with many efficiencies. Because if you only have individual people, it's very difficult for them to get into rentals. Their cost of maintenance is high. So there are considerable efficiencies. And the issue with consolidation is at what point consolidation is too much?"

Rent growth is not limited to the companies in that lawsuit

In the meantime, there are a number of people who say they are feeling real harm from consolidation and new forms of price optimization.

Rents in Tucson have been on the increase for years, but many say those hikes have become of particular note lately.

And those rent hikes are not limited to companies named in the Attorney General's lawsuit, nor did that suit cover every rental company that has a relationship with RealPage.

One person who said those increases are pricing them out of the apartment complex they have called home for almost a decade is a renter The Buzz spoke with that person, whom we will refer to under the pseudonym Stephanie.

Stephanie asked for anonymity because they fear reprisal from their landlord. The Buzz opted to grant that request after being provided with a number of documents supporting many of their claims, including leases, correspondence, and a pest inspection report.

Stephanie moved into The Enclave, an apartment complex on 14th Street near Tucson's Park Place Mall, in the mid-2010s. They initially lived in a one-bedroom apartment, but eventually upgraded to a two-bedroom to accommodate an adult child and his spouse moving in with them.

In 2018, that two-bedroom apartment was rented for $875 a month.

"By 2020, that two-bedroom apartment was $1,175. By 2022, that two-bedroom apartment cost almost $1,400-1,500 a month. Now in 2024 that two-bedroom apartment is $1,600."

The latter price increases came under the management of Western Wealth Communities, a Phoenix-area company whose parent company, Western Wealth Capital, is based out of the Vancouver, British Columbia metro area.

Stephanie received correspondence in March of 2022, stating that the property had been sold by its former owner, a Seattle-area firm, to WWCo.

Neither Western Wealth Communities nor its parent company granted The Buzz an interview, though WWCo did respond to Stephanie's statements via email through its public relations firm.

“Creating a welcoming place for our community members and their families to live is our priority. Rental rates across Tucson continue to climb due to demand, inflation, and the rising costs of materials, insurance, maintenance, payroll, and property taxes. As of 4/22, Enclave’s average in-place rents were $852 which was below market. As of this week, current average in place rents are $942, which represent an 11% increase. This increase remains at, or below current market rate and market increases for Tucson."

Stephanie pointed to Western Wealth's acknowledged relationship with RealPage when mentioning those rate hikes.

"Western Wealth Communities has a number of vendors and tools we use to efficiently manage our communities," company president Jennifer Stadiokas responded. "WWCo utilizes the Knock CRM and call intelligence software to track apartment leads and follow-up, as well as listen to those phone calls as we continuously work to improve customer service. We were Knock customers prior to the acquisition of Knock by RealPage.

Our properties do not use the YieldStar product. Previously our properties used LRO and now use AI Revenue Management as one of many tools to assist in pricing our apartments. Our vendor relationship with Real Page does not extend beyond the same relationships we have with each of our industry vendors as our focus remains on our valued community members and their living experience."

YieldStar is often referred to in citations on the Arizona Attorney General's lawsuit against RealPage and other rental firms. The Buzz reached out to the Attorney General's office to ask if WWCo was a part of its investigations, but the office declined to comment.

After accounting for fees, the average rent quoted by Western Wealth falls in line with what the Tucson Association of Realtors' Multiple Listing Service states is the average rent for a condominium in recent monthly reports, though neither statistic accounts for the many variables that cause rental prices to fluctuate.

Those fees are another area that Stephanie complained about, listing a variety of small fees that they said totaled to around $200 a month per apartment.

"We pay $6 a month for the parking lot usage, not a covered parking space, just to use the parking lot. They've added Amazon boxes in and they're charging us to use the Amazon boxes now. Even though they don't use the Amazon boxes, they still put Amazon packages in our mail or on our front doors."

They also mentioned fees related to pest control, a deposit waiver, grounds maintenance, and others.

Western Wealth said it does institute a number of fees, though it said this is an effort at transparency.

“We do not lump additional fees outside of the rental rate together so there is full transparency of the fees. Our deposit waiver is offered to save residents from a security deposit at move in. Enclave Monthly charges are rent, community maintenance fee $15, Utilities depending on floorplan $120-$190, package lockers $8, pest control $4 (if resident opts in) carport $15, and parking $6, security deposit alternative ($0 deposit waiver $36.) pet fee $30."

Those new fees did come with updates to the apartments and their grounds, though Stephanie referred to them as largely superficial and not addressing their chief concerns.

"We still have toxic mold in the vents," they said. "We still have cockroaches, and we're still charged a four-dollar-a-month pest control fee."

Western Wealth said it has been working to update the property.

“Upon acquisition, our management team prioritized improving residents’ living experience by updating and upgrading property amenities that were either previously lacking or unavailable to residents. As part of that enhancement, management implemented fees which cover common area maintenance, parking, monthly pest service, and package lockers,” said the Enclave management team. “Additional upgrades ranged from improvements that impacted the entire community, such as external paint, a dog park, and repaving the parking lot, to in-home enhancements such as new appliances.”

Those updates are lacking in one of the apartments that Stephanie's family rents. The two-bedroom that they occupied with a former spouse and one child is now occupied by a different child and their family. Stephanie now lives in a studio apartment with their father.

The two-bedroom apartment has had a number of issues, according to Stephanie, particularly with pests, including cockroaches and mosquitoes.

They said a previous neighbor had cockroach nests in their walls, and the problem continues to spill over into the two-bedroom apartment.

"The windows themselves did not fit into the wall properly. So they had big gaps around the window where mosquitoes and bugs were coming in. And their babies were allergic to mosquitoes. So every time their oldest boy would get bit, he would get these big puss balls on his legs and have to be taken to the doctor."

Stephanie sent The Buzz a report from a mold testing company, confirming the presence of Cladosporium and Aspergillus in a swab test. The report did not specify amounts and stated, "You may also want to consider hiring a qualified indoor air quality or industrial hygiene consultant to perform an indoor air quality assessment of your home.:

Stephanie said their family was given an "air spray to put in the vents and told them they'd have to do it themselves."

WWCo said this is not how a mold complaint would be handled.

“'Upon notification of a concern, our management team works to eliminate the issue and ensure it does not happen again. While each renter is responsible for the cleanliness of their own apartment, we conduct regular pest control visits of common areas and have installed additional pest control services as a precaution. These include in-apartment weekly/monthly/as-needed pest control services which residents can opt into. Additionally, our service team proactively sprays the property as well as sealing off potential entrance points to mitigate pests. We apologize if there have been any miscommunications with a resident about their concerns as we take this very seriously.

Additionally, we have a moisture control policy in place in the event a resident notifies us of a possible mold concern. These concerns are immediately investigated and resolved. If needed a professional remediation company is involved. All work orders are typically resolved within 24 hours of reporting and are completed with priority given to water/HVAC or Electrical concerns. Our community members' safety is always our top priority,' shared the Enclave management team."

Stephanie said they were "very communicative" with the onsite property manager.

"We actually had a cockroach folder labeled that they had access to for several years and kept pictures on every single bug, every single mold area, every single crack in the ceiling. Everything."

Stephanie said they took the matter to a variety of people beyond the manager, including lawyers and the City of Tucson's code compliance office. She said "absolutely nothing" happened as a result.

"Everybody said, according to the Tucson rules, a certain amount of mold is allowed here in Tucson and a certain amount of bugs and cockroaches is allowed here in Tucson."

Stephanie said that many of her old neighbors have left, and they feel the apartments occupied by their family are the last ones that remain unrenovated in the complex.

When asked about the process of updating and if Stephanie's family could have relocated to another apartment inside the complex, WWCo said, "Our Enclave management team offers different rental opportunities based on residents’ priorities and preferences. All current residents have been made aware of the opportunity to move into a renovated unit if they choose to do so. Additionally, if there are any maintenance-related issues in a home, our team promptly completes inspections to perform any necessary repairs. 54% of our units have been renovated. Our business plan does not call for the entire property to have complete interior renovations.”

They said renovated apartments do have higher rent.

Rental rates are likely to cause Stephanie and their family to leave The Enclave. They intend to move out when their leases are up.

"I have already been looking to try to find someplace within my means to try to get my own place where Dad can have his place. I can have mine. I can't even find a room to rent that doesn't have me living in a room and having an addict or somebody for a roommate for less than $1000 a month."

They applied for Section 8 voucher help to supplement what they receive in Social Security and disability benefits, but have yet to receive that additional help.

Stephanie volunteers to help the area's unhoused people. They said their story sometimes feels like it is mirroring what they hear from unhoused seniors.

"It starts with not being able to afford a place to live because all these rents are so high that they can't afford it on their little paychecks. Even my apartment manager is so upset he says, 'There's nothing I can do.' He has to do his job."

"We know residents are working hard to pay rent and other bills amid inflation," WWCo wrote in response to questions about rent increases. "That is why we spend so much effort on our annual Rent-Free Christmas and Backpack Giveaway programs. In addition to thousands of dollars offered annually in holiday gifts, food, and decorations, we’ve been able to donate more than $200,000 in free backpacks and schools supplies through our annual “We’ve Got Your Back” program. As we identify financial challenges with residents we work to connect them to appropriate local resources if they qualify."

Investor money goes beyond apartment complexes

While many focus on the purchase of multi-family housing by investment companies, such groups are also present in the market for single-family homes.

Attom Data tracks the purchases of what it calls 'institutional investors' in markets across the U.S. and found that such groups made up nearly 8% of Arizona home purchases in the first quarter of 2024.

"We define here at Attom an institutional investor purchase is basically a residential property sales to non-lending entities that purchased at least 10 properties in a calendar year," said Attom's Jennifer von Pohlmann."

Von Pohlmann said the company lacks specific data on what institutional investors do with those homes once they own them, "but generally, institutional investors rent out the homes they acquire, opting for either short-term or long-term rentals, based on market conditions and their investment kind of objectives."

Attom's recent data show purchases by institutional investors are dropping nationally to start 2024, and as a state, Arizona is following that trend. But, that drop turns into an increase if the Phoenix metro area is excluded.

"It really comes down to basically prices and returns. So areas like Tucson and Yuma still have somewhat decent affordability for investors. And then you mix that with potential reliable returns. Both cities offer lower entry points for real estate investments compared to more saturated markets, which is definitely of course appealing for those investors looking to maximize on return," said von Puhlmann.

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