Manhattan Landlords Are About to Get Graded

(Bloomberg) —

The for-rent advertisement on East 75th Street in Manhattan, just a half-block from Central Park, boasts natural light, a marble bathroom, and a granite kitchen. It sounds lovely, a gem of the Upper East Side-perhaps even “triple mint,” as some real estate ads breathlessly proclaim.

It better be, given that the price for the apartment is $4,095 a month.

What the listing doesn’t mention is that the building has a long history of tenant complaints and city-issued violations. Issues over the years have included mold, cockroaches, and fire safety. That information is accessible on public databases, but it can be difficult to dig up for the uninitiated.

This is where startup Rentlogic is hoping to come in. Last week, the four-year-old company released an internet browser extension that drapes a letter-grading system over more than 200 real estate websites that list New York City rentals. So now you won’t just see the perfectly angled photo of some 325-square-foot shoebox with all the upbeat modifiers (sun-drenched, airy, spacious). You’ll get all the dirt, too.

“Buildings have problems,” said Yale Fox, chief executive of Rentlogic, explaining that buildings can score well on his system despite occasional issues. “It’s when they’re repeat offenders or there are signs of negligence-we penalize that.” (The Upper East Side building received an “F ” even though most of its violations have been resolved.)

The software takes two clicks to install. After that, a user who views an apartment on a listing aggregator or a rental broker’s website sees the building’s grade in a pop-up window. On following a link to Rentlogic’s website, the user will also see a list of violations, complaints, and other less-than-attractive characteristics.

“Every industry has bad apples. This is about exposing them in hopes that they adjust their behavior”

As anyone who has looked for an apartment can tell you, landlords routinely use a tenant’s credit history and other data to decide whom to rent to. Now the shoe is on the other foot.

This new tool has been a long time coming. Fox launched the company in 2013 with an early iteration of the grading system, and has spent the intervening years adding new data and tweaking his algorithm. It was a complicated process, since grades rely on hundreds of subjective interpretations. One example: Getting rid of mold takes little more than a willingness to spend money, so buildings with unresolved mold complaints get docked extra by the system. On the other hand, even conscientious property managers can struggle to eradicate rodents.

But devising a hierarchy was child’s play compared with getting landlords to adopt it. At first, Fox wanted to work with the established powers in New York’s real estate firmament. He tried getting brokers to send him listings to publish on Rentlogic’s website, but most were willing only to send him their best. (While plenty of brokers were eager to claim “A” grades, very few were willing to own an “F.”)

Previously, Rentlogic used public data to help renters evaluate landlords in Toronto. In New York , he convinced the brokerage Citi Habitats last September to publish his letter grades, giving Fox what he hoped would become a beachhead-once other brokers saw how much renters liked the letter grades, the whole industry would rush to adopt them.

Instead, property managers quickly quashed the effort. So many of them complained to Citi Habitats that the brokerage reportedly pulled the letter grades a week after launching. (Citi Habitats didn’t return requests for comment.)

That led Fox to start working on a system that lets renters view his company’s grades, whether or not landlords like them. A Yelp!, or perhaps a Zagat for real estate, was born.

That’s bound to be controversial. Fox’s underlying data comes from government reports, but the assumptions his algorithm makes are subject to scorn by the industry. One complaint is that he goes back seven years, meaning that the system can include violations incurred by previous owners. Another is that it uses data on tenant complaints regardless of whether the landlord responded quickly or whether the complaint was verified by a city inspector. Fox said the algorithm doesn’t consider unverified complaints and, in general, is designed to give landlords the benefit of the doubt. He said he plans to introduce functions to help landlords improve building grades. The next challenge will be to find a business model that allows Rentlogic to wring a profit out of its system. The first step, Fox said, is building an audience of apartment-hunters who depend on the service. Then he plans to sell landlords tools to help them market apartments-while persuading renters that he can manage the conflicts inherent in selling landlords services with one hand while checking their bad behavior with the other.

Publishing building violations and tenant complaints might overstate the problems with some buildings. It might also save apartment-hunters from a bad deal.

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