DOJ opens investigation into real estate tech company accused of collusion with landlords
This story was originally published by ProPublica.
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The Department of Justice’s Antitrust Division has opened an investigation into whether rent-setting software made by a Texas-based real estate tech company is facilitating collusion among landlords, according to a source with knowledge of the matter.
The inquiry is being launched as questions have arisen about a 2017 merger between RealPage and its largest pricing competitor. The source told ProPublica some DOJ staff raised concerns about the merger but were overridden by political appointees of former President Donald Trump.
Congressional leaders have pushed for an investigation into RealPage in three letters to the DOJ and the Federal Trade Commission, which were sent after a ProPublica report on the software’s use in mid-October.
The letters raised concerns that RealPage’s pricing software could be pushing rents above competitive levels and allowing big landlords to coordinate their pricing in violation of federal antitrust laws.
“We are concerned that the use of this rate setting software essentially amounts to a cartel to artificially inflate rental rates in multifamily residential buildings,” three senators said in a letter in early November. They included Sen. Amy Klobuchar, the Minnesota Democrat who chairs the Senate Subcommittee on Competition Policy, Antitrust and Consumer Rights.
The Capital Forum first reported the existence of the investigation and some details on Tuesday.
RealPage’s software works by collecting information from property managers who are the company’s clients, including what rents they are able to charge tenants. That information is fed into an algorithm that then recommends prices daily for each available apartment.
Though RealPage says the information is aggregated and anonymized, some experts have said using private data from competitors to set rents could run afoul of antitrust laws, allowing property managers to illegally coordinate their pricing.
ProPublica found the software is widely used in some markets: In one downtown Seattle ZIP code, 70% of more than 9,000 apartments were controlled by just 10 property managers — every one of which used RealPage’s pricing software in at least some of its buildings.
RealPage did not immediately respond to a request for comment.
The company has said RealPage “uses aggregated market data from a variety of sources in a legally compliant manner.” The company said its software prioritizes a property’s own internal supply and demand dynamics over external factors like competitors’ rents. The company also said its software helps reduce the risk of collusion that would occur if landlords relied on phone surveys of competitors to manually price their units.
The DOJ’s investigation represents the second time the federal law enforcement agency has looked into RealPage’s rent-setting software. In 2017, the DOJ flagged a proposed merger in which RealPage sought to buy its biggest competitor, a company called Rainmaker Group, which made rent-setting software known as LRO, or Lease Rent Options.
RealPage’s then-CEO, Steve Winn, said the $300 million purchase would allow RealPage to double the number of apartments it was pricing, from 1.5 to 3 million units.
After the acquisition was announced in early 2017, the DOJ requested additional information from the companies involved. Federal regulators scrutinize mergers above a certain size — right now, it is transactions valued at $101 million — and typically allow them to proceed after only a preliminary review.
But the government can request more information from companies and even seek to block the merger in court if it believes it could substantially harm competition.
A paralegal specialist who worked on the original DOJ probe into RealPage said it was narrowly focused on the impact on competitors who made software with a similar purpose. The paralegal said she was unaware of any complaints by those companies about the proposed merger.
Merger review guidelines used by both the DOJ and FTC say the agencies “normally evaluate mergers based on their impact on customers,” which include both direct customers and final consumers. But the paralegal said the investigation did not involve talking to tenant advocates or renters.
“The focus of the investigation was ‘talk to competitors, talk to large rental companies,’” said the paralegal, who did not want to be named because she was not authorized to speak about the investigation. “That was the limited focus.”
ProPublica found that in the Seattle ZIP code it examined, some of the 10 largest property managers used RealPage’s original pricing software and others were clients of the competitor it acquired.
Though some career DOJ staff members were concerned about the merger, political appointees leading the agency at the time under Trump chose not to challenge it in court, according to the source with knowledge of the matter.
The investigation fell at a time when the DOJ’s Antitrust Division was preparing to sue to block a proposed merger between AT&T and Time Warner, which promised to take up a lot of the division’s resources. “It was a resource constraint issue he was trying to balance,” the source said of Makan Delrahim, the former assistant attorney general charged with overseeing the division at the time. In addition, RealPage did not have the same reach then as it does today, the source said.
Delrahim declined to comment on Tuesday about the first RealPage investigation, saying he was bound by government ethics restrictions from discussing nonpublic aspects of the case and referring questions to the current administration.
He said that given that it had been almost five years, his “memory is fuzzy at best.” But he added that in general, “as evident from my past record, I was not shy about greenlighting cases that I felt were meritorious even if difficult or unprecedented.”
Antitrust prosecutions by the division fell to historic lows under Trump.
The DOJ declined to comment on Tuesday.
Klobuchar’s recent letter to the DOJ mentioned the 2017 merger, saying that such consolidation can make markets “more susceptible” to collusion and encouraging the department to consider looking at RealPage’s past behavior to see if any of it was anticompetitive.
RealPage says its customer base across all its products — which also include other types of software, such as accounting — has exceeded 31,700 clients.
Marketing materials dated 2021 on the company’s website said its so-called revenue management products, formerly called Yieldstar and LRO, are “trusted by over 4 million units.”
ProPublica also detailed how RealPage’s User Group, a forum that includes landlords who adopt the company’s software, has grown to more than 1,000 members, who meet in private at an annual conference and take part in quarterly phone calls. Klobuchar’s letter raised specific questions about the group, saying the senators were “concerned about potential anticompetitive coordination” occurring through it.
In addition to the letters from congressional lawmakers, renters have filed three lawsuits in federal court in Seattle and San Diego since mid-October, alleging RealPage and a slew of large landlords are engaging in anticompetitive behavior through the company’s software.
After the San Diego lawsuit was filed, a RealPage representative said the company “strongly denies the allegations and will vigorously defend against the lawsuit.” It has not responded to requests for comment on the other two lawsuits.
A property manager named in one of the Seattle lawsuits, Campus Advantage, said in a statement that it “strongly disagrees with the unsubstantiated allegations in the lawsuit and intends to vigorously defend against the claims. Campus Advantage is proud of its track record creating successful communities.”
Other property management firms named in the three lawsuits either did not respond to requests for comment or declined to comment. One could not be reached.