The Department of Justice opens an investigation into a real estate technology company accused of collusion with landlords

This story was originally published by ProPublica.

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The Justice Department’s Antitrust Division has opened an investigation into whether rent-setting software created by a Texas-based real estate technology company is facilitating collusion between landlords, according to a source with knowledge of the matter.

The investigation was launched as questions were raised about a 2017 merger between RealPage and its biggest price competitor. The source told ProPublica that some Justice Department staffers raised concerns about the merger, but they were overruled by former President Donald Trump’s political appointments.

Congressional leaders have pushed for an investigation of RealPage in three letters to the Justice Department and the Federal Trade Commission, which followed a ProPublica report on use of the software in mid-October.

The letters raised concerns that RealPage’s pricing software could be driving rents above competitive levels and allowing large landlords to coordinate their prices 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 on multi-family 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 clients of the company, including the rents they may charge tenants. That information is fed into an algorithm that then recommends daily prices for each available apartment.

Although RealPage says the information is aggregated and anonymized, some experts have said that using competitors’ private data to set rents could violate antitrust laws, allowing property managers to illegally coordinate their prices.

ProPublica found that the software is widely used in some markets: In a downtown Seattle ZIP code, 70% of more than 9,000 apartments were controlled by just 10 property managers, each using 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 that 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 such as competitors’ rents. The company also said its software helps reduce the risk of collusion that would occur if owners relied on competitors’ phone surveys to manually price their units.

The Justice Department’s investigation marks the second time the federal law enforcement agency has looked at RealPage’s rental establishment software. In 2017, the DOJ flagged a merger proposal 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.

Then-RealPage CEO Steve Winn said the $300 million purchase would allow RealPage to double the number of apartments it was listing, from 1.5 million units to 3 million.

After the acquisition was announced in early 2017, the Justice Department requested additional information from the companies involved. Federal regulators vet mergers above a certain size (right now, these are transactions valued at $101 million) and usually allow them to proceed after only a preliminary review.

But the government can request more information from the 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 Justice Department investigation into RealPage said it focused strictly on the impact on competitors who created software with a similar purpose. The paralegal said she was not aware of any complaints from those companies about the proposed merger.

The merger review guidelines used by both the DOJ and the FTC say that agencies “typically evaluate mergers based on their impact on customers,” which include both direct customers and end consumers. But the paralegal said the investigation did not involve speaking with tenant advocates or tenants.

“The focus of the investigation was ‘talk to the competitors, talk to the big rental companies,’” said the paralegal, who did not want to be named because she was not authorized to discuss the investigation. “That was the narrow 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.

Although some career Justice Department staffers were concerned about the merger, the political appointees who ran 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 Justice Department’s Antitrust Division was preparing to sue to block a proposed merger between AT&T and Time Warner, which promised to suck up much of the division’s resources. “It was a resource constraint issue that he was trying to balance,” the source said of Makan Delrahim, the former assistant attorney general charged with overseeing the division at the time. Also, RealPage didn’t have the same reach as it does today, the source said.

Delrahim declined to comment Tuesday on the first RealPage investigation, saying he was bound by government ethics restrictions to discuss non-public aspects of the case and refer questions to the current administration.

He said that since almost five years had passed, his “memory is fuzzy at best.” But he added that, in general, “as is evident from my previous record, I was not ashamed to give the green light to cases that I considered meritorious, even if they were difficult or unprecedented.”

Antitrust prosecutions by the division fell to record lows under Trump.

The Justice Department declined to comment Tuesday.

Klobuchar’s recent letter to the DOJ mentioned the 2017 merger, saying such consolidation may make markets “more susceptible” to collusion and encouraging the department to consider looking at RealPage’s past behavior to see if anything was anticompetitive.

RealPage says its customer base across all of its products, which also include other types of software such as accounting, has exceeded 31,700 customers.

Marketing materials dated 2021 on the company’s website said its so-called revenue management products, formerly called Yieldstar and LRO, are “trusted by more than 4 million units.”

ProPublica also detailed how the RealPage Users Group, a forum that includes owners who adopt the company’s software, has grown to more than 1,000 members, who meet privately for an annual conference and participate 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, tenants have filed three lawsuits in federal court in Seattle and San Diego since mid-October alleging that RealPage and a host of large landlords are engaging in anticompetitive behavior through the software. of the company.

After the lawsuit was filed in San Diego, a RealPage representative said the company “strongly denies the allegations and will vigorously defend against the lawsuit.” He 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 of creating successful communities.”

Other property management firms named in the three lawsuits did not respond to requests for comment or declined to comment. One could not be reached.

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