DOJ Opens Investigation Into Rent-Setting Tech Company RealPage

by | Nov 27, 2022 | Progress & Solutions

Photo illustration by ProPublica. Photo by Sipa USA via AP Images.

DOJ Opens Investigation Into Rent-Setting Tech Company RealPage

by | Nov 27, 2022 | Progress & Solutions

Photo illustration by ProPublica. Photo by Sipa USA via AP Images.
The DOJ will examine whether RealPage helped landlords coordinate rent increases. Questions also swirl around a 2017 merger deal with its largest competitor.

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.

Republished with permission from ProPublica, by

ProPublica

ProPublica

ProPublica is an independent, nonprofit newsroom that produces investigative journalism with moral force. They dig deep into important issues, shining a light on abuses of power and betrayals of public trust — and they stick with those issues as long as it takes to hold power to account.

With a team of more than 100 dedicated journalists, ProPublica covers a range of topics including government and politics, business, criminal justice, the environment, education, health care, immigration, and technology. They focus on stories with the potential to spur real-world impact. Among other positive changes, their reporting has contributed to the passage of new laws; reversals of harmful policies and practices; and accountability for leaders at local, state and national levels.

0 Comments

Submit a Comment

Your email address will not be published. Required fields are marked *

Follow Us

Related Articles

Jan 23 2023

Car-Sharing Services Turn to Electric Cars and Nonprofit Business Models

Car-share operations are turning to electric vehicles as they reimagine the service as an affordable, nonprofit transportation business model.
Jan 03 2023

New Tools Take a Crack at Predicting Healthcare Costs

This year healthcare providers will be required to provide predictions of costs finally giving patients more freedom to comparison-shop and possibly help slow rising...
Jan 03 2023

US Wind and Solar Are Projected to Outpace Coal and Nuclear in 2023

It is entirely possible that the combination of just wind and solar will outpace nuclear power and maybe even that of coal during the next twelve months.
Dec 17 2022

Petition Pressures US House Members Not to Seat GOP Insurrectionists in 2023

The petition argues that Republican Reps. like Paul Gosar, Lauren Boebert, and Marjorie Taylor Greene “are ineligible to hold future public office” under...
Dec 14 2022

Electoral Count Reform Act: Congress Prepares to Prevent Presidential Election Mischief and Fraud

A bipartisan group of congressional leaders aims to pass reforms to the 1887 law governing Presidential elections, the Electoral Count Act, before the end of...
Dec 09 2022

Five Companies Win Leases for Floating Wind Turbines Off California: How Do They Work?

Some of our strongest wind resources are well away from shore in locations with hundreds of feet of water below, so it makes good sense to deploy floating wind turbines...
Dec 07 2022

Raphael Warnock Wins Georgia’s U.S. Senate Runoff, Giving Democrats a 51-Seat Majority

Warnock enjoyed a significant lead among early voters, and while Walker’s tally crept up throughout Tuesday night thanks to Election Day voters, he failed to overcome...
Nov 17 2022

Farmers in the Midwest Are Turning to Solar to Boost Profits

As adoption of solar projects on farmland climbs, many farmers and industry players are looking for ways to add solar to agricultural production without halting crop...
Nov 15 2022

Cultivating Human Farming Practices and Wisdom From Ants

Agricultural pest management has focused on genetically engineering crops to produce their own pesticides, but the lesson from 55 million years of ant agriculture is to...
Nov 11 2022

California Takes Action Against Manufacturers of ‘Forever Chemicals’

Forever chemicals, found in drinking water, soil, wildlife, and people across the country, have been linked to health problems, including multiple types of cancer,...
Subscribe for Updates!

Subscribe for Updates!

Join our mailing list to receive the latest news and updates from our team.

You have Successfully Subscribed!

Pin It on Pinterest

Share This