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Department of Justice opens investigation into real estate tech company accused of collusion with landlords

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This story was originally published by pro publica.

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The Justice Department’s Antitrust Division has launched an investigation into whether rent-setting software created by a Texas-based real estate tech company is fostering collusion among landlords.

Questions arose about the merger of RealPage with its biggest price competitor in 2017, and an investigation was launched. The source told ProPublica that some DOJ staff expressed concerns about the merger, but they were overruled by former President Donald Trump’s political appointees.

Congressional leaders have called for an investigation into RealPage in three letters to the DOJ and the Federal Trade Commission. ProPublica Report About using the software in mid-October.

The letter raises concerns that RealPage’s pricing software may be driving rents above competitive levels and allowing landlords to adjust pricing in violation of federal antitrust laws. did.

“We are concerned that the use of this rate-setting software essentially amounts to a cartel to artificially increase rents in multi-family housing,” the three senators said. in a letter in early NovemberThey were included Senator Amy Klobuchara Minnesota Democrat who chairs the Senate Subcommittee on Competition Policy, Antitrust and Consumer Rights.

capital forum first reported existence of Tuesday’s investigation and some details.

RealPage’s software works by collecting information from the company’s property manager clients, such as rent that can be billed to tenants. That information is sent to an algorithm that recommends daily prices for each available apartment.

RealPage says the information is aggregated and anonymized, but some experts say using a competitor’s personal data to set rents violates antitrust laws and is a property manager’s liability. may allow users to illegally adjust their pricing.

ProPublica found this software to be widely used in some markets. In one downtown Seattle zip code, 70% of the over 9,000 apartments were managed by just 10 property managers.

RealPage did not immediately respond to requests for comment.

The company states that RealPage “uses market data aggregated from a variety of sources in a legally compliant manner.” The company said its software prioritizes the internal supply and demand dynamics of the property itself over external factors such as competitors’ rents. The company also said its software helps mitigate the risk of collusion that occurs when landlords rely on competitor phone surveys to manually price units.

The DOJ investigation is the second time federal law enforcement has examined RealPage’s rent-setting software. In 2017, DOJ flagged a proposed merger in which RealPage sought to acquire its biggest competitor, LRO, or a company called Rainmaker Group, which created rent-setting software known as 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 million to 3 million units.

After the acquisition was announced in early 2017, DOJ requested additional information from the companies involved. Federal regulators scrutinize mergers over a certain size, now he’s a deal worth $101 million, and usually allow it to proceed after preliminary review only.

But governments can demand more information from companies and even block mergers in court if they believe they could seriously harm competition.

A paralegal specialist involved in the DOJ’s initial investigation into RealPage said it was focused on the impact on competitors who created software for similar purposes. The paralegal said it was unaware of any complaints from these companies about the proposed merger.

According to merger review guidelines used by both the DOJ and the FTC, the agency “generally evaluates mergers based on their impact on customers, including both direct customers and end consumers.” But the paralegal said the investigation did not include talking to tenant advocates or renters.

“The focus of the investigation was ‘talking to competitors and large rental companies,'” said the paralegal, who was not named because he was not authorized to speak about the investigation. “It was a limited focus.”

ProPublica examined Seattle zip codes and found that some of the 10 largest property management firms use RealPage’s original pricing software, while others are clients of acquired competitors.

While some veteran DOJ staff members were concerned about the merger, the political appointee, who then headed the Justice Department under the Trump administration, challenged it in court, according to a source familiar with the matter. chose not to.

The investigation came as the DOJ’s Antitrust Division was preparing to file a lawsuit to block the proposed merger between AT&T and Time Warner. “What he was trying to balance was the issue of resource constraints,” a source said of former Assistant Attorney General Makan Delrahim, who was in charge of overseeing the division at the time. did not have the same reach as it does now, sources said.

Delrahim on Tuesday declined to comment on RealPage’s initial investigation, saying that discussing non-public aspects of the case or referring questions to the administration is bound by government ethical restrictions. said that

He said his “memory is vague at best” given that almost five years have passed. However, he generally said, “As is evident from my past record, I have never hesitated to grant lawsuits that I felt were worthwhile, even if they were difficult or unprecedented. .

Antitrust prosecutions by the department Historically low levels under Trump.

DOJ declined to comment on Tuesday.

Klobuchar’s recent letter to the DOJ referred to the 2017 merger, saying such a merger could make the market “more susceptible” to collusion, citing RealPage’s past We are urging the ministry to consider investigating the conduct to see if it is anti-competitive.

According to RealPage, all products (including other types of software such as accounting) have a customer base of over 31,700.

According to marketing materials dated 2021 on the company’s website, the company’s so-called revenue management products, formerly known as Yieldstar and LRO, are “trusted by over 4 million units.”

ProPublica also detailed that the RealPage User Group, a forum that includes landlords adopting RealPage’s software, has grown to more than 1,000 members. Klobuchar’s letter raised specific questions about the group, saying the senator was “concerned about potential anti-competitive alignments” occurring through the group.

In addition to letters from congressmen, tenants have filed three lawsuits in federal courts in Seattle and San Diego since mid-October, alleging RealPage and a number of landlords engaged in anti-competitive behavior through its software. claims to be.

After the San Diego lawsuit was filed, a RealPage representative said the company “strongly denies the allegations and will vigorously defend itself against the lawsuit.” He did not respond to requests for comment on his two other lawsuits.

A property manager named for Campus Advantage, one of the Seattle lawsuits, said in a statement, “We strongly disagree with the baseless allegations in the lawsuit and intend to vigorously defend ourselves against the allegations. Campus Advantage is proud of our track record of making our community successful.”

Other property managers named in the three lawsuits either did not respond to requests for comment or declined to comment. Could not reach one.

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