This story was initially printed by ProPublica.
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The Division of Justice’s Antitrust Division has opened an investigation into whether or not rent-setting software program made by a Texas-based actual property tech firm is facilitating collusion amongst landlords, in keeping with a supply with data of the matter.
The inquiry is being launched as questions have arisen a couple of 2017 merger between RealPage and its largest pricing competitor. The supply instructed ProPublica some DOJ employees raised issues concerning the merger however have been 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 Commerce Fee, which have been despatched after a ProPublica report on the software program’s use in mid-October.
The letters raised issues that RealPage’s pricing software program could possibly be pushing rents above aggressive ranges and permitting huge landlords to coordinate their pricing in violation of federal antitrust legal guidelines.
“We’re involved that the usage of this charge setting software program basically quantities to a cartel to artificially inflate rental charges in multifamily residential buildings,” three senators mentioned in a letter in early November. They included Sen. Amy Klobuchar, the Minnesota Democrat who chairs the Senate Subcommittee on Competitors Coverage, Antitrust and Shopper Rights.
The Capital Discussion board first reported the existence of the investigation and a few particulars on Tuesday.
RealPage’s software program works by accumulating info from property managers who’re the corporate’s shoppers, together with what rents they can cost tenants. That info is fed into an algorithm that then recommends costs each day for every obtainable condo.
Although RealPage says the data is aggregated and anonymized, some specialists have mentioned utilizing non-public information from opponents to set rents might run afoul of antitrust legal guidelines, permitting property managers to illegally coordinate their pricing.
ProPublica discovered the software program is extensively utilized in some markets: In a single downtown Seattle ZIP code, 70% of greater than 9,000 residences have been managed by simply 10 property managers — each considered one of which used RealPage’s pricing software program in not less than a few of its buildings.
RealPage didn’t instantly reply to a request for remark.
The corporate has mentioned RealPage “makes use of aggregated market information from quite a lot of sources in a legally compliant method.” The corporate mentioned its software program prioritizes a property’s personal inside provide and demand dynamics over exterior components like opponents’ rents. The corporate additionally mentioned its software program helps cut back the danger of collusion that might happen if landlords relied on cellphone surveys of opponents to manually worth their items.
The DOJ’s investigation represents the second time the federal regulation enforcement company has seemed into RealPage’s rent-setting software program. In 2017, the DOJ flagged a proposed merger through which RealPage sought to purchase its greatest competitor, an organization referred to as Rainmaker Group, which made rent-setting software program generally known as LRO, or Lease Lease Choices.
RealPage’s then-CEO, Steve Winn, mentioned the $300 million buy would enable RealPage to double the variety of residences it was pricing, from 1.5 to three million items.
After the acquisition was introduced in early 2017, the DOJ requested extra info from the businesses concerned. Federal regulators scrutinize mergers above a sure dimension — proper now, it’s transactions valued at $101 million — and usually enable them to proceed after solely a preliminary assessment.
However the authorities can request extra info from firms and even search to dam the merger in court docket if it believes it might considerably hurt competitors.
A paralegal specialist who labored on the unique DOJ probe into RealPage mentioned it was narrowly centered on the impression on opponents who made software program with the same goal. The paralegal mentioned she was unaware of any complaints by these firms concerning the proposed merger.
Merger assessment tips utilized by each the DOJ and FTC say the businesses “usually consider mergers primarily based on their impression on clients,” which embrace each direct clients and closing shoppers. However the paralegal mentioned the investigation didn’t contain speaking to tenant advocates or renters.
“The main focus of the investigation was ‘discuss to opponents, discuss to giant rental firms,’” mentioned the paralegal, who didn’t need to be named as a result of she was not licensed to discuss the investigation. “That was the restricted focus.”
ProPublica discovered that within the Seattle ZIP code it examined, a few of the 10 largest property managers used RealPage’s unique pricing software program and others have been shoppers of the competitor it acquired.
Although some profession DOJ employees members have been involved concerning the merger, political appointees main the company on the time underneath Trump selected to not problem it in court docket, in keeping with the supply with data of the matter.
The investigation fell at a time when the DOJ’s Antitrust Division was getting ready to sue to dam a proposed merger between AT&T and Time Warner, which promised to take up a number of the division’s sources. “It was a useful resource constraint difficulty he was making an attempt to steadiness,” the supply mentioned of Makan Delrahim, the previous assistant lawyer normal charged with overseeing the division on the time. As well as, RealPage didn’t have the identical attain then because it does at present, the supply mentioned.
Delrahim declined to touch upon Tuesday concerning the first RealPage investigation, saying he was certain by authorities ethics restrictions from discussing nonpublic points of the case and referring inquiries to the present administration.
He mentioned that provided that it had been nearly 5 years, his “reminiscence is fuzzy at finest.” However he added that typically, “as evident from my previous document, I used to be not shy about greenlighting instances that I felt have been meritorious even when tough or unprecedented.”
Antitrust prosecutions by the division fell to historic lows underneath Trump.
The DOJ declined to touch upon Tuesday.
Klobuchar’s current letter to the DOJ talked about the 2017 merger, saying that such consolidation could make markets “extra inclined” to collusion and inspiring the division to think about taking a look at RealPage’s previous habits to see if any of it was anticompetitive.
RealPage says its buyer base throughout all its merchandise — which additionally embrace different forms of software program, comparable to accounting — has exceeded 31,700 shoppers.
Advertising and marketing supplies dated 2021 on the corporate’s web site mentioned its so-called income administration merchandise, previously referred to as Yieldstar and LRO, are “trusted by over 4 million items.”
ProPublica additionally detailed how RealPage’s Person Group, a discussion board that features landlords who undertake the corporate’s software program, has grown to greater than 1,000 members, who meet in non-public at an annual convention and participate in quarterly cellphone calls. Klobuchar’s letter raised particular questions concerning the group, saying the senators have been “involved about potential anticompetitive coordination” occurring by it.
Along with the letters from congressional lawmakers, renters have filed three lawsuits in federal court docket in Seattle and San Diego since mid-October, alleging RealPage and a slew of enormous landlords are partaking in anticompetitive habits by the corporate’s software program.
After the San Diego lawsuit was filed, a RealPage consultant mentioned the corporate “strongly denies the allegations and can vigorously defend towards the lawsuit.” It has not responded to requests for touch upon the opposite two lawsuits.
A property supervisor named in one of many Seattle lawsuits, Campus Benefit, mentioned in an announcement that it “strongly disagrees with the unsubstantiated allegations within the lawsuit and intends to vigorously defend towards the claims. Campus Benefit is happy with its monitor document creating profitable communities.”
Different property administration corporations named within the three lawsuits both didn’t reply to requests for remark or declined to remark. One couldn’t be reached.