The DOJ and eight states on August 23 sued the private equity-owned company that allegedly operates as the middle man in a national property management cartel that has sent rent through the roof. The civil lawsuit accuses RealPage of using the software it sells to real estate management companies to orchestrate an illegal price-fixing scheme, which all but eliminates competition among mega landlords, allows them to boost prices, and acted as a major factor in skyrocketing rents in recent years.
RealPage and the rental management companies, many of which are private equity-owned, are also facing dozens of class action lawsuits from tenants. A separate lawsuit against Santa Barbara-based Yardi, a company similar to RealPage, accuses it of using its RENTmaximizer (now Revenue IQ) product to do exactly what RealPage is accused of doing.The DOJ also opened a criminal investigation into RealPage, and the large apartment owners and managers that use the company’s pricing software, to determine if the firm is facilitating price fixing.
Back in December, the DOJ closed its criminal investigation into price-fixing practices in the multifamily rental housing industry. It increasingly looks as though the civil antitrust suit will be next.
US Attorney General and corporate lobbyist and foreclosure fraudster Pam Bondi is leading a house cleaning operation at the Justice Department, getting rid of or sidelining career supervisors who were responsible for going after corruption, price fixing, securities fraud, and other crimes. That doesn’t bode well for the effort against RealPage Here’s Propmodo, putting it politely:
…it appears that the RealPage case may not be a priority for federal prosecutors. Andrew Ferguson, head of the FTC, has stated that mergers and acquisitions are the primary focus of the current team. Gail Slater has also focused on mergers; during her time at the FTC, she worked to block several high-profile deals, including Whole Foods’ attempt to acquire Wild Oats Markets. She has further experience working alongside tech companies, having served as vice president for legal and regulatory policy at the Internet Association, a tech lobbying group.
There is still a distinct possibility that the DOJ will continue its probe into property pricing software. But, the new DOJ seems less concerned about algorithmic pricing schemes and more focused on preventing large-scale mergers.
Arizona Attorney General Kris Mayes said in March that she is worried the federal RealPage lawsuit could be on the chopping block. The Trump administration has also declared open season for various forms of white-collar crime, such as foreign bribery, public corruption, money laundering and crypto markets.
Many defense lawyers, encouraged by the shift, have urged prosecutors to drop cases or probes, and their wish has been granted. In December, lawyers for RealPage asked that the U.S. District Court for the Middle District of North Carolina dismiss the antitrust lawsuit brought against it by the Department of Justice and 10 states. The court has yet to rule on that request, but there are signs that the Trump DOJ might “deprioritize” the case regardless.
Meanwhile, on April 2, RealPage, which is owned by private equity giant Thoma Bravo, announced that it has filed a lawsuit against the City of Berkeley, California for passing an ordinance barring local landlords from using AI-driven pricing algorithms to set residential rents.
RealPage claims Berkeley seeks to “prohibit the use of math” and publicly available information to “provide advice or recommendations” to its customers who own and manage rental housing properties and this amounts to a ban on “lawful speech.” Berkeley City Attorney Farimah Faiz Brown told Reuters the following:
“RealPage has no First Amendment right to engage in, or facilitate, unlawful pricing alignment, coordination or fixing,” Brown said via email, adding that the city, represented by Keker, Van Nest & Peters, “intends to vigorously oppose RealPage’s lawsuit.”
Let’s take a quick look at a few of RealPage’s claims that accompanied its suit against Berkeley.
RealPage says its customers are “never punished” for declining “recommendations.” and that it “makes price recommendations in all directions – up, down or no change – to align with property-specific objectives of the housing providers using the software.”
They would appear to be more than just mere recommendations. From one of the lawsuits against RealPage:
Beginning in approximately 2016, and potentially earlier, Lessors replaced their independent pricing and supply decisions with collusion. Lessors agreed to use a common third party that collected real-time pricing and supply levels, and then used that data to make unit-specific pricing and supply recommendations. Lessors also agreed to follow these recommendations, on the expectation that competing Lessors would do the same.
Here’s an Associate Vice President of one of the defendants talking up the collusionary aspect of the software, which was featured in RealPage’s own literature:
With LRO [RealPage’s Lease-Rent Options] we rarely make any overrides to the [pricing] recommendations . . . [W]e are all technically competitors, LRO helps us to work together . . . to make us all more successful in our pricing . . . LRO is designed to work with a community in pricing strategies, not work separately.”
The lawsuits also allege that there was considerable pressure to follow the “recommendations”:
To ensure that the landlords abide by these “recommendations,” RealPage puts significant “pressure” on them “to implement RealPage’s prices,” including by requiring clients to submit requests to deviate to the “corporate office” and tracking the “identity of the client’s staff that requested a deviation.” Multifamily Compl. ¶¶ 17-20, 261-86. As a result, landlords using RealPage adopt RealPage’s recommendations 80-90% of the time.
Furthermore, according to a joint legal brief from the DOJ and FTC, even without the additional pressure, these types of recommendations via algorithm are still illegal:
It is per se illegal for competing landlords to jointly delegate key aspects of their pricing to a common algorithm, even if the landlords retain some authority to deviate from the algorithm’s recommendations. Although full adherence to a price-fixing scheme may render it more effective, the effectiveness of the scheme is not a requirement for per se illegality.
RealPage contends its software “contributes to a healthier and more efficient rental housing ecosystem that benefits both renters and housing providers.”
All evidence points to the contrary.
RealPage officials have bragged about the outsized effect their software has on rental market prices. Company executive Andrew Bowen once said that the software was “driving it,” referring to rental price increases. He added: “As a property manager, very few of us would be willing to actually raise rents double digits within a single month by doing it manually.”
As we pointed out in a piece in September of last year, there are strong signs that the use of price-setting software in some of the nation’s largest rental markets are contributing to the explosion in homelessness:
To really get a feel for the effect of the RealPage and property management company cartel, it’s best to look at individual metro markets. That’s because in cities like Seattle, San Francisco, New York, Boston, Nashville, Dallas, Atlanta, etc. the market can be dominated by large (oftentimes private equity-owned) companies, and if all of them are colluding using RealPage, the effect can be enormous.
Let’s focus here on Los Angeles. While the story is the same across many markets, LA also happens to be the epicenter of US homelessness crisis.
Los Angeles County is the 6th largest multifamily market with 448,848 completed units. Strategic Actions for a Just Economy, an LA organization that focuses on tenant rights and economic justice, in their 2021 report, “Beyond Wall Street Landlords: How Private Equity in the Rental Market Harms Tenants,” found that more than two thirds of all LA Rentals are now owned by speculative investment vehicles.
Corporate landlords named in the RealPage lawsuits include Essex Property Trust, Equity Residential, and AvalonBay Communities — the three biggest players in LA real estate management.
Combined they control 35,020 multifamily units, or 7.8 percent of LA County’s 448,848 units. According to lawsuits against RealPage and large property management companies, there are another 17 companies that use RealPage’s rent-setting tool in LA, and together, they account for just more than 52 percent of all rental apartment buildings in the LA market. [1]
A separate lawsuit against Santa Barbara-based Yardi, a company similar to RealPage, accuses it of using its RENTmaximizer (now Revenue IQ) product to do exactly what RealPage is accused of doing.
When you throw Yardi into the mix, that means that 79 percent of all multifamily rental units in LA County are being listed using collusion software. Widespread adoption of this collusion software has helped LA rent prices go through the roof in recent years. It is up 41 percent compared to 2016 — the year when RealPage hit “critical mass.”
RealPage says its revenue management software “has been available for two decades and is purposely built to be legally compliant”:
This is the legal gray area. Much of the legal architecture that muddied the waters of price-fixing prosecution was established by the Clinton Administration and later sanctioned by Obama. “Information sharing” largely wasn’t prosecuted due to a Clinton-era loophole introduced by HRC in 1993 that allowed it in the healthcare industry (purportedly to help lower prices, although the opposite happened), but importantly, the rules were interpreted to apply to all industries. Those rules were further liberated in 1996 and then again in 2011 under Obama’s Affordable Care Act and its Accountable Care Organizations provision.
The current DOJ announced the end of that no-enforcement arrangement last year, however, when it closed those Clinton-era information-sharing loopholes. Principal Deputy Attorney General Doha Mekki explained the rationale behind the decision, saying that the development of technological tools such as data aggregation, machine learning, and pricing algorithms have increased the competitive value of historic information. In other words, it’s now (and has been for a number of years) way too easy for companies to use these so-called “safety zones” to fix wages and prices. The problem is that no judicial decision has yet adopted the DOJ’s position. And judges will have less of a chance to do so if the Trump DOJ withdraws the civil case against RealPage.
As far as I understand it, until a judicial decision comes down, the Trump DOJ could also simply reopen the “information sharing” loopholes—officially or unofficially if companies know they won’t be prosecuted.
The fact that RealPage is now confident enough to declare its actions “lawful speech” coupled with other Trump DOJ hints sure makes it appear as though that will be the case.