What does everyone think about Friday's news that the DOJ is suing RealPage? Business Chronicle article below:
The U.S. Justice Department and the attorneys general of eight states have filed a civil antitrust lawsuit against RealPage Inc., alleging the pricing algorithm the company uses for its commercial revenue-management software violates antitrust laws and harms millions of renters.
The lawsuit, filed Friday, is the latest action brought against the Richardson, Texas-based real estate software company, which has seen a wave of class-action suits filed against it in relation to its algorithm-based software.
The Justice Department's complaint says RealPage’s alleged conduct "deprives renters of the benefits of competition on apartment leasing terms." The attorneys general of California, Colorado, Connecticut, Minnesota, North Carolina, Oregon, Tennessee and Washington joined the Justice Department in the complaint.
The lawsuit was filed in the U.S. District Court for the Middle District of North Carolina. It alleges that RealPage violated Sections 1 and 2 of the Sherman Act.
“Americans should not have to pay more in rent because a company has found a new way to scheme with landlords to break the law,” said Attorney General Merrick Garland in a statement. “We allege that RealPage’s pricing algorithm enables landlords to share confidential, competitively sensitive information and align their rents. Using software as the sharing mechanism does not immunize this scheme from Sherman Act liability, and the Justice Department will continue to aggressively enforce the antitrust laws and protect the American people from those who violate them.”
A spokesperson for RealPage issued the following statement about the lawsuit to The Business Journals Friday afternoon:
“We are disappointed that, after multiple years of education and cooperation on the antitrust matters concerning RealPage, the DOJ has chosen this moment to pursue a lawsuit that seeks to scapegoat pro-competitive technology that has been used responsibly for years. It is merely a distraction from the fundamental economic and political issues driving inflation throughout our economy — and housing affordability in particular — which should be the focus of policymakers in Washington, D.C. RealPage’s revenue-management software is purposely built to be legally compliant, and we have a long history of working constructively with the DOJ to show that. In fact, in 2017 when the DOJ granted antitrust clearance for our acquisition of [Lease Rent Options], the DOJ also analyzed extensive information about our revenue-management products without objecting to them in any way. We believe the claims brought by DOJ are devoid of merit and will do nothing to make housing more affordable. We intend to vigorously defend ourselves against these accusations.”
Earlier this summer, RealPage also issued a statement that said beginning in October 2022, "false and misleading claims" about RealPage and its revenue-management software have been reported to the media and in legal filings.
The Justice Department lawsuit says RealPage contracts with competing landlords who agree to share with the company nonpublic, competitively sensitive information about their rental rates and other lease terms to train and run RealPage’s algorithmic pricing software. This software, according to the complaint, then generates recommendations for participating landlords based on their and their rivals’ competitively sensitive information.
The complaint states that in a free market, these landlords would otherwise be competing independently to attract renters based on pricing, discounts, concessions, lease terms and other aspects of apartment leasing. RealPage, according to the complaint, "uses this scheme and its substantial data trove to maintain a monopoly in the market for commercial revenue management software."
The plaintiffs say they seek to end RealPage’s "illegal conduct" and "restore competition for the benefit of renters in states across the country."
Rental housing saw big rent gains during Covid-19 pandemic
The lawsuit comes on the heels of a national rental-housing market that saw significant rate gains during the Covid-19 pandemic — growth that has since moderated and even contracted to some degree as a record amount of new supply hits the market.
Median asking rents for studios and one-bedroom apartments fell 0.1%, two-bedroom apartments fell 0.3% and units with three or more bedrooms fell 2.4% between July 2023 and July 2024, according to Redfin Corp. (Nasdaq: RDFN). Additionally, 33.2% of rental listings on Zillow were offering a concession in July, up from 25.4% last year, an analysis by Zillow Group Inc. (Nasdaq: ZG) found.
In June, 59,200 rental-housing units nationally were completed in buildings with five-plus units, according to Federal Reserve data. That's the highest number — by a significant margin — of completions on a monthly basis since the mid-1970s.
Despite the more recent slowdown, median rent nationally this spring was still just $33 less (or 1.9%) than the market's peak in August 2022, Realtor.com found. At that time, it was still $316 higher (22.5%) than the same time in 2019, underscoring how significantly rents have grown since the onset of the Covid-19 pandemic.
The cost of housing has also increasingly become a political issue, with housing affordability cited as a top issue among many voters, especially members of Generation Z.
They should sue CoStar next.
Don’t even need a reason. Fuck em.
How about Yardi!!!!!!!! Though I interviewed with CoStar after Undergrad and man I'm glad I didn't take that job.
Based on the most helpful WSO content, here's what you need to know about the DOJ's lawsuit against RealPage:
Key Points:
Lawsuit Details:
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This lawsuit underscores the ongoing tension between technological innovation in pricing strategies and regulatory efforts to ensure fair competition and protect consumers.
Sources: The verdict is in, https://www.wallstreetoasis.com/forum/investing/stop-the-sugar-the-daily-peel-112621?customgpt=1, Downfall of RE, Do Startup Tech Companies Have Too Much Power?, The Daily Peel is Here - July 06, 2021
I don't understand the legal underpinning of the case, or have any real idea what RealPage does... but this certainly seems like a bit of theater.
And to be honest, even if RealPage is engaged in anticompetitive behavior, this doesn't actually address the problem, which is NIMBYs preventing more housing from being built.
They are trying to prove that the different PM/Ownership groups of condo buildings were aggregating their information not to create a competitive market and use the system as a easy way to see market rent as well as have a seasonality to the rents but instead conspire with each other to keep rents stabilized on an upward growth even with occupancy issues and what not. It started in DC/MD/VA, where the DC AG sued these online databases for conspiracy in property management. This is older news as the lawsuit and investigation is a couple of months old in the DMV. They are stating that it's basically price fixing. But there hasn't really been any evidence of price fixing. However, they have raided a couple of property management groups, including prospect and real page offices, to take computers and documents. As of now it'll take a while to play out but for instance I don't think right now the accusations have deep evidence as Fannie, Freddie, and FHFA are allowing prospect to still borrower and refi, they would of shut them down quickly if there was some sort of deep conspiricacy proven.
Thanks for the update, much appreciated!
Though I will say, the agencies aren't exactly shining beacons of prompt action in response to bad boy acts. I can think of a bunch of other cases where it took years for the agencies to take action/notice acts of outright criminality on the part of borrowers.
And for what it's worth I tend to think that any price-fixing scheme for rental apartments is bound to fall apart, ownership is way too fragmented.
If I'm reading the reporting correctly there is no 'smoking gun' on collusion (and the 'raids' turned up empty). Instead, the argument is that the AI / algorithm driving pricing is de facto collusion.
It's highly specious and an election-year stunt.
If there is anything left-wing NIMBYs and right-wing NIMBYs have in common, it is an utter lack of understanding about how commercial real estate actually functions. The idea that there is a conspiracy in rent pricing beyond "making money" is laughable. It is quite literally more anti-competitive when I call a buddy of mine at a different shop and make fun of him for being a pussy when he decides to offer two months free rent instead of one. Developers are not sitting around content with half-filled buildings screaming "HOOOOOLD" at each other to maintain an arbitrary rent number. They're getting that shit filled & sold.
Multifamily rents are also not non-public or sensitive information. They are quite literally advertised and are splattered on every single apartment website imaginable. Vacancy rates are also easily obtainable. All aggregators do is save the time that some intern or analyst would have to spend on the phone with the property managers in the comp set going through each floorplan one by one.
Luckily the tide seems to be turning against NIMBYism on a national level, as it is easy to see the supply and demand dynamics at work from market to market. Austin, for example, had a shit ton of deliveries and rents actually went down. Turns out, if you build more housing, housing becomes more affordable. Renters win and developers win. Imagine.
I will say having worked on a lease-up in a pretty high-supply submarket we did think a lot about where our rents and concessions were relative to others to avoid a price/concession war, but it wasn't collusion, we never communicated with the neighboring properties on strategy. If anything it's typical game theory any rational actor would take into account when dealing with repeat players.
The craziest is in the mid atlantic for the most part it's the same PM groups running most of the buildings in that zip I feel like wouldn't that be the bigger conclusion. The actual PM is getting comped based on stabilization and slow turn over to higher rents. I've seen it screw them using the Yardi, Costar, or Real Page systems, Hell my old building upped rent significantly cause two new buildings were done with concessions and lease up and their rents went up. They wouldn't budge and went from a 93-94.5% occupancy to a 82% occupancy in 1 month, it was crazy. They are back up but the actual staff was all turned over haha.
It's not typical game theory if there's a middle man spitting out rents
Might be painting with a very broad brush here, but this feels like LIBOR manipulation but rental pricing. NIMBY-ism contributes to the supply constraint but this is a separate issue focusing on the price not the quantity. Reads like the legal underpinning is that property management is able to gain visibility into what others are charging through RealPage's aggregation then "hint hint, nudge nudge" prices upward to get RealPage's advertised "beating market by 5-7%". Might just be an election year stunt, probably will go away with a new administration.
I used the software a while ago and the government is vastly overstating it's function and Realpage's handholding in all of this. Outside of the just blatantly supply constrained areas (I mean truly constrained), the Covid rent relief and eviction moratorium contributed far more than Yieldstar.
The tail risk and corresponding fallout from the eviction moratoriums has had very negative effects - directly contrary to the designed outcome of those silly laws - basically, why do a workforce multi deal in a submarket where the tenant pool feels immune to eviction because of covid-era protections
Ultimately that creates less competition in a market and therefore less housing opportunities which is the antithesis of the reasoning behind the covid moratoriums
Bingo. See Wood Partners slow but calculated exit from West Coast markets. Fwiw we’re also trying to offload our last asset in one of these terribly unfriendly zip codes.
Had a court date for an eviction set 9 months after the resident went delinquent and.. I think that was the last straw for our partners.
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