Why has the DOJ not intervened in the NAR Settlement…yet?

Why has the DOJ not intervened in the NAR Settlement case…yet?

Well, perhaps the reason is that the DOJ has been very busy investigating the alleged monopolistic schemes of RealPage, a dominant player in the conventional multifamily rentals marketplace. Will the DOJ now go into second gear with its probe of the residential real estate marketplace? Stay tuned!

The news channels  were buzzing with reports about the public statement issued Friday August 23 by the man himself — Attorney General Merrick Garland —

“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. 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.”

The Department of Justice (DOJ) filed a 115 page civil complaint, joined in by 8 state attorney generals, that describes in witness detail  how RealPages’ scheme not only replaces competition with coordination, it substitutes unity for rivalry. “It subverts competition and the competitive process. It does so openly and directly–and American renters are left paying the price.”

RealPage defended its practice – click here

Just who is RealPage, Inc? For some background on RealPage, including acquisitions and antitrust lawsuits, click here

As a side note: RealPage is owned by the private equity firm Thoma Bravo as part of a April 2021 acquisition deal for $9.6 billion. Interestingly, in September 2020 Thoma Bravo had sold its Ellie Mae asset for $11 billion to ICE (Intercontinental Exchange), a leading operator of global exchanges and provider of mortgage technology. Thoma Bravo had originally paid $3.7 billion to acquire the Ellie Mae asset when  Ellie Mae went private February 2019. That’s a sweet profit of  $7.3 billion in 2 years.

What are the Requests For Relief sought by the DOJ?

• Adjudge and decree that RealPage has acted unlawfully to restrain trade in conventional multifamily rental housing
• Adjudge and decree that RealPage has acted unlawfully to monopolize, or attempt to monopolize, the commercial revenue management software market
• Enjoin RealPage from continuing to engage in the anticompetitive practices described herein and from engaging in any other practices with the same purpose and effect as the challenged practices

Highlights from the Complaint:

• Conventional multifamily rental housing includes apartments available to the general
  public in properties that have five or more living units. Conventional rental housing does
  not include student housing, affordable housing, age-restricted or senior housing, or
  military housing.
• Landlords, who would otherwise be competing with each other, submit on a daily basis their competitively sensitive information to RealPage. This nonpublic, material, and granular rental data includes, among other information, a landlord’s rental prices from executed leases, lease terms, and future occupancy. RealPage collects a broad swath of such data from competing landlords, combines it, and feeds it to an algorithm. A significant number of landlords then effectively agree to outsource their pricing function to RealPage with auto acceptance or other settings such that RealPage as a middleman, and not the free market, determines the price that a renter will pay. RealPage’s scheme not only distorts competition to the detriment of renters, but also allows it to reinforce its dominant position in the market for commercial revenue
  management software.
• Landlords agree to provide this information for use by their competitors because they understand they will be able to leverage the sensitive information of their rivals in turn.
• AIRM and YieldStar’s use of nonpublic, competitively sensitive data is likely to harm, and has harmed, the competitive process and renters. AIRM and YieldStar distort the competitive process by using nonpublic data to maximize pricing increases and minimize pricing decreases.
• AIRM is a revenue management program that employs AI and machine learning to optimize performance. A potential client put it succinctly to RealPage: “I always liked this product [AIRM] because your algorithm uses proprietary data from other subscribers to suggest rents and term. That’s classic price fixing . . . .”
• Concessions cause landlords to deviate from what RealPage determines is the maximum revenue-generating price. In addition to discouraging discounts, RealPage discourages negotiating prices with renters. RealPage trains landlords that “YieldStar [or AIRM] is managing your Price,” so the landlord’s staff can focus on other things.
• RealPage’s core value proposition creates a self-reinforcing feedback loop of data and scale advantages. The sharing of competitively sensitive information among rivals attracts more landlords that seek to maximize revenues and extract more money from renters. As a result of its exclusionary conduct, RealPage has been able to obstruct rival software providers from competing on the merits via revenue management products that do not harm the competitive process.
• Landlord 1 noted that “RealPage supplies the best set of transactional data available via their millions of units of data — this becomes a valuable source of truth to our competitive landscape.” The complaint cites a number of witness statements and admissions from RealPage staff.
• RealPage understands that “pricing decisions start with data.” RealPage explains to its clients that “[t]he data entered into your [property management software] and collected each night, along with current market data (and lead data if OneSite) provides insight into advantageous demand drivers, identifies revenue risk and opportunity, and captures this competitive landscape for informed pricing.” RealPage claimed this “supports that fact that the industry views RealPage as the source of truth for performance data.”
• In one presentation from 2022, RealPage discussed competing revenue management products from Yardi and Entrata. Yardi and Entrata have fewer than 250,000 units, RealPage concluded, while RealPage had at least 4 million. Unlike RealPage, Yardi had a limited data set that used data only from Yardi’s property management software.
• As a result of its exclusionary conduct, RealPage has been able to obstruct rival software providers from competing via revenue management products that do not harm the competitive process, in addition to cementing its massive data and scale advantage that keeps increasing due to feedback effects.
• The multifamily industry recognizes submarkets as an important geographic area for analyzing competition and pools of renters. Multiple industry analysts offer data by submarkets. A revenue management director at Landlord 1 testified about a submarket that “everybody in our industry uses this term.” She further stated that submarkets are a standard categorization system, used by RealPage and others, including to benchmark a subject property’s performance with comparable properties.
  RealPage also tracks data at a more granular level than a submarket, called a neighborhood. A core-based statistical area (CBSA) is also a relevant geographic market. A CBSA is a geographic area based on a county or group of counties. A CBSA has at least one core of at least 10,000 individuals. A CBSA includes adjacent counties that have a high degree of social and economic integration with the core, as measured by
  commuting ties.
• Each landlord using AIRM and YieldStar has agreed with RealPage to provide RealPage daily nonpublic, competitively sensitive data. RealPage invites each landlord to share this information so that it can be pooled to generate pricing recommendations for the landlord and its competitors. Each of these landlords uses RealPage software, knowing or learning that RealPage will use this data to train its models and provide floor plan price recommendations and unit-level pricing not only for the landlord, but for the landlord’s competitors (and vice versa). Landlords are therefore joining together in a way that deprives the market of fully independent centers of decision-making on pricing.
• The transactional data these landlords agree to provide to RealPage, and indirectly to each other, includes current, forward-looking, granular, and highly competitively sensitive information. It includes information on effective rents, rent discounts, occupancy rates, availability, lease dates, lease terms, unit amenities, and unit layouts. Landlords also shared information on guest cards and lease applications. Landlords, including landlords that compete with each other in the relevant markets alleged, have agreed with one another, through RealPage and directly, to exchange nonpublic, competitively sensitive data, both through RealPage’s revenue management software and by other means. The other means include RealPage user groups, direct communications, market surveys, and other intermediaries. The information exchanged includes future pricing plans, current pricing and occupancy rates, pricing discounts, and guest traffic.
• The sharing of nonpublic, competitively sensitive data with RealPage, and its use in AIRM and YieldStar, is anticompetitive. It harms or is likely to harm the competitive process and results, or is likely to result, in harm to renters and prospective renters in at least the relevant antitrust markets identified in this complaint. In each relevant market, RealPage and participating landlords have sufficient market power, including market and data penetration, to harm the competitive process and renters.
• RealPage has unlawfully monopolized the commercial revenue management market through unlawful exclusionary conduct. RealPage has amassed a massive reservoir of competitively sensitive data from competing landlords. RealPage has ensured that rivals cannot compete on the merits unless they enter into similar agreements with landlords, offer to share competitively sensitive information among rival landlords, and engage in actions to increase compliance. As a result of its exclusionary conduct, RealPage has been able to obstruct rival software providers from competing via revenue management products that do not harm the competitive process, in addition to cementing its massive data and scale advantage that keeps increasing due to self-reinforcing feedback effects. RealPage’s anticompetitive acts have harmed the competitive process and renters.
• In a related case that denied  a motion to dismiss Thoma Bravo (RealPage owner), Judge Crenshaw ruled that it would “clearly not be in any individual defendant’s economic self-interest to contribute its data to RealPage without knowing that it would benefit from its horizontal competitors doing the same.”

Related Reading:

Click here for Reuters article 1

Click here for Reuters article 2

Click here for Real Estate News

Click here for Inman article 1

Click here for Inman article 2