The FBI is searching the headquarters of one of America’s largest real estate owners as part of a criminal antitrust investigation

The FBI has issued an arrest warrant for the offices of Cortland Management, one of the largest real estate owners in America, in connection with the Department of Justice (DOJ) antitrust investigation into price fixing in multifamily construction. Cortland Management’s website says the company’s portfolio is worth $218 billion and it manages 85,000 units in 13 states.

They have become the latest addition to a growing list of management companies and real estate affiliates that the Justice Department suspects of creating an illegal rental monopoly. However, the search of Cortland Management’s offices does not necessarily mean that management companies and REITs will be the final targets of the investigation. The real problem may be the widespread use of RealPage software and real estate advisory services.

RealPage offers several software solutions for the multifamily rental industry, including basic management software that allows businesses to collect rent, pay bills and handle other accounting functions. This aspect of their services does not appear to be in the DOJ’s crosshairs. RealPage’s use of algorithms to help landlords set rent increases appears to be under scrutiny.

Don’t miss:

Rents charged by companies using RealPage management software are one of the key data on the basis of which their algorithm recommends the amount of a rent increase for a given apartment. Previously, rent increases were determined by local property managers in consultation with senior staff at the management company’s headquarters.

The algorithm consistently recommends aggressive rent increases based on the information RealPage collects from the various companies using its software. Together, these companies may represent hundreds of thousands of units throughout the country. The long-term effect for tenants is that rents keep rising no matter what they do.

If tenants stay in their current apartment and sign a renewal agreement for a higher amount, RealPage and the tenant management company win. If a tenant moves and finds the market dominated by other management companies using RealPage, the other management company and RealPage win. In such a situation, the tenant basically never wins.

Trends: The average American couple has saved this much money for retirement – How to compare?

Individual tenants began suing RealPage, believing that the company’s software and algorithms allowed landlords to collude with one another and keep rents high. These lawsuits will ultimately be consolidated into one case heard in Federal District Court in Nashville. This civil case appears to have sparked the current antitrust investigation, which could have criminal consequences if the Justice Department discovers the conspiracy.

Meanwhile, law enforcement officials across the country are closely monitoring the situation. Arizona is the state where Cortland operates, and Attorney General Kris Mayes spoke on the case, saying: “The conspiracy that RealPage and these owners allegedly engaged in harmed the people of Arizona and directly contributed to the affordable housing crisis in Arizona. This conspiracy stifled fair competition and essentially entrenched a rental monopoly in our state’s two largest metropolitan areas.”

Meanwhile, Cortland’s management confirmed the search in a recent statement that read in part: “We are fully cooperating with this investigation and understand that neither Cortland nor any of our employees are a ‘target’ of this investigation.” Due to ongoing court proceedings. , we are unable to comment further at this time.”

The Department of Justice has not issued a public comment on the search of Cortland Management’s offices, but the investigation is ongoing. ProPublica recently conducted an independent investigation into RealPage. They concluded that RealPage (which denies any wrongdoing) used its algorithms to encourage rent increases across the country to maximize profit for everyone.

If the Justice Department agrees with ProPublica, the result could be a high-profile case against many of America’s largest property owners. The total damage from artificially high rents could run into the billions. This may cause RealPage and many of the nation’s largest multifamily REITs to reduce mass billing audits. The outcome is uncertain, but multifamily real estate investors across the country are advised to keep a close eye on this situation.

“ACTIVE INVESTORS’ SECRET WEAPON” Step up your stock market game with the #1 tool for trading “news & everything”: Benzinga Pro – Click here to start your 14-day trial now!

Getting the latest stock analysis from Benzinga?

This article FBI searches headquarters of one of America’s largest real estate owners as part of criminal antitrust investigation originally appeared on Benzinga.com