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800 Pound Gorilla CoStar Dominates the CRE Data Market

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Photo via Real Estate Tech News

If we are living through a second gilded age, as it is often said, then perhaps we are also living in a second age of monopolies. For both businesses and consumers, options have narrowed to a handful of companies, particularly when it comes to big data. For those in the commercial real estate market, access to data typically means just one thing: the CoStar Group, the major national player for CRE information and analytics. CoStar received antitrust clearance from the FTC for its most recent purchase of ForRent.com, and while it was pressured by the agency after its acquisition of LoopNet in 2012, recently retired acting bureau director Tad Lipsky has stated that the company has yet to violate antitrust law.

Legally, then, CoStar is not a monopoly. But even so, Lipsky admits that it might “behave in ways that, even though they are perfectly legitimate, cause customers to have that complaint.” The “complaint” is widespread. As Orlando-based broker and CCIM President Robin Webb puts it, “the loss of competition at a level that prominent is certainly challenging to the industry. It eradicates the choice, and that’s not usually good for the buyer in any instance…. It certainly opens up the opportunity for abuse any time there’s a single player.” Many others have expressed similar concerns about CoStar’s aggressive pricing and notoriously litigious nature.

Webb’s comments came after CoStar effectively eliminated its last serious national competitor, Xceligent, a company, ironically, that the FTC forced CoStar to sell when it acquired Xceligent’s owner, LoopNet. In recent years, Xceligent and CoStar have battled it out in some publicly nasty lawsuits. CoStar charged intellectual property theft; Xceligent, in turn, filed an antitrust countersuit, alleging “years of anticompetitive behavior.” As the battle heated up, both companies frequently updated their clients with emails and announcements detailing the alleged abuses of their opponents. (The tactic was not well-received.)

Then, in December of 2017, Xceligent folded, and filed for Chapter 7 bankruptcy. Other possible competitors, like CompStak, have also faced lawsuits from CoStar. CompStak founder Michael Mandel tells Bisnow, “when we speak to clients and prospects, we hear universal concern around CoStar’s business practices. Quite frankly, the industry views CoStar as a monopoly that takes advantage of the fact that it’s a monopoly day in and day out.” The company’s practices may not alarm regulators, but that does not mean they don’t have a negative impact on both its competitors and its users.

“Since 1999,” Bisnow reports, “CoStar has filed at least 32 lawsuits against 28 different entities, most alleging copyright infringement and other intellectual property complaints,” a strategy CEO Andrew Florance defends as a “vital and prudent investment.” Many of these suits—some against its own users—“never proceeded on the merits (that means ‘went to court’ in legalese),” writes Franco Faraudo at <propmodo>. Just this month, Florance announced that the company “invested significant legal fees and efforts over the past two years” to bring Xceligent “to a complete stop.” It is now directing those resources at so-called “freeloaders,” says Florance, as many of 30,000 of its users who are allegedly accessing the company’s database without a valid license.

CoStar’s dominance in the market has not endeared it to many smaller brokers and sellers who feel particularly squeezed and aggrieved. “CoStar knows how a lot of people feel about them,” says Atlanta broker Daniel Levison, who notes that the company’s services can constitute one of the largest expenses small brokerage firms have. (Not only does CoStar control the CRE market, but it has also taken over the rental market with its recent purchase of ForRent.com and ownership of Apartments.com and Apartmentfinder.com.) The company has become, writes Faraudo, “the 800 pound gorilla in the commercial real estate industry” and that seems unlikely to change anytime soon.

On the other hand, the company relies on the data fed to it by property owners, which it then resells to brokers, investors, and developers. And it relies on brokers to post listings to its sites. If enough owners and firms stop using or contributing to CoStar’s services, the company will be forced to adapt to the needs of its users, or it will eventually succumb to smaller, more nimble competitors who will meet those needs more affordably. When it comes to rentals, at least, new competitors like Apartment List might successfully take on CoStar. The field for challengers in the CRE data and analytics market is currently wide open.

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