Star bright, starlight
- By Wendy Broffman
- Published January 2016
CoStar Group Inc. made a huge splash in the online apartment listing business with the purchase of two Internet listing services (ILS) since 2014 and estimates to have invested a total of more than $1 billion in the sector.
Today, the Washington, D.C. firm is largely accepted as the reigning online provider of commercial real estate (CRE) data and related services for every sector-retail, office, industrial, farm property, raw land, small businesses and, most recently apartments, with a database that continuously updates information about every multifamily community in the nation with five or more units.
While some industry players may view CoStar as a relative newcomer to the multifamily space, the company's founder and CEO Andy Florance told MHP editor-in-chief Michael Rudy during the NAA conference last June that he has been collecting multifamily data since 1984.
On December 17, CoStar celebrated the relaunch of ApartmentFinder.com, after purchasing the company from Network Communications, Inc. last June for $170 million and completing a $30 million site rebuild.
A recent survey of 25,000 renters by J Turner Research indicates that Apartment-Finder.com is the second most used site for apartment searches in the U.S, behind Apartments.com, a similar ILS that CoStar also owns.
CoStar purchased Apartments.com from Classified Ventures in March 2014 for $585 million and spent $80 million to update the site's technology and another $100 million to market the site and build brand awareness.
CoStar says its data on available units and rents is more accurate and timely than its competitors' because both ILSs have direct access to the inventory systems of owners and property management company clients and the benefit of data gathered by more than 1,600 market-specific researchers.
Through Apartments.com and ApartmentFinder.com, CoStar is connected digitally to the back-end systems of tens of thousands of apartment communities and CoStar's researchers have been to every building in the country. CoStar is searching the web continuously and gets about 1.3 million data points per day. CoStar also has 250 secret shoppers who continuously go to these properties as renters trying to get the lowest rents they can get, collecting all the details about the communities. CoStar makes that data available to the consumer in real-time and that's exactly what renters want-to be able to see actual available apartments and actual rents, said Florance in June.
By integrating the back ends of the two ILSs with CoStar's proprietary software, CoStar is able to leverage the same research, systems support and sales platform for both sites and drive cost savings and synergies.
"The real benefit of the CoStar apartment network is that property managers only have one place to go to analyze, manage and evaluate all their leads across their business and manage their advertising processes on the back end," said CoStar Chief Marketing Officer Becky Carr during a phone interview in January. Apartment owners and managers had expressed during focus groups with CoStar that they would prefer to deal with only one salesperson, one online upload and have one place to go to manage their listings, yet it was important to them that those listings go out across multiple sites.
CoStar markets Apartments.com and ApartmentFinder.com as separate brands to consumers with the former focused on providing the most interactive tools for renters, and the latter targeted at renters for whom price is paramount. In addition, ApartmentHomeLiving.com provides renters the ability to narrow their search based on lifestyle preference.
Research indicates that apartment seekers visit three to six sites in their hunt for a new home and CoStar's objective is to see that one or more of CoStar's sites are chosen. CoStar believes managers and owners of apartment properties will benefit from the additional exposure options for their listings provided by CoStar's multiple sites and that this will result in higher quality leads.
"The legacy of CoStar Market Analytics information, coupled with best-in-class ILSs combined, delivers exactly what the business community is demanding-sites that attract different audiences, coupled with the info needed to make the most informed decisions about rents, understanding occupancies, rent concessions and the competitive environment. That's the piece that makes CoStar's multifamily platform unique," said Apartment Finder president and now CoStar SVP, Apartments, Marcia Bollinger.
"The data CoStar provides is real-time, accurate and transparent and no one else in the market can provide that," she said.
"Any piece of information in CoStar Market Analytics is no more than a week old. If you are a property manager looking to set your rents, you know by virtue of using CoStar what your competitors down the street are offering. We have field, telephone and airplane researchers, you name it, we cover the real estate market from all angles," added Carr during a phone interview.
CoStar uses a subscription-based pricing model with four levels of pricing for customers to choose from. "If a customer is in lease up and needs a high level of leads, they can dial right up to our top-level package. If they are subscribing for a Section 8 or tax credit property or their property is at high occupancy, we have a package level to fit their needs," said Bollinger, adding that all bells and whistles on the websites are included in the subscription price.
Becoming the gorilla
The huge monetary outlay CoStar made to purchase the two ILSs, and the costs to market and integrate them, has negatively impacted the company's short-term financial results.
But analysts that follow CoStar are seeing that investment begin to pay off and the distance widen between CoStar and its competitors, according to a report by Morningstar analyst Stephen Ellis last October.
CoStar's key metrics continue to accelerate, he said.
Since launching CoStar in 1987 and executing a public offering two years later, Florance has wanted nothing less than to dominate digital real estate on a global scale.
After more than 20 acquisitions and billions of dollars spent on technology, the company has become what one broker called the 800-pound gorilla in the CRE tech world, monitoring 4.6 million properties in North America, the UK and France.
Florance began tracking apartment buildings, along with every other commercial building in the Washington D.C. area, from his dorm room at Princeton, where he earned a B.A. in economics.
"(We tracked) every single apartment building sale, so we knew where they were, and for every building sold, we looked at the courthouse records and would drive out to the buildings and photograph and measure them and find out the unit mix and who the owner was and then appraisers and brokers would use that information to value buildings to buy and sell them," Florance told Rudy in June.
But being ahead of the curve sometimes means waiting for the rest of the world to catch up.
While Florance analyzed the collected data using software of his own creation, the brokerage community had yet to enter the computer era, so Florance published the data in a print book called Cornerstones and distributed it monthly to brokers and appraisers.
When the personal computer became de rigueur for CRE brokers, Florance sold Cornerstone, launched CoStar and set out to collect data on every single CRE building in the nation.
"When you do that for 30 years you get (information about) a lot of apartment buildings," he said.
"We had been selling such forecast analytics as supply and demand characteristics and employment forecasting to some of the biggest players in the CRE industry, as well as major banks. We were collecting a lot of data and licensing that data from other people, but they couldn't bring the data to us fast enough, so we decided to do it ourselves. Somewhere around 2000, we decided to build a database of every building in the country. We did a grid pattern of the country and used very sophisticated technology cars with electronic mapping, gathering assessment data, phone records and built a complete database of nearly a half million multifamily properties," he told Rudy.
The company's acquisition of its closest online competitor LoopNet in 2012 married CoStar's focus on market intelligence to LoopNet's focus on properties for sale in the marketplace. CoStar's subscription-based information service doubled its customer base after the transaction.
Meanwhile, Millennials and Baby Boomers continued to drive rent growth at a rapid pace. CoStar prepared to take a huge digital bite out of the apartment sector to capitalize on what Florance saw as an opportunity to carve a niche in the $2 trillion multifamily asset class.
In 2013, the company launched CoStar Market Analytics, a multifamily database that provides information about more than 550,000 apartment communities.
Next, CoStar went ILS hunting to provide the online portal piece the apartment industry was missing. The ILS industry at the time was working with aging business models that listed unavailable units and inaccurate data.
If CoStar could provide renters with a better way to search for apartments online, the company could, in turn, give its paying advertisers more quality leads.
Three months after launching CoStar Market Analytics, the company went under contract to purchase Apartments.com. ApartmentHomeLiving.com and Rental-HomesPlus.com also were part of the deal with seller Chicago-based Classified Ventures, an investment group that included newspaper companies.
With a large capital spend allocated to the task, CoStar brought together its teams from LoopNet, CoStar and Apartments.com to rebuild the site.
The new Apartments.com relaunched in February with more listings,