CoStar Has Big Plans for Net Marketplace

One of the nation’s largest sources of commercial real estate information, CoStar Group, faces a new set of rivals and opportunities as it tries to transform itself into an Internet company.

The Bethesda, Md.-based firm has spent more than $15 million and acquired an Internet rival to develop its first major product for the Web: CoStar Exchange.com, a digital marketplace for commercial properties. The company’s popular and massive bank of leasing information--which includes details on about 700,000 buildings--will arrive on the Internet later this year.

The Internet push has “increased the [company’s] energy level,” said Andrew Florance,CoStar founder and chief executive. “It’s increased the speed and it’s increased the complexity.”

It also has increased the pressure on CoStar to deal with a host of low-cost Internet competitors. The start-ups cannot match CoStar in size or reputation but they are nimble and offer property information at a fraction of CoStar’s prices.

“Right now the gorilla is CoStar,” said Los Angeles broker Jerry Porter at Cresa Partners. “But there will be [more] competition from a price standpoint. Their information will have to get cheaper.”

About, 35,000 brokers, investors and other real estate professionals in more than 50 cities pay a premium for CoStar’s unrivaled volume of information. Many clients pay tens of thousands of dollars a year for rental rates, tenant rosters, building layouts and photos available through CoStar on a sliding-fee scale based on company size.

The firm employs a team of 700 researchers nationwide to verify and update its information.

“They [CoStar] are absolutely essential,” Porter said. “They save us an enormous amount of time, energy and cost.”

Despite its huge inventory of real estate information, CoStar risked losing its grip on the market without a major presence on the Web. The Internet provides an efficient and broad network for matching up the countless real estate sellers, buyers, tenants and middlemen involved in the process. More than 100 Web-based firms--including LoopNet, Realty.IQ and Alhambra-based PropertyFirst.com--carry information on thousands of buildings available for sale or lease.

CoStar’s nationwide expansion and its growing Internet presence should help the company generate a profit from operations by 2001 after years of losses, Florance said.

“For their long-term survival, it’s mandatory that they go on the Web,” said John Stanfill, president of PropertyFirst.com.

CoStar generates one-third of its more than $30 million in annual revenue from Web-related services. The firm also distributes much of its information via the Internet to refresh the CoStar data stored on its clients’ desktop computers..

The Web version of CoStar’s products will allow the firm to constantly refresh its information and provide more data, maps, historical information and even three-dimensional images. In addition, CoStar’s bank of information will be linked to other sites. That would allow an investor, for example, to easily run a credit check on the tenants of a building that’s up for sale.

But CoStar wants to use the Web for more than simply providing additional information. CoStar Exchange is designed to become the electronic trading floor of commercial real estate business. More than 40,000 properties are already listed in CoStar Exchange.

“The opportunity is huge because you are talking about an investment asset . . . that is the same size as Nasdaq in value,” said Florance of the annual volume of commercial real estate sales.

But CoStar’s plans for its place on the Internet might be limited by lower-priced competitors who want to take advantage of the Web’s mass market reach. Many offer their listings free and anticipate generating revenue from advertising and other sources.

For example, RealtyIQ.com, charges less than $20 a month--a fraction of what CoStar might collect--for access to its listings in individual markets.

Some competitors’ services “are free because they don’t have researchers, or [have] only a few researchers,” Florance said. He said CoStar’s subscription fees reflect the quality of information that is reviewed and collected by hundreds of employees.

“If you’re a commercial real estate professional you need to know everything about every building. To know something about one-tenth of all the buildings doesn’t help much.”