This is an update on one of my personal favorites that I wrote back in 2011. It is still as relevant today than it was back then. At that time, Florida Commercial Information Exchange (FCIE), emerged as one of the upstart companies that dared to challenge Costar/Loopnet as the dominant provider of commercial real estate information. FCIE was later acquired by Xcelligent which became one of our industry’s all-time epic fails – more on that below.
In the midst of this rewrite, I was contacted by my regional rep for CREXI, which 9 years later, is the latest challenger attempting to knock CoStar off its perch. About a year ago I spoke on a Commercial Real Estate tech panel with CREXI’s national sales director and I knew they just got a new round of funding, so I was very interested. Can they do it? Well, they are trying, they have some good ideas and I like their marketing tools. They also listed my properties on their site for free with surprisingly little effort on my part. The listings look great and I’m always happy to expand my footprint on the internet. When I told an associate I would be posting our company’s listings on CREXI, his response was “I’m rooting for anybody who is trying to compete with CoStar.” But here we are 9 years later evaluating whether we want to pay to subscribe to CREXI Pro. The question is still the same: Is Quality Commercial Real Estate Information Worth More than a Guy in a Chicken Suit?
An entire Commercial Real Estate Tech sector has evolved that is trying to chip away pieces of CoStar’s market valuation which peaked at $27 billion earlier this year. I have personal experience on the front lines of that effort. While some companies have carved out viable niches in CRE Tech, nobody has gotten rich trying to compete with CoStar (there may be 1 or 2 exceptions). In fact, you may be better off manufacturing chicken suits.
It is only now that we can look back with “2020 hindsight” at how CoStar became the dominant force in the industry. I must admit, I am a CoStar customer, and like most in my field, I have a love-hate relationship with them. It has become a cost of doing business. They have a great product that is not perfect, but gets better every day. And there is still no viable alternative for receiving the information that is the lifeblood of our industry. Nine years ago, it seemed that CoStar was ripe for disruption. While there are some promising technologies out there, will we be still be saying the same thing nine years from now?
In April, 2011, CoStar completed its highly controversial acquisition Loopnet for $860 million. Looking back, it was a stroke of genius. (yes, I will say some nice things abut CoStar for fear they might cut me off) As part of the transaction, the FTC ordered Loopnet to divest of its ownership interest in Xcelligent and provided Xcelligent with five years of protection to build a competitive platform. But in 2016, CoStar sued Xcelligent for copyright infringement as their agents in India and the Philippines allegedly pirated CoStar images leading to a $500 million settlement. CoStar wound up collecting only $10.75 million, but the suit forced Xcelligent into bankruptcy, and they shut down in 2017. CoStar’s CEO complained that the settlement didn’t cover half of their legal costs, but it turned out to be an incredible investment. CoStar’s market cap soared from $1.3 billion at the time of the Loopnet acquisition to high of $27 Billion. CoStar stock was selling at $46 per share when it acquired Loopnet in 2011. When the Xcelligent suit was filed in December 2016, is was nearing $200. A year later when Xcelligent shut down, it was at $300. It peaked at a pre-corona high of of $746 this February and is at $648 as of May 2020.
With that in mind, here is my updated 2011 article: Is Quality Commercial Real Estate Information Worth More than a Guy in a Chicken Suit? As you read ahead, ask yourself has a viable competitor emerged, will one emerge, or will history repeat itself? And I added some final thoughts at the end.
April 2011: The New Game in Town
A new player has emerged in the field of Commercial Real Estate data in South Florida. The Florida Commercial Information Exchange (“FloridaCIE”) from eProperty Data (ePD) is now up and running for Dade, Broward and Palm Beach Counties. Is FloridaCIE the next killer app that can challenge the dominance of market leader CoStar, will it fade into oblivion, or will it fall somewhere in-between?
The answer to that question depends on the following:
Is quality Commercial Real Estate information worth more than a guy in a chicken suit? I have a unique perspective from which to evaluate as I spent the first 15 years of my career running research departments for Cushman and Wakefield, Colliers International, Commercial Florida and Grubb and Ellis.
While Commercial Real Estate owners and brokers are primarily selling and leasing bricks and mortar, we are really in the information business. We all have access to various data sources. The data itself is a commodity that is either in the public domain or can be purchased from various providers. It is the ability to use the data to create opportunities that is the key to success in our industry.
FloridaCIE has entered the market at a significantly lower price point than the dominant market leader CoStar. For some companies, there is no question regarding the value of CoStar’s premium service. But for others, including my company (which in 2011 was a privately funded developer, owner and manager of office and industrial property), it may be better to go with FloridaCIE and use the savings to do additional mailings, pay-per-click ads on Google, or even to hire a guy in a chicken suit to stand on the street with a “For Lease” sign. The success of FloridaCIE will depend on the quality of their data and the answer to the chicken suit question.
The Current Champion
Before CoStar, the major brokerage companies who could afford their own research departments had a huge edge on the competition. Commercial real estate is an information business and those companies with the best information could attract the top professionals and procure the best assignments. While the residential market has a multiple listing service available to all, the commercial firms have traditionally kept their information in-house and close to the vest.
Starting in 1999, the local brokers began to outsource their research function to Costar, now a $1.3 billion New York Stock Exchange Corporation (As of 2011 – $1.3;B in 2020 $27B). The cost of a research department was therefore spread amongst the subscribers. But annual fees for a single office could still range into the tens of thousands of dollars and that does not include the cost of personnel to operate the software. While CoStar has made it possible for niche players to compete with the national firms in information technology, the cost remains prohibitive for many smaller firms, particularly in today’s (2011) economic environment.
Costar has enjoyed a virtual stranglehold on commercial real estate information in South Florida since 1999 and is now in the process of acquiring Loopnet, its primary competitor. (The deal closed in April 2011) They now face a potential challenge as eProperty Data (ePd) out of Seattle, Washington has entered the South Florida Market. (ePd was acquired by Xcelligent in 2012 and Xcelligent shut down in 2017) They are offering Florida Commercial Information Exchange at a price point as low as $65 per month, a fraction of the cost of Costar. ePD started with its home market of Seattle in 1998 and has expanded to Houston, Seattle, Raleigh, Southern California and now South Florida. The National Association of Realtors (NAR) acquired a majority stake in ePD, but FloridaCIE is available to both Realtors and non-Realtors.
eProperty Data provides subscribers with information on every commercial parcel in the Tri-County South Florida market. This includes leasing availabilities and rates, ownership information, and tenant information (taken from public records but useful). There are tools for preparing tour packages and maps, creating brochures and a mobile app. (wow – they were doing mobile in 2011) There are also market analytics and a financial analysis package from Investit. Property owners and agents have the ability to upload floorplans, pictures and video, and member listings are available online to the public. Properties listed by FloridaCIE non-members are included but can only be accessed by members.
Lets Get Ready To Rumble
I took Florida CIE for a test drive to see if this platform had the power to compete with the other available data sources on the market and most importantly, Costar. Looking at the competition, Costar pretty much stands alone. It has the most comprehensive information, it is updated monthly by professional researchers and the data has been combed through continuously for 12 years, so virtually all significant properties in the market are covered. There is also a good library of historical trend data. The negatives on Costar are the cost and the fact that much of the data is updated off site in Maryland. There is also some turnover among the researchers which can affect the quality of the data. While the data is not perfect, it is the best available and the brokerage community relies and depends on it.
Costar also surveys tenants to provide sizes of tenant spaces, lease expirations and contact information. In addition, their market analytics, reporting capability and user interface are excellent as you would expect from a $1.3 billion company.
Costar’s major competitor, Loopnet has been around since the late 1990s. The main difference between Loopnet and Costar has been that Loopnet listings are added and updated by brokers and owners (we now know it as crowd sourcing) ; while Costar has its own researchers maintain the data. Loopnet keeps its listings up to date by requiring members to update every 30 days. Stale listings get removed. Due to the size of the database and the universal acceptance, Loopnet listings have become fairly comprehensive, but the information is only as good as the people imputing it. CoStar owns and controls its data, which helps to maintain the integrity and quality.
Costar agreed to acquire Loopnet for $860 million in April and the transaction is currently under review by the FTC (results here). The two sites continue to run independent of each other, (in 2020 I enter my data on CoStar’s Marketing Center which populates Loopnet as well – (and that is still the most effective thing I can do to market my properties) and the ultimate result of the merger is yet to be seen (now it’s as clear as day). It does appear, however, that there will be less competition in the commercial real estate information business. It does leave a door open for new competition and puts ePD in an enviable position (the depth of this epic fail has only now been surpassed by WeWork – I’m planning an article on that). There is not much to speak of when it comes to additional competition. Black’s Guide provided property listings quarterly in a handy book format, but their online site never caught on and they folded back in 2009. CRE Sources, Black’s Guide’s successor in South Florida, provides an excellent publication and blog, but provides only paid listings and not a comprehensive list (my friend Debbie Colangelo still does an awesome job but she no longer posts listings). Craigslist fills a useful niche in the market (looking back – a lot of spam, a lot of wacky requirements and 1 or 2 deals) and there are other players such as Total Commercial, (still in business) Diamond Data Mine (can’t find them), Realbird (still at it – primarily residential) and Rofo. (surprise – still operating) But a broker or owner cannot be expected to list his or her properties in too many places still have time to meet prospects and do deals and write a blog. (Buildout has done a nice job of automating that task – 42 floors, acquired by Knotel, officepace.com acquired by Biproxi and commercialcafe.com owned by Yardi, VTS, quantumlisting.com, thebrokerlist.com and one company I have conspicuously omitted are all seeing some success in providing property data. But none can rival CoStar/Loopnet in search results – although CREXI is showing some promise. Thinking about it, the founders of 42 Floors and Officespace may have actually made some money by competing with CoStar)
The Test Drive
Which brings me to the test drive. First, as a matter of disclosure, my company has no financial stake in any of the companies mentioned; we are simply evaluating products for our own use and sharing our observations. We are a subscriber to Loopnet and members of Costar Showcase. Showcase allows us to advertise our properties to the public through Costar, but do not subscribe to their database services. We also list with CRE-Sources, and post listings on Craigslist and Rofo. We also use Google Adwords and we put a lot of effort into our Google search rankings. (of which blogging is a key component)
In our experience, Loopnet provides the most leads of any of the commercial listing sites, followed closely by Craigslist. Costar has been embraced by the brokerage industry, but Showcase in my opinion, has not been as popular among end users. Craigslist also provides a lot of leads, but also tons of spam and some odd requirements. As a tool for promoting our listings, I expect that CIE will fall somewhere between Loopnet and Costar Showcase. If the industry reacts favorably to CIE, and a majority of major listings are posted to the public site, the end users will follow.
The Test: Is it Better than a Guy in a Chicken Suit ?
But will the industry accept FloridaCIE? Here is my take (from 2011) and it is directly related to the test drive. First, I cannot justify a $600+ per month subscription to Costar Data for my company. In our business, the smallest lease we’ll do is worth about $12,000 and a typical lease is worth from $50,000 to $200,000. The argument is that if I do one deal because of CoStar, it pays the cost and then some. But is that $7,000 expenditure more effective than buying additional clicks from Google, sending out 20,000 postcards to potential users, putting up a billboard on I-95 or hiring a guy with a sign dressed in a chicken suit? My opinion is that there are better ways for me to spend my marketing dollar, but we have a somewhat unique niche in appealing to small tenants. The answer for many of our competitors is a clear yes for CoStar. For anyone representing tenants, CoStar is essential, but we don’t represent tenants (it is 2020 and much of my business is representing tenants – I can’t survive without CoStar). In addition, I believe the FloridaCIE platform will be sufficient for many tenant representation specialists.
But is a $780 annual subscription to FloridaCIE worth the cost? For me, absolutely. The ability to promote the properties alone may be worth the cost and I also get the market data, reporting, mapping financial analysis etc. These guys pretty much had me at hello. I did an analysis of the top 60 office properties in Boca Raton to see how well ePD had the market covered. On my top 60, 52 were listed on the site. That’s 87.5 percent. That is good, but I can’t put my reputation on the line with a client if I only have info on 87.5 percent of the market. What is promising is that when I e-mailed my findings to the director of Sales at eProperty Data, they quickly increased the 87.5 percent up to 100 percent. As a result of my findings, they also placed a link on the site for users to identify missing properties. The key here, at least in this early stage, is that ePD appears to be very responsive to its customers. (too bad they weren’t as responsive to photographers and instead stole CoStar images)
I did not test every feature of the product but I found it to perform most if not all of the key functions needed, and any new functionality can and will be added. The reporting capabilities are more than adequate and they are currently being upgraded. What I like about ePD’s interface is that I can get on their map using GIS Tools/Parcel Locator and bounce my little real estate sign from parcel to parcel and get listing, ownership, real estate tax and tenant data on each. This is in addition to the ability to do standard searches by square footage, price and location. I can also draw a polygon on a map and search within it. (CoStar added this feature later – the value of competition)
The next question – Is the data accurate? My opinion is that the one thing we can be certain of, whether it’s Costar, Loopnet or even my own website, is that the data will always be wrong. Things change quickly in a market, and even if a space is not officially listed as available, tenants are always in the process of expanding, contracting, merging and acquiring. There is more to market availability than knowing which spaces are vacant. In short, the data should be reasonably accurate. ePD data is usable now and will improve over time. They intend to update all listings on a monthly basis, and as long as people are using the system, brokers will share in the effort to keep their listings current. What separates the good brokers from the bad ones is the knowledge of how to spot opportunities for their clients. Regardless of what inventory system you use, you’re still going to have to get on the phone and mobile phone plans. As long as I have a comprehensive list of properties and contacts and an easy way to search, I have a usable system.
Conclusion: CoStar vs. ePD and a Chicken Suit
After my evaluation, I have come to the following conclusions. If you’re Cushman & Wakefield, CBRE, Grubb & Ellis, Jones Lang LaSalle (Other than Grubb, which is now Newmark those names haven’t changed either) or another major firm, the $65 monthly fee for ePD is a drop in the bucket. These companies generally have national contracts with Costar. ePD has not yet developed a policy on corporate contracts, but they tell me they will do something similar. I expect the major firms to subscribe to both services. Many regional and boutique firms will likely run both systems concurrently until they determine if they can eliminate the need for the higher priced Costar system. (or until CoStar littigates its competitor out of business) Other local players, solo practitioners and niche landlords like my company (in 2011) are prime candidates to add the CIE system.
It is going to be up to the people at eProperty Data to earn the trust of the brokerage community. If we find that their product fills our needs and that they can beat CoStar on price, they will earn our long-term business. The competition may also force Costar to re-think their pricing strategy which is also good for the brokerage industry. Another possibility may lie in Costar’s willingness to acquire their competition, although with the FTC already involved in the Loopnet deal, any similar moves are unlikely. There are also niches that will continue to be filled by players such as CRE-Sources, Craigslist and Rofo. And any marketing strategy now and into the future must take Google into consideration. If eProperty Data has the resources to provide the industry with quality and timely data at an attractive price, they will be extremely successful. However, if they are spread too thin and we find their data to be unreliable, (or in retrospect if they find themselves stealing data) that success will be shortlived.
The verdict – ePD has a good track record, they are well backed, their people are professional and responsive, and their interface is excellent. I will subscribe to their product and subscriptions are available on a month-to-month basis. My concern is whether they will have adequate resources to cover the market. ePD tells me they have 15 researches who can work on our market, and about five will be assigned full time. That should be sufficient. The financial backing of NAR will give ePD some staying power in the critical start-up phase, but ePD’s success will ultimately depend on the size of their subscriber base. Are there enough companies that will add CIE or switch from CoStar to support the cost of keeping the data accurate? And will the system be relevant enough for brokers to justify the effort in keeping their own listing data current.
In my conversations with the folks at CoStar, their selling point is that they focus on the central control and ownership of the data which provides a premium product that is worth the additional cost. eProperty Data also controls its data, but focuses on the community which shares ownership of the data and contributes to its accuracy, thereby lowering the cost as well.
The emergence of a new choice in market information providers will lead to some interesting decisions for commercial real estate firms in South Florida. For my own company, should I pay thousands for a CoStar subscription or less than $800 for Florida CIE ? One more deal easily covers the subscription cost, but am I better off investing the difference in more clicks on Google, sending out additional mailings, or hiring a guy with a chicken suit and a sign?
It all comes down to whether quality information is worth more than a guy in a chicken suit. The answer to that question depends on the end user. For the larger companies, CoStar is still a clear winner, although it is likely that these firms will subscribe to FloridaCIE as well. For niche players as well as smaller boutique firms and solo practitioners, the emergence of FloridaCIE means that the chicken suit will get serious consideration. It will be interesting to watch over the coming months. Meanwhile, there is a guy in a chicken suit in my lobby asking for an interview.
We’ve Looked Back – Now Let’s Look Ahead
CoStar has a brilliant business model and they have made some equally brilliant business decisions. Basically you give them your information for free, they own it, and then they sell it back to you at a premium price. They acquired their primary competitor in Loopnet, the FTC had them set up their own competition in Xcelligent and they proceeded to litigate that competition out of business.
Are they ripe for disruption? Absolutely, but they were ripe for disruption in 2011. I look at two factors that may change this. First, it could be possible for the brokers to cut off their source of data. The major brokerages such as CBRE, Cushman and Wakefield and JLL provide CoStar with a large portion of their data at no cost, only to buy it back. But even if the brokerages were to band together, the property owners would have a hard time turning their backs on the marketing exposure that those platforms create.
Secondly and I see this as a more reasonable threat, we are seeing API’s (Application Program Interfaces) that allow brokers and property owners to electronically transfer a set of standardized property data to other data providers. Buildout and VTS are two companies that I know of that are implementing APIs. As a broker, I will take the time to make sure my listings are 100% accurate and have perfect floorplans pictures and now virtual tours when I submit them to CoStar/Loopnet. I know that those listings will get maximum exposure with both brokers and occupiers. My CREXI rep had his staff enter my property information off of my in-house availability spreadsheet. One email attachment led to and around 40 listings published online – awesome.
I’m sorry but I don’t have the resources to personally enter the same information on 42 Floors, Officespace, Total Commercial and ROFO and that is a competitive disadvantage to those firms. But if I had an account with buildout or VTS, I could enter the data once and it could potentially populate an unlimited number of listing sites via API. That, as I understand it, is what is happening on the residential side with realtor.com, Zillow and Trulia. CoStar, like Zillow, would have an advantage due to their user interface and market presence. But if we can standardize the data sets and develop APIs – which is something that is already in place, it can go a long way toward leveling the playing field.
So, will I be writing this article again in 2029 and will CoStar maintain it’s stranglehold on he industry? I believe they will remain the market leader, but I also believe the door is open for some niche players to chip away at their advantage. Meanwhile, the guy in the chicken suit is back for another interview. He may have a few more gray hairs, or feathers, but that still may be the best use of my marketing dollars.