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Why the Failed RentPath Acquisition Is but a Scratch for CoStar

Somewhere in Washington, D.C. at the end of last year, executives at the giant real estate data firm CoStar signed a purchase agreement for a 310-thousand square foot office in nearby Richmond, Virginia. The building is already emblazoned with the CoStar logo, since the company is already a major occupier. The purchase is emblematic of a successful business whose share price is up almost 40 percent since the beginning of last year. It is less emblematic of a business that just had a major acquisition fall apart due to a lawsuit from the FTC. So just exactly what is CoStar up to?

According to the FTC, the $588 million purchase of the major residential listing site RentPath was a bridge too far for CoStar. This purchase is one of a long line of acquisitions, already having bought companies like HomeSnap, Realla, Apartment Finder, and ForRent.com. If the acquisition were to have gone through, the FTC said, CoStar would control 70 percent of all apartment advertising in America. Indeed, most of CoStar’s acquisitions have been listing or marketing platforms for apartment or, increasingly, single family residential properties. For its part, the FTC was concerned that with RentPath, CoStar stood to attain a monopolistic position within the rental listing world, thanks to the company’s dominance in the world of commercial real estate data. But while CoStar must be reeling from December 30th news that RentPath itself was backing out of the deal, perhaps the New Year will find the giant data company in a greener field. 

The other recent purchase CoStar has made, HomeSnap, was recently given the go ahead by the FTC, perhaps because that acquisition focuses on residential real estate as opposed to multifamily. And while it’s the RentPath fiasco that gets the headlines, the HomeSnap acquisition might be more telling as a snapshot of CoStar’s strategy. Growing in the apartment world is only an expansion of business as usual for CoStar, but the single family space is something different. Just last month, CoStar announced the acquisition of the URL Houses.com. In the company’s press release, the long-term vision is made clear: “CoStar Group plans to develop a vibrant national marketplace for agents and owners to successfully sell homes without disenfranchising or disintermediating valuable real estate agents in the process.” 

This is not a one-off investment, either. CoStar’s founder and CEO Andy Florance has put the residential world squarely within his sights, saying at the company’s third quarter 2020 earnings call that, “I would note one of the things that really stands out for me is that the United States is an oddly underdeveloped country when it comes to residential marketplaces. If I look at a mature residential marketplace provider like REA Group in Australia and I take the relative size of U.S. and Australia on a GDP basis, it would imply that you’d create a market cap of about $200 billion in the U.S. on a residential marketplace.” 

Expanding into the residential world seems like a good strategy for CoStar, which has historically been frustrated by anti-trust action on the commercial side of things since it is already so big in the field. Back when CoStar bought LoopNet, a brand with which it is now synonymous, the FTC forced the latter company to spin off part of its business into the CoStar competitor Xceligent before the transaction completed. Xceligent, of course, later found itself in a very expensive legal battle with CoStar, which it eventually lost causing its ultimate demise. 

So while the RentPath deal is in the trash, the company is clearly no stranger to facing and eventually outmaneuvering FTC regulators. This is probably a skill set that Mr. Florance hopes his company retains, since this scuppered deal will be far from the last one to attract the ire of governmental regulators. The FTC under the normally pro-business Trump administration was already known for big antitrust actions against tech giants like Facebook and Google, but many of those actions were cast under the pallor of Trump’s political whims and rivalries with businesses like Amazon and Facebook. A Biden-appointed FTC chair, presumably more uniformly tough on high-level M&A activity, could represent a bigger wrench in the CoStar works. 

The book is closed, for now at least, for CoStar to acquire RentPath. But if the LoopNet acquisition is any indication, the goals of the giant, lawsuit-happy data provider will not be stymied by one measly little lost deal. While CoStar’s activities in the residential world might end up dominating their 2021 activities, don’t expect Mr. Florance’s nascent interest in the residential sector to compromise the company’s core commercial data focus. Centralizing data on both the commercial and residential worlds will be a great benefit for consumers on both sides of the coin. Multifamily pros obviously have much to gain from tapping into this world of data, but other sectors of the industry would stand to gain, too. Retail follows rooftops, as the saying goes, so for space planners in retail (and consequently industrial), and even office, developing clear insight into the housing world would be a very good thing indeed. 

Even without RentPath, CoStar as-is is still absolutely the dominant force in commercial real estate data. But news of the failed acquisition will prompt many to ask again whether we will soon see a valid competitor stop CoStar’s increasing monopoly in the industry. Crowdsourced data sharing by the professionals themselves could probably achieve this goal, this is what the leasing data company Compstak has set out to achieve. But when it comes to researchers pounding the pavement for building and transaction data, there is no rival to CoStar’s nearly two thousand person strong research army. So the question then becomes: who could ever hope to rival CoStar at its own game?

The answer could lie in the consolidation of other firms operating in the field. Moody’s Analytics has partnered with and invested in CompStak. They also just announced their acquisition of commercial brokerage software and data provider Catylist. Meanwhile the Lightbox Group has also quietly amassed a portfolio of brokerage tools, first with their purchase of companies Real Capital Markets and Digital Mapping tools in May of last year and the CRM ClientLook this January.

Bringing together complementary companies in the space could be the best strategy out there to provide meaningful competition to CoStar. But as CoStar expands their own capabilities they become even more valuable to brokers, both for data and for marketing. Even if the RentPath deal is not meant to be, it does signal what seems like an inevitable march into the residential space for the CRE giant. Whether or not they will be able to get their hooks into residential brokers like they have with commercial ones remains to be seen. Much of the data around residential properties is public record. Residential agents often don’t have the kinds of budgets that commercial teams do. Plus there are already a lot of large competitors in the space like Zillow and Redfin. But, CoStar has never been one to back away from competition and now we will see if their researchers and their lawyers can have the same effect on residential data as they have on the commercial property landscape.

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