Next Generation Of CRE Data Companies Cautiously Emerges To Challenge CoStar
The commercial real estate data sector is rapidly and fundamentally changing before our eyes.
Startups like VTS, Reonomy and CompStak are launching new services, charting nationwide expansions, landing venture capital investments and securing institutional partnerships. As they widen their product offerings and user bases, these companies are beginning to resemble young versions of the industry's Goliath: CoStar.
But don't tell them that.
The CEO of each company tells Bisnow they see their offerings and business models as materially different than CoStar's. They see the December shutdown of Xceligent as a warning against taking on CoStar head-to-head at its own game, and instead say they are approaching the space with newer technologies and more efficient strategies than the industry's 30-year-old giant.
CoStar CEO Andy Florance, in an interview Thursday evening, said he does not see any competitors with more innovative technology than what his $15B company offers, and he is not worried about startups in the industry taking away his market share. He sees the commercial real estate data space continuing to grow exponentially as the industry further adopts technology and believes there is room for plenty of companies to coexist.
The New Generation: CRE Data Companies Making The Biggest Moves
VTS this week announced the launch of a new service, MarketView, that will allow brokers and landlords to compare the performance of their own properties to the wider market. It will use the data it collects from its leasing and asset management platform, which includes information on 8B SF of commercial property from its over 28,000 users, to provide real-time analysis on a wide range of real estate metrics.
The new product will cost an additional fee for customers beyond the standard VTS platform. It is currently in the works and VTS plans to begin beta testing it later this year. Nick Romito founded VTS in 2011 and merged it with competitor Hightower in late 2016, and he says launching this service has been part of his strategy that entire time.
"This has always been the vision for the company," Romito said. "You think about what we've been doing for the last six years, it has been more or less building the plumbing for this product. We had to first get everyone away from spreadsheets and onto a central platform so they can manage their workflows and make their business more efficient, and get everyone on the same system so we could do things like this."
VTS has completed several rounds of funding, including a $3.3M investment in 2015 from Blackstone. The private equity giant also uses VTS in the day-to-day management of its real estate portfolio, Blackstone Senior Managing Director Jacob Werner said. The core product VTS offers has made accessing data on a large portfolio of assets much easier, Werner said, and he sees MarketView as the logical next step in the company's progression.
"I'm not going to say it will fundamentally change how we do things, but it will give us better insights into what's happening in the market," Werner said. "As an investor, you're always trying to find opportunities to evaluate data and see things through a different lens."
Reonomy has closed two major funding rounds this year. The company, which uses technology to collect property data from a variety of sources, announced a $30M Series C round last week and a $16M round in February.
The PropTech firm, co-founded in 2013 by Richard Sarkis, has also announced partnerships this year with WeWork, Cushman & Wakefield, Avison Young and Newmark Knight Frank. The new funding and institutional partnerships come after Reonomy last year expanded from its New York home to hundreds of cities and counties across the country.
Sarkis said Reonomy's customer base and revenues have skyrocketed since it launched its national expansion. It has already doubled its revenues in the first six months of 2018. It plans to use the new funding to launch an expansion to Canada and Western Europe, he said.
"Going from New York City only to national has opened the floodgates," Sarkis said. "It has been true hockey stick growth, we're onboarding thousands of users ... That really is what led to the two funding rounds back to back, when investors see that type of growth, they get really excited about it."
CompStak in October announced it would expand its services from providing crowdsourced leasing comp data to offering information on investment sales, such as cap rates and net operating income. The company also announced a partnership with Moody's Analytics, which allows it to leverage the rating agency's information on commercial real estate finance.
The company, founded in 2011 by Michael Mandel, has previously rolled out an analysis platform similar to what VTS announced this week, but Mandel said it is working on something bigger.
"We're about to release a brand-new analytics product in the next few weeks," Mandel said. "We have already done analytics in the past and provided it to enterprise clients for a couple years. This new analytics product takes it to the next level. It allows you to bring in lots of different data sets from within CompStak and compare them against each other."
Catching CoStar: Competitive Or Complementary?
As these three fast-growing companies expand into new markets and business lines, their service offerings are beginning to intersect with industry leading CoStar. The $15B company, founded by Florance in 1987, has a massive trove of property data and offers listing platforms, analytics tools and a wide range of other services.
Florance, speaking with Bisnow on the phone from Paris, said the world's $100 trillion-plus commercial real estate industry is still in the very early stages of adopting technology. He said there are thousands of PropTech startups and thinks there will be many failures and consolidations, but ultimately he believes the industry is big enough for plenty of successful companies.
"There are so many facets to the different aspects of the built environment, from debt to securities to energy systems to effective balancing of use of space," Florance said. "There are so many different elements. It's complicated, it's broad and there is no way one company is gong to be doing most of it. There is no way 10 companies are going to be doing this."
Romito sees VTS as a complementary product to CoStar. He said most people use CoStar to search for office space, but VTS provides a different kind of service to track how a company's portfolio is performing and compare it to the larger market.
"We do very different things. I don't see a world anytime soon where you're going to be able to not use CoStar to use VTS," Romito said. "We think we're adding an entirely new lens to the market that no one else can give you. So it is probably an additional product that you would buy."
VTS plans to continue to grow rapidly, and Romito thinks it can be a large company and coexist with CoStar in the commercial real estate data space.
"I think there's clearly room for other large players in this space," Romito said. "It's the second-largest asset class in the world, and to have only one public company that's over a few billion dollars in market cap feels crazy. I think there's plenty of room for lots of other players, and we wake up every day to become one."
Sarkis also does not see Reonomy as a direct competitor to CoStar. He said its product offerings, which start at $34/month, appeal to a wide range of customers, such as contractors, who would never buy a CoStar subscription.
"We're going after the massive mass market, everybody else who cares about assets," Sarkis said. "We view ourselves as complementary, and we don't come up with them head-to-head. I know it's somewhat counterintuitive, because we're both in the data space, but we view ourselves a little differently."
But as companies continue to roll out out more products that are similar to CoStar's offerings, it could take away customers and potentially become a threat to the industry leader. And CoStar does not take threats lightly. It spent over $10M in its legal battle against Xceligent before the competitor ultimately went belly-up.
"In my opinion, CoStar's behavior as it relates to lawsuits is not in the interest of protecting intellectual property, it's in the interest of squashing competition," Mandel said. "It doesn't matter whether the lawsuit has any merit or not. Regardless of how good a job you do to make sure you don't poke the bear, you still have to be prepared for that."
Mandel said he has seen some companies drop their subscriptions with CoStar and switch to CompStak after it began including investment sales information. But he said that is only possible for a particular subset of customers, and not those who use CoStar for its listings platform, which he called its "bread and butter."
"We're not expecting that we're going to replace CoStar for people who care about listings," Mandel said. "But particularly on the real estate investment side, a lot of people don't care about listings, so I think more and more we will be able to replace CoStar."
Mandel does not yet view CompStak as a direct competitor to CoStar, and he does not think one has existed since Xceligent's December shutdown. He said watching that yearlong saga taught him that if a company wants to present itself as an alternative to CoStar, it needs a more innovative strategy.
"The biggest lesson from it is you can't take the same exact approach as an incumbent with a fraction of the resources and expect to displace them," Mandel said. "I don't think the company that displaces CoStar will do it the same way CoStar does it. I think it's going to be someone who fundamentally takes a different approach but provides more value."
Mandel said CompStak's method of crowdsourcing data is efficient and easy to scale. He said CoStar's research methods, which involve using hundreds of full-time employees to make calls and visit properties, have worked because it was the pioneer in the space, but would not be easy for any competitor to replicate.
"That business model is certainly not modern in its approach and certainly not efficient," Mandel said. "I wouldn't think taking that same approach would be a recipe for success. And most of the incumbent data players out there still use that approach ... I think you have to have a proprietary data set and an efficient way of building that data set that is scalable."
Florance emphasized that CoStar is using the latest technologies like machine learning and that its human researchers are largely for quality control. He said he does not see any companies using technological methods of data gathering that are further ahead than what his company employs.
"Technology like scraping websites or crowdsourcing is old news," Florance said. "That has been around for 15 or 20 years, there's nothing new there. I'm sure people are raising a lot of capital so people try to position technology that's old and business models that are pretty old as being innovative. "