CoStar Agrees to Buy for $385 Million

By Peter GrantFeaturesDow Jones Newswires

CoStar Group Inc., one of the world's largest internet real-estate data companies, is purchasing in a $385 million deal that shows the rental apartment listing business is becoming the latest battleground in online property services.

Washington, D.C.-based CoStar is buying as part of its plan to list "every single apartment in the U.S. being marketed, whether it's someone's garage apartment up to the largest institutional property," said Andrew Florance, CoStar's founder and chief executive, in an interview.

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CoStar got into the business of hooking up landlords with apartment hunters in 2014 when it purchased for $585 million. That deal added a new dimension to the company Mr. Florance founded in 1987, whose main business is providing commercial real-estate data services and a marketplace for sales of office buildings, shopping centers and other investment property.

CoStar's purchase of for $350 million in cash and $35 million in stock, expected to close later this year, will add scale to its apartment rental business, Mr. Florance said. Norfolk, Va.-based, which began listing apartments in 1982 with paper brochures distributed at supermarket checkout counters and other places, gets roughly 8 million online visits a month and lists about 17,000 apartment communities, according to CoStar.

CoStar's lists more than 1 million apartments, including large rental communities and mom-and-pops who own as few as one rental unit. The network of apartment rental sites get roughly 37 million visits a month, the company says.

The real-estate industry was relatively late to adopt online technology. But in recent years real estate tech businesses have gotten much more attention from Wall Street and entrepreneurs. Looking for a home has been transformed by giant listing services like Zillow Inc. and, which is operated by News Corp, owner of The Wall Street Journal.

CoStar, which did an initial public offering in 1998 and last year reported $838 million in revenue, dominates commercial real estate information. Its database has 4 million properties, including more than 450,000 rental apartment buildings.

Landlords have listed apartments online for more than a decade, partly on sites developed by newspaper owners worried about their loss of traditional print ads. In 1998, a venture of the Times Mirror Co., Tribune Co. and Washington Post Co. purchased the company that went on to build

In recent years, large investors such as CoStar and Zillow began to make big bets on the business. Currently there are 46 million rental households, up from 35 million in 2004, according to CoStar.

Competitors also include RentPath Inc., which is owned by private equity giants TPG and Providence Equity Partners. Major players like Facebook Inc., Google Inc. and Craigslist also get an enormous amount of traffic from people looking for rental apartments.

The rental segment is now Zillow's fastest-growing marketplace, according to remarks made by Chief Executive Spencer Rascoff during the company's second quarter earnings call. He said the business grew 64% year over year in the second quarter.

Rentals have gotten especially hot in the years following the housing bust as millennials and others have eschewed home ownership because of rising prices, difficulty obtaining mortgages and the perception that buying a home is risky.

Most services like Zillow and let renters use them for free. They make most of their money from landlords who pay to put their units at the top of a results list when a prospective renter does a search. and some of the other sites also often let non-advertising landlords post their apartments for free to generate listings.

Like other listing businesses, scale is critical in the apartment rental world because consumers gravitate to sites with the most listings, and owners want their offerings to be on the sites with the most traffic. That is why CoStar and other big players are building scale through acquisitions.

CoStar also acquired Westside Rentals, a website specializing in Southern California rentals, earlier this year and Atlanta-based Apartment Finder in 2015.

"Competition is all about traffic," said Ronald Josey, senior analyst with JMP Group LLC. "The site with the most traffic typically wins."

Mr. Florance said that as his company builds scale, it will begin to offer landlords and consumers more services. For example, next year plans to offer prospective renters "pre-credit screens" that match up their credit histories with landlord requirements.

"They'll see in advance which communities they qualify for and will reduce the number of phone calls going into apartment communities," he said.

Mr. Florance predicted that the purchase of would increase CoStar's rental business' annual revenue to about $400 million a year. He said he wants to grow it to $500 million to $1 billion to be able to fund advertising, branding and new service development.

"You need enough scale to be able to invest back into the business," he said.

Write to Peter Grant at

(END) Dow Jones Newswires

September 12, 2017 09:14 ET (13:14 GMT)