CoStar Group made its entry in the Fortune Magazine list of the 100 fastest growing companies for 2016. This acknowledgement was significant, as the organization was the only commercial real estate technology company to make the list, appearing at an impressive 81st place. CoStar Group has had a good run for the last couple of years, and many can’t help but wonder who they really are. Let’s take a closer look at the company.
Founded in 1987, CoStar Group is one of the leading commercial real estate firms in the industry. The company was started in Washington, DC by Andrew Florance, and is focused in the provision of information, marketing, and analytics services to the CRE industry in Spain, France, U.K, Canada, and of course, the United States. It also offers a wide range of online services such as offering industry news and data integration, information regarding industry professionals & their business relationships, information for clients’ websites, analytical capabilities, internet marketing services, information on properties for sale, tenant information, comparable sales information, and spaces available for leasing. Their services cover all types of commercial properties, including multifamily, hospitality, mixed-use, land, retail, industrial, and office.
Today, the company has been famed as an excellent marketplace provider, as well as for the integrated range of online services mentioned above. CoStar Group also owns the brands ApartmentHomeLiving.com and ApartmentFinder.com, as well as BizBuySell and Lands of America. As of this writing, their enterprise value is a staggering $6.6 billion. In a recent interview, Andrew Florance said that it was an honor being recognized as one of the top growing companies in the world. In humble fashion, he attributed the achievement to the company employees, who are dedicated to providing unique opportunities for their clients through technology, innovation, and a thorough understanding of the clients’ needs.
He also admitted that the basic principles behind CoStar Group may have played a role in the firm’s tremendous growth. The company is motivated by transformation and innovation in communities and industries. The 2016 list of the fastest growing companies in the world marked the magazine’s 38 years since it begun ranking corporations’ growth. It analyzes the past three years of performance for publicly traded companies in terms of stock return, profit, and revenues. To be considered, the company needs to have a gross revenue of $50 million and above and net income of $10 million in the last 4 quarters. The reported revenue for CoStar Group was $752 with a net income of $19 million.
How the company grew
As Florance developed data processing software, his researchers set out to collect updated information on available local properties from contact brokers. At first, a few brokers did not receive his intentions as welcomingly, even going as far as trying to oust him out of the industry. Later, during the late 80’s real estate market crash, attitudes begun to change as brokers found it more convenient to outsource their research work to the then Realty Information Group instead of hiring their own research stuff. RIG competed against a print product named Cornerstone, offering a better electronic product (alongside a complimentary guide) via the CoStar brand.
At this stage, revenues were rather scanty compared to expenses. The company would total $30,000 profits against $1 million in expenses in 1989. However, the following year sales began to pick up, reaching an impressive $500,000. After realizing RIG’s potential, Florance brought a seasoned executive on board, who served as the company’s president. Florence’s main work was to develop the firm’s technology platform in the background. Unfortunately, after seeing that the president did not share the same vision for the company, he decided to dismiss him and reassume the position.
The decision seemed to be proactive, as it saw him lead RIG to unprecedented growth during the 90’s. After anchoring the company firmly in Washington, DC, he could finally maneuver to the neighboring Baltimore market he had been eyeing for quite some time. This move taught the company a few valuable lessons. For starters, they had to tailor the product to individual markets. Secondly, different markets used different terminology: where Washington used “core factor” to refer to the location of mechanical functions such as elevators, Baltimore used “public factor”. They would soon apply this lesson in other markets.
Once Florance had established the company in Baltimore, he realized that the only logical move was to diverge into and dominate newer markets, otherwise a larger company would subsequently come in and push them out of business using economies of scale. This was in 1993, when he finally decided to go all in with the CoStar product, consequently selling the Cornerstone printing business without looking back.
To survive against the better-funded national companies, Andrew opted to stick to the largest markets while avoiding the secondary ones. This eventually led him to the largest real estate market in the country – New York. In 1994, RIG received a shot in the arm when they acquired Space Data Graphics. Unfortunately, they couldn’t avoid competition. Two years earlier, a new electronic program, dubbed RE/Locate system, had already made its debut in the market and rather successfully. Florance and team had to brace themselves for a hard fight.
Conquering the big Metro
Like the warrior RIG was, the company proved their competitors wrong. Apart from entrenching themselves in New York, RIG began diversifying throughout the country. Their initial strategy was to acquire a locally established company and then build on its base, but later elected to start an operation from scratch. They moved to Los Angeles, conquered that, then progressed to California, demolished that, and then to San Francisco, Delaware, Wilmington, and Philadelphia. Boston, Illinois, Elmhurst, and Atlanta followed next.
In 2015, CoStar Group concentrated mainly on investing heavily in Apartment Finder and Apartments.com. In a recent interview, the company’s CFO, Scott Wheeler, stated that these investments will provide a stable platform for further revenue growth. He also added that the success of CoStar’s cost management and integration efforts will provide consistent profit improvements for 2016. The recently celebrated achievements of the company, and their debut into the 2016 list of the fastest growing companies in the world is reflected in these forward-looking statements.