Since the 1990s, New York brokers and investors have been dependent on a single data provider for commercial leasing information: CoStar. “We’ve all become addicted to it on some level, for better or for worse,” said Joel Herskowitz, COO of Lee & Associates. But that could change now that CoStar’s only true national competitor is preparing to expand to New York City.
Xceligent, which has captured market share in numerous secondary markets, has been gathering data on New York properties for several months and aims to officially launch a New York database in May, the company’s CEO Doug Curry told The Real Deal. Local brokers say they would welcome a new entrant. “I believe by having two players in the game it’s going to up everybody’s game,” Herskowitz said. Still, Xceligent faces an uphill battle to unseat CoStar as the dominant player.
Like CoStar, Xceligent offers a subscription-based commercial property database with information collected by an army of researchers. It says it employs 1,300 people, with 325 of them working on building up the New York City database (around 140 will stay on permanently after the launch). The company is currently active in around 50 markets, according to Curry – mostly in the Midwest, South and California.
As TRD reported this month, many in New York’s real estate industry have a conflicted attitude towards CoStar. They credit it with making the industry more efficient and easier to navigate by making an unprecedented amount of data available online. But many balk at CoStar’s high prices, the lack of a real alternative and its often heavy-handed treatment of anyone it accuses of stealing its data. This ambivalence could be an opportunity for Xceligent. CompStak, a startup launched in New York in 2011, has carved out a niche for itself in the leasing comps space, and has raised at least $14.4 million in venture capital.
“I guess the question is ‘is competition good for the marketplace?’” said Michael Slattery, head of research at the Real Estate Board of New York. He argued that having another player in the data market could lead to both lower prices and better data.
“I think they’ve got all the elements for success,” he said. “They’ve got experience, they’ve got capital and they’ve got staff. The companies they deal with across the country are also in New York and supportive of the effort to come here.”
The main difference between CoStar and Xceligent is that the latter’s database is open-sourced – meaning users can connect it to other applications and platforms (such as Hightower, Real Capital Analytics or customer relationship management systems) and transfer data between them. CoStar, meanwhile, maintains strict control over its data.
“That’s like Empire State Building huge,” said Kenneth Salzman, a principal at Lee & Associates, which is one of several firms pilot-testing Xceligent in New York. “The ability to use data any way that we want in a format that is already customized for us makes us more efficient.”
Another competitive advantage for Xceligent could be its owner, DMGI. The subsidiary of Britain’s Daily Mail Group also owns real estate data companies Trepp and BuildFax and holds a stake in Real Capital Analytics. According to Curry, DMGI’s deep pockets enabled Xceligent to expand into New York City. Having several real estate data companies under one umbrella, combined with the fact that Xceligent is open-sourced, also offers the chance to link products.
The first-mover advantage for CoStar, however, will be hard to overcome. The company has a comprehensive database of New York properties, and brokers are comfortable with using the platform.
CoStar is a very well developed product and how many years have they been doing this?” said John Brod, a retail broker at ABS Real Estate Partners. “I don’t know what other services someone else could provide.”
These difficulties help explain why it took Xceligent so long to enter the New York market. The company considered expanding here once before, in 2001, and held talks with several brokerages. But 9/11 scuttled those plans. “Everyone concluded New York probably won’t be focused on building a database,” Curry, who ran an appraisal firm before he got into the data business, recalled.
In the following years the company, which found an early financial backer in major Pizza Hut franchisee Gene Bicknell, followed what Curry calls a Wal-Mart approach: focusing on secondary markets that were less well served by the incumbent, CoStar. Beginning in 2007, listing site Xceligent became a subsidiary of Loopnet and expanded to about five new markets per year. It pitched what it claims to be more accurate data – crosschecked in regular meetings with top-producing brokers – at a lower cost.
Then, in 2011, CoStar made a play to acquire LoopNet. Curry suddenly faced the prospect of being swallowed up by his biggest rival. “It was the darkest day of my life,” he recalled. In the end it was the Federal Trade Commission that ensured Xceligent would live on. Concerned that CoStar was building a monopoly, it approved the LoopNet merger in 2012 on the condition that Xceligent be spun off.
“By maintaining Xceligent as an independent competitor and ensuring Xceligent’s ability to grow and expand, the FTC’s settlement order will foster continued competition in these markets,” Richard Feinstein, the head of the FTC’s Bureau of Competition at the time, said in a statement.
In April 2012, the same month LoopNet merged with CoStar, DMGI took control of Xceligent. Since then, the company has grown nearly ten-fold in terms of employees, according to Curry, and signed partnerships with the National Association of Realtors, among others.
Curry told TRD that he isn’t trying to push CoStar out of business, but to establish Xceligent as a viable alternative. “I respect the hell out of CoStar,” he said.