- The Washington Times - Monday, August 6, 2001

It's easier to succeed when the competition isn't too stiff. The CoStar Group Inc., a Bethesda commercial real estate information provider, is practically going it alone in the world of cyberspace. As a result, it has seen increased revenues and a resilient stock price.

After a slow spring that saw shares fall to a 52-week low of $14 on the Nasdaq, the CoStar stockrebounded quickly and nearly doubled within two months. The price reached a 10-week high early last week after a positive earning report and closed Friday at $27.

Using a subscription-based business model, CoStar provides services for brokers, property managers, asset managers and mortgage lenders with a package of products and services designed to facilitate commercial real estate transactions using the Internet. Products include property databases and the tracking of market trends and tenants. More than 60 percent of all commercial real estate deals go through using the CoStar Group's services.

Analysts say CoStar is on the cutting edge in the commercial real estate industry.

"It's the only thing out there that uses the Internet as this useful a tool," says James Wilson, director of research with Jolson Merchant Partners, a San Francisco firm that provides merchant banking services.

Mr. Wilson says that the commercial real estate industry has been slow to warm up to the Internet, a trend CoStar has exploited. The company has gained a significant presence in 50 of the nation's larger markets, including New York, Washington, Boston and Los Angeles.

CoStar in July said it pulled in $18.1 million in revenues during the second quarter, more than $3.5 million over the like quarter last year. Losses decreased 74 percent, and 46 of the company's 50 markets were cash flow positive.

"We are very proud of this dramatic improvement," CoStar President and Chief Executive Andrew Florance said in a conference call. "Strategically, there's no other company with close to the coverage we've got."

CoStar has managed to survive the recent economic downturn by relying almost entirely on a subscription-based model rather than advertising for revenue, unlike one of CoStar's biggest competitors, Loopnet.com.

The advertising market has been especially hard hit, and many dot-coms relying on ad-based business have struggled. CoStar Group further de-emphasized advertising revenue recently when it moved six advertising salespersons to its information sales group.

Analysts say CoStar has fared well amid the dot-com in part because a looser real estate market is good for business. When the economy was booming, commercial real estate openings were often publicized via word-of-mouth, and companies such as CoStar were almost unnecessary Now, CoStar is called on more often to provide services.

"If it's too easy, you don't deal with an outsourcing solution," Mr. Wilson says. "When you have to actually work for a living, you're going to need tools that make you productive."

Mr. Florance calls the commercial real estate market "reasonably healthy," adding that CoStar has improved its products to weather any downturn.

Meanwhile, the company is looking to improve penetration and product sales, while looking to eventually expand to 12 or 15 additional markets.

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