- The Washington Times - Monday, January 15, 2007

CoStar Group Inc., a Bethesda firm that provides commercial real estate information to brokers and owners, is trying to repeat its success with office and industrial property as it moves into the retail industry.

The company announced an agreement last week with Ramco-Gershenson Properties Trust in a major achievement for CoStar’s retail service.

Ramco-Gershenson is a real estate investment trust that develops and manages shopping centers in the Midwest, Mid-Atlantic and Southeast. It has 81 of them, covering about 18.3 million square feet, in its portfolio.

Under the deal, Ramco-Gershenson will gain access to CoStar’s Internet-based Property Professional software to help it locate properties for retail development.

Terms of the agreement were not disclosed. Nevertheless, it is helping the steady climb of CoStar’s stock on the Nasdaq exchange. It closed Friday at $51.76 a share, up 90 cents or about 2 percent from the previous day.

In the past six months, CoStar’s stock has increased in value by more than 20 percent.

The company earned net income of $4.7 million, or 25 cents per diluted share, in the third quarter of 2006, compared with $1.1 million, or 6 cents per diluted share, in the third quarter of 2005. Revenue in the third quarter of 2006 reached $40.6 million, up from $34.3 million one year earlier.

Its Property Professional service offers lease and sale listings, historical information on properties, photographs of buildings, floor plans and maps.

Other CoStar services offer information on tenants, Web-site marketing and interactive advertising.

Until last May, CoStar focused its services on commercial real estate brokers and owners for office and industrial properties.

As it expands into the retail market, the company is trying to compile information on 4 million commercial properties, up from more than 2 million now.

“Since we launched that [retail] product, we’ve been able to pick up 100 new companies,” said Andrew Florance, CoStar’s chief executive officer.

The company announced another agreement this month with Dollar Store Services, which develops retail outlets for inexpensive products.

Some of CoStar’s 1,250 employees are traveling around the United States in vans, photographing retail outlets and documenting details of the property. They also make phone calls toreal estate brokers and read through government documents on each property.

About 650 of the employees work in Maryland. Nearly 200 work in the United Kingdom, which CoStar is using as a base to expand throughout Europe.

“One of our goals is to develop a common platform for the way that people search for and analyze commercial real estate internationally,” Mr. Florance said.

CoStar’s expansion into retail and foreign markets is making stock analysts question how the company will withstand its growing pains.

Brad Eichler, a research analyst for the financial firm Stephens Inc., said, “While we remain confident in [CoStar’s] business strategy, predicting the company’s near-term earnings power remains a challenge in light of its market-expansion activities and sales-force restructuring.”

Brandon Dobell, research analyst for Credit Suisse, said the recently announced sales-force restructuring represented “a fundamental shift and, in a sense, a reversal of prior thinking when just last year the company was heralding the productivity of an inside sales force, particularly in going after competitors’ customers. [CoStar] is now moving resources away from its inside tele-sales force and investing in more field sales representatives.”

The expansion plans for the European market also confront CoStar with a challenge.

“Some issues that are important in Europe are not important in the United States,” Mr. Florance said.

Among them are government requirements to document the extent of each property’s compliance with environmental standards.

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