With commercial brokerage “shut down,” dozens of New York firms are asking CoStar Group to discount the hefty subscription fees they pay to the data giant each month.
In a letter, 52 independent firms said the “abrupt and harsh economic downturn” caused by the coronavirus has had a “swift” impact on their business. Smaller firms were hit hardest, with many projecting 18 to 36 months before business in New York returns to normal.
Their May 13 missive indicates CoStar has only been willing to postpone bills, not reduce them.
“CoStar’s offer of deferred relief does nothing other than kick the can down the road and puts small, independent commercial brokerage firms further behind the eight ball,” reads the letter, a copy of which was obtained by The Real Deal.
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CoStar draws $745M from credit line
The letter was signed by Jonathan Anapol of Prime Manhattan Realty, David Baker of Baker New York, Marco Elliman of Ellman Realty Advisors, Joan Fields of Synergy Realty, David Kahane of DAK Commercial Realty, Marty Meyer of Meyer Equities, Eli Someck of Redwood, Jane Stewart of Home Work People, James Wacht of Lee & Associates and Joshua Winslow of Winslow & Co. A list of 42 other companies was attached.
With a market cap of $24 billion, CoStar is the largest data provider in the U.S. commercial real estate market. While some chalk up CoStar’s subscription fees to the cost of doing business, others accuse it of exploiting monopoly status to charge high prices.
In the letter, the firms asked CoStar to discount fees by 50 percent retroactive to April 1 and through the end of the year, and to ensure future increases don’t exceed CoStar’s national rates. They also requested the ability to reduce the number of users during the term of the contract, and to pay for additional services only for users who utilize them.
The firms are also seeking one-year contract terms with an option to renew at the same price.
“We have not divulged to each other our respective monthly license fees to CoStar and no one has discussed whether they intend to continue to use or not use CoStar services,” they wrote. But after swapping notes, many share the conclusion that CoStar’s sales representatives don’t realize how badly the New York market is suffering.
“Several of our representatives are under the misimpression that the virus has minimally affected our transaction volume. Not true,” they wrote. Rather, Gov. Andrew Cuomo’s stay-home order has “effectively shut down the brokerage business.”
A CoStar spokesperson defended the company’s pricing, saying it has provided payment relief to “thousands of clients” and has continued to pay thousands of employees to provide the services its clients need.
“One-million leases are going to expire this year, translating to virtually one lease every six seconds,” the spokesperson said. “As these leases expire, we project leasing brokers will earn tens of billions in leasing commissions this year.”
The spokesperson singled out Lee & Associates, saying it “was behind on their bills before the pandemic hit Wuhan and has since leveraged the pandemic in an attempt to not pay bills going forward.”
James Wacht, president of Lee & Associates NYC, denied the claim and said his firm’s payment record is “spotless.”
Last week, CoStar CEO Andrew Florance told TRD that his firm is helping some companies through “liquidity issues.”
“We’re dealing with those on a case-by-case basis as opposed to just going out and sort of blanket, ‘We’re giving you half a month free,’” he said. “There are obviously hotel companies right now that cannot pay their bill for good reason until things open up again.”
CoStar itself drew down $745 million from its credit line in March as a hedge against a tumultuous market. Last week it tapped that war chest to acquire Ten-X Commercial for $190 million in cash.
According to Florance, commercial brokerages are better positioned to withstand Covid than hotels are because they are being paid now for transactions they did six months ago, and some may actually be doing well. “They don’t need a break from us or anybody,” he said. On the leasing side, he said downturns may cause deal flow to dry up “for about three months.”
“In every single downturn in the last 30 years, leasing volume remained the same over a 12-month period despite a big disruption and I believe that will happen here, too,” Florance said. “So people in the brokerage business will likely be OK.”
Responding to criticism that CoStar has a monopoly, he said: “We are never going to pursue a path where we try to get smaller and smaller, and become less effective and provide less solutions.”
Write to E.B. Solomont at eb@therealdeal.com