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Feel the Power of the Dark Side

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With everyone focusing on the gloomy residential real estate market, I thought it might be interesting to take a look at what’s happening over on the Dark Side of the Force, aka, commercial real estate.

CoStar released their Q4 financial results recently, and boy, are they impressive:

BETHESDA, Md., Feb. 20 /PRNewswire-FirstCall/ — CoStar Group, Inc. (Nasdaq: CSGPNews), the number one provider of information services to the commercial real estate industry, today announced that net income for the year ended December 31, 2007 increased 28.5% to $16.0 million, or $0.82 per diluted share, compared to $12.4 million, or $0.65 per diluted share for 2006. EBITDA (earnings before interest, taxes, deprecation and amortization) for the year ended December 31, 2007 was $34.0 million, an increase of 31.3% compared to EBITDA of $25.9 million in 2006. Revenues for the year ended December 31, 2007 were $192.8 million, an increase of 21.3% over revenues of $158.9 million in 2006.

28.5% increase in profit; 21.3% increase in revenues. Wow. Nice. Congratulations are due to the people at CoStar.

For the sake of comparing apples to apples, here’s CoStar’s archnemesis, Loopnet:

Revenue for the fourth quarter of 2007 was $19.6 million, an increase of 41% from $13.8 million in the fourth quarter of 2006. Net income for the fourth quarter of 2007 was $5.7 million or $0.14 per diluted share, compared to $5.3 million or $0.13 per diluted share in the fourth quarter of 2006. The effective tax rate for the fourth quarter of 2007 was 38.1% compared to 25.8% in the fourth quarter of 2006.

LoopNets Adjusted EBITDA (earnings before interest, tax, depreciation, amortization and stock-based compensation) for the fourth quarter of 2007 was $9.4 million, an increase of 40% from $6.7 million in the fourth quarter of 2006. The Company has reported Adjusted EBITDA because management uses it to monitor and assess the Companys performance and believes it is helpful to investors in understanding the Companys business.

For the full year, total revenue was $70.7 million, an increase of 46% from $48.4 million in 2006. Net income for the full year of 2007 was $21.1 million or $0.52 per diluted share, compared to $15.5 million or $0.40 per diluted share in 2006. Adjusted EBITDA for the full year of 2007 was $34.0 million, an increase of 46% from $23.2 million in 2006.

$5.7M vs. $5.4M — that’s a 7.5% increase — but as LoopNet points out, Uncle Sam and the People’s Republic of California took a much bigger chunk. So LoopNet points to EBITDA: $34M vs. $23.2M, or 46%. Revenues were up 46% as well.

Again, a great year, and congratulations are due to the boys and girls at LoopNet.

What about some of the other stalwarts? Maybe some non-web companies?

Here’s the clear industry leader, CBRE:

CB Richard Ellis Group, Inc. (NYSE:CBGNews) today reported full year 2007 revenue rose 49.7% to $6.0 billion and earnings per share increased 23.0% to $1.66 per diluted share both record levels for the Company. Fourth quarter 2007 revenue increased 30.4% to $1.8 billion and diluted earnings per share increased slightly to $0.54 compared to the fourth quarter of 2006. Excluding one-time charges, full year diluted earnings per share was $2.11, an increase of 42.6% from 2006 and fourth quarter 2007 diluted earnings per share was $0.63, representing an increase of 10.5% from the fourth quarter of 2006.

Yowza. 23.0% increase in earnings, and 49.7% increase in revenues.

What about the other major player, Jones Lang & Lasalle?:

Jones Lang LaSalle Incorporated (NYSE: JLLNews), the leading integrated global real estate services and money management firm, today reported record net income of $256 million, or $7.64 per diluted share of common stock, for the year ended December 31, 2007. This represents an increase of 46 percent over the prior year’s net income of $175 million, or $5.24 per share. Revenue for the full year 2007 was $2.7 billion, an increase of 32 percent from the prior year, the result of strong performance in all operating segments. Operating income for 2007 was $342 million compared with $244 million for the prior year, an increase of 40 percent, led by Asia Pacific and EMEA. Included in the firm’s 2007 full-year results was a significant advisory transaction fee earned by the Asia Pacific Hotels business. Included in the firm’s 2006 full-year results was an incentive fee from a single client of $113 million, or $1.01 per share, earned by LaSalle Investment Management. The strengthening of foreign currencies against the U.S. dollar in 2007 contributed $0.07 per share in the fourth quarter and $0.23 per share on a full-year basis.

JLL with 46% increase in earnings, and 32% increase in revenues. Woot!

These firms somehow managed to post these numbers and do this kind of business in a world without MLS, and without a NAR-type of organization that spends millions burnishing the Realtor brand (although, yes, there is a commercial specialty at NAR).

Just something to think about. You don’t know the power of the Dark Side.

-rsh

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Rob Hahn
Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.