Notorious R.O.B.

Thanks to a comment on my About page, I thought to look into the dance going on between CoStar and Reis. It’s fascinating stuff, actually. If the story weren’t being told through boring press releases, SEC filings, and dated news clippings, it might make for a great opera, full of passion and melodrama. As a matter of fact, I wrote a little story — it’s at the end of this monster post.

At least, I think it would, based on what little I can tell as a totally uninformed outsider who has not been following the story. But hey, when did being uninformed ever stop your faithful scribe?

The latest chapter in the tale is that CoStar has reiterated its offer to buy Reis for $8.75 a share earlier today (the press release is dated 2:38PM on Wed, August 13, 2008), for the total price of $96.1m. An important point here is that CoStar made the exact same offer back in June, and was rebuffed. A mere ninety minutes later, Reis rejected CoStar’s offer for the second time (the press release is dated 4:01PM, Wed, August 13, 2008), saying:

In the view of the Board, the price offered in the CoStar proposal is inadequate. The price is below the long-term value REIS could realize for its stockholders by the pursuit of its business as an independent entity and the continued disposition of its real estate assets, or by a sale of the Company.

Mr. Lloyd Lynford, CEO of REIS, stated: “It is extraordinarily disappointing that, after our Board unequivocally rejected CoStar’s $8.75 proposal, CoStar has seen fit to come back with exactly the same proposal in a hostile fashion. To judge the value of our company by the daily trading prices of its relatively illiquid common stock makes no sense. We trust that our clear second rejection of CoStar’s offer will prompt CoStar to withdraw it. Our Board will, of course, review carefully any serious proposal from any responsible third party.”

I believe words like “extraordinarily disappointing” and “unequivocally” and “makes no sense” are corporate chieftainspeak for “Fuck off, you loser!” Reading between the lines, you can almost feel the heat.

Initially, I was really puzzled. In normal course of business, getting a 97% premium over the last stock price (which hasn’t moved at all until the offer came in) is cause for celebration and a rush to the alter lest the groom come to his senses. I mean, imagine that your house was valued at $300,000 and some dude rolls up and goes, “Hey, I’ll give ya $600,000″. That’s normally a “Honey, start packing — we’re moving!” type of thing. But Reis was like, Talk to the hand:

The price is below the long-term value REIS could realize for its stockholders by the pursuit of its business as an independent entity and the continued disposition of its real estate assets, or by a sale of the Company.

Okay, so like, let’s go with that.

I spent the last 30 minutes or so of my life looking at stock charts and old new reports and such. Frankly, I hadn’t known that Reis was a public company at all. Back when I was still in commercial real estate, Reis was privately held, or so I remembered. Read the rest of this entry »

(Management suggests you click play while you read this post.)

So while just browsing around looking for info (because I wanted to respond to something Alan Bernier of Rofo.com posted), I found something rather interesting:

We believe we are the leading online marketplace for commercial real estate in the United States, based on the number of monthly unique visitors to our marketplace, which averaged approximately 500,000 unique users per month during 2005, approximately 800,000 during 2006 and approximately 900,000 during 2007, as reported by comScore Media Metrix.

…

As of December 31, 2007, the LoopNet online marketplace contained approximately 560,000 listings.

…

As of December 31, 2007, we had more than 2.5 million registered members and more than 88,000 premium members.

…

For the year ended December 31, 2007, our registered members viewed property profiles on our website approximately 150 million times.

That is from Loopnet’s (NASDAQ: LOOP) 2007 10-K. Interesting data all around.

For one thing, 88,000 premium members is enormously interesting to me. Because Loopnet is the largest online market for commercial real estate, and really the only game in town, you have to imagine that any “real” commercial real estate broker (as opposed to someone who just dabbles in it from time to time) has to be a premium member. (Doesn’t s/he?)

As there is no real study of the size of the commercial real estate industry, I have to wonder if 88,000 is about the size of the full-time professional CRE brokers in the United States. Who knows, I guess, but it is an interesting number.

The thing I can’t quite understand is lining up the following:

• 900,000 unique visitors in 2007
• 2.5 million registered members
• 88,000 premium members
• 560,000 listings
• 150 million listing views

The first piece of information I would want, were I an investor in Loopnet, is how many of the 2.5 million registered users had visited Loopnet at least once in the past 12 months for more than let’s say… 2 minutes (clear out all the folks who clicked on the wrong bookmark or something). Is it 100% of the 2.5 million? 75%? 50%? It would be great to know what the actual “active membership” is versus the “everyone who has ever registered, including those who have become Chicago voters by reason of death”.

The next piece of information I would want is the average number of views per listing. In connection to this, please note this interesting tidbit:

Enhanced Listing Exposure. Property listings submitted by basic members can only be viewed by premium members. Property listings submitted by premium members are available for viewing by all registered members and have premium placement on search results.

So even if some large number of the 2.5 million “basic members” still hung around, their listings are viewable only by the 88,000 premium members. Now, remember this:

For the year ended December 31, 2007, our registered members viewed property profiles on our website approximately 150 million times.

That’s 267 views per listing. But, to be fair, presumably there was some turnover in the listings stock at Loopnet through the year. So how many total listings went through Loopnet during 2007?

Now, I can’t find any data based on 15 minutes of Google searching (and I’m not really willing to invest more time than that) on statistics of the average time on market for a commercial property in the United States. But I did find this Investment Property Forum study (PDF) back in 2004 for liquidity in the UK commercial market. According to that study, the “average time from formal marketing to completion” was 10 months. But the authors noted that this figure was skewed, and thought the median time to sale, at 190 days, is more representative figure. Just getting from initiation of marketing to “heads of terms” took 88 days on average.

So… let’s assume for the moment that from the moment a listing is posted on Loopnet to the moment it’s taken down because it’s far enough along that the listing broker feels he can take it down is 90 days. And let’s also assume that every listing on Loopnet found a buyer in 90 days. That would give us 560,000 x 4, or roughly 2.25 million listings. That gives us 67 views per listing.

When you think about how search works, where people don’t go past the first couple of pages of results, that’s an astonishing number. In residential real estate, we know there are listings that get ZERO views simply because it doesn’t appear high enough on the search results page. Maybe Loopnet has a different, advanced search system that ensures 67 views for every one of its 2.25 million listings? Every MLS in the country should immediately license that technology.

Furthermore, the basic members can’t view listings by other basic members. Only premium members can view those. Add in the fact that in all likelihood, Loopnet’s 2.5 million registered member number does not mean 2.5 million active members. Taken together, these facts strongly suggest that the 150 million listing views is not spread out among 2.5 million, but some much smaller number of users… like maybe 900,00 unique visitors in 2007?

We’re talking about a rather lot of views then.  That’s 166 listing views per unique visitor.  Yeah, it could happen absolutely.  That’s only about 40-some views per quarter for someone in the commercial real estate business.  I just… well… it makes me go hmmm….

I don’t believe Loopnet is lying about these numbers (not in the age of Sarbanes-Oxley, not in a SEC filing).  I just wonder if they’re counting things correctly, or perhaps there’s something iffy in their traffic analytics package.

Or… maybe… could Loopnet be counting the traffic from its LoopLink product?  Seeing as how a large number of commercial brokerages (including the world’s largest, CBRE) use LoopLink to power their own websites (without membership limitations for visitors to their own websites) via a frame, that could explain a lot of the uniques and listing views numbers.

So the final number I would want to see, were I a Loopnet investor, is the traffic, unique visitors, and so on broken down by source: Loopnet.com, BizBuySell.com, CityFeet.com, and LoopLink.  That would give me a much better sense of where the growth is, where the traffic is coming from, and let me evaluate whether the company was deploying its resources properly.  It is absolutely relevant whether 100 million of the 150 million listing views or 10 million of the 150 million listing views are coming from LoopLink versus the main website.

But then… what do I know?  I’m just a blogger who uses Arsenio Hall pictures….

-rsh

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: CSGP – News), 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.

LoopNet’s 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 Company’s performance and believes it is helpful to investors in understanding the Company’s 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:CBG – News) 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: JLL – News), 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