CoStar plans to grow STR through $450m deal
 
CoStar plans to grow STR through $450m deal
01 OCTOBER 2019 9:28 AM

Officials with CoStar Group said they plan to close on the purchase of STR before the end of 2019, expanding their presence in the hotel industry and pushing STR’s benchmarking model into other forms of commercial real estate.

Editor’s note: STR is the parent company of Hotel News Now.

WASHINGTON—Upon announcing plans to acquire STR for roughly $450 million, officials with commercial real estate information, analytics and online marketplace firm CoStar Group said they see opportunities to grow STR’s core offerings both inside and outside the hotel industry.

Speaking during a call with analysts and investors announcing the deal, CoStar founder and CEO Andrew Florance said he saw “four or five good reasons” to purchase STR, long the top provider of hotel operating metrics, the most obvious of which is “extending (STR) into the traditional commercial real estate market.”

He noted his company plans to invest and expand on STR’s current offering, particularly targeting expansion into more future-looking data and profitability benchmarking.

“This is a great opportunity for hotels to not only reflect on competitive or comparative performance on occupancy and revenue but reflect and optimize on comparative expenses,” he said.

The deal is slated to close before the end of 2019.

STR currently collects and aggregates hotel occupancy, rate, revenue and other data from more than 65,000 hotels across 180 countries globally. CoStar, which offers data across commercial real estate classes, currently has a database of “basic building information on 80,000 hotels, 45,000 hotels sale comparables, and 4,500 hotels offered for sale,” according to a news release.

STR President and CEO Amanda Hite, who will remain as president of STR following the deal, noted hoteliers should see this as a positive in expanding and improving the data offered to them.

“STR’s industry relationships and standard of service have remained a focal point of acquisition discussions from the start,” she said. “In the short term, there will be no change in either of those areas. Long term, the combined resources of CoStar and STR, along with the investment that will be made in the business, will accelerate our offerings at a time of evolution for the industry.”

STR began exploring a deal in August in order to seek outside investment to expand its offerings.

“A great deal of internal analysis was conducted to get to this point,” Hite said. “We understand that now is a crucial time for STR’s solutions to expand alongside the data and analytics needs of the industry.”

Florance said STR’s data will be complementary to CoStar’s and will enable that company to significantly expand within the hospitality sector. It is also expected to expand STR’s data offerings to entities like banks and governmental bodies. CoStar officials plan to start including STR data within their existing suite of products.

The deal is also expected to offer an expanded suite of information to hotel and other commercial real estate developers to allow them to more easily determine what types of real estate are the smartest investment for different parcels of land.

“If you’re looking at a parking lot in Columbus, Ohio, and you don’t know what it is (in terms of development potential), (STR’s) penetration in that market is low single digits,” he said. “We can move that dial at a relatively low cost of investment using our existing sales force.”

Florance also noted a high possibility of growing STR’s business internationally, where there is currently a lower rate of penetration.

The move is also expected to bring STR’s benchmarking to different real estate classes that CoStar currently serves, although the specifics of those plans are still undetermined. Florance noted the company sees the potential for “significant” new revenue view offering benchmarking products or including it in existing subscription services.

Asked by an analyst why CoStar opted to purchase STR rather than building a similar business from the ground up, Florance noted replicating STR’s business would have been next to impossible.

“Of all the acquisitions we’ve ever gotten, this is the least likely to want to build on our own and the most likely to want to acquire an established player. … The work Randy Smith and his wife (Carolyn Smith) did in building STR is phenomenal, earning the trust of the industry. … It would be a nearly insurmountable hill to build that on your own.”

CoStar officials said it’s too early to get into specifics about how STR products might change, but noted their long-term growth strategy will focus on expanding subscription products such as weekly STAR reports.

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