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By Todd Lukasik, CFA | 11-06-2009 11:33 AM

Putting a Value on Commercial Real Estate

CEO Andy Florance discusses unlocking the potential in CoStar's commercial property value database.

Securities mentioned in this video
CSGP CoStar Group, Inc.

Todd Lukasik: Hi, I'm Todd Lukasik, equity research analyst at Morningstar, covering commercial real estate services firms and real estate investment trusts. And today I'm very lucky to have with me the CEO and founder of CoStar Group, Andy Florance.

Andrew Florance: Thank you for having me, Todd, it's a pleaure.

Lukasik: I thought we'd start off today and I guess have you talk about your vision for CoStar 22 years ago when you founded the company and what's happened since, what the company looks like today.

Florance: You know, a lot has happened in 22 years, but I think what's more amazing is some of the things that haven't changed. When we first got into the business, our interest was coming up with a better way to value commercial properties and transact business.

I actually got in the business writing financial models for buildings. The problem with modeling the value of buildings--and understand what's happening in the markets--was that there was no data. There was no data on rental rates or vacancy rates or what buildings sold for. So we have spent 20-some years going on there and visiting 3 million buildings around the United States, making 10 million phone calls, putting 10,000 man-years of labor into collecting the most robust quantification of commercial real estate that's ever been built.

Twentysome years later we're actually taking all that back to building very sophisticated, automated valuation tools and financial models for properties, to advise people with large portfolios or to help people with large portfolios value those portfolios and understand their debt exposure and risk exposure and the like.

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