FTC: $860M CRE Acquisition ‘Anticompetitive’

The Federal Trade Commission (FTC) is putting a damper on the U.S.'s largest provider of commercial real estate information services, breaking up what CoStar Group had hoped to be a lucrative combination of its services after acquiring LoopNet for $860 million. Although CoStar and LoopNet will continue to operate as a combined firm, it must sell LoopNet's ownership interest in Xceligent—a significant provider of U.S. commercial real estate information—under a proposed FTC order settling charges that the acquisition would be anticompetitive. CoStar's, LoopNet's, and Xceligent's listings databases and information services are used by brokers, lenders, investors, appraisers, developers, and others in the commercial real estate industry.

The FTC also will require conduct relief that is unusual in a merger settlement. In order to allow for others, including Xceligent, to expand or enter into the space, CoStar will lift noncompete provisions and allow customers in longer-term contracts to terminate them early. CoStar also will refrain from bundling its products together in ways that could impede its competitors.

The FTC feared that the combined firm would squash competition, leaving commercial real estate industry professionals with no other options to use for listings databases and information services than those provided by the three companies, which are critical to their customers in the commercial real estate industry. The FTC's Bureau of Competition says that by maintaining Xceligent as an independent competitor, the settlement order will foster continued competition in these markets.

The FTC's complaint alleged that the acquisition would violate the FTC and Clayton Acts by reducing competition in the markets for these listings databases—which allow parties to publicize and to search for commercial properties for sale or lease—and information services—which compile the in-depth data necessary to evaluate commercial real estate assets and opportunities. This could hamper commercial real estate professionals' ability to make better-informed decisions about both asking price and whether to execute sales or lease agreements.

Under the proposed settlement order, CoStar will sell LoopNet's stake in Xceligent to DMG Information, Inc. (DMGI), a U.S.-based subsidiary of British media and data conglomerate Daily Mail & General Trust, PLC. The proposed FTC order maintains Xceligent's competitive position and is designed so that DMGI will be able to rapidly grow Xceligent into a more complete, national listings database and information services alternative to the merged CoStar-LoopNet firm. The proposed settlement order includes provisions that, for five years, will protect Xceligent while it expands its services, and requires the combined CoStar-LoopNet to notify the FTC in advance before acquiring any firm that gathers, markets, or sells commercial real estate information in the United States in the next 10 years.