CoStar Group, Inc. (CSGP) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. And welcome to the CoStar acquisition of Ten-X call. [Operator Instructions] Please be advised that today's webcast is being recorded. [Operator Instructions] I'd now like to hand the conference over to your speakers for today. Sarah Spray, Investor Relations for CoStar will begin. Please go ahead, Ms. Spray.

Thank you. Good morning. And thank you all for joining us to discuss the acquisition of Ten-X. Before I turn the call over to Andy Florance, CoStar's CEO and Founder; and Scott Wheeler, our CFO. I would like to review our safe harbor statement. Certain portions of the discussion today may contain forward-looking statements. Forward-looking statements involve many risks, uncertainties, assumptions, estimates and other factors that can cause actual results to differ materially from such statements. Important factors that can cause actual results to differ, include, but are not limited to, those stated in CoStar's group press release issued yesterday evening and in our filings with the SEC, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q under the heading Risk Factors. The press release is available on our website located at costargroup.com under Press Room. And all forward-looking statements are based on information available to CoStar on the date of this call. CoStar assumes no obligation to update these statements, whether as a result of new information, further events or otherwise. As a reminder, today's conference call is being webcast, and the link is also available on our website under Investor Relations. Please refer to today's press release on how to access the replay of this call. And now I'd like to hand over to Andy.

Good morning and welcome and thank you all for joining us today to discuss CoStar's acquisition of Ten-X. Especially, welcome to those of you joining us from the West Coast at 5 a.m. We appreciate your diligence at getting up so early and joining us, so -- particularly you, Scott. We want to make some brief remarks on the transaction. And importantly, we're going to open the call up for questions, which is probably the most important part of the call. So as you saw in the press release that we put out last night, very excited announce the acquisition of Ten-X for $190 million in cash. Ten-X was launched in '07 to meet the demand -- actually '09 to meet the demand for a digital platform to liquidate the very large volume of distressed commercial real estate assets that were coming on the market during the Great Recession. Ten-X has successfully executed $24 billion of sales, and Ten-X believes that represents 90% of all digital commercial real estate transactions that have been done. So it's obviously a significant number and has proven the concept beyond a shadow. The Ten-X platform has transacted $7 billion in retail properties, $6 billion in office properties, $4 billion in multifamily properties and $3 billion of hotel properties. It's executed billions of other sorts of commercial properties, industrial, land and et cetera. The Ten-X transaction platform is provided only to brokerage firms. It's a broker tool. And all 25 of the top 25 U.S. commercial brokerage firms have used the platform to execute trades on behalf of their clients. Ten-X and CoStar share many, many common brokerage clients such as Cushman & Wakefield, CBRE, JLL, Marcus & Millichap and many, many others. Banks, government -- GSEs, CMBS, special servicers such as Wells Fargo, LNR, SunTrust, Fannie Mae, BlackRock, Blackstone, CWCapital, Torchlight, C3, which is Greystone, Capital One, PNC, Starwood, Bank of America, MetLife and a long list and many others have relied on the Ten-X auction platform to effectively liquidate billions in CRE assets. So Ten-X is a known commodity amongst the biggest institutional players in the commercial real estate space. Increasingly, even though it was started as a distressed asset product, increasingly brokerage firms have begun to adopt the Ten-X platform for faster execution of income-producing or performing commercial real estate property sales. In 2019, approximately 75% of Ten-X transactions were performing commercial real estate sales and only 25% were distressed. Partially, that's a function of the fact that there simply wasn't much distressed activity in 2019. In April, however, sadly, that ratio has flipped to 75% distressed and only 25% performing. While distressed sales are very likely to be our key focus over the next few years, longer term we see Ten-X returning to primarily a performing asset sales tool for both auctions and negotiated bid sales of properties. Ten-X accelerates the property sales process by qualifying and independently underwriting assets, identifying likely buyers from a database of about 400,000 buyers from 73 countries. They qualify the bidders and the funds are sufficient to be able to bid, and they're providing a powerful and flexible digital auction engine and managing the online escrow, the closing process. The online model accelerates and compresses the marketing period of the sales process, cutting the times by up to 50% while providing the reliable execution institutions need. And they're maximizing the value and the certainty of the close. One important component of Ten-X's offering is leveraging their database of potential buyers to bring the right bidders to the auction. With CoStar's very significant global research reach and the data assets we have, we intend to dramatically improve, expand the scale and depth of Ten-X's buyer database. In addition, we are in a unique position to be able to observe user search behavior around the world on both LoopNet and CoStar so we can observe buyer interest that can be helpful in determining who we should focus on to bring to the auctions. CoStar Group believes there's going to be a surge over the next 5 years of distressed commercial properties and mortgages that may exceed the volume of distressed properties liquidated in the Great Recession. That's probably not terribly far-fetched and most people would think that's likely the case. We observed the $176 billion of distressed sales across the 8 years of the Great Recession. Distressed sales are tightly correlated to the unemployment, and the vacancy rate lagged by 1 year. The R-squared on that relationship is 0.84. So it's tightly correlated. Using Oxford Economics' current baseline forecast, we would predict $146 million of distressed sales in 2021 and 2022. However, the Oxford baseline forecast keeps getting overrun by facts on the ground faster than the new forecast come out. And if you move forward a little bit, under Oxford Economics' moderate downside scenario, we would predict $565 billion of distressed assets coming to market in the next few years or 220% more than we saw in the Great Recession. Just to try and understand the TAM of that, on a 5% auction fee, that would generate $28 billion of potential revenue to someone servicing that distressed debt component. An essential component for an auction is a robust pool of bidders. One of the best places to find potential bidders is on CoStar's marketplaces. CoStar Group operates the most heavily trafficked online marketplace for commercial properties for sale in North America and Europe with 10 million monthly visits in April to its websites, including LoopNet and CoStar. It's about 6 million unique visitors. After the completion of the transaction, CoStar Group will integrate -- or intends to integrate the Ten-X transaction platform directly to both LoopNet and CoStar, therefore giving the properties that the brokers are selling on the Ten-X platform exposure to millions of additional potential buyers from around the world, a very robust audience. Having an ample inventory of properties for sale is a valuable offering to attract potential bidders to the platform as well. So you need to have a lot of bidders to get a lot of properties to the platform. And you need a lot of properties on the platform to bring a lot of bidders to the platform. CoStar is currently offering about 305,000 commercial properties for sale in our marketplaces across Europe and North America. CoStar will market the Ten-X platform to these hundreds of thousands of sellers that we have regular contact with. Capital investing in commercial properties freely flows across international borders. A very significant share of buyers for institutional assets come from outside the country that the asset is located in. It's not atypical to see 50% or more of institutional sales in a given market come from outside of that particular country's borders in any given year. CoStar has offices around the world, and we have clients in well over 70 countries. We're currently working on unifying our systems across the world to one system accessible in dozens of languages. When completed, a potential buyer in Munich will be able to bid on a property in Los Angeles using German language to access the auction, while a bidder from Italy will be able to bid on the same property in Italian. We believe this international platform will bring even more bidders to the Ten-X platform. And as it does, that will bring even more inventory to the platform. Ten-X is headquartered in Irvine, California, and it's got $57 million of revenue in 2019 and currently has approximately 113 employees. The company will continue to be led by the very able Steve Jacobs, who has 25 years of experience in commercial real estate, including transactions development, equity investment, asset management and CMBS'. Prior to joining Ten-X, Steve served as Managing Director at CWCapital, where he built, operated and managed the company's disposition team. We look forward to welcoming Steve and importantly his entire team to CoStar Group and working with them to build an exciting and valuable integrated global digital transaction platform. Together, Ten-X and CoStar will form the leading end-to-end commercial real estate platform, combining LoopNet's and CoStar's unmatched online audience of buyers with Ten-X's clear leadership in online auctions for performing and distressed assets. Leveraging our combined platforms will create significant benefits for brokers and the institutions they represent by exposing their properties for sale to the biggest pool of potential bidders on a trusted digital transaction platform, delivering fast and reliable trade execution. In the aftermath of economic destruction -- disruption -- let's take it back to disruption, not destruction, that's too dire. We believe the volume of distressed properties will clearly be coming to market at a greater pace, and the combined platform will support the market's recovery. If you look for one of the influences on one -- what brought us to this transaction here today, we've -- CoStar Group has operated through multiple economic downturns and has some experience with the patterns of these sorts of cycles. And one of the things that sticks out in my mind was back in 2009, CoStar Group had an opportunity, when no one else wanted to buy office buildings, to purchase the Mortgage Banking Association's (sic) [ Mortgage Bankers Association ] Headquarters when the Mortgage Bankers Association couldn't pay their mortgage. So we bought it, in an essence, a default sale, a short sale. And the building had -- they put about $95 million in it to build it. We bought it for $41 million a year later. And it was a great purchase. We needed it for our headquarters facility. A year later, we sold that property for $101 million for a $60 million gain, which shows you the power of distressed sale investing and the attraction to people who have money sitting on the sidelines for that kind of asset. But when we sold it, we had a great broker representing us, and -- but no one's perfect. And we agreed to sell it to GLL, a German investor, for the $101 million. And we spoke to them on the phone and said, "You're the successful bidder. We'll close the deal with you." Two hours later, we got a phone call from the broker and said there was a problem, that there had been another offer had come in for $103 million before the bid deadline but had come in on a fax machine, fallen off the faxes and slid under the table. So $2 million has slid under the table. And it was -- we weren't too upset. It's like, we just made $60 million. The broker said, "What do you want to do?" We said, "Look, we spoke to GLL. We made $60 million. We're going to honor our commitment to close the deal with them." But I never forgot that moment. I never forgot that moment $2 million slid under the table. And I thought, "Why in the world isn't there a digital platform where all the bids came in, people could see them, they were transparent and millions of dollars didn't slide under the table?" So today, we've taken an important step to preventing faxes from sliding under the table, and I think that will be useful to the industry going forward. So with that, I'll turn the call over to Scott Wheeler.

Great. Thank you, Andy.

You're welcome.

Thanks for that story. I appreciate that. A little bit of history lesson for those of us.

Did I wake? Did I wake you up, Scott?

Yes. I'm just taking a call from my bed this morning.

Don't do that.

Yes. No, not good for your longevity. Anyway, as Andy mentioned, we're excited to add Ten-X alongside LoopNet and CoStar into our operating platforms. As Andy mentioned, Ten-X began back in 2009 as part of Auction.com to sell distressed commercial properties following the last Great Recession. Now during the years following the recession, transaction volumes, of course, increased substantially for the distressed assets. And by 2015, revenue of the company had grown to approximately $100 million per year, which is an increase at a compound annual growth rate of 40% over that period. Over the past few years, as volumes of distressed commercial property sales diminished, Ten-X built a growing revenue stream of market-rate property sales, building relationships with brokers and property owners to leverage the effectiveness of the auction platform. In 2019, as Andy mentioned, the market-rate channel represented approximately 75% of Ten-X transactions running through the platform. Ten-X generated approximately $57 million in revenue and operated in 2019 at a loss. During the past year, however, the company completed a significant technology project to upgrade their auction platform. They subsequently reduced their staffing and spending levels after the successful completion of the project, and now they produced break-even results on approximately $13 million of revenue in the first quarter of 2020. As you look historically, typically the first quarter of any year was the weakest year of revenue sales through the auction platform. Ten-X currently has 113 employees, and we're thrilled to welcome them to CoStar. The current Ten-X business model is based on revenue earned from each property sold on the platform. As the current significant economic uncertainties are the result of the COVID-19 pandemic, we don't believe we can predict the commercial property sale transaction volumes with any reasonable degree of accuracy, although, as Andy mentioned, we certainly think they're going to be going up pretty soon. So we're not able to provide 2020 financial guidance estimates for Ten-X at this time. However, we do expect the transaction will increase CoStar's reported revenue in the second half of 2020, and it will not have a material impact on CoStar's non-GAAP earnings per share during the second half of 2020. After the acquisition closes and the market environment returns to some level of stability, we plan to complete a more detailed forecast of Ten-X impact to CoStar's consolidated estimates, and we'll share that with you on our regular quarterly earnings call. While we're not in a position to provide specific short-term guidance, we believe there is significant growth opportunity for the Ten-X platform when combined with LoopNet and CoStar. As Andy discussed, we believe the timing of this deal is perfect given the wave of distressed assets we expect to come to market over the next several years. In addition, by combining Ten-X's leading online transaction platform with LoopNet's marketplace, CoStar's data and analytics and a huge global audience of buyers and sellers, we believe the longer-term potential market opportunity to be in the hundreds of millions of revenue dollars a year with a TAM, as Andy mentioned, in the $20 billion to $30 billion range. The total purchase price of $190 million will be paid from our available cash balance. If both the proposed Ten-X and the RentPath acquisitions closed during the third quarter of 2020, we would expect to have approximately $1.1 billion in cash and cash equivalents prior to any incremental cash flow from operations. Of course, both of the proposed deals are subject to customary closing conditions, including antitrust approval. With that, it's about all we got on the financial side. We will now open up the call to questions.

[Operator Instructions] Mario Cortellacci with Jefferies.

Just could you give us a sense for what growth looks like in a noncrisis environment? Just thinking about, just the percentage of the, I guess, transaction that you received, in a fee, is it more of a flat fee? Or is there potential to turn this into more of a subscription-type business? Because I'm just assuming as you guys grow and you build scale there, because it is transaction based, it could build some lumpiness into your growth. I'm just trying to see, I guess, what your expectations are going forward.

Currently, the buyer of the property pays a fee on the platform. It varies roughly 5% or so. The brokerage clients often will negotiate some rebate element back to the seller to effectively reduce the net commission that the broker is charging the seller. We're going to continue to offer that industry standard option, but we're also going to offer a second option of a sort of fixed underwriting and marketing fee alternatively. That will create some additional smoothness in the income stream because we won't be as reliant on a successful execution of the auction. Now -- right now, brokerage firms are -- have become a pretty robust, effectively, reseller channel for CoStar Real Estate Manager, and we're looking to also evolve that or migrate that into the brokerage firms being a reseller channel for LoopNet higher-end marketing for commercial properties. And we see Ten-X as yet another tool we can provide the brokerage firms, and they can effectively resell that transaction service -- the software fees associated with transaction service. And then we can generate rebates to them or incentives to use the platform. And we believe that will create some level of smoothness that may not be in the platform today. And -- but really, this is something that with volume and with scale, you get a little bit smoother on this. I'm not terribly worried about any lumpiness in revenue. I think that's probably a lesser worry for us because nothing is changing in CoStar's overall platform. And that -- the overall platform continues to grow, and then this will just be something on top of it. So I'll take the revenue that comes. And by the way, the broker that I referred to with the fax sliding under the table just texted me. Apparently, he's on the call. Great broker. Very happy with the transaction. I view it as much my fault that as the software provider to brokerage firms, we hadn't provided a good digital transaction platform. So we're solving that problem. But very happy with that transaction. I won't use the broker's name.

Ryan Tomasello with KBW.

Andy, beyond the clear benefit that the business will have from distressed asset sales in coming years, can you give us a bit more color on the strategy you'll utilize with integrating Ten-X into LoopNet, into CoStar Suite to really accelerate the adoption of the platform for performing assets, which clearly seems to be the longer-term tail in the TAM here? And any context you can provide in terms of how that specific revenue stream has grown in recent years? I realize that the mix has certainly shifted, at least prior to 1Q, to performing, but does that actually represent growth in that revenue stream versus just a mix shift?

Yes. So I'd say that if you look at Ten-X when they started, they were about distressed, and their original leadership, their DNA, was 110% distressed. That's all they focused on. And that branding sort of kept in there and their fee structure and the software initially was really just focused on distressed. So if you look over the last several years, they've had pretty good growth in their performing sales participation. So while the distressed came down, their performing was coming up. The mast overall was a decline, but the real story was that the performing was coming up. CoStar Group does not -- CoStar Group and LoopNet does not have its roots in distressed property sales, and our brand doesn't represent that. So we believe that when we put these very good software tools into the CoStar and LoopNet engine, it will be easier for us to get adoption on these tools around performing assets just because we have a more -- a broader brand identity there. Also, we're already -- with our platform like PropEx where when you are selling a major property, a GBP 100 million property, in the United Kingdom, often brokers will use our PropEx platform to submit the introduction to institutions like Legal & General, other major institutional investors. An institution takes the introduction on our platform and says, yes, I'm interested in buying this property. It's a relatively small step to go from that to saying, okay, yes -- or Legal & General saying, yes, I'm interested in buying this property, and then using a set of proven tools to participate in a bidding process or a negotiated purchase of a property. So for us to grow this in the performing side, I think, is one of the unique values we can bring to this merger because of the existing products we've got in place and existing ounces we've got in place. The integration is pretty straightforward. They've been rewriting the Ten-X platform from a monolithic software platform that is really derived off the Auction.com system into a system that could be called with APIs. We're going to be splitting those APIs into CoStar and LoopNet. Our Frank Simuro hate it when I say something like just put it into CoStar and Loopnet, but it might be a little harder than that. But -- and then what will happen is, like, when you watch -- I've had the chance to observe some auctions on Ten-X. And I look at the exposure statistics, and a property that is going to auction might have 1,800 views in the marketing period, and that's a decent amount. But a diamond ad on Loopnet will typically pick up something like 20,000 to 30,000 views a week and across a couple of months can pick up 2 million views. So being able to move that auction to a platform where millions will view it -- view that property for sale and we will present it so that it is -- that the very kinetic nature of the bid process and upcoming bids is very visible on the platform, it'll start to look more like a trading platform, we think, will create a lot of energy and excitement around the auctions. Certainly, it will entertain us.

Mayank Tandon with Needham.

Maybe for Scott or Andy, what is the level of investment you believe is required to integrate the LoopNet and CoStar Suite into the platform? And then what does the steady-state margin look like for this business? Is it more similar with LoopNet and multifamily? Or is there a different margin profile to this type of business?

Sure. Thanks, Mayank. Thanks for the question. When you look at the required integration, fortunately, as you've seen us do in the past, we have strong and broad technology teams that focus on the CoStar and LoopNet platforms, and we now bring a stronger technology team over from the Ten-X business. So just as we're doing with other acquisitions and as we're doing now with STR, we have the people on staff that will start to prioritize their work. We'll start to move them into getting the Ten-X platform on. There'll be some incremental resourcing involved, but there's not a big wholesale investment needed, again given that they've just replatformed the company and have really just a little bit of that left to go over the next few months. We think there's some technology we can put in, but it's not going to move the needle at all from an overall cost perspective. The real benefit we get, as Andy mentioned, is this integration with LoopNet and the amazing amount of traffic and buyers and the marketplace it brings to the platform. And currently, Ten-X advertises with LoopNet, and one of their largest-cost platforms is around marketing. As you can imagine, they need to get visibility on those properties, and without a marketplace, that costs a lot of money to do. So there's definitely some integration synergies there when you look at the cost side, but this isn't a cost synergy deal. And then when you start to look at -- if you combine our marketing reach and what they used to be spending and start looking at where margins can go on the business, really as the volume picks up, there's not a big incremental cost pool on top of what their existing cost structure is. So when you look back in their history and you look at some of their faster-growing quarters or periods and you see easily reaching 20-plus percent margins, you start to put more volume and the marketing synergies on top, now you can easily see this business getting to 30%, 40% margins incremental additions into our platform over time. Although we -- the plan is -- not like maybe with our other acquisitions, you don't track the specific profits and margins off of this revenue stream, but we think it's very scalable off a fixed base and a technology platform, and that's the beauty of the combination. I hope that helps give you some idea of -- that this looks like a pretty good profit move as well over time.

Bill Warmington with Wells Fargo.

Congratulations on the deal. So a 2-part question. So the -- in 2019, what was the dollar value of properties transacted on the Ten-X platform? And what was that as a percentage of total distressed assets that were being sold? And then what was that as a percentage of the total market in real estate assets transacted? I'm trying to get a sense for the share. And then you threw out a $146 -- $146 billion forecast, and it wasn't clear. Is that for 2020? 2021? Multiple years? I'm trying to get a sense for that. And then the other part of the question is asking about the numbers. You gave the first quarter, $13 million, that, that was up about 35% year-over-year, and it was breakeven. And I understand there's some seasonality there. So if you roll that 35% growth rate out with the $57 million base that they did in 2019, that would get you to $77 million. It seems like a classic fixed-cost business. So at $13 million, you're at breakeven. So that would mean $77 million -- so $13 million times 4, $52 million. So $77 million less the $52 million in what looks like the fixed-cost break-even base, will get you about $25 million in EBITDA, all things considered. I just want to check that math.

Yes. So let me just -- so if you carry the 4 and you bring down the 2, the sequence of life is 42. So the -- I can answer -- I -- counsel has objected on the basis that you just asked 21 questions. But let's start with a couple of things there. The number we used -- and I don't want to be the bearer of bad news here, but I think what we're talking about is pretty obvious. Any of us can -- if you're a grownup, you can look at the unemployment rate. You can -- well, you can understand that some number of restaurants, retailers, newly launched multifamily properties purchased on a 3% cap will go into distress. And so we're just -- we've looked at it a number of different ways. It's common sense, and then there are different ways to model it. Now I gave you a number of $146 million of distressed sales in 2021 and 2022. That's based -- that's just a model, and it will be wrong because it's a model. And that assumes a V-shaped recovery in the economy, which may be optimistic, and most people feel it's optimistic. And so then, if I used a moderate scenario, that would predict $565 billion, and that would likely be over about a 5- or 6-year period. And I did not even present to you the severe downside, which is based on unemployment of more than 14 million -- oh, wait a minute, we've got more than that. And that one would be $700-and-some billion, and that would be over 7 or 8 years. Now looking in the prior year, they -- their share of online -- their share of transactions was well less than 1%, and distressed debt last year -- I'm sorry, distressed property sales last year was de minimis. And so their share of that, I don't know what it would have been, but I believe it would be definitely sub-10%, more likely sub-1%. So if you'll -- we -- we'll research some of those numbers and try to get back to some of the other detail, but the bottom line is, just think about the fact that these platforms are relatively new. They're very proven and successful, but they're 1% of the market or less. And the size of the potential issue that will need to be liquidated is -- could be over $0.5 trillion. So it's very substantive.

Peter Christiansen with Citi.

Interesting deal. Andy, I guess the distressed market follows toe on toe with foreclosures. Is there any opportunity to integrate some of the functionality with this, with banks or with financial businesses? And if you think about the technology road map longer term, are there enhancements that you're thinking of about here, I don't know, a document workflow or something of that nature? I think there's even notions of blockchain getting into CRE distressed sales. Just thoughts there. That would be helpful.

Sure. So remember that CoStar Group has a good working relationship with the majority of the major banks in the United States. We provide a service through CoStar Risk Analytics, where we, on a very confidential basis, load up all their mortgage portfolios, and then we run economic scenarios and models against their mortgage portfolios. And we help some of the biggest banks in the United States understand what the probability of default is in their mortgages, what their risk and concentrations are, what their maturity gap losses are likely to be, what their liquidated losses are likely to be. So we are very closely in touch with and very well aware of what's going on in the nation's banking system around commercial real estate and distressed. So this is a pretty small step away from that relationship with the banks into this product area. We are working on a number of things that are sort of technology enhancements around all this. For instance, just simply -- we provide deal rooms in brokerage applications and our private sale network. We're going to enhance and provide those deal rooms into our PropEx Costar platform, into -- and take the Ten-X deal room and incorporate that. That's an element of documents. As you know, with our Apartments.com area, we're providing electronic and online leases. We want to provide electronic and online leases for smaller-end deals in commercial office, industrial, retail. Obviously, providing document management and signature around transactions would be something we do. And then if you sort of open off -- if you take off the restraints and you sort of go loosely into the broader future, you -- obviously, this applies not just to the properties but to the mortgages themselves. So very often, you can sell a distressed mortgage or an operating mortgage online as well, and it presents the opportunity to eventually sell potentially limited partnership units or partial interest in properties in a digital platform as well. So really, it's unlimited as to the scale and scope. And I'm a big believer that in these crises, people -- things change permanently, and people step out of business-as-usual, and they -- in responding to a crisis, they accept new ways of doing things that are more efficient or more effective, or they're forced into using things that are more efficient and more effective. So I believe there's a good chance here that when all is said and done, this might -- this crisis might move a lot more of the commercial real estate transaction process online to digital. It's certainly doing it. I mean if you look at just leasing office space right now, people are not touring buildings physically. They have to just view them virtually online. And they can go to LoopNet now, and they can use Zoom-like functionality in LoopNet to see their broker's face on a video and their other colleague's face on a video while they're actually looking at properties on LoopNet. People are using that now. I think that's sort of an example of the kind of change that's permanent, and I think that could happen here with digital transactions online. And again, I just want to reiterate the answer to Bill's question is 42.

Stephen Sheldon with William Blair.

You gave some good detail on views per auction on Ten-X for those marketed on LoopNet. Anything you can share on the number of bidders or outcomes for those auction processes that have marketed on LoopNet relative to those that have not, if you have any visibility into that?

Sure. I've gotten 2 different numbers on it, so -- and the disparity between the numbers are pretty broad of things -- as you know, this deal is distinct and that this is our first ever quarantine deal. The deal was originated, conceived and closed in quarantine and will be integrated in quarantine. So this is a first. This one gets a very special deal toy. I don't know how you do it. The deal toy will have a face mask. So in that context, I had received a number in a market report last year that 40% of the successful bidders on the Ten-X platform were found from a LoopNet lead so that LoopNet was a major source. I saw another number that said it was about somewhere closer, around 10%. So -- but needless to say, it's one of the biggest sources. And that's where the auctions are buried deeply inside of LoopNet at the lower levels that no one's seen them. So when you actually promote these transactions at the top of screen, top of funnel, for anyone who's searching for sale in either the CoStar platform for Europe or Canada or the United States or LoopNet platform or Realla in the United Kingdom or Belbex or PropEx, I believe you'll -- I believe -- I would not be surprised if you didn't see 85%, 90% of successful bidders coming from the CoStar Group platforms. And I would say, again, I don't have a hard number, but my gut would be that it's about 50-plus percent of the deals closed. And it's -- the critical element is that it's all about how many bidders you've got at the auction. When you have 1 or 2 bidders, you often -- the auction -- or the transaction struggles to close because you don't reach the reserve. They're fishing at the bottom, and they know they can fish at the bottom. If you get 4 or 5 bidders, your close rates go through the roof. So it's an exponential relationship between the number of bidders that show up and the success in the auction. So in order to drive growth at Ten-X exponentially, you need to bring dramatically more bidders to the platform, and CoStar Group is well positioned to do that.

Brett Huff with Stephens.

Andy, Scott and Sarah, I'm glad you're all well and congrats on what looks like a great deal.

Thank you very much.

Thanks, Brett.

One question I got -- and I hopped on a couple of minutes late, so I apologize if you went through this in the opening remarks, Andy. But it seems to me that the crux of the deal is, as you mentioned, you can bring lots of more unique visitors to Ten-X. Could you tell us kind of what is the monthly net uniques were at Ten-X versus the -- I think you quoted 10 million for you guys in the press release. I mean isn't that just kind of a stat that we need to focus on?

Yes. Yes, that's correct. And so CoStar Group suite of commercial real estate sites, roughly 10 million visitors in the month of April from all over the world. 10 million. Ten-X would likely be 10,000 or infinitesimal. So Ten-X is not a marketplace, and it doesn't have hundreds of thousands of listings like our sites do. At any given time, it's more of a -- you have to be drawn to that site from something else. It has to be a marketing piece that went out to you. It has to be an ad, you saw. So it doesn't have any traffic. It's not a marketplace. And the connection of the marketplace to the transaction platform is really -- is exactly what we're talking about. It's about bringing millions and millions of potential bidders and exposing these properties so that the seller of the property -- the institution selling the property knows that the transaction -- platform technology is secure, the process is professional and clean and that the property has been exposed to a massive audience of potential bidders and they know that the full value has been achieved.

Sterling Auty with JPMorgan.

This is Jackson Ader on for Sterling. Sorry for the delay. So just a quick follow-up question and maybe we missed it. What was the revenue growth in -- from 2018 to 2019 for Ten-X?

Yes. The revenue was declining in 2018 to 2019, and this was -- you may have heard us mention that the distressed property sales went down since about 2016, 2017, and sales were moving out of the system post recession. That was coming down. And then the market-rate sales were going up during that time. And so the down of the distressed was more than the up of the market rate, and that's why you saw a declining revenue rate in 2019. And then in the first quarter, those lines crossed over. You saw an increase in year-over-year revenue in the first quarter as the market rate took over and the other revenues were much, much smaller. So that was a -- I mentioned the good, positive restructure and turnaround the company had engineered, and now we're going to look to see how the distressed properties we expect will rebound significantly. There's certainly a disruption that's happened to all of our businesses, including the Ten-X business, that happens in the March, April time frame where property sales overall will just freeze up for some time. But that's not the point here. It's not about us looking at what the quarter is or the next 2 quarters are. It's about the massive opportunity that comes with the sales that we know will be through the latter part of the year into next year, the global platform, the bringing on of those market-rate sales in the future. Those things are all what's going to drive massive increases, we think, in this opportunity. And so you saw that crossover happen over the last couple of years. And I think we see a good, strong position both in distressed and in the expertise and experience to do market-rate sales in the platform, which is why this looks like such a nice deal for us.

Joe Goodwin with JMP Securities.

Congrats. Just a quick question for me. When a transaction occurs on Ten-X, what happens to a broker's fee? Is it eroded at all? Or what -- is there any dynamic there?

No. The broker retains the same fee they had before. But with our customers who are buying at scale, so like Cushman & Wakefield, we will rebate some of the buyer fee back to Cushman & Wakefield's client or to the seller. So effectively, the brokers gave the same commission but, the buyer is -- I mean, I'm sorry, the brokers get the same commission, but the seller is effectively net-net paying a lower commission. So the seller really likes that phenomenon. And again, for us, as I look at it, at volume and using a digital platform, I don't believe we need a 5% fee to be very profitable across a lot of these deals, especially if you can break out the underwriting cost separately and people cover that separately that we can bring the performance fee down and reduce the cost of the broker services effectively to the seller while keeping the broker whole on their commission, which is what we've done for 30-some years.

There are no further questions at this time. I would now like to turn the call back over to our presenters for closing remarks.

Well, I think in sum, I think the takeaway from today's call is CoStar Group can do deals in quarantine. We get antsy when we're locked up, and we like to go do stuff. And then secondly, I think it's kind of clear that if you're trying to define countercyclical, Ten-X would be countercyclical, which is added to Apartments.com, which, by all apparent indications, is very countercyclical. Now I believe LoopNet will prove out to be very countercyclical. And I -- and CoStar is very resilient in any one of these cycles as well as Real Estate Manager is very resilient because it's compliance based. And Risk Analytics, which helps banks deal with distressed debt, is also something that hangs in there. So we are glad to join you all this morning and pleased to have a chance to share this deal with you and look forward to talking to you all in the days, weeks and months to follow. Thank you very much for joining us.

This concludes the CoStar acquisition of Ten-X call. We thank you for your participation. You may now disconnect.