CRE News 12.23.17

CRE News 12.23.17

Xceligent Shuts Down Operations, Files For Chapter 7 Liquidation

London-based Daily Mail and General Trust, which owns commercial real estate data firm Xceligent, announced Thursday Xceligent's board has decided to file for Chapter 7 liquidation. A court-appointed trustee will distribute the company's assets. The decision comes one year to the day after Xceligent's legal battle with commercial real estate data giant CoStar began. Under the Chapter 7 law, DMGT said it holds no liability for the costs associated with the litigation, which will be stayed until a trustee is appointed. Xceligent's 250 employees were sent a memo at 4:08 p.m. CT, notifying them of the company's closure and giving them 30 minutes to take all of their belongings, after which time they would not be allowed to re-enter the Kansas City, Missouri, headquarters. All Xceligent employees were terminated, a DMGT spokesman said, effective immediately, and the company's website has been shut down. The decision follows an October leadership shake-up in which founder and CEO Doug Curry left the company and was replaced by former Hanley Wood CEO Frank Anton. DMGT told its investors on Nov. 30 it had written Xceligent's value down to zero and was reviewing all business opportunities. Anton took over a strategic business review the Xceligent board started several months ago, and the result of that review led the board to decide to shutter the company and liquidate its assets. The review was undertaken after the company's expensive expansion into New York City, which formally launched in June, did not meet expectations. "Quite a lot has changed over the last six months," the DMGT spokesman said. "The Xceligent management team ... carried out the strategic review in light of the funding limit set by DMGT. Their conclusion was there wasn’t a sustainable option for the operation of the business." The legal battle centered around CoStar’s claims that Xceligent stole and resold its proprietary content. CoStar had previously won multiple suits against competitors with similar claims. In June, Xceligent tried to fight back with an antitrust countersuit alleging CoStar had engaged in years of anticompetitive behavior. As recently as last week, CoStar and Xceligent were discussing a settlement.

Xceligent suffered a major setback in the case in October when a Pennsylvania judge ruled in favor of CoStar in a separate suit against one of Xceligent’s contractors, RE BackOffice, which said in court filings that Xceligent directed it to steal CoStar’s data. CoStar ramped up its legal offensive against Xceligent in recent weeks amid the company’s leadership shake-up and financial challenges, filing several subpoenas and planning to depose Xceligent employees. "CoStar sympathizes with those negatively impacted by this liquidation. We understand that Xceligent failed as a result of business missteps over two decades, as acknowledged by DMGT in its most recent earnings call, and we commend DMGT for making this difficult business decision," a CoStar spokesperson said. "We remain committed to offering the best available data and insight to commercial real estate professionals, and stand by ready to help Xceligent’s former customers." Xceligent’s shutdown raises questions of competitiveness in the commercial real estate data space, with CoStar now strengthening its position in the industry. The Federal Trade Commission in 2012 set conditions to prevent CoStar from becoming a monopoly after the company acquired listing service LoopNet, forcing it to spin off Xceligent. DMGT acquired Xceligent as part of that deal and invested $150M to expand the platform into the largest U.S. markets. DMGT still owns DMGi, its commercial real estate data portfolio of which Xceligent was a piece, and plans to continue operating the sites that fall under that umbrella, including Trepp, EDR, Landmark and BuildFax. (BisNow)

Landlords Remain The Winner In 2018

The outlook for 2018 remains strong with the expectation for more cap rate compression and even higher pricing, Jeff Rinkov of Lee & Associates says in this EXCLUSIVE interview.

We are heading into another strong and active year, according to Jeff Rinkov, CEO and president at Lee & Associates. The activity will make landlords the winners in the coming year, with more cap rate compression and higher prices, Rinkov predicts. We sat down with him for an exclusive interview to get his insight into the coming year. What will people be talking about at the end of 2018?

Jeff Rinkov: I think the biggest surprise is how strong the market is going to be next year. People have been waiting for some weakness or some negative impact, but I think people are going to be surprised at how strong the market really is. I also think that tax reform is going to get passed, and that is going to be encouraging for corporate America, which still drives a lot of employment. Interest rates are not going to be a big factor. You are going to continue to see rising rents, rising values and cap rate compression, even more so than we have seen. That is surprising. Is there room for cap rates to compress?

Rinkov: I don’t believe there was room for the cap rate compression that we have now. I think that people will buy a zero-coupon kind of deal when they are buying down value. If you can buy physical value, people will buy that in the face of smaller cash returns. I think that we are seeing that, and I think that people are being very strategic about their acquisitions from a more fundamental standpoint. It is about strategic location, fundamental real estate and the future of the property. We have seen people be very aggressive where there are very small returns. We are in an environment where there is enough capital to backfill where lenders have resisted from a loan-to-value standpoint. Multifamily has continued to dominate the market, but if you look at some third quarter reports, there has been some slowed growth this year. Is that concerning going into next year?

Rinkov: If you saw an expansion of those fundamentals, there would be some concern. I don’t think that the construction of new product is outpacing demand, but I do think that it is outpacing absorption. Right now, it is a timing issue. A year from now, if we start to see vacancy rates continue to go up or we are not seeing strengthening absorption and we are continuing to build, then we have a problem. What is your outlook for foreign investment next year?

Rinkov: We have seen a slow down in foreign investment, and I don’t think that is related to demand for assets in this country. I think that stability in other parts of the world has encouraged the diversity of investment. People were buying in urban areas in the US, and now you are seeing it in Italy, Spain and Greece. Now, those places are doing great. I think that you will continue to see foreign investment here, and I think we will see it pick up in 2018. I do think it is going to be tempered somewhat. Who will be the winners of 2018?

Rinkov: Landlords continue to be winners next year. That doesn’t meant that tenants are losers, but they need to be careful. I think that landlords are winners based on renewal activity, low vacancy and only marginally higher interest rates. I also think that development becomes very difficult because of regulation and higher land prices. The biggest challenge with regulation is time to market. I think there is concern about the time to entitle a meaningful project that goes from 18 to 36 months. We don’t know what market we are building into. What is your intermediate-term outlook?

Rinkov: I don’t know what inning we are in anymore. I don’t know today. I think we are in the heart of a really strong market. I think that the next two to three year period shows relative strength and economic growth. I think we see rent growth, although it may be more subdued. (Globe Street)

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