A New Lens on the Built World: Bringing Geospatial Analytics into Focus

Written By Dylan Ketcham & Adam Yankelevits

At Moderne Ventures, we take a generalist approach to vertical investing, and often look outside of our industries (real estate, hospitality, home services, insurance, financial services, and ESG) to find technologies and solutions that can be applicable within them. In this article, we break down an investment theme we’re currently exploring: SpaceTech. Know any Founders or companies in this space? Email deals@moderneventures.com.

As our partners continue to innovate and adapt new technologies, SpaceTech - including earth observation and geospatial analytics - are becoming increasingly important to consider.

From the launch of the first commercial satellite in 1962 to SpaceX Falcon 9’s record-setting launch of 143 satellites at once in 2021, the geospatial industry has come a long way. With more than 5,000 operational satellites in orbit, geospatial analytics has become critical for industries spanning cartography, defense, and even hedge funds. Historically, SpaceTech has had far reaching impacts in commonplace industries: radio, TV, and internet. Today, earth observation and analytics are expanding to new areas, including the built world.

Large corporations continue to adopt geospatial analytics into their operations for many reasons. First, the underlying technology—hardware and software—has advanced significantly. Within the past 5 years, companies like Capella Space, ICEYE, PredaSAR, and Umbra have launched lighter and less expensive synthetic aperture radar (SAR) satellites that provide higher fidelity and increased reliability. Second, there are over 1,000 Earth observation satellites in orbit, proliferating data. Third, advances in machine learning (ML) and artificial intelligence (AI) have propelled the capabilities of computer vision to parse and analyze image-based data. These advances drive innovation that has a material impact on the way we see and occupy the world around us.

APPLICATIONS AND IMPACTS

City Planning, Infrastructure, and Development

Starting at the 30,000-foot view (or more like the 118M-foot view) – city planners, real estate developers, and infrastructure and utilities companies have many uses for earth observation data. Municipalities are partnering with companies like Rezatec to leverage satellite images to monitor the health of dams, pipelines, and forests. Qii.AI applies similar computer vision technology for inspection, but uses drone footage instead, allowing it to work with bridges, power plants, and other hard-to-view or hard-to-reach places. Developers can use satellite images to improve estimates of the value of the land they hope to build on, and brokers can use satellite data forecast market trends for commercial leases. These are just a handful of the current use cases we’ve seen in this area and there are more emerging daily.

Building Emissions & ESG

Another area with significant adoption and disruption is ESG. Buildings account for 40% of global energy consumption, and pressure from consumers and governments is helping to reduce that. Companies like GHGSat and Thalo Labs provide businesses with emissions monitoring and actionable insights to measure and reduce their carbon footprint. Additionally, corporations aiming to lower their emissions by purchasing carbon credits may need to improve disclosures as the SEC finalizes policy changes to transparentize the amount of carbon being offset from these credits, and the source of the credit. Genvision and Gaia AI are two startups using AI and geospatial and ground-level imaging to audit offsets and calculate the carbon value of projects.

Another area in ESG that building owners and operators are exploring is reducing heat leakage. By using thermal sensors, companies like SatelliteVu (which also builds its own satellites) and Albedo can pinpoint how energy efficient a building is and suggest ways to prevent waste. As society continues to push for more environmentally conscious actions, real estate players will expand ESG investment, including solutions leveraging earth observation technologies.

Climate Risk and Insurance

Climate change has emerged as one of the most significant threats to our planet in recent years. Storms have increased in severity and frequency, contributing to adverse consequences on the environment and the global economy. Among the many sectors affected by climate change, the insurance industry finds itself at the forefront, grappling with the wide-ranging implications of these risks. In 2022, there were 18 separate billion-dollar climate disasters in the US, causing an estimated $125 - $220 billion of damage according to the National Oceanic and Atmospheric Administration. AON, a global commercial insurance provider, reported a $171 billion gap in climate insurance globally. To solve this problem, insurers are incorporating more data into actuarial models to account for climate change.

Companies like Climavision and One Concern use a mixture of satellite data, radar and drone images to create models that predict severe weather events and their potential impacts. Other startups, like Near Space Labs and Urban Sky, have built balloon-based aerial imaging to capture proprietary data for climate risk models for insurers. On the pure insurance-side of things, Mitiga Solutions, Arturo and TensorFlight developed AI algorithms to aid in underwriting.

DRONES VS. SATELLITES

Earth observation data can come from many sources. Two of the more common areas we have explored are drones (fixed wing, rotary wing, or balloon) and satellites. Each has their advantages and drawbacks.

Drones offer greater flexibility. They can be deployed quickly and easily for fast and specific data collection, they can capture closer (and therefore higher-resolution) imagery from aerial shots with different angles, capture hard-to-reach areas such as the sides of buildings or the underside of bridges, and their sensors and cameras can be swapped out for specific data collection and analyses.

However, drones have some limitations. They have a more limited coverage area, only capture point-in-time data for each time they are deployed, and are subject to regulations, limiting their use in certain areas or applications.

SmartRoof uses drones and AI to provide roof inspections, detect damages, and get accurate estimates for replacement or repair costs. Kestrix uses drone-captured thermal images to build 3D digital clones of houses for use in retrofit planning to reduce carbon emissions from heat leakage.

Satellites, on the other hand, can cover vast areas, making them ideal for large-scale projects; they continuously orbit the Earth, tracking changes and identifying trends over time; and they are always in flight and able to capture data: newer satellites, such as those with SAR imaging, can “see” through clouds and storms.

Satellites have their own drawbacks. Once launched, satellite cameras cannot be changed depending on the analysis required. They also cannot achieve the same level of resolution as drone imagery due to higher altitudes and the presence of the atmosphere.

While each has their advantage, it is our belief that—due to diminishing space payload costs, improvements in imaging technology, and increasing availability of geospatial data—the market will increasingly leverage satellites as sources of data for advanced analytics. In the short term, drones are viable for uses that may be cost prohibitive for satellites like higher resolutions and more specific data.

AI AND ML

AI is the buzzword of the day and while it’s nothing new, it is rapidly improving in terms of capabilities, speed, and accessibility. By incorporating AI and ML technologies with earth observation data, organizations can extract more value and make better-informed decisions. Image recognition and classification models can make predictions, allowing businesses to take proactive measures and make more strategic decisions. Furthermore, AI and ML technologies improve the integration of data from multiple sources, such as drones, ground, and satellite images, or data collected from different satellite constellations. As AI and ML advance, they will improve the capabilities of earth observation data capture and analysis.

RISKS

While we believe these rapid advancements in earth observation and the resulting data will have a massive impact on the future of our world, there are several risks to the sector. Continuously evolving technology poses a threat that existing satellites may become obsolete. Geospatial data collection may be subject to various regulations surrounding privacy, data security, and airspace restrictions for drones and satellites. The ever-changing regulatory environment poses risks to investors across the sector. However, perhaps the two largest risks in this space are competition and market adoption. Winners will (a) need to build moats, especially as computer vision and ML algorithms become more commonplace, and (b) need to create significant value – and communicate it well to customers – to accelerate adoption.

INVESTMENT OPPORTUNITIES IN SPACETECH

SpaceTech is paving the way for significant impact on the built world. As costs are reduced, data is proliferated, and complex ML models are deployed, Earth Observation is becoming more conventional as a tool for analysis. In our industries, product-market fit is being found in insurance, climate risk, and ESG. We’re excited to learn about new advances in this arena, and work with high-caliber entrepreneurs changing the way we see the world. If you’re an entrepreneur building in this space – or know someone who is – contact deals@moderneventures.com to connect with our team.

CoStar Group Agrees to Acquire Homesnap, a Digital Residential Real Estate Solutions Provider Used by 300,000 Agents Responsible for More Than Half of All US Residential Real Estate Sales

WASHINGTON--(BUSINESS WIRE)--CoStar Group, Inc. (NASDAQ: CSGP), the leading provider of commercial real estate information, analytics and online marketplaces, announced today that it has reached an agreement to acquire Homesnap, Inc. for $250 million in cash.

Homesnap is an industry-leading online and mobile software platform that provides user-friendly applications to optimize residential real estate agent workflow and reinforce the agent-client relationship. Over 300,000 agents nationwide use the application an average of 30 times each month. Those 300,000 agents are also the nation’s most productive, selling the majority of homes in the US. The platform enjoys high growth and engagement as the number of active monthly users has grown at a compounded annual growth rate of over 40% since 2016, while marketing product sales have risen over 75% per year over that same period. Supported by a consortium of hundreds of the country’s largest multiple listing services (MLSs), over 1.1 million real estate agents have access to Homesnap Pro. These agents represent over 90% of the residential real estate agents and listings in the United States. With the support of this impressive consortium, Homesnap’s public residential real estate portal showcases 1.3 million active property listings. Tens of millions of home shoppers use the Homesnap website and app to look for a home.

“The acquisition of Homesnap will enable us to enter a new space and expand the total addressable markets in which we can compete,” said CoStar Group founder and CEO, Andy Florance. “The estimated value of commercial real estate assets in the U.S. is $16 trillion. With the new addition of clients and information covering 90% of the estimated $27 trillion dollar U.S. residential real estate market we are almost tripling the size of our addressable markets. Over the past thirty years, CoStar has become the leading real estate technology platform by working in partnership with commercial real estate brokers to serve their needs for data, analytics and advertising exposure for their property listings. Similarly, Homesnap works in very close partnership with residential agents to serve their needs for data, analytics and advertising exposure for their property listings. We will continue to differentiate our residential real estate portal and solutions by working solely to help agents market their listings and their brands, which is in sharp contrast to other portals that increasingly advertise on top of agent listings and offer brokerage services directly.”

The addition of Homesnap’s complementary offerings will quadruple the number of professional, paying brokers and active agent users on the CoStar Group U.S. platforms from approximately 100,000 today to over 400,000. The number of U.S. property listings available across CoStar’s brands will double from approximately 1.35 million today to over 2.6 million.

“Homesnap has great relationships, data, software, and tools for residential real estate professionals that are complementary to our existing offerings,” continued Florance. “The tools and functionality developed by Homesnap for residential property agents, such as lead generation, client collaboration, and digital advertising, have direct applicability to commercial brokers. Our goal is to make these enhanced capabilities available to all of our audiences. Combining forces with Homesnap is also expected to enable us to expand and deepen our collaboration with MLSs nationwide. A very large percentage of CoStar’s clients such as investors, banks, government agencies, appraisers, suppliers, and brokerage firms are active in both commercial and residential real estate, so we believe that they would welcome a more comprehensive solution for their needs across all real estate segments.”

“Homesnap has spent years building tools that reinforce the agent-client relationship and arm both home buyers and agents with the data and software they need to find homes and do their jobs,” said John Mazur, CEO of Homesnap. “In addition, residential property agents spend an estimated $10 billion every year on software and marketing, while influencing a further $21 billion of spending in adjacent markets, such as lending, insurance and relocation services. We are excited to join CoStar Group and leverage their 30 years of knowledge and experience in property data, software and marketing to take advantage of this significant growth opportunity.”

Homesnap is also headquartered in the Washington, D.C. area, employs approximately 150 people and is projected to achieve approximately $40 million of revenue for the full year 2020, representing revenue growth of approximately 45% compared to the full year 2019. The transaction is expected to close in 2020, subject to customary closing conditions and regulatory review.

The preceding forward-looking statements reflect CoStar Group’s expectations as of November 22, 2020. We are not able to forecast with certainty whether or when certain events, such as acquisition-related costs, the exact timing of the closing of the acquisition, or the exact amounts or timing of any investments related to the acquisition will occur. Given the risk factors, uncertainties and assumptions discussed above, actual results may differ materially. Other than in publicly available statements, CoStar Group does not intend to update its forward-looking statements until its next quarterly results announcement.

About CoStar Group, Inc.

CoStar Group, Inc. (NASDAQ: CSGP) is the leading provider of commercial real estate information, analytics and online marketplaces. Founded in 1987, CoStar conducts expansive, ongoing research to produce and maintain the largest and most comprehensive database of commercial real estate information. Our suite of online services enables clients to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities. STR provides premium data benchmarking, analytics and marketplace insights for the global hospitality sector. Ten-X provides a leading platform for conducting commercial real estate online auctions and negotiated bids. LoopNet is the most heavily trafficked commercial real estate marketplace online with over 7 million monthly unique visitors. Realla is the UK’s most comprehensive commercial property digital marketplace. Apartments.com, ApartmentFinder.com, ForRent.com, ApartmentHomeLiving.com, Westside Rentals, AFTER55.com, CorporateHousing.com, ForRentUniversity.com and Apartamentos.com form the premier online apartment resource for renters seeking great apartment homes and provide property managers and owners a proven platform for marketing their properties. CoStar Group’s websites attracted an average of approximately 69 million unique monthly visitors in aggregate in the third quarter of 2020. Headquartered in Washington, DC, CoStar Group maintains offices throughout the U.S. and in Europe, Canada and Asia with a staff of over 4,300 worldwide, including the industry’s largest professional research organization. For more information, visit www.costargroup.com.

About Homesnap

Based in Bethesda, MD, Homesnap was founded in 2012 to provide residential real estate agents and consumers with an intuitive technology that facilities buying and selling homes. Homesnap’s flagship product, Homesnap Pro, is a free software application for real estate agents to view and manage property listings, communicate with clients, receive market alerts and schedule showings on their mobile devices. Homesnap collects data from over 500 data sources and has subscription service agreements with approximately 240 MLSs who provide data and subscription revenue to Homesnap in exchange for free agent access to Homesnap Pro. Homesnap also provides marketing products through its mobile application that agents can use to promote their listings, as well as a premium product called Homesnap Pro+, which provides agents with enhanced functionality and business intelligence through individual subscription agreements. The Homesnap platform contains approximately 1.3 million active property listings, including residential, commercial, land and other property types, covering approximately 90% of active listings. The company also aggregates information on property taxes, mortgages, individual property parcels, neighborhood schools and other property data elements.

This news release and the Company’s conference call contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about CoStar Group's plans, objectives, expectations, beliefs and intentions and other statements including words such as “hope,” “anticipate,” “may,” “believe,” “expect,” “intend,” “will,” “should,” “plan,” “estimate,” “predict,” “continue” and “potential” or the negative of these terms or other comparable terminology. Such statements are based upon the current beliefs and expectations of management of CoStar and are subject to many risks and uncertainties. Actual results may differ materially from the results anticipated in the forward-looking statements and the assumptions and estimates used as a basis for the forward-looking statements. The following factors, among others, could cause or contribute to such differences: the possibility that the acquisition of Homesnap does not close when expected or at all; the possibility that the parties are unable to obtain regulatory approval, or the risk that any actions required to be taken in order to receive regulatory approval may impact the expected benefits of the transaction; the risk that the businesses of Homesnap and CoStar may not be combined successfully or in a timely and cost-efficient manner; the risk that business disruption relating to the Homesnap acquisition may be greater than expected; the risk that the acquisition does not produce the expected benefits or results for CoStar, Homesnap or their customers and advertisers, including expanded and deeper collaboration with MLSs nationwide and as otherwise stated in this release; the risk that Homesnap revenues and revenue growth for 2020 will not be as stated in this press release; the risk that the combination and integration of Homesnap will disrupt CoStar Group's or Homesnap’s operations or result in the loss of customers or key employees; uncertainty surrounding the impact of the COVID-19 pandemic, including volatility in the international and U.S. economy, worker absenteeism or decreased productivity, quarantines or other travel or health-related restrictions; the length and severity of the COVID-19 pandemic; the pace of recovery following the COVID-19 pandemic; and government and private actions taken to control the spread of COVID-19. Additional factors that could cause results to differ materially from those anticipated in the forward-looking statements can be found in CoStar Group’s filings from time to time with the Securities and Exchange Commission, including in CoStar Group’s Annual Report on Form 10-K for the year ended December 31, 2019, and CoStar Group’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020, each of which is filed with the SEC, including in the “Risk Factors” section of those filings, as well as CoStar Group’s other filings with the SEC available at the SEC’s website (www.sec.gov). All forward-looking statements are based on information available to CoStar Group on the date hereof, and CoStar Group assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Contacts

Investors

Scott Wheeler
Chief Financial Officer
(202) 336-6920
swheeler@costar.com

Sarah Spray
Investor Relations
(202) 346 6394
sspray@costar.com

What’s Next for the Office Property Market?

By Sam Delisi, Operating Advisor at Moderne Ventures

Will Office Building Owners Embrace the Hybrid Model?

COVID-19 has shaken the real estate industry to its core. Social distancing, working from home, zoom calls, thermal scanning, and the risks of sharing an elevator with a stranger are associated with a real fear of returning to the office. Pending the global development of an acceptable level of herd immunity and vaccine administration, the real estate industry must avoid overreacting. Office aren’t going to disappear, they will just be different.

Future Influencers:

Now that we have seen how easy it has been to work from home (WFH), imagine how much better it will get when companies build their systems to be truly flexible. The WFH genie is not going back in the bottle and, if anything, it will become a widely accepted work protocol.  New technologies will be developed, improving video conference capabilities and work collaboration. WFH will be even easier and more efficient once the 5G network is widely available globally.

Based on what we have learned from this global WFH experiment, companies will need to rethink how and why they require office space.  Office leases are expensive, complex transactions that tie up companies for years. Corporate leadership and Governance are going to demand a more thoughtful approach to how a company thinks about real estate. The way we have always done it won’t cut it anymore.

Demand Changes:

Companies are going continue to embrace WFH and as a result will require flexibility in every aspect of their real estate transaction. Lease term, speed to market, location, size, office configuration, services and experience will be important to attract and retain the best quality firms. “Space as Service” (SAS) will allow occupiers the type experience and flexibility that will truly maximize the dollars spent on real estate costs. That level of flexibility will require owners and property managers to think differently.

The Opportunity:

While WeWork, Convene and other SAS providers have proven that office space occupiers will pay up for flexibility, experience, instant occupancy and footprint, the lease arbitrage model underpinning their business is challenged. The better option will be for building owners to provide SAS services. SAS will provide office building owners with a variety of new revenue streams and profits by charging for services to their customers on an ala cart basis. This type of relationship already exists in the real estate industry in the hotel and hospitality market. Hotels get financed with a business model based on millions of one-night stays (short-term leases), food service, conference room rentals and banquet service.  Why couldn’t office buildings be financed with a “Hybrid” model of traditional leases and SAS business featuring a variety of service revenue similar to hotel chains? 

Whether your building is in Midtown, Fulton Market or Bellevue, owners will be able to customize a SAS delivery program to suit the tenant mix. Owners and Management Service providers who embrace these concepts will have the ability to market their developing brands. Tishman’s Studio and Zo, CBREGI’s Above and Beyond with Hana or KBS Realty Premiere Properties offering have some elements of the ala cart service model and are currently more focused on traditional property management, they have the appropriate ethos at their core to make the Hybrid transition. Current SAS firms could also expand their business and move to embrace a Hybrid approach to servicing investor owners.

The Hybrid conversion will be gradual, and it is safe to say that there will always be traditional lease tenants co-existing with SAS tenants and benefiting from some of the new service offerings. The future winners of the battle to keep and grow tenants will be owners and operators who have developed a robust SAS model or a relationship with a SAS based management partner.