A major New York hedge fund has demanded that KoStar sell or shut down its residential real estate business after spending heavily on Homes.com.
One major investor called CoStar’s investment in residential real estate a “disastrous failure” and said it was just waiting for Homes.com to become a major player in residential real estate.
Daniel Loeb, founder of New York-based hedge fund Third Point, took direct aim at what he called the “reckless commissions” and “bizarre pursuits” of co-star Andy Florence, who spent billions of dollars growing Homes.com into a top-four real estate portal in recent years. Mr. Loeb expressed his dissatisfaction in a widely distributed letter Tuesday.
Some of the complaints focus on stock prices. But at its heart, investors say it was a “fanciful quest” by CEO Andy Florence to become a major player in residential real estate. Mr. Loeb effectively asked Koster to consider abandoning Homes.com.
“We believed then, as now, that our company’s poor performance was solely due to billions of dollars in misallocation to Homes.com, overseen by a reckless board that paid Mr. Florance exorbitant compensation while failing to protect shareholders from Mr. Florance’s bizarre pursuits,” Loeb wrote in the letter.
Daniel Loeb | Third Point Founder
The letter comes just weeks after CoStar announced it would drastically reduce spending on Homes.com through 2030. The company said it has cut spending by $350 million this year, more than 35% from 2025, and will continue to cut spending by more than $100 million over the next few years until Homes.com announces it reaches profitability.
Loeb said he sent a letter to CoStar’s board in December but has not yet received a response.
“The time for talks is over. Our suspension period ended at midnight. We will now take concrete actions to protect our investments and ensure that the company is governed and managed in a way that creates long-term, sustainable value for all shareholders,” Loeb wrote.
“Since most board members appear unable to impose discipline on Mr. Florence’s empire-building strategy, we intend to introduce a new roster of experienced directors to be voted into the board by shareholders to reverse the downward spiral that has become synonymous with this CEO and his supine enablers,” the letter continued.
Andy Florence |Credit: CoStar Group
Loeb said he remains confident in CoStar’s dominance in the commercial real estate market and indicated the company will sell or close its residential real estate (RRE) business.
“There is an opportunity to unlock significant shareholder value by improving governance, selling or closing the RRE business, and refocusing on the significant revenue potential of the core business,” the shareholders wrote. “There’s no time to waste.”
co-star’s reaction
In response to the letter, CoStar said it had conducted a shareholder outreach and engagement campaign.
“We enter 2026 with clear plans and great momentum to continue building out our core platform while expanding our comprehensive digital real estate platform and Homes.com, a key element to our next chapter of profitable growth,” the company said in a statement.
“Our 2026 and long-term guidance represents sustained and accelerated revenue growth and profit expansion and reflects the Board’s confidence in our ability to drive shareholder value,” the statement continued. “We will continue to engage with our shareholders, including Third Point, to better understand our strategic plan, which already has the support of many shareholders and analysts.”
“Good money after bad”
With the Homes.com acquisition and subsequent investment, CoStar was looking to compete with three other major public real estate search portals: Zillow, Realtor.com, and Redfin.
The effort was doomed from the start, Loeb wrote.
That’s because consumers were already accustomed to visiting these top three “deep-rooted” competitors.
“Second, and more pernicious, the existence of freely syndicated properties in the MLS meant that the company lacked meaningful differentiation in its real estate supply,” Loeb wrote. “These issues were readily apparent to any informed observer, but management and the board ignored or failed to understand them.”
Loeb wrote that CoStar has invested about $3 billion in U.S.-based residential real estate businesses, including through acquisitions.
“The CoStar RRE fiasco is a textbook case of good money after bad, and should be learned at major business schools as a lesson in executive arrogance coupled with non-existent oversight,” Loeb wrote.
CoStar made waves in early 2024 with a $1 billion marketing campaign featuring A-list celebrities and Super Bowl appearances.
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