Investor calls for CoStar board overhaul, exit from Homes.com 

Activist investor Third Point has escalated its campaign against CoStar Group, calling for an overhaul of the company's board and a dramatic pullback — or outright exit — from its residential real estate platform, Homes.com.

In a sharply worded letter sent Tuesday to CoStar's board of directors, Daniel Loeb, the founder and CEO of New York-based hedge fund Third Point, accused the company of weak oversight, poor capital allocation and years of value destruction tied to what it described as a failed attempt to compete in the residential home search space. 

The firm said it plans to nominate a slate of new directors "to reverse the downward spiral" at CoStar after a standstill agreement expired, marking a significant escalation in a long-running dispute over the company's strategy.

Third Point targets CoStar management and CEO compensation

The move comes nine months after CoStar reshaped its board in response to investor pressure, adding independent directors and forming a Capital Allocation Committee aimed in part at sharpening oversight of Homes.com and other major investments. At the time, the company framed the changes as a step toward improving governance while continuing to build its residential platform.

But Third Point said private engagement failed to produce meaningful change.

"So little progress has been made that we are convinced the Company never intended to do any of the things we discussed when we entered into the agreement," the firm said in the letter. 

Earlier this month, CoStar also announced it would reduce its net investment in Homes.com by more than a third in 2026, signaling what management described as a shift away from the heaviest phase of spending. The company said it plans to continue scaling back investment over the rest of the decade, while still projecting that Homes.com will not reach breakeven until closer to 2030.

In its letter, Third Point estimated CoStar has invested roughly $5 billion in its residential real estate segment over the past five years, producing what it characterized as negligible returns. Third Point argued that losses tied to Homes.com have depressed CoStar's consolidated earnings, distracted management from its core commercial real estate business and contributed to prolonged stock underperformance, noting that the company's stock had fallen more than 25% over a five-year period.

The firm also took aim at CoStar's board for what it described as a failure to hold management accountable, pointing in particular to CEO Andy Florance's compensation.

"Like an elementary school child who wins a prize even for finishing last, Mr. Florance's bonuses are perhaps the costliest 'Participation Award' our firm has witnessed," Third Point wrote, noting that Florance received roughly $37 million in total compensation in 2024 despite years of weak stock performance.

Third Point is urging CoStar to refocus on its commercial real estate franchises, which it described as "crown jewel" assets with the potential for far higher margins and sustained earnings growth, while divesting or shutting down residential operations if meaningful alternatives cannot be found.

CoStar pushes back and hints at new AI feature

In a statement provided to Real Estate News, a company spokesperson said CoStar's board — including directors nominated by Third Point and D.E. Shaw — has unanimously approved its updated strategic plan and capital allocation priorities.

"Over the past year, CoStar Group has conducted extensive engagement with stockholders to inform our updated strategic vision and capital allocation priorities," the spokesperson said. "We enter 2026 with considerable momentum and a clear plan to continue building our core platforms while scaling Homes.com, which is a critical component to our comprehensive digital real estate platform and next chapter of profitable growth."

While Third Point's letter reflects deep frustration from at least one large shareholder, Wall Street analysts who have met with CoStar's management in recent weeks have taken a more measured view.

Several firms, including Goldman Sachs, Deutsche Bank and William Blair, have said that although Homes.com has required substantial investment and remains unprofitable, recent product demonstrations — particularly around new AI-driven features — suggest the platform may be approaching a turning point. Analysts highlighted early signs of traction, planned reductions in marketing and operating expenses, and management's expectation that losses tied to Homes.com will continue to narrow over the next several years.

Some analysts said their view of Homes.com shifted after seeing live demonstrations of new AI-driven features that CoStar plans to roll out in the coming months. William Blair, for example, said the tools were "tough to convey in words how different it could be" compared with existing home search experiences, highlighting conversational search, virtual tours powered by Matterport imagery and AI-generated insights that could alter how buyers interact with listings.

The AI rollout is one of the few materially new elements in CoStar's residential strategy in recent years — and one that drew limited attention in Third Point's letter, but appeared to influence how some analysts assessed the platform's longer-term prospects.

At the same time, even supportive analysts have acknowledged that the strategy carries significant execution risk and that profitability remains years away. Some firms, including Wells Fargo, continue to rate CoStar's shares "underperform," citing the scale of residential spending and the strength of entrenched competitors in the portal market.