Drop Homes.com, second major investor urges CoStar 

CoStar Group is facing fresh pressure from a second activist investor, as New York City-based hedge fund D. E. Shaw & Co. released a damning letter accusing the real estate data giant of "shareholder value destruction" tied to its costly push into Homes.com.

In the Feb. 4 letter to CoStar's board, D. E. Shaw managing directors Edwin Jager and Michael O'Mary questioned the company's long-touted record of shareholder returns, saying the hedge fund has spent the past year privately urging leadership to take a harder look at strategy and capital allocation. They said they are now "gravely disappointed" by what they view as continued deference to CEO Andy Florance and an "unprofitable Homes.com business" that is consuming management attention and resources.

The public broadside lands just a week after Third Point published its own letter calling for board changes and a retreat from the Homes.com bet — criticism CoStar dismissed as "short-sighted" a day later. CoStar shares have continued to slide since then, hitting a new 52-week low Wednesday morning and currently trading just over $51 per share at the time of this story's publication, intensifying investor scrutiny of the company's residential strategy.

'Destruction' of shareholder value

D. E. Shaw's central argument focuses on what it described as CoStar's prolonged stock underperformance, which it said stems from the board repeatedly "greenlight[ing]" the use of the company's "steady" core earnings to subsidize a "high-risk, money-losing Homes.com business."

In unusually blunt language, the hedge fund questioned whether CoStar's past success still has relevance for current shareholders.

"Sadly, CoStar's purported 'track record of stockholder value creation' is, at best, an artifact of history, if not a convenient fiction," the D. E. Shaw directors wrote. "As a consequence, today every shareholder who has purchased CoStar's stock in the last five years has lost money."

Despite what it called an "unprecedented level of investment," D. E. Shaw said Homes.com has generated just $80 million in annual revenue and more than $2 billion in cumulative losses — far below the $700 million to $1 billion CoStar projected for 2027 — even as the company is on track to spend more than $3 billion this year.

The letter also takes aim at CoStar's shifting timeline for improvement, pointing to the company's Jan. 7 business update indicating Homes.com is not expected to reach profitability until 2030, several years later than earlier guidance. D. E. Shaw criticized management's repeated appeals to investors to "just trust us."

In one of its harshest claims, the hedge fund contends that uncertainty surrounding Homes.com has caused CoStar's core businesses to trade at a discount to their historical premium versus peers, "destroying as much as $11 billion in shareholder value in the process."

A push for separation — and accountability 

D. E. Shaw said it recently met with CoStar's board to discuss what it described as a failed strategy and a set of "straightforward" corrective actions. Chief among them were developing an alternative path for Homes.com that includes exiting, spinning off, divesting or dramatically reducing spending on the business to reach breakeven by 2027, and adding new independent directors to the board.

The hedge fund argued that separating Homes.com — or committing to a near-term, profitable version of the business — combined with new leadership and stronger oversight, would "increase focus, improve performance, and lead to an appropriate valuation" for CoStar's core commercial real estate franchises. It estimates those changes could unlock more than $10 billion in shareholder value over time.

A significant portion of the letter targets Florance and a board D. E. Shaw says is "far too deferential" and incapable of effective oversight. "Mr. Florance's chosen strategy is value destructive," the hedge fund wrote, adding that CoStar's "independent" directors have "surrendered too much authority to the CEO they are tasked with overseeing."

The letter also criticizes the board for approving what it called "lavish perquisites" for Florance, including personal use of the company's private jets at a rate more than three times that of peer-company chief executives. D. E. Shaw said CoStar's performance does not justify the use of such perks, noting that the company's total shareholder returns over the last five years rank in the bottom 10% of the S&P 500.

The hedge fund further pointed to Florance's stock sales, noting that he has net sold roughly $27 million of CoStar shares since November 2022, when Homes.com was launched. If Florance and the board truly believed in the strategy, D. E. Shaw said it was "left wondering why they haven't been adding to their holdings of CoStar's stock instead of leaving other shareholders to hold the bag."

How CoStar is responding

"D.E. Shaw has once again chosen to latch on to Third Point's dangerously misguided effort to have CoStar Group abandon Homes.com despite its vital integral strategic importance to long-term shareholder value," a CoStar spokesperson said in a statement to Real Estate News.

"Over the past month, management has met in person with more than 300 shareholders who expressed enthusiasm for our clear focus on accelerating our EBITDA growth and the exceptional potential within our new Homes.com AI platform," the spokesperson added. "There is strong shareholder alignment with the Board's unanimous support for a strategy that includes Homes.com for creating durable long-term shareholder value."

What comes next

CoStar has defended its strategy as an extension of the long-running playbook that helped build Apartments.com and other platforms, arguing that abandoning Homes.com as the investment phase begins to taper would itself "destroy long-term value."

D. E. Shaw said it expects to support "shareholder-driven change" at CoStar's 2026 annual meeting. But with the hedge fund now joining Third Point in calling for a fundamental shift — and CoStar's shares hovering near multiyear lows — pressure on the board is mounting to demonstrate clearer traction or seriously consider structural alternatives for Homes.com.