Why Rivals Fear This Real Estate AgencyOpening its third office in Brooklyn, the startup brokerage Compass is shaking things up with technology, venture capital, and rapid growth
For decades, the real-estate offices that lined Brooklyn’s Court Street were mostly mom-and-pop operations. Then, inevitably, the rise in property values lured the big Manhattan firms. But now comes a force that could be as disruptive to the industry as the likes of Amazon, Uber, or Airbnb.
Judging by its façade, the latest brokerage to open in Cobble Hill may seem like many of the others. A bit more polished, perhaps, with friendly touches like a bowl of water out front for thirsty dogs. But within the storefront, which is the third Brooklyn outpost of the national real-estate agency Compass, beats the heart of a fierce competitor. Compass, a startup that has been shaking the industry from Manhattan to Beverly Hills, is now bringing its game-changing formula to the wealthier precincts of Brooklyn.
Why on this street, taking the place of a former used bookstore? Partly because a new upscale generation in their child-rearing years has decided this part of Brooklyn has all the attractions of an ideal place to settle down: handy location, quaint buildings, safe streets, and good schools. Which adds up to heavy demand and rising prices. “Brooklyn continues to be a destination and a place where people want to raise their families,” said Mary Lowe, who manages agents in the firm’s Cobble Hill and Williamsburg offices. (Compass also has an office in Park Slope.) “There’s definitely enough business for Compass to have an interest in being in Cobble Hill.”
Compass will carve out a healthy share of that business, judging by its performance elsewhere. With a powerful combination of venture funding, technological savvy, and aggressive recruitment of top brokers, Compass has bruised its rivals in an already competitive field. For their part, the firm’s management portrays its style as simply innovative. “Compass is building the future of real estate,” Lowe told The Bridge. “We have exciting technology and we’re also building the future culturally by being super collaborative. Our agents are talented, seasoned and agile.” Just recently, Compass has expanded into Harlem, hiring the seven agents comprising Harlem Properties, a three-year-old firm.
Just four years old itself, Compass snuck up on its older competitors with its rapid expansion. The company has 1,300 agents in 28 locations, including Aspen and the Hamptons. Powering the growth is $225 million in venture financing from the likes of Goldman Sachs and financier Peter Thiel’s Founders Fund. Those investments put the fledgling firm’s valuation at more than $1 billion. The meteoric rise has prompted some skepticism. “If they’re worth $1 billion, I’m worth $10 billion,” New York real-estate mogul Arthur Zeckendorf told the Wall Street Journal. Zeckendorf’s private company, Terra Holdings, owns Halstead Property and Brown Harris Stevens, among the giants that Compass is challenging.
However, just as the sky-high valuation of the Tesla electric-car company is often justified on the grounds that it should be seen as a technology company that happens to put batteries on wheels, Compass is arguably a software company that happens to be in real estate. And it’s one that’s growing fast, tripling its revenue last year, to $180 million, the company said.
The young founders of Compass had formidable preparation for their roles. Co-founder Robert Reffkin, the CEO, has an MBA from Columbia and worked at Goldman Sachs as well as McKinsey, the consulting firm. (His corporate bio notes that he recently completed 50 marathons, one in each state, to raise $1 million for nonprofits.) Co-founder Ori Allon, the executive chairman, has a PhD in computer science and founded two tech companies, one of which he sold to Google and the other to Twitter. For good measure, the company’s chief technology officer, Liming Zhao, also has a computer-science PhD. His previous job was “developing software for the specialized supercomputer Anton for molecular dynamics simulations.”
So when these newcomers say they’re using technology to shake things up, they have some credibility. Among their developments so far are the Compass mobile app and Collections, a portal through which home buyers and sellers can curate an online portfolio of properties, receive pricing and availability updates, and communicate with their broker on a single platform. Compass has compared Collections to Pinterest, the image-collecting site. Compass says that part of the rationale for its tech focus is the demographic of its customer base. “Millennials are a significant force in decision making for any company,” said Lowe. “They are buying and looking for property in Brooklyn and engaging with real estate agents in a more modern and tech-driven way.”
While some competitors roll their eyes at the agency’s tech swagger, they’ve been shaking their fists over the firm’s alleged poaching of agents and other competitive methods. Rival firm Citi Habitats sued Compass in 2014 for allegedly hacking into its proprietary-listings database. Then rival Corcoran sued Compass for “brazenly and intentionally” raiding Corcoran’s offices for talent. Compass filed a counterclaim accusing Corcoran of starting a smear campaign against its former agents. In 2015, the parties reached a settlement and pledged to “resolve their differences,” The Real Deal reported.
Even so, the backlash from rivals hasn’t totally quieted down. Compass has stirred up the Beverly Hills real-estate community with moves like the hiring of agent Tomer Fridman, best known as Kim Kardashian’s broker, plus three of Fridman’s colleagues, all from a Compass rival. Beverly Hills broker-to-the-stars Mauricio Umansky, who was recently involved in the $100 million sale of the Playboy Mansion, lashed out last month in an interview with The Real Deal. “I think what Compass is doing from a poaching perspective is absolutely horrendous and disgusting to the industry,” he said, accusing Compass of fostering “competitive nastiness” driven by high finance. “I think their model is unsustainable. My prediction is that they’re going to go out of business in five years.”
Might be just wishful thinking. Compass may well be smart enough to weather the pushback and effective enough that customers won’t care about having a tough advocate on their side. In Brooklyn, the competitive fireworks may be tempered by what Compass manager Lowe sees as a calming of the residential market. While prices are still rising, Lowe believes that the hair-trigger buying frenzy has eased. “The market in Brooklyn and the clientele in the market, including buyers, sellers and investors, are more discerning than they have been in the past,” said Lowe. “The market is not as fast-paced, and a lot more time and consideration is being taken by all parties in the market before they move to purchase.”
At the new office in Cobble Hill, the Compass team is putting on a friendly face. “We’re very much looking forward to getting engaged in the Cobble Hill neighborhood,” Lowe said. “Since last week, we’ve had lots of neighborhood folks stop in and see us already.” A slate of events is planned, she said, including “a neighborhood entrepreneurial event where we invite local businesses in for a meet-and-greet, and a friends-and-family event.” Sounds like their dogs are welcome too.