With Alain Pinel buyout, Compass could become Bay Area’s biggest real estate brokerage

Kathleen Pender of the San Francisco Chronicle | March 9th, 2019

The current issue of Gentry magazine has a two-page ad with the headline “Big Brother or Real Estate Brokerage?” The copy reads: “Some brokerages use your information to make money on more than just real estate and mortgage transactions. We don’t. Your data is yours. Our job is to safeguard it. Period.”

The ad is for Alain Pinel Realtors. The unidentified “Big Brother” is Compass, the venture-funded New York firm that’s been gobbling up Bay Area brokerages including — as of last Monday — Alain Pinel.

Compass bills itself as a technology firm, but it’s never been very clear, at least to outsiders, what its technology does.

“One of our big questions” about Compass was what it does with data it gets about buyers and sellers from agents, said Alain Pinel President Mike Hulme. Some agents from Alain Pinel and other firms were using that question “as a talking point” with potential clients. “This was a way for brokers like ourselves to spin it and make it a scary situation,” he said.

Hulme said he had to be convinced that Compass would not misuse data about buyers and sellers gleaned from agents before agreeing to the buyout. When he was shown the “market plan” Compass shows investors, “we couldn’t find anything, truly, that was concerning in regards to data.” Hulme said he’d retract the Big Brother ad, which has run in various publications since last fall, if he could.

Compass has assured its agents their data is theirs alone. “We will never contact your clients without your permission,” it said in a data pledge. “The data is not where the money is, the money is creating a technology platform that makes agents better at their job,” said Kevin Knight, Compass’ general manager for Northern California.

Hulme’s father, Paul Hulme, founded Alain Pinel 30 years ago and built it into a powerhouse in Silicon Valley and the Peninsula. In the Bay Area, it ranked second to Coldwell Banker and its sister brands in sales volume in 2017, according to Real Trends, a research and consulting firm.

Compass first approached Alain Pinel in August, right after it acquired Paragon Real Estate Group and just before it announced the acquisition of Pacific Union International. Those two firms ranked 10th and third, respectively, in 2017 Bay Area sales volume.

The Hulmes rebuffed Compass in August, and bulked up by buying Hill & Co., a smaller San Francisco firm that also catered to the high-end market.

Alain Pinel, with almost 1,300 agents, was the nation’s seventh-largest residential real estate brokerage in terms of sales volume in 2017, though only 73rd in the number of transactions, according to Real Trends. Its average sales price was $1.6 million, the nation’s highest.

Compass responded by poaching some of Alain Pinel’s top agents, including Judy Citron, who was the nation’s 20th largest individual agent by sales volume last year; and Mary and Brent Gullixon, who ranked as the nation’s 18th highest-volume team, according to Real Trends.

It’s important to remember that the customers of brokerage firms are agents, not buyers and sellers of homes, who are the agents’ clients. Most agents are independent contractors who share a portion of their commissions with their affiliated brokerage, usually in exchange for office space, marketing and other services.

Compass has been luring top agents with some combination of cash, stock, marketing money and more favorable commission splits, according to firms that have lost agents to Compass.

Citron said she joined Compass in early November, not for the money, but because “I wanted to align myself with a forward-thinking company.” Compass has “an amazing platform” that lets her see, all in one place, where all of the web traffic to her listings is coming from, so she can target her marketing better.

After losing some of its top producers to Compass, “we thought joining them versus fighting them was in our best interests,” said Hulme. He wouldn’t disclose the purchase price, but said it was “significantly less” than it would have been before his company lost agents to Compass.

D.J. Grubb, president of Grubb Co. Realtors in the East Bay, called the deal “a hostile takeover. They (Compass) go in and poach … the upper performers, create insecurity and then buy at a wholesale price.”

Compass was co-founded by Ori Allon, who has a Ph.D. in computer science and previously worked for Twitter and Google, and Robert Reffkin, who hails from Goldman Sachs and McKinsey.

“There are two world views emerging for the future of real estate,” Knight said. “One is that technology will ultimately replace agents. The other is that technology will ultimately make agents better at the things they are already great at. We espouse the second view.”

Compass has raised a total of $1.2 billion in venture capital from investors, including Salesforce CEO Marc Benioff and Thrive Capital, founded by Joshua Kushner, brother of President Trump’s son-in-law Jared Kushner.

Its latest fundraising round, $400 million in late September, was led by the SoftBank Vision Fund and Qatar Investment Authority. SoftBank Vision Fund had previously invested $450 million in Compass in December 2017.

The Vision Fund is part of Japanese conglomerate SoftBank, but its biggest investor is the Saudi Arabian government’s public investment fund, controlled by Crown Prince Mohammad bin Salman. He and the Vision Fund have been under fire since Washington Post contributor Jamal Khashoggi was brutally murdered at the Saudi Arabian consulate in Istanbul in October.

Many Bay Area companies have taken money from the Vision fund or from Saudi Arabia directly, including Uber, Lyft, Tesla and Slack.

In a statement, Compass CEO Reffkin said, “The death of Jamal Khashoggi is beyond disturbing because the freedom and safety of the press is something that is incredibly important to me.”

Compass said its latest financing gave it a private-market valuation of $4.4 billion. The nation’s largest residential real estate brokerage, the publicly traded Realogy Holdings, has a market value of only $1.4 billion. Its brands include Coldwell Banker, Better Homes and Gardens, Century 21, Climb, ERA and Sotheby’s International Realty.

Realogy has about 300,000 agents worldwide. Compass has about 10,000, all in the United States.

With its three acquisitions, along with agents it picked off from other firms, Compass could surpass Coldwell Banker and its sister firms as the Bay Area’s largest real estate broker. Coldwell Banker itself grew by acquiring a string of local companies, including Cornish and Carey, Fox & Carskadon, Cashin Co. and Contempo Realty.

Steve Murray, president of Real Trends, said Compass probably entered the Bay Area because of its high home prices and the fact that it was one of the only big markets that still had large independent brokerage firms to acquire.

“I’ve seen their technology and it’s good but it’s not strikingly better” than what’s out there, Murray added. “The main thing is they are integrating a transactions system, customer relationship management system, their app, website, sales data, and online marketing tools.”

Hulme said Compass is “trying to improve the agent experience” and also “getting out in front of consumers. They want to get the majority of listings” so when you type a home address into Google, the first thing that comes up is not Zillow or Redfin but Compass.

Knight said its focus on consumers is secondary to its focus on agents. To that end, Compass recently acquired Contactually, which makes a customer management system used by agents at many firms.

Some firms that compete with Compass say they are severing ties with Contactually. “We had about 40 agents using Contactually. We do have some that are proactively removing their data from the platform,” said Tim Proschold, a vice president with the Sereno Group.

“We will not maintain that contract,” Grubb said. “Why would I support my competition? They are going into the data business. When they control the data, they control the customer.”


Senior Vice President Nate Gustavson to join Compass Commercial

Nate Gustavson is a Senior Vice President specializing in multifamily property sales out of Compass Commercial’s San Francisco office. For the past eleven years, Nate has been exclusively representing buyers and sellers in the acquisition, disposition, and 1031 exchange of multi-family investment properties in both San Mateo and Santa Clara Counties.

Prior to joining Compass Commercial, he spent nearly nine years as an apartment broker with Marcus & Millichap earning the title of First Vice President, and achieving six consecutive Sales Recognition Awards, and three National Achievement Awards. In the past five years, Nate has participated in the sale of over $540,000,000 in local multifamily apartment and single-tenant retail sales.

Nate is a member of the San Mateo County Association of Realtors (SAMCAR), MLS, LoopNet, CoStar, and Tri-County Apartment Association. He graduated from the University of Colorado at Boulder with a bachelor’s degree in business administration. He and his wife, Danielle, just welcomed their first son Julian to the world in January of 2019. In his free time, Nate enjoys playing basketball, snowboarding, golfing and spending time with his family in Lake Tahoe.


Compass buying Pacific Union — its second SF real estate acquisition in two months

by Kathleen Pender | SF Chronicle

Compass, a New York real estate brokerage firm, will buy San Francisco brokerage Pacific Union International less than two months after it purchased Paragon Real Estate Group, also of San Francisco.

Pacific Union is the nation’s fifth-largest residential real estate firm based on transaction volume and Compass is sixth, according to Real Trends, a Colorado consulting firm. Based on those numbers, the combined firm would leap to number three.  Pacific Union is majority owned by Fidelity National Financial, a publicly traded title insurance company based in Florida that also owns 100 percent of J. Rockcliff Realtors, an East Bay brokerage based in Danville.

Compass has been aggressively luring top agents from other Bay Area firms, offering higher commission splits and bonuses.  “I know they are giving them stock and paying a tremendous amount of marketing funds for them,” said Sposito, who has lost some agents to Compass. “They are getting ridiculous amounts of money to come on board.”

Compass said in December that SoftBank Vision Fund agreed to invest $450 million in the company, bringing its total capital raised to $775 million.

In early July, Compass bought Paragon to form San Francisco’s largest residential brokerage firm. Terms were not disclosed.

Its purchase of Pacific Union will probably be the nation’s second largest real estate brokerage acquisition this year, said Steve Murray, president of Real Trends, whose firm consults on real estate mergers but was not involved in this one. He estimated that the purchase price will be between $100 million and $200 million, which would trail only one larger deal he was involved in. That one was not disclosed publicly but involved the acquisition of a privately held brokerage by a private equity firm, he said.

Pacific Union was founded in 1975 and acquired by CEO Mark McLaughlin in 2009. In December 2014, Fidelity bought a controlling stake, reported to be two-thirds.

Pacific Union has been on a buying spree itself, having acquired The Mark Company, which specializes in new-condo developments, in October 2015, followed by a string of other deals including one with Southern California’s John Aaroe Group in December 2016.

Mergers in the industry “have picked up considerably” over the past 12 to 18 months, Murray said. “The economics of the industry are getting more difficult. The lack of inventory, the decline in unit sales, is putting enormous pressure on brokerage firms and agents.”

Companies such as Redfin and eXp Realty are offering sellers lower commissions while venture-funded startups like Compass are luring agents with fat compensation packages and techy benefits such as free lunches.

Compass markets itself as a technology-driven real estate platform, but Sposito says, “They haven’t rolled out anything of their own.”  Murray agreed.  “They are a long way from being a leader in technology in the industry,” he said.

Year to date, Compass is San Francisco’s largest residential brokerage firm, with a market share of 9.4 percent, followed by Vanguard and Pacific Union, with 9 percent each, Paragon with 8.7 percent and Zephyr with 8.5 percent, according to Patrick Carlisle, Paragon’s chief market analyst.  Compass, Pacific Union and Paragon combined would “become by far the dominant brokerage” in San Francisco, although people would still have many other firms to choose from, Carlisle said.

Compass, with the acquisition of Pacific Union, will be the second-largest brokerage in California behind NRT, which owns Coldwell Banker, Sotheby’s International Realty, Climb and other firms, Murray said. NRT is also largest in the nation.


Compass acquires Paragon, seeks San Francisco & Southbay market supremacy

by Patrick Kearns | Inman Staff Writer

With the acquisition of Paragon Real Estate Group, Compass claims to be the top brokerage in sales volume in the Bay Area

Compass now claims to be the top brokerage by sales volume in the blistering hot real estate market of San Francisco. On Monday, the technology-focused brokerage announced the acquisition of San Francisco-based Paragon Real Estate Group, growing its Bay Area team to 500 agents representing more than $4.5 billion in sales volume last year.

 “As we began to look for ways to expand in San Francisco, the opportunity to pair Paragon and their agents’ expertise and close community ties across the entire Bay Area with the technology, marketing and support we provide to our agents at Compass, was an ideal one,” said Ori Allon, Compass’s founder and executive chairman, in a statement.

Paragon was originally founded in 2004 and was the 86th ranked brokerage on the Real Trends 500 with 1,591 transaction sides — good for third in the San Francisco market behind Pacific Union International and Zephyr Real Estate. Pacific Union Internationalclosed more than $14 billion in sales volume in the state of California last year according to Real Trends, but the company declined to provide a market-specific breakdown. 

In a statement, Paragon CEO Bob Dadkura praised Compass’s focus on technology as a main reason for joining the ever-growing company.

“Compass’s focus on arming their agents with world-class technology and support resonates with our commitment to continually providing outstanding service and advice to our clients,” Dadkura said. “Joining Compass’s impressive San Francisco team and national network of luxury brokers opens an array of new opportunities for our agents and the chance to be a part of the future of the real estate industry in San Francisco and beyond.”

Compass broke into the San Francisco market with a splash in September 2016, snatching up two of the market’s top agents — Malin Giddings, a top agent formerly with Coldwell Banker, and the agent team TeedHaze, led by Butch Haze and Rick Teed, a top team formerly with Sotheby’s International Realty.

The company has continued its impressive growth in recent weeks with acquisitions and expansions in Chicago and smaller markets in Florida and Tahoe — moving closer toward its stated goal of achieving 20 percent of market share in the top 20 markets in the country by 2020.

Compass currently has offices in: New York City; Los Angeles; San Francisco; Boston; Washington, D.C.; Chicago; San Diego; Dallas; Miami; Orange County, California; the Hamptons in New York; Aspen; and Santa Barbara and Montecito, California. Seattle, Phoenix, Austin, Houston, Atlanta, Charlotte and Philadelphia are all part of the company’s plans for expansion.