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.