MAGNETIC FORCE | How Compass came to dominate local real estate — and what it plans next
If San Francisco real estate brokerage was a Monopoly game, Compass would be pushing back from the table now, having picked up the most valuable properties on the board and vanquished its rivals — often by buying them out.
From a nominal presence in the Bay Area as recently as 2017, the New York-based company’s three-year acquisition, affiliation and hiring tear has made it the region’s biggest brokerage by far with 3,800 agents, a total that’s grown 800 in the last year alone. Nobody else has half that many. Last year, it sold $23.9 billion in Bay Area real estate. Its closest local rival, Golden Gate Sotheby’s Real Estate, sold $5.1 billion.
Along the way, it gobbled up storied Bay Area brokerage names like Alain Pinel, Pacific Union and Paragon Real Estate, bankrolled by hundreds of millions of dollars from Middle Eastern sovereign wealth funds.
Now Compass is widening its focus. Peter Jonas, the head of its western region, said Compass has grown its Bay Area residential network to near its optimal size and that further eye-catching acquisitions of residential brokerages are unlikely. Instead, it’s making a typically aggressive push into commercial brokerage, and into the sale and marketing of new developments.
Meanwhile, Compass is eagerly embracing new national rules from a trade organization affecting off-market luxury homes. The regulations play to the strengths of big brokerages, allowing Compass’ large cadre of agents to take advantage of lucrative confidential home listings like never before.
“The reality of the way we built our business wasn’t by looking to become king of the hill, but instead looking to deliver as much value as humanly possible to agents who’ve been underserved historically in a variety of different ways,” Jonas said.
Finding its direction Bay Area investors played a big part in getting Compass to the point where it could take over other brokerages.
The company, founded in New York in 2012 by Robert Reffkin and Ori Allon, got its original $8 million seed money partly from San Francisco-based Founders Fund. The company went on to raise $20 million Series A and $40 million Series B rounds led by Salesforce.comCEO Marc Benioff and Advance Publications, the parent company of American City Business Journals, which owns the San Francisco Business Times. Compass’ $50 million Series C funding in 2015 came from Menlo Park-based Institutional Venture Partners, vaulting it to an $800 million valuation.
The company then turned to bigger sources of funds. It now relies heavily on funding from SoftBank Group Corp.’s Vision Fund, which has Saudi Arabia’s Public Investment Fund and Abu Dhabi’s Mubadala Investment Co. as its biggest backers.
Compass’ SoftBank funding has opened the company to criticism given the Saudi government’s record of human rights violations, such as the assassination of Washington Post journalist Jamal Kashoggi in 2018.
Compass started 2018 fresh off of a $550 million Series E funding round — $450 million of which came from the SoftBank fund. At that time, the top three residential real estate brokerages in the Bay Area were Coldwell Banker, Saratoga-based Alain Pinel and San Francisco brokerage Pacific Union International.
Not for long.
Compass purchased Pacific Union International in August 2018, a move that came on the heels of snapping up another large brokerage, Paragon Real Estate Group, also based in San Francisco, the month before.
Valued at $2.2 billion at that time, Compass netted a $400 million Series F round in September 2018. It then set its sights on Alain Pinel, which turned down a buyout offer in 2018, only to be gobbled up in March 2019.
The money kept coming in. This time it was a $370 million Series G funding round in July 2019, led by SoftBank as well as San Francisco-based Dragoneer Investment Group.
Smaller boutique brokerages started to see the writing on the wall: They could become part of the Compass juggernaut or get run over by it. Last October Bay Area real estate team Mo and Farah Bani-Taba announced they had ended their franchise agreement with Cupertino-based Intero Real Estate Services, a Berkshire Hathaway affiliate, and moved their team of 35 real estate agents to Compass Real Estate.
“We recognize that the real estate industry is undergoing a fundamental change,” Mo Bani-Taba said in a statement at the time. “We are excited to be a part of this shift.”
‘They figured it out’ Compass doesn’t always get its way.
In February, the Kehrig Team and the Ahern Real Estate Group dropped their Compass affiliation and joined the Danville office of Coldwell Banker, taking $200 million in annual sales volume with them.
A handful of high-performing agents have also left after their brokerages were acquired. Tracy McLaughlin and Steve Gothelf, both with more than $1 billion in career sales under their belt, left Compass within months of its 2018 acquisition of Pacific Union. Engel & Volkers also nabbed a former Pacific Union team.
Other agents, though, have found the transition to the Compass umbrella to be smooth.
Mary Macpherson came to Compass when it acquired Paragon in July 2018.
“In terms of our day-to-day culture, nothing much has changed,” she said. “But in terms of what Compass has offered – it’s a nice augment to what Paragon already had.”
Ultimately, she enjoys the management and regards CEO Robert Reffkin’s weekly check-ins as “thoughtful.”
“They figured it out,” she said. “I think scaling is one of the hardest things you can do in an industry.”
The only downside, she said, is that there are now so many Compass agents that they are constantly in competition with each other for listings and sales.