Do real estate brokerage firms have any intrinsic value?

David Goldsmith

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About 2 decades ago I was qualified as "An Expert in the Practice of Real Estate in New York" by the Bankruptcy Court of the United States, Southern District of New York, in the bankruptcy of what at the time was a fairly prominent and long standing firm. At the time, the owner of the firm argued than Real Estate Brokerage Firms really do not have an intrinsic value.

Since then, there have been a lot of big dollar sales of brokerages, some IPOs, at least one targeted IPO which probably isn't happening, etc, etc, etc.

But for the vast majority of firms, their "assets" largely consist of their agents, which are independent contractors - not employees - have no ongoing contractual obligations to stay put, and very increasingly are branding themselves as opposed to the brokers they work under.

There's already another thread on this forum questioning whether Compass will go the same way as WeWork

Now we are seeing the possibility that other firms are realizing the tenuous nature of brokerage firms:

Realogy sues to enforce $400M Cartus deal
SIRVA agreed to buy the relocation services firm in November
Brokerage giant Realogy Holdings filed a lawsuit Monday to enforce the $400 million sale of its relocation business.

In a regulatory filing, Realogy said Madison Dearborn Partners and its portfolio company, SIRVA Worldwide Inc., were using the coronavirus pandemic as an excuse for not going through with the deal to buy Cartus. Days before the deal was set to close April 29, Realogy said SIRVA and MDP made “false claims in an attempt to avoid their obligations under the purchase agreement in light of broad-based economic uncertainties due to the global COVID-19 pandemic.”

The outbreak has upended the global economy, forcing buyers and sellers to put moves on hold. The suit was filed under seal in Delaware Chancery Court.

Realogy — parent company of the Corcoran Group, Sotheby’s International Realty and Coldwell Banker — announced plans to sell Cartus to SIRVA in November as it chips away at around $3 billion in corporate debt.

Realogy said it notified SIRVA on April 24 that it had fulfilled all of its obligations under the sale agreement, and it was committed to closing on April 29, according to the regulatory filing. But one day later, SIRVA said not all of the closing conditions were met — nor were they likely to be before the deal’s April 30 termination date.

“Realogy strongly believes that all conditions to closing of the transaction have been and continue to be satisfied,” the brokerage conglomerate said in the filing.

SIRVA could not immediately be reached for comment.

In a separate lawsuit Monday, Anbang Insurance Group sued to enforce South Korea’s Mirae Asset Global Investments Co.’s purchase a portfolio of luxury hotels for $5.8 billion. That deal was set to close April 17.

In 2019, Realogy reduced its net debt by $78 million thanks to cost-cutting measures. CEO Ryan Schneider said by selling Cartus, the company was “divesting a non-core, very complex business” that would streamline Realogy’s business.

Randy Reis eXp

New member
The value of any brokerage is nothing without it's agents. It's the same with any sales business. The agents leave, the business follows them out the door. In the past, the brokerage could market in ways that the agents could not afford to. Brokerages could afford to pay for full page ads in the Sunday Times (thanks to those monstrous splits). Today, an agents can compete from a marketing perspective on social media, it is simply a better platform for advertising real estate and for establishing oneself an an expert in the field.....

25 years ago, agents worked "For" a brokerage. On an job interview, they hoped to get the job. For the last 25 years we worked "At" brokerages, even though we are independent Contractors, we worked in partnerships with brokerages...... Today I believe that brokerages are vendors, supplying transactional services to agents who run their own business, plugging in to the brokerages platform.

Whether an agent stays or leaves is dependent upon the value that an agent receives back from the brokerage in return for the comp that an agent leaves at the brokerage (yes that is backwards compared to where it used to be). If an agents feels they are paying to much they leave, with their clients to go to speak with another vendor (brokerage)....... And it is the brokerage that is being interviewed by the agent.


Do real estate brokerage firms have any intrinsic value? Yes. How much? Depends. Any business or product that generates revenues, cash flow and ultimately dividends for its owner and/or investors has intrinsic value by definition.

David Goldsmith

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But they can also be like single product software companies. One day they seem to be worth a ton, a month later........

Also, almost all the "innovation" we see is either easily copied or unsustainable, very low barriers to entry, and the big firms seem to have abandoned the "shelf space" concept they had back when they were buying up all the small firms but kept operating them under the same names in the same office spaces.

John Walkup

Talking Manhattan on
Uber drivers are independent contractors too. The value lies in providing the technology backbone to solve its users' problem of getting from point a to point b. Unfortunately for real estate, the problem is exponentially more complex. But I suppose if a brokerage could develop an AI that could effectively negotiate, hold everyone's hands through the process, soothe frayed nerves, settle small arguments, fix problems large and small, prospect diligently, not waste time on bad leads, etc, etc... they would be worth (Dr. Evil voice) $1 MILLION DOLLARS!

David Goldsmith

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And Uber won't be actually making any money till they eliminate those drivers. It seems like every year they talk about being profitable soon while actually posting even more staggering losses.

I think we are in for a huge shakeup in the brokerage business. I've made no secret that I think we are on the cusp of a big market correction. Historically people don't object all that much to paying Real Estate sales commissions when they are selling at huge gains, but when they are taking losses that changes. If I'm right and we do see a big turndown I think buyers and sellers will find all sorts of reasons to use discount services and convince themselves they are "just as good."

David Goldsmith

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Buyer of Realogy’s relo business feared broker was close to insolvency: lawsuit
Realogy said it would sell Cartus to SIRVA for $400 million

The would-be buyer of Realogy’s relocation business called off the $400 million deal because it feared the brokerage giant was close to insolvency, according to court documents unsealed Friday.

Realogy filed a complaint on April 27 claiming Madison Dearborn Partners and subsidiary SIRVA were using the coronavirus as an eleventh-hour excuse for backing out of the deal.

The complaint also disclosed, however, that SIRVA believed the pandemic had a “devastating” impact on Realogy’s relocation business, Cartus. It also cited “insolvency concerns,” alleging that Realogy “may not remain a going concern long enough to consummate the transaction.” The unsealed complaint was first reported by Inman.

In court documents, Realogy vehemently denied the allegation, calling SIRVA’s assertion “simply untrue and plainly invented to serve as supposed justification for SIRVA’s refusal to close the transaction.” Further, Realogy said it “expects to remain a going concern for the duration of its post-closing obligations.”

The parties agreed to the Cartus deal in November, with Realogy positioning the sale as a way to help pay down some $3 million in debt.

The 43-page suit reveals that SIRVA was to pay Realogy $375 million in cash at closing, plus another $25 million after the closing.


David Goldsmith

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Realogy reports $462M first-quarter net loss
Contract volume dropped 50% in April

Brokerage giant Realogy Holdings reported a net loss of $462 million during the first quarter as coronavirus threatened to freeze the housing market.
The company reported a $447 million impairment charge that it attributed to “broad-based declines” in the market, as well as a $38 million increase in interest expenses.
But momentum heading into the first quarter propelled Realogy to $1.1 billion in revenue, up 6 percent year-over-year. The brokerage giant — the parent company of the Corcoran Group, Sotheby’s international Realty and Coldwell Banker — said transactions rose 8 percent before the pandemic took hold.
“I loved our Q1 momentum, but Covid eclipsed that,” CEO Ryan Schneider said during an earnings call Thursday.
In March, Realogy made crisis-level spending cuts, which it said will lower costs by $80 million to $100 million per quarter. It ended the quarter with $628 million in cash, including $400 million it proactively drew down on in March.
Although the full impact of the pandemic hasn’t been realized, Schneider described a steep drop in transactions and contract activity in April.

Overall, Realogy’s transaction volume slid 20 percent to 25 percent, with New York and California each experiencing a 30 percent decline. “This is actually better than I thought it would be when the crisis began,” the chief executive said.

Contract volume, on the other hand, dropped 50 percent at its company-owned brokerages in April, and 40 percent among franchises. Inventory is also down, particularly among $1 million-plus homes. But Schneider said the declines peaked in mid-April. “Consumers are clearly still engaged in housing,” he said. “Demand still seems to be out there — even if it’s pent-up for a while given the crisis.”

Realogy disclosed that it suspended its TurnKey pilot with Amazon, through which buyers could get up to $5,000 in Amazon smart-home products.

The program, which required in-person service and installation, “just doesn’t work in a Covid, social-distancing world,” Schneider said. “We and Amazon had a decision point on the next phase in April. In a Covid world, bluntly, it didn’t make sense to continue that pilot.”

Realogy is modeling a V-shaped recovery, and said listing inventory is starting to come back. “Anyone out looking for a house right now is a very serious buyer,” Schneider said. “No one is messing around.”

The company has temporarily cut salaries for a majority of employees, including CEO Ryan Schneider, who took a 90 percent pay cut. It also pulled back on marketing and delayed strategic investments to cut costs.

Before the coronavirus, Realogy enacted an aggressive cost-cutting strategy to pay down more than $3 billion in debt. In 2019, it reduced net debt by $78 million.

Realogy generated $5.6 billion in revenue last year, down 3 percent year-over-year. It lost $188 million, compared to net income of $137 million in 2018, largely because of accounting expenses associated with the planned $400 million sale of its relocation business Cartus.

In recent weeks, however, that deal has fallen apart. Realogy sued to enforce the deal after buyer Madison Dearborn Partners and its subsidiary SIRVA tried to walk away. In court documents, the brokerage said Madison Dearborn was using Covid-19 as an eleventh hour excuse to get out of the transaction.

David Goldsmith

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Realogy CEO says Covid-19 “eviscerated” value of Amazon partnership
Installing smart-home products “didn’t make sense” during pandemic

Realogy’s much-lauded partnership with Amazon is the latest victim of the coronavirus.

The brokerage conglomerate on Thursday announced that it suspended the partnership, dubbed TurnKey. CEO Ryan Schneider said during the company’s first-quarter earnings call that Covid-19 and the need for social distancing “eviscerated” the value of partnership, which offered Realogy buyers up to $5,000 in Amazon smart-home products, as well as deep cleaning services and furniture assembly.

“We and Amazon had a decision point on the next phase in April. In a Covid world, bluntly, it didn’t make sense to continue that pilot,” he said.

When TurnKey was first announced last year, Realogy touted the partnership as an innovation that would “hopefully let people who follow our equity see the future potential of our company.” Initially, Realogy’s stock soared 19 percent before dropping, as analysts said even the blockbuster deal was not a panacea for a company that had struggled with agent retention and debt.

The program was available in 15 markets across the U.S., including Los Angeles, Chicago, Orlando and Tampa.
During the first quarter of 2020, Realogy reported a net loss of $462 million, compared to a net loss of $99 million in 2019.

Revenue rose 6 percent to $1.1 billion, reflecting strong sales volume before the pandemic struck.

As of midday, Realogy stock was trading around $4.50 per share, up from Wednesday’s closing price of $3.70 per share. Both figures are lower than $8.46 per share a year ago.

David Goldsmith

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Newmark profit down, revenue up
Net first-quarter income falls 52% from year-ago period

Newmark Group’s first-quarter profit fell 52 percent from a year ago even as revenue grew, said the company, which operates commercial real estate advisory firm Newmark Knight Frank, Thursday morning.

Revenue for the quarter was about $484 million, up 8.1 percent from the same period of 2019, when it was about $448 million. However, the pandemic only really began slowing down real estate activity in the second half of March.

Net income available to stockholders was just under $8.2 million, compared to about $16.9 million during the first quarter of last year, and earnings per share fell to three cents from eight cents.

The Real Deal ranked Newmark as the largest retail brokerage in Manhattan in 2019, but that already struggling sector has arguably been hit harder than any other by the pandemic. Major retailers including J. Crew and Neiman Marcus have already filed for bankruptcy.

Newmark’s stock price — like that of other real estate brokerages — tumbled in mid-March, dropping 36 percent to about $3 during a market selloff that prompted U.S. stocks to suspend trading several times. The share price has since ticked up and was trading at about $4 Thursday morning, far off its 52-week high of $13.85.

The company is withdrawing its previously issued outlook for 2020, given the uncertainty of the pandemic, and it has cut support and operational expenses by at least $100 million for the year, executives said on the earnings call.

“Given our highly variable expense structure, coupled with the changes we have implemented, Newmark will maintain its strong financial position during a potentially prolonged downturn,” CEO Barry Gosin said. “We have taken the steps necessary to thrive when the crisis abates.”

David Goldsmith

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Cushman’s income drops 70% in Q1
CEO says firm can weather the storm thanks to property management business

Despite revenue uptick, Redfin posts $60M loss in Q1
Forced virtualization of real estate gives company an advantage, Kelman says

RE/MAX ready for “full brunt” of pandemic: CEO
As profit falls, Contos confident company will emerge in position of strength

David Goldsmith

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Of special note is the quote buried in the middle:
"His agents have actively been discouraging homeowners from listings properties."

Douglas Elliman’s losses mount. And the worst is yet to come
Howard Lorber anticipates slow sales to continue until fall

Douglas Elliman is preparing for an unforgiving market ahead.

During an earnings call for the brokerage’s parent company, Elliman chairman Howard Lorber said the firm cut staff by 25 percent, reduced all salaries by 15 percent and is seeking to consolidate offices and negotiate “rent reductions, deferrals or holidays” with landlords nationwide. And that’s despite not yet feeling the full effects of the “severe decline” in sales activity.

At the end of last year, the brokerage had 125 office leases in the seven states where it operates.

Elliman reported a net loss of $69 million, having lost $10.4 million in the same period last year.

Quarterly revenues were at $165.6 million, up 2.3 percent year-over-year from $161.9 million. The firm said closed sales volume for the quarter was $5.9 billion, up 1.7 percent year-over-year from $5.8 billion.

The firm’s cost-cutting measures — similar to those of many peers — began in April at the height of the coronavirus pandemic in the U.S. and were prompted by a slowdown in sales as New York enacted a stay-at-home order for non-essential workers.

“We began to experience a severe decline in closed sales volume in mid-March and this continued in April and May,” Lorber said. “We anticipate that this sales volume will continue to be slow until the fall, possibly longer.”

Lorber attributed the March drop-off in closed sales to the state’s ban on in-person showings. He said the New York market accounts for 70 percent of Elliman’s brokerage revenues and business has been “tough” without “being able to show anyone’s apartment.”

Though Lorber said virtual tours have led to some “surprising” deals and that “people are starting to get used to it,” he doesn’t expect business to rebound until in-person showings can resume, which he thinks would be in mid-June.

His agents have actively been discouraging homeowners from listings properties.

“We don’t think it really makes sense [to list],” he said.

Since stay-at-home measures were not enacted until mid to late March, the full toll of the pandemic isn’t reflected in the firm’s first-quarter numbers. For the third year, the brokerage’s losses continued to grow, despite a strong quarter in New York City.

Elliman’s parent company Vector Group, which also has a tobacco business and a new-development investing arm, reported a net loss of $3.2 million for the quarter, compared to net income of $15 million in the first quarter of 2019. Quarterly revenues grew to $454.5 million, up 8 percent year-over-year from $420.9 million.

Together, Vector’s real estate businesses reported a net loss for the quarter of $54.4 million from a net loss of $9.1 million a year earlier.

At one point during the call, Vector’s chief financial officer, Bryant Kirkland, said Vector had received $650,000 in distributions from three of its investment properties. “It was a very slow quarter,” he said. New Valley has invested in Bizzi & Partners’ 125 Greenwich, Ian Schrager’s 160 Leroy and HFZ Capital Group’s the XI.

Lorber attributed that to the pandemic, and said that projects where sales were expected to start were delayed.

Richard Sullivan, an analyst at MidOcean Partners, asked how the company would generate liquidity for its real estate businesses. Kirkland deflected the question.

“We have significant liquidity at Vector,” he said, “and we always evaluate the capital markets on an ongoing basis.”

David Goldsmith

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New acquisition makes Oxford Property Group one of NYC’s biggest brokerages
It’s the latest example of consolidation in the residential brokerage space

Oxford Property Group is picking up a 165-agent firm — the latest example of consolidation in New York City’s residential brokerage industry.
Adam Mahfouda’s 525-agent firm closed on the acquisition of Manhattan-based Kian Realty in late March, the companies announced. Combined, the firms could crack the top 10 brokerages in New York City by agent count. Last year, Oxford clocked in at No. 11 by headcount and closed more than $87 million in sell-side deals in Manhattan.

The combined brokerage will operate under Oxford’s name, and will open new offices in Brooklyn and Queens with an expanded salesforce once the health crisis ends.

Oxford in December currently occupies a 10,000-square-foot penthouse at 5 West 37th Street in the Garment District. Many of the firm’s agents work remotely, and are able to choose from two desk rental plans.

The combined firm will retain a 100 percent commission structure with agents paying $495 per month for desk space and access to all databases, or take a 90 percent split for a $99 monthly fee.

Kian, founded by Charlie Doolan and Jae Muk Chung in 2011, focuses on sales and rentals in New York City. It clocked in as the city’s 23rd largest firm by agent count, according to TRD‘s latest ranking of residential firms. The founders, who both declined to comment, have joined Oxford’s management team to lead agent recruitment and training, according to Mahfouda.

Mahfouda said the acquisition was years in the making and had nothing to do with the coronavirus pandemic’s effect on the market so far, nor recent legislative changes that have put pressure on some brokerage’s balance sheets, including a cap on rental applications fees.

Mahfouda said he initially proposed joining forces with Kian three years ago as a cost savings measure and the founders “were receptive but weren’t necessarily interested.” This February, however, Doolan and Chung reached out to start acquisition talks.

“There’s a ton of synergies, a ton of cost savings,” said Mahfouda, noting that both firms had Manhattan offices within blocks of each other. “I think ultimately the agents work at a better company with more support.”

He added that the silver lining of finalizing the acquisition during New York’s stay-at-home order means that many agents and employees have more time to fully undergo the onboarding process.

Oxford’s acquisition of Kian is the most recent in a string of M&A deals and broader consolidation in the residential brokerage space. In January, Realogy firms the Corcoran Group and Citi Habitats merged, while Bond New York acquired 56-agent firm Caliber Associates.

While layoffs have recently hit some of New York’s largest residential brokerages, Mahfouda said Oxford has not let go of any employees or cut any salaries. However, he said the firm trimmed its corporate marketing budget for new ad campaigns targeting agent recruitment as well as pulling a series of taxi ads.

But he said that he believed Oxford was well-positioned to withstand the pandemic, since the company isn’t “carrying massive debts or speculative venture funding.” He added that its operation was already largely remote, with many agents working from home.

Mahfouda said Oxford is now giving seminars on how agents can apply for financial aid and the firm itself is looking into applying for loan programs administered by the Small Business Association. Both relief measures are part of the federal government’s $2 trillion stimulus package.

Mahfouda said that many agents are accustomed to receiving “spotty income,” though he admitted the uncertainty of when the health crisis may end was a concern.

“The question is how long will this continue,” he said. “If it’s six months of house arrest, I think that’s a different story.”

David Goldsmith

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Redfin co-founder sues company for alleged patent infringement over 3D home tour technology

One of Redfin’s co-founders is suing the high-tech real estate brokerage for patent infringement and intellectual property theft, alleging that the violations handicapped his current startup.
Surefield founder David Eraker claims Redfin copied technology that he developed after leaving the company that allows prospective homebuyers to take virtual 3D tours of properties in a lawsuit filed Monday. Eraker is suing Redfin and Seattle-based venture capital firm Madrona Venture Group in separate suits for alleged intellectual property theft.
Redfin and Madrona declined to comment on the litigation.

Surefield filed one of the lawsuits in federal court in the Western District of Texas, seeking damages and an injunction. That complaint concerns image-based rendering technology that makes it possible to move around a property virtually.
Eraker launched Surefield as a real estate technology startup in 2012 after leaving Redfin. The company began developing 3D Home Tour, which creates digital renderings of properties that allow users to move around in the space virtually. Surefield filed a provisional patent application during the research and development phase, which was later awarded to the startup.
Surefield’s 3D Home Tour launched in April 2014. A few months later, Redfin unveiled 3D Walkthrough, a similar image-based rendering product, with its technology partner Matterport, according to the complaint.
Surefield couldn’t get venture capital funding for its virtual tour product, which Eraker attributes to competition from Redfin. The startup ceased development of the costly 3D rendering technology and pivoted to brokering real estate deals at lower-than-typical fees. The lawsuit claims Redfin is using Surefield’s patented technology and refusing to license it.
I’m coming from the perspective of the small startup that gets copied and those features go on to contribute to widespread commercial success.

“I’m coming from the perspective of the small startup that gets copied and those features go on to contribute to widespread commercial success,” Eraker told GeekWire in an interview. “As that small inventor, this is our shot to try to assert our patents to bring account for the type of behavior. It matters because this happens all the time.”
In a separate lawsuit filed in King County Superior Court, Eraker accuses Redfin and investor Madrona Venture Group of using Eraker’s intellectual property related to map-based search and other inventions dating back to his tenure at the company.
The lawsuit claims that Madrona’s Paul Goodrich discovered proprietary technology invented by Eraker during the due diligence process while the VC firm was considering investing in Redfin’s Series A round. Goodrich then filed a provisional patent application for that technology, according to the complaint.
“Mr. Goodrich and Madrona concealed the provisional application from Mr. Eraker, misrepresented its contents, kept it off of Redfin’s books before and after the Series A investment, and assigned the application to Redfin only after Mr. Eraker had been ousted from the company,” the complaint says.

Redfin warned of the potential for Eraker’s litigation in its IPO filing in 2017. It’s not the first time a Redfin co-founder has pursued legal action against the company. Redfin co-founder Michael Dougherty and former CTO David Selinger filed a lawsuit in 2014 alleging the company moved to cancel their shares as it prepared for an initial public offering. Redfin settled the lawsuit before going public.

David Goldsmith

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Eastdil Secured makes staffing cuts
The real estate advisor is reducing its global staff by 7%

Eastdil Secured is the latest firm to make staffing cuts as the real estate industry contends with the coronavirus pandemic.

The firm notified staff this week that it would reduce its global headcount by 35, or 7 percent, Bloomberg reported. In addition to its U.S. offices, Eastdil, led by Roy March, has a presence in London, Frankfurt, Hong Kong, Tokyo and Dubai.

Eastdil is one of the most active dealmakers in New York City, clocking in at No. 4 on The Real Deal’s most recent ranking of investment sales brokerages. In one of the toughest years of the cycle, Eastdil, like other brokerages, saw its total deal volume fall dramatically in 2019. Still, it notched some big deals, including the $6 billion Colony Capital warehouse portfolio sale to Blackstone.

Eastdil, which Wells Fargo bought for $150 million in 1999, last year finalized a management-led buyout financed by Singapore sovereign wealth fund Temasek and U.S.-based Guggenheim Investments. Wells Fargo retained a minority stake in the firm.

Since then, executives March and Michael Van Konynenburg have been planning an expansion of the firm’s global reach.

But like other real estate firms, it has not been immune to pressures from the pandemic. Last week, JLL let go more than 30 people from its capital markets group.

David Goldsmith

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Can eXp’s virtual world work in New York?
In 2015, eXp Realty CEO Glenn Sanford boarded a 43-foot motor coach and set off from Bellingham, Washington, to barnstorm the country. Over the course of 11 months at “lunch and learn” sessions in hotels, country clubs and local Realtor association offices, Sanford pitched brokers in 28 states (and two Canadian provinces) on the benefits of virtual brokerage.

When the financial crisis hit, Sanford — known for his soft-spoken and laid-back style in an industry full of alpha dogs — was forced to shutter two brokerage offices he was running. The experience prompted him to rethink a business that was dependent on bricks and mortar.

The past few years haven’t been kind to residential brokerages, which have endured a punishing housing slowdown and rising costs of doing business. But eXp and Sanford — who ran a team selling $60 million worth of real estate a year at Keller Williams in the early aughts — are outliers among the bunch.

Since Sanford’s bus tour, eXp has been growing exponentially, even amid a technology reckoning and as a wave of venture-funded players have disrupted the residential brokerage sector.
The company, which Sanford co-founded in 2009, ended 2018 with 15,570 agents — up from 2,401 in 2016. By the end of 2019’s first quarter, that number was already up to nearly 18,000.

“We have come into the world at the right time,” said Mitch Robinson, eXp’s senior vice president of marketing, who previously worked at Expedia and Zillow.
Robinson said many of the agents who join eXp do so because they’re questioning the value of working at traditional firms when they’re doing most of their business outside of their offices. “They’re like, ‘Gee, am I paying out part of my commission to pay for this empty office?’” he said.

Indeed, the financial burden of brick-and-mortar offices has become an existential threat to some firms.
Realogy — the largest real estate conglomerate in the U.S., with brands including the Corcoran Group, Sotheby’s International Realty and Coldwell Banker — has said it’s looking for $70 million a year in savings, in part by reducing its physical footprint. During a recent earnings call, Douglas Elliman also said it would undertake “substantial” cost cutting, in payroll and other areas.

Meanwhile, in New York last year, Town Residential downsized its office footprint but ultimately shuttered brokerage operations after founder and CEO Andrew Heiberger said it was impossible to support the high cost of offices and rising commission payouts.

“I have said all along that the traditional brokerage model is broken,” Heiberger told The Real Deal last month.
“This seems to be one model that is a fix — especially since splits continue to rise and recruiting costs, rents and salaries are unsustainable if you want to make a profit,” said Heiberger, who also founded Buttonwood Development and Citi Habitats.

But while eXp is riding high at the moment, it’s also grappling with high executive turnover and a string of alleged regulatory violations in California. In additional, several prominent critics, including former executives, have suggested that the company’s top agents are more focused on recruiting new brokers than on selling real estate — a fact that, if true, calls into question whether eXp’s model is sustainable.

As the company deals with those growing pains, however, it’s planning one of its boldest moves to date: launching in New York City, one of the least hospitable markets to outside brands.
“We’re in every state; it would be kind of silly not to be here,” said Kim Canavan, eXp’s designated managing broker for New York State.

In April, eXp held two informational sessions for prospective agents at the Park Lane Hotel in Manhattan. And it’s been going after top residential executives in New York — two of them told TRD they’d been approached by eXp but did not want their names disclosed.

So far, only a handful of agents have bitten in New York. But that doesn’t mean they’re not hearing eXp out.
“I think it would be seriously myopic to say no one will be interested,” said Mark Chin, managing director of Keller Williams Tribeca, who noted that he’s had several frank conversations with his top agents who’ve been approached by eXp brokers.

But he expressed skepticism that in a market like New York, agents will be satisfied with a virtual network of training and mentorship. “It’s the hardest market in the U.S. in terms of deal pressure,” he said. “Agents want marketing and tech support and access to senior people who will guide them.”

Virtual world, real perks
Sanford was one of Keller Williams’ top agents before he launched eXp in Bellingham — nestled between Seattle and Vancouver — 10 years ago.
Unlike the heads of many competing tech-focused brokerages, Sanford, who speaks with a slight twang that gives away Bellingham’s proximity to the Canadian border, bootstrapped a cloud-based company with no physical offices. Instead, agents work in a SimCity-style virtual world (dubbed eXp World) populated by avatars.


The display looks a lot like a video game — set on a colorful digitized corporate campus with multiple buildings, offices and even a digital lake. Agents can move their avatars from one location to another, visiting the “transaction management” building, attending virtual training sessions or meeting with executives hanging in their “offices.”

In 2013, eXp went public and began trading as a penny stock on a mid-tier exchange called OTCQB. But in 2018 it was uplisted to Nasdaq and blew away all expectations when it skyrocketed to a $1 billion market cap on its first day of trading. (Its market cap has since dropped; as of late May it stood at $655.6 million.)

“It’s kitschy until you try it,” said Robinson, referring to eXp World. “Listen, right now I’m sitting in my basement. I haven’t shaved today, and I’ve got two monitors in front of me. A half hour ago I was having an important conversation with our CEO, who was on his boat. I’m more productive and engaged.”

But it’s not just being able to skip a shave or work from a boat that’s luring brokers in.
The firm — which gives agents access to Regus offices around the country for in-person meetings — also offers real-world perks like company stock and a revenue-sharing program. In addition, agents start at a high 80 percent commission split on their first $80,000 in gross commission income and only have to pay the firm a maximum of $16,000 a year on their commissions.

Keller Williams has been a prime poaching target for eXp.
Although that firm also has profit-sharing — in which agents get a slice of the profits once expenses are paid — eXp agents say they’re pocketing more money because nothing comes off the top.

The revenue-sharing program at eXp also rewards agents who bring others to the firm, giving them a piece of the revenue generated by agents in their “downline” (as recruits are known).
“In 10 weeks, we’ve already done a lot more than we could have ever done at the other companies we were with,” said Tracy Ellis, a Missouri agent who works with her husband, Rick Ellis.

The Ellises sold $32 million worth of real estate at Keller Williams last year and have brought 11 people to eXp to date.
The firm’s formula seems to be working.
At the end of 2019’s first quarter, eXp logged $5.8 billion in sales — up 149 percent year over year. Revenue rose 153 percent to $157 million, with a net loss of $6.3 million — down from $10.7 million a year ago.

Kyle Whissel, who runs Whissel Realty Group in San Diego, said he’s rejected multiple offers to be acquired over the years because he always felt agents who worked for a large company were paying for a brand name.

But last year, he decided to join eXp. “There’s a level of pride and desire to see the company succeed,” said Whissel, whose 30-person team is on track to sell $175 million to $200 million this year.
Kevin Kauffman — who with Fred Weaver leads a 50-person team dubbed Group 46:10 Network in Arizona that closed $150 million in sales last year — echoed the sentiment.
Because agents have a vested interest in making sure recruits succeed, many are generous with advice — a significant departure from the industry’s cutthroat culture. “It creates an environment of ‘We’re in it together,’” he said.
Though eXp declined to say where most of its agents are located, the company said its roster is strongest in California, South Florida and Texas. The last of that bunch, no doubt, is a result of the large number of agents who’ve defected from Keller Williams, which is based in Austin.
Canavan said the company held off on entering the New York market until the time was right. “The plan of growth was, once the company was truly established and could meet the needs of New York City agents and the idiosyncrasies that go along with that market, then we launch,” she said.
Canavan and Corcoran alum Matt Parrella — who is heading eXp’s New York City operation — hosted the firm’s April Park Lane info session.
Though Parella was tight-lipped about how many agents he wants to bring on, in recent weeks the company has inundated brokers and executives in the city with emails and phone calls. The CEO of one of the city’s biggest firms received a message on LinkedIn suggesting she consider “the idea of working with another realty group.”
“It’s not surprising that eXp is gong full-bore, because that’s just how they operate. They’re incredibly aggressive,” said Chin, who acknowledged that eXp has targeted Keller Williams around the country and may do so again in New York.
He said he wasn’t surprised when he, too, got a recruiting call from eXp.
“They want me in their revenue-share because I’m a recruiter. If I go out and recruit 100 people, that’s me — and the 100 people I recruit,” Chin said.
Though Chin didn’t dismiss eXp as a competitor, he predicted it would be hard for the company to break into the market — no matter how prepared it thinks it is for New York’s nuances.
“They have a one-size-fits-all training platform, but that doesn’t really work for New York,” Chin said. “You can’t have the same training program for someone who lives in Scottsdale as someone who’s selling co-ops in the city.”
Chin acknowledged that Keller Williams had the same issues when it came to New York, and he spent two years customizing the training program. “It’s a heavy lift,” he said.
Annuity for agents
As eXp’s star rises nationally, traditional firms have seen their margins shrink.

In May, Realogy’s market cap plunged to $827 million, dipping below the $1 billion marker for the first time since the company went public seven years ago. Just one year earlier, the company was valued at $3.3 billion — which itself was down from a high of $7.4 billion in 2013.
“In today’s environment, people like to work more remotely and more mobile,” said Realogy CFO Charlotte Simonelli, during a first quarter earnings call in which she detailed the plan to reevaluate its physical footprint.
Warburg Realty President Clelia Peters — who is also co-founder of MetaProp, a real estate tech accelerator and investor — said brokers seem to be “into” the entirely virtual system.
“Everyone talks so much about Compass, but eXp is a far more innovative company in so many different ways,” said Peters. “They’ve set out to solve some of the ills of brokerage in that they’re significantly reducing overhead costs, and they’re trying to create almost an annuity for their brokers — a longer-term, more predictable and sustainable opportunity with a passive income stream.”
Last year, analyst Tom White at financial services firm D.A. Davidson crunched the numbers and found that a mid-tier agent at eXp can net around 22 percent more gross commission income than a counterpart at a competing firm. (White, who is not connected to the firm, analyzed data from eXp, Berkshire Hathaway HomeServices, Re/Max, Century 21 and Keller Williams.) In some cases, eXp agents retain as much as 36 percent more, he found.
And the company isn’t the only virtual brokerage trying to disrupt the terrain.
Fathom Realty, a Dallas-based virtual brokerage with 2,724 agents, announced in March that it plans to IPO. And Purplebricks, a discount brokerage with no physical offices, has tried to expand beyond its roots in the U.K. The latter — which launched in the U.S. in 2017 — has, however, faced hurdles. It shuttered its Australia operation last month and announced plans to review its U.S. operations.
K.P. Reddy of Shadow Ventures, a venture-capital firm in Atlanta, said that many brokerages building tech tools recognize that being mobile is “pretty much a given.” But he said a good number of incumbents are still in denial.
“It’s very much like, ‘These are all great tools that can make us more efficient,’” he said. “I don’t think they think these tools will evolve and change how they do business.”
Although a slew of AI-powered firms may one day cut out the broker entirely, eXp is not saying the industry doesn’t need agents, he added.
“They’re saying, ‘Let’s reduce the very high costs of office space, the office manager and drain of resources,’” Reddy said. “If you can do it better without those things, it’s a great iterative move.”
Animal Farm?
Despite the eXp buzz, the firm has landed in the crosshairs of one prominent critic: Gary Keller.
The founder of Keller Williams, the massive franchise brokerage with 159,000 agents, has derided eXp’s virtual world as an “animal farm” built on “old game technology.”
Keller has good reason to be upset. His firm has been hit hardest by eXp’s growth — partly because of Sanford’s roots at the brokerage, but also because both companies reward agents for recruiting colleagues and give them a slice of the profits (or revenue).
“You know you have got under a competitor’s CEO skin when they can’t help calling one of our underlying technologies an Animal Farm and has to resort to calling it Donkey Kong now that we own it,” Sanford tweeted in January in response to Keller’s critique. (Sanford was not available to be interviewed for this story).
But eXp has faced challenges in recent months as it’s grappled with agent oversight and international expansion.
California’s Department of Real Estate has launched probes into alleged eXp violations related to licensure and advertising.
And even for a fast-growing startup, eXp has seen significant executive turnover.
Last month, Scott Petronis, the firm’s chief technology officer, left to join Redefy, a flat-free brokerage based in Denver. COO Mary Frances Coleman left in January, and Vikki Bartholomae, the firm’s president, departed in November to join Side, a tech-focused brokerage that targets top producers.
“You have a company that has very high ambitions and a CEO who’s got to have it his way,” said one industry observer. “Glenn is an autocrat; he gives very little latitude to senior executives to make decisions.”
But Sanford’s lofty dream of transforming residential brokerage has also been an asset.
“So much of the industry is sort of lemmings-esque,” said Russ Cofano, a former executive at Move, parent company to “They don’t want to stray too far away from what everyone else is doing. Glenn was very different in that regard.”
However, Cofano — who met Sanford at a Move broker advisory board meeting and joined eXp a few years later, serving as president and general counsel in 2016 and 2017 — said he himself hit a wall after about a year attempting to take eXp “from startup to enterprise.”
“Glenn believes in what’s called a holacracy model of management,” where ideas bubble up from within the company, he said. “He didn’t want any one person or group of people [in] control.”
Although the strategy empowered agents, Cofano ultimately didn’t buy into that style, particularly for a public company with shareholders.
And, he said, as time went on, he had nagging concerns that some of the highest-paid people were making money off of recruiting — not off of selling real estate. “I thought that wasn’t going to be a sustainable value proposition,” he said.
In addition, eXp has failed to capture significant market share in major metro areas that it’s already in, such as Los Angeles and Miami.
Earlier this year, Stephen Sheldon, an analyst at investment bank and financial service firm William Blair, raised concerns about eXp’s margins. “Gross margins were below our estimate, driven by both the impact of highly productive agents reaching their commission [caps] earlier in the year and lower fees given higher agent turnover the past few quarters,” he wrote.
More recently, the company has stated that its goal is to pay out no more than 50 percent of earnings to agents as revenue-share.
But executives at eXp say these hurdles are to be expected for a fast-growing firm.
Robinson likened eXp to a space shuttle hurtling through the atmosphere only to lose an exterior tile or two.
“We have a startup mentality; that just means that you’re moving way faster than others do, and you may make a couple of mistakes along the way,” he said. “You can also be more agile, more gritty.”

David Goldsmith

All Powerful Moderator
Staff member
Even managers moving firms.
Ex-Douglas Elliman sales manager Molly Townsend joins Triplemint
Veteran broker was laid off last month as Elliman slashed costs

Molly Townsend has landed on her feet — at Triplemint.
Townsend had been Douglas Elliman’s executive manager of sales and oversaw 600 agents from the firm’s Manhattan flagship at 575 Madison Avenue, but was laid off in April amid sweeping cuts driven by the pandemic.

Townsend said Triplemint’s outgoing vice president of sales Amy Kane reached out to her in early April and over “casual conversation” told Townsend about succeeding her. Kane, who joined Triplemint in 2018, is leaving Triplemint to move to the West Coast.

Townsend officially began yesterday with a title different from Kane’s: senior managing director.
“I’m really drawn to the small boutique culture,” said Townsend on joining the startup brokerage, which has 170-odd agents. “My managerial style is extremely high-touch, very hands-on … and I thought that I could be really effective on a small scale.”

Townsend is part of Triplemint’s leadership team and reports to the firm’s CEO, David Walker. She said her focus will be on coaching and helping agents increase their gross commission income.
At the start of April, Triplemint, which has raised $17 million in venture capital, laid off two employees and opted to pay 15 percent to 20 percent of the salaries of the firm’s leadership team in stock options. Co-founders Walker and COO Philip Lang reduced their salaries to zero.

Townsend said that her starting salary is “in line with the other executives, meaning we’re not back to work 100 percent.”
While at Elliman, Townsend was the sales director at Quay Tower, a new development that closed Brooklyn’s priciest sale last month. She oversaw the firm’s Park Slope sales office from 2014 to 2018 and said that under her coaching agents increased their income by 40 percent. Townsend became executive manager of sales at the 575 Madison office in July 2019.

An Elliman representative said “we wish her the absolute very best.”
Before Elliman, Townsend handled luxury rental leasings for Rose Associates and new-development condo sales for The Developers Group.
Townsend said that she expects New York City’s residential market to be challenging but that she will lean on her experience as an on-site sales agent during the financial crisis to help agents through the pandemic.

“Those that spend this time really sharpening their tools will come back even stronger,” she said. “It’s just a matter of keeping your eyes on the prize.”

David Goldsmith

All Powerful Moderator
Staff member

@properties acquires stake in another Southern resi brokerage
Stake in Virginia’s Nest Realty gives Chicago-based firm 350 more agents and $1.4B in sales volume

Chicago-based indie brokerage @properties has acquired a significant stake in Virginia-based firm Nest Realty, giving it a foothold in five additional states in the South amid an expansion push.
Terms of the deal were not disclosed, but Nest Realty’s leaders Jonathan Kauffmann, Keith David and Jim Duncan will retain an ownership stake in Nest and continue to oversee day-to-day operations, the brokerages said in a joint statement. Nest will also continue to maintain its brand identity in its markets, which include Charlottesville, Louisville and the Triangle region of North Carolina.

The companies pointed to @properties’ tech platform as a launching pad for franchising opportunities, which they said will be a major driver of revenue growth in the upcoming years. Nest, founded in 2008, has 15 offices across the south.
“Over the past 12 years, they have shown they can grow a brand both organically and through effective delivery of franchise services,” said @properties co-founder Mike Golden in a statement. “There’s also a great culture match between our firms.”

Apart from gaining access to @properties’ end-to-end tech platform, which includes a CRM as well as consumer-facing tools, Nest Realty will also be able to utilize @properties’ marketing system as well as training and coaching programs.

In 2019, Nest Realty claims its franchises tallied $1.4 billion in sales across about 350 agents. The acquisition will surely boost the bottom line of @properties, which stands toe-to-toe with Compass and Realogy franchises in several markets and has grown into the 10th biggest brokerage in America by sales volume, according to RealTrends.

With a wave of consolidation having hit residential brokerage over the last decade, @properties has looked to diversify its product offerings and appeal to independent brokerages across the south and midwest. In 2019, the 2,800-agent brokerage acquired a stake in Ansley Atlanta Real Estate, one of the top brokerages in Georgia. It also struck up a partnership with Guaranteed Rate to launch a mortgage lending arm and acquired a title insurance provider.

In a statement, @properties co-founder Thad Wong signaled more acquisitions to come. “Now is the time to grow,” he said. “Now is the time to focus on relationships and putting the best technology, training and resources into the hands of agents.”

David Goldsmith

All Powerful Moderator
Staff member

Marcus & Millichap laying off 20% of workforce
Layoffs announced in public filing with scant detail

Marcus & Millichap plans to lay off 20 percent of its workforce as the publicly traded commercial real estate brokerage goes through a restructuring.
The company, which is headquartered in Calabasas and has a market cap of $1.12 billion, revealed its pandemic response plan in a May 11 public filing. Part of the plan was “a reduction of the company’s employee workforce of approximately 20 percent,” which comes to about 175 of an 877-person workforce.
The layoffs affect salaried staff. They would not impact brokers, who are independent contractors that earn their keep from sales, debt and leasing commissions.
The company has reported 53 of these layoffs to the California Employment Development Department over the past two weeks.

The affected employees mentioned in state filings are scattered across California. The head office in Calabasas saw the most pink slips, at 19. The layoffs are listed as temporary, but a return date for the workers is not provided.
Marcus & Millichap’s announcement comes as commercial brokerages nationwide face an economic disaster that has thrown into question the demand for office, retail, and pretty much any non-residential space. Eastdil Secured and JLL each announced layoffs of more than 30 employees earlier this month.

CBRE and Cushman & Wakefield, meanwhile, announced significant layoffs prior to the pandemic taking full flight.
A Marcus & Millichap representative responded to questions by pointing back to the company’s public reports, and stating, “Despite unprecedented challenges that COVID-19 presents for the country and business in nearly every sector, we remain focused on the health and well-being of our team and clients, and our continued delivery of industry leading services.”

The Securities and Exchange Commission filing, part of the company’s quarterly earnings report, does not say what positions will be eliminated or how the layoffs will be carried out. CEO Hessam Nadji did not mention the layoffs during the earnings call, and no one asked a question about them, according to a call transcript.

The filing does note that in “response to this period of business disruption,” we “instituted various controllable expense reduction initiatives” including base salary reductions for senior executives, management and key personnel, furloughs and layoffs “to preserve our balance sheet and financial position.”

These reductions include a 25 percent base salary cut for Nadji, and a 20 percent cut for other executive officers.
Marcus & Millichap went public in 2013.

David Goldsmith

All Powerful Moderator
Staff member

Howard Lorber’s comp is too damn high: Investors
Vector Group stockholders vote against executives’ compensation, led by CEO’s $11.7 million

Shareholders are sending Vector Group’s C-suite a message — and it’s aimed at their wallets.
On Thursday, the publicly traded parent of brokerage Douglas Elliman and new development firm New Valley asked its investors to bless the pay packages its top five executives received last year.
And for the second year in a row, shareholders balked.

A majority at Vector’s annual stockholder meeting rejected executives’ 2019 compensation, including $11.7 million showered on Elliman chairman Howard Lorber, Vector’s president and CEO. Four other executives earned a total of $7.4 million.

By comparison, Steve Roth, whose Vornado Realty Trust has a market capitalization nearly four times that of Vector’s, received compensation of $11.1 million in 2019, while Brett White, CEO of Cushman & Wakefield, which is worth 29 percent more, had a $9.3 million package.

Ryan Schneider, Lorber’s counterpart at Realogy Holding, whose market cap is 60 percent less, collected $8.8 million.

Kenneth Steiner, a retail investor who has owned stock in Vector for a decade, calls Vector’s pay “excessive,” particularly Lorber’s. He could not recall in his 25 years as a corporate activist seeing a majority of investors oppose compensation packages in two consecutive years.

“It’s a strong rejection of the compensation packages and a strong rejection of the board of directors,” Steiner said.
Steiner noted that such advisory votes on pay typically receive 95 percent to 97 percent approval. A prolific filer of shareholder proposals, Steiner has waged hundreds of campaigns on PepsiCo, Oracle, Exxon Mobil and other companies.

Last year, 50 percent of Vector’s investors voted against its pay proposal, while 49 percent approved it and 1 percent abstained. This year’s vote breakdown has yet to be publicly recorded.
Of thousands of public companies that conduct these votes, less than 1 percent fail to get majority approval in any given year, noted Stewart Reifler, a lawyer specializing in executive pay.

“If a company cannot get an 85 percent or above approval vote on ‘say on pay,’ then that’s a strong indicator the company has a fever,” Reifler said. “If a company’s ‘say on pay’ vote is below 50 percent, then, to paraphrase the Music Man, ya got some serious trouble in River City.”

“Say on pay” became a hallmark of annual shareholder meetings as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. While non-binding, the vote can pressure a company into reducing its largesse to executives.

Reifler described the annual rite as “like taking the temperature” of investor sentiment.
“Typically, when things are going great at a company, ‘say on pay’ votes are never an issue,” he explained. “However, when the activists have the battering ram at the castle door and when the company is poorly performing, it is then when we see shareholder anger at executive compensation and a corresponding negative say-on-pay vote.”

In Vector’s first-quarter earnings, its real estate businesses reported a net loss of $54.4 million, which was six times the size of its first-quarter loss a year ago. Lorber attributed the result to the Covid-19 pandemic.
Vector’s overall performance last year was flat, though its results in the real estate market were erratic from quarter to quarter. Starting this year, the company halved its quarterly dividend and eliminated its annual dividend.

Steiner said he hopes shareholders’ vote on pay will prompt Vector’s board of directors to act. “This is a strong signal to them that they’re not doing their job properly,” he said.
The board is chaired by Bennett LeBow, a financier who previously controlled one of Vector’s tobacco businesses, Liggett Group. Other directors include Lorber; Paul Carlucci, former advertising executive and publisher of the New York Post; Barry Watkins of communication firm Clairvoyant Media Strategies and advisor to Madison Square Garden Company; and Stanley Arkin, founding partner of his eponymous law firm and a private intelligence agency. Vector declined to comment on Steiner’s statements.

Though Steiner is sounding the alarm loudest, the company’s big institutional investors seem to be making noise behind the scenes. They include asset manager BlackRock, Vector’s largest shareholder with 12 percent of its common stock; investment giant Vanguard Group; and hedge fund Renaissance Technologies.

Vector’s board has tried to respond to investor concern. Before last year’s annual meeting, Vector informed stockholders it had gathered feedback from institutional investors and would review its executive compensation program. The results were to be published ahead of the 2020 stockholder meeting and recommended changes to executive pay would be made that year.

The review is still ongoing, but preliminary results were reported in Vector’s 2020 proxy statement.
The company justified its compensation by noting the challenge for determining appropriate pay given Vector’s disparate holdings — tobacco companies as well as real estate.

Though Vector reported that no “specific changes” have been made, it requested conversations with every institution that owned more than 2 percent of its stock. Participating investors requested more transparency and supported Vector’s intent to link compensation to long-term performance.

Vector said it would “carefully consider” the feedback and the impact of the Covid-19 pandemic as it firms up 2020 compensation. A spokesperson said it is in regular contact with institutional investors.
In response to the economic downturn, many real estate executives, including Vornado’s Roth and Cushman & Wakefield’s White, announced pay cuts, and some are taking zero salary. On average, most gave up about 20 percent of total compensation.

Reifler, the compensation attorney, noted that activist investors’ challenges to executive pay is not motivated by moral righteousness.
“The activists are there to make a buck, and there’s nothing wrong with that,” he said. “But let’s not be naïve and think they’re there for something else.”