Drawing on its massive pot of venture-capital funding, Compass has expanded into commercial real estate, with plans to provide technology, marketing and support to help agents grow their business.
After gobbling up market share in the residential sector, in part through brokerage acquisitions, Compass Commercial makes its debut today with “some of the most active and high profile real estate brokerages.”
The new division will draw on the expertise of San Francisco-based Paragon Real Estate Group, which Compass recently acquired. It’s also carving out a foothold in New York City, where the firm just hired Adelaide Polsinelli and Ronda Rogovin,” two of New York City’s top commercial brokers.”
“There are huge commissions and inefficiencies in commercial brokerage,” said Aaron Block, managing director of MetaProp NYC, a venture capital firm that focuses on real estate.
“There is also some overlap between high end residential and, especially, retail and office brokerage,” he added. “Agents frequently seek out help from specialists of other asset types and share commissions. Having a more robust set of client services under one roof can make a lot of sense for the Compass top line. ”
Paragon’s commercial division focuses on apartment buildings, tenant and landlord representation, office and retail space and land acquisition and development.
It’s brokered the sale of more than 20,000 apartment units, over 15 million square feet of floor space and $3 billion in San Francisco Bay Area investment, according to the unit’s website.
Judging by Paragon’s experience with multifamily building owners and tenants, Compass’ commercial play could bring its brand and services to a much larger population, potentially creating a range of new business opportunities.
One would be the chance to sell technology to other commercial real estate brokerages. Technology licensing has long been a part of Compass’ plan. But in the residential sector, the company must grapple with the question of whether putting its purportedly best-in-class software in the hands of competitors serves the firm’s best long-term interests.
Bringing this dilemma into focus, the red-hot startup’s first attempt to license its tech to another residential brokerage recently fell through, after Compass agents reportedly balked at the plan.
Without a presence in commercial real estate beyond Paragon’s operation, Compass would not face this conundrum.
“Part of our decision to merge with Compass was the resources they offered and we are excited that those resources will extend across residential and commercial,” said Paragon Founder Bob Dadurka in a statement.
The commercial brokerage business has split into “gobal powerhouses” and “small niche players,” according to Block, the managing director of MetaProp NYC.
Middle-market firms can struggle to compete with their larger peers, which enjoy global footprints and a “full suite of complex service offerings for occupiers and investors,” Block said.
“It will take an enormous acquisition and recruiting effort for Compass to compete with the top players,” he said.
Those top commercial real estate brokerages (based on transaction volume) include CBREA Group, JLL, Cushmand & Wakefield and Newmarket Knight Frank, according to National Real Estate Investor.
Block said Compass could start to compete by hiring “marquee” commercial brokers in major gateway markets like New York City, Chicago and Los Angeles.
“I wouldn’t be surprised,” he said.