APR president Mike Hulme vowed to agents in a company-wide memo in August of 2018 never to “impede your business by forcing you to change brokerages,” a clear swipe at Compass.

In a whirlwind nine-month spree that began last July, Compass breezily acquired Paragon Real Estate, Pacific Union International and, this week, Alain Pinel Realtors, positioning the company, nearly overnight, as a leading brokerage across the San Francisco Bay Area’s nine counties.

The aggressive move into the Bay Area will, no doubt, have a lasting impact on its housing market, but, besides that, how and why did these brokerages come to fall so quickly under Compass’ spell, even, in some cases, after pledging never to sell to the New York-based company?

With APR, in particular, the brokerage’s president, Mike Hulme, vowed to agents in a company-wide memo in August of 2018 never to “impede your business by forcing you to change brokerages” or “monetize the private information of you or your clients,” declarations that appeared to be a clear swipe at Compass, coming off its acquisition just days earlier of Pacific Union International.

As with all acquisitions, the deal now forces Hulme to navigate a tight wire that involves selling his agents on a cultural shift while also positioning the news in a positive light. But behind the scenes, leaders from Intero Real Estate, Zephyr Real Estate, Vanguard Properties and others who wished to remain anonymous revealed to Inman that they’ve already had discussions with agents looking to jump ship from APR.

“This acquisition has taken yet another player out of the market and has left many agents with a new brand and new leaders that were not their choice,” Tom Tognoli, the CEO and founder of Intero Real Estate, which was acquired by HomeServices of America in 2014, told Inman.

Even with agents reportedly looking elsewhere, in conversation with Inman Hulme described a shifting real estate landscape in which Alain Pinel Realtors could no longer compete and grow in the Bay Area.

Why did APR decide it was time to sell?

APR was founded in 1990 by Paul Hulme – his son, Mike Hulme, now runs day-to-day operations – and has grown to approximately 1,400 agents with more than $12 billion in sales volume in 2019. So why did the brokerage, ranked seventh in sales volume nationally, choose to sell to Compass, a market rival it had previously criticized for a business model perceived to prioritize data over agents?

Alain Pinel Realtors CEO Mike Hulme

Alain Pinel Realtors President Mike Hulme | Credit: Alain Pinel Realtors

“The market is continuing to shift in the brokerage side of it, for sure,” Mike Hulme told Inman. “We all see the headlines of high splits, high commissions, high marketing.”

“Our agents are loyal to us, but when there are so many incentives being pushed out, it’s changed the dynamic,” Hulme added. “It’s become a lot harder to compete.”

Hulme said when he realized it was time to make a change, his company worked with Real Trends CEO Steve Murray to determine what options were left. Without identifying the brokerage, Hulme said he briefly considered selling to a “legacy brand.” But with his deep pool of Silicon Valley agents a key selling point, and his realization that agents were already weighing APR and Compass as viable professional options, Hulme said the decision was easy.

“We felt like we knew which one we wanted to go with, which was Compass, because they do have a great story,” Hulme said. “Our battles were always against Compass, so we felt like, if we’re going to call a truce, let’s call it with them and join them.”

APR changes its tune

For APR, and many of its agents, the deal is a curious move, at least on the surface. Just seven months ago, Hulme sent out a company-wide email that, without explicitly vowing never to sell, served as a rebuttal to Compass’ acquisition of Pacific Union International.

“Sotheby’s, Compass, and Pacific Union – they all want us and have repeatedly approached us,” Hulme said in the email, obtained exclusively by Inman that, until now, had never been made public. “We turn down offers from our most significant competitors multiple times a year.”

APR even recently put out advertisements, targeting other brokerages, for allegedly using data for more than real estate transactions. The ads did not specifically mention any rivals, but were titled, at the top, “Big Brother or real estate brokerage?”

A recent APR ad on the back of a magazine

Hulme acknowledged his concerns over data harvesting in a conversation with Inman, which he characterized as “rumors.”

Rainy Hake Austin, the chief operations officer at APR went to Compass’ headquarters in New York City with a number of questions, but one of them specifically being APR’s concerns that Compass would monetize agent transaction data.

“They showed us their investor deck, their pledge and we honestly couldn’t find anything – you know a lot of those things were just rumors,” Hulme said. “Data is not their play. It’s just really about getting people to their website and building out the technology that gets more eyeballs on their product.”

How are APR agents taking the news?

In the wake of Monday’s announcement, Inman learned from a number of competitors – including Intero Real Estate, Zephyr Real Estate and Vanguard Properties – that agents began reaching out to them shortly after the acquisition was made public. Many are in a wait-and-see mode, some are angry, and others are simply disappointed, according to multiple sources.

“We are already having many discussions with agents that have been affected by this move,” Tognoli, of Intero Real Estate, told Inman.

“We have received numerous immediate requests for meetings upon the APR announcement and we will continue to meet with agents who feel that we may be a better fit for them,” added James Nunemacher, the CEO of Vanguard Properties.

“Yes, we have had immediate inquiries from their agents,” wrote Zephyr Real Estate President Randall Kostick, adding the emoticon :) in an email to Inman.

Publicly, across Facebook, agents expressed a combination of jubilation and shock.

“Big things happened at work today… Introducing Alain Pinel Realtors x Compass!” one agent posted. “Excited for what the future has to bring!”

“Interesting… show up for work on a Monday and get the news early afternoon that your company has been sold!” another posted. “We shall see what that means.”

According to one agent, Compass will not break up the established teams, and offices will remain where they are.

“Wow, crazy bombshell day,” the agent posted. “Our real estate company Alain Pinel Realtors was acquired by Compass today.”

APR held a company-wide town hall meeting on Tuesday morning, where Hulme said he and his father took the stage to a standing ovation.

“It was a very sweet reception… it was very encouraging to know how much love there was from everyone,” Hulme said.

Hulme, who confirmed to Inman that he’s staying on as a consultant for the next four years, said there were fewer agents upset than he expected.

“Going into it I thought there would be more frustration,” Hulme said. “I found a lot less frustration with the whole idea.”

“Everyone was open to the idea, they all understand where the marketplace is today and we’ve taken our brokerage as far as we can and Compass is going to take it further,” Hulme added.

Is Compass growing too quickly in San Francisco?

Compass CEO Robert Reffkin acknowledged in a year-end letter to agents and staff that, “doing multiple mergers in a single year put strain on our employees, our culture – and unfortunately, the incoming agents felt and saw those cracks.”

Zephyr Real Estate CEO Randall Kostick | Credit: Zephyr Real Estate

Kostick, the CEO and president of Zephyr Realty – which is currently suing Compass over its recruiting practices – believes Compass will have trouble maintaining the staff, management and facilities it acquired over the past year.

“Compass has now acquired not only the agents but the staff, management and facilities obligations of Alain Pinel, adding to the already heavy burden of those same obligations for Pac Union and Paragon,” Kostick told Inman.

Kostick said that, in spite of Compass’ statements that it’s a tech company, it appears to be truly running as a traditional brokerage in every aspect. And the two most significant costs of running a brokerage, beyond commissions, are staff salaries and facilities.

“At least in San Francisco, they are now dramatically overburdened with salary and facility costs,” Kostick said. “You can bet that they will be cutting staff and abandoning offices in pretty short order.”

In the Bay Area alone, Compass states it has 3,000 agents across 97 office locations, post-APR acquisition. Hulme said Compass plans to maintain all of the staff and offices, with a renewed focus on growth.

“They’re all about growth right now,” Hulme said. “There’s nothing in the future that says we’re going to do everything different with our staff. Everybody is going to do business as usual. We’re going to run APR like we’ve always run it, but with the horsepower of Compass.”

A closer look at the Bay Area real estate market

Kostick acknoweldged that the move to acquire APR makes sense because of the Bay Area coverage it provides in the heart of Silicon Valley.

“With limited traction in the South Bay, Alain Pinel gives them immediate access to market share there, which seems to be their only objective at the moment,” Kostick said.

Kostick told Inman he’s happy to report that Zephyr Real Estate is not in discussions with Compass — or anyone for that matter.

“We’re happy to be one of the last large independents left in the Bay Area and are capitalizing on the draw that offers to agents who have no interest in working for a national Wall Street-backed company focused on going public and getting their payday,” Kostick said.

Nancy Robinson | Credit: Coldwell Banker

Nancy Robinson, the regional vice president of Coldwell Banker Residential Brokerage in San Francisco, told Inman that her initial reaction to the acquisition was surprise, but she also insisted it was a logical acquisition for Compass because of the area APR serves.

In San Francisco County, Compass is the market share leader with the Paragon and Pacific Union acquisitions, Robinson said, but Alain Pinel is headquartered in Santa Clara County, where Compass did not have a big presence.

“Compass’ acquisition of Alain Pinel will not give them number one market share in Santa Clara County because Alain Pinel did not have number one market share in Santa Clara County.”

“They certainly now have a presence,” Robinson said, of the Bay Area as a whole. “But it really depends, county by county.”

With these big acquisitions, Coldwell Banker, like all brokerages, see an opportunity.

“All companies do,” Robinson said. “Anytime there’s some kind of change like this in the industry, not just Coldwell Banker, any company is looking to potentially have agents shift to their organization.”

“When companies grow by acquisition, this is a natural occurrence,” Robinson added. “Not every agent is thrilled to be acquired. That’s when they realize they have a choice.”

James Nunemacher | Credit: Vanguard Properties

Nunemacher, the CEO of Vanguard Properties, said Compass has tried to buy his brokerage.

“But we are not for sale,” he told Inman.

“I am sorry to see yet another competitor sell their business but we of course are happy to welcome certain qualified agents who would be a good fit with Vanguard Properties,” Nunemacher said. “We at Vanguard Properties continue to be the leader in independently owned and operated real estate brokerages in the Bay Area.”

Jeff Gibson, the senior vice president and brokerage manager of Sotheby’s International Realty San Francisco, believes fewer options for agents and clients will ultimately lead to a less healthy ecosystem in San Francisco. Sotheby’s has been operating in San Francisco since the mid-1990s.

“Multiple brokerage options create healthy competition for the agent and, ultimately, the client,” Gibson said. “The current trend of consolidation in San Francisco reduces that healthy eco-system. Now more than ever, top agents are desiring to align with our company because of its 275-year-old luxury brand recognition and consistency.”

Tognoli told Inman his brokerage is already having discussions with agents affected by the move and it will ultimately have a positive impact on Intero.

“Unfortunately I don’t think the smaller boutique companies that are not well capitalized will be so fortunate,” Tognoli said. “They are the ones who are really getting hurt and squeezed out. I don’t like seeing that.”

Where does Compass stand nationally, post-acquisition?

Thanks to its major acquisition of Pacific Union, an aggressive national expansion and recruiting efforts across the country, Compass surpassed Douglas Elliman to become the third largest brokerage in the country, according to Stefan Swanepoel, CEO of T3 Sixty and publisher of the Mega 1000. Compass finished the year, according to Swanepoel, with more than 8,100 agents and $45 billion in sales volume.

According to Compass, the company, post-acquisition, now boasts more than 10,000 agents. Acquiring Alain Pinel Realtors adds another $12 billion in annual sales volume, meaning Compass is now approaching $60 billion in sales volume. That’s still just half of HomeServices of America and a third of NRT’s sales volume.

“A very significant feat for any company, but even more so due to the short time Compass has been around,” Swanepoel told Inman.

What’s Compass paying to acquire these major indies?

At Inman Connect in San Francisco over the summer, Reffkin revealed that Compass pays four to six times a company’s earnings before interest, tax, depreciation and amortization (EBIDTA). However, at Inman Connect in New York in January, Reffkin said Compass will be paying less than it has in the past.

Hulme doesn’t feel like they missed out on an opportunity to sell in the past, noting that they were already negotiating before Reffkin’s remarks.

“I don’t know when they made that decision, but that piece of information came out after we were going down the negotiation road,” Hulme said. “That didn’t affect us.”

Because Compass is a privately traded company, it has previously declined to disclose financials associated with acquisitions. But when they acquired Fidelity National Financial’s (FNF) stake in Pacific Union, those terms were disclosed because FNF is a publicly traded company.

In an earnings call in October, Anthony Park, the chief financial officer of Fidelity National Financial, revealed that adjusted pretax income for Fidelity’s brokerage operations – of which Pacific Union made up roughly 90 percent – was around $2 million.

The call also revealed that Compass paid FNF $43 million in cash and an additional $27 million from an earn out if the company meets undisclosed metrics for its stake in Pacific Union. Even if none of those metrics were met, that puts that acquisition at more than 20 times EBIDTA.

Compass did not respond to multiple requests for comment clarifying the financials of the APR and Pacific Union deals.

Email Patrick Kearns

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