It’s not a question of if Keller Williams will go public but when. Founder Gary Keller may have no other choice.
Two classes of real estate companies are emerging. One is those that are raising eye-popping mounds of cash to grow, grab market share and innovate. The others are working off operating income to grow and expand.
This year, four of the largest real estate companies — Zillow, Compass, Redfin and Realogy — collectively raised a staggering $1.87 billion in fresh funds.
For now, Keller is outside looking in at the big money pie that others are baking.
Compass has closed a $370 million series G funding round. Zillow announced a $650 million public offering. Redfin announced a public offering of nearly $420 million. Realogy announced plans for a $500 million debt offering.
Then, add Berkshire Hathaway, which has sugar daddy Warren Buffet as its largest shareholder, a man who can write big checks whenever needed.
Plus, all of these companies, except Compass, are publicly traded with rich stock market valuations, giving them a powerful weapon to buy other companies. Publicly-traded firms love to acquire other businesses when their stocks are priced high, because they suffer less dilution.
eXp Holdings is also publicly traded, giving them the same market power. Its stock has risen 400 percent this year. The firm represents KW’s fiercest competitor: the hunting ground for eXp are KW realtors.
Compass is likely to go the same route — going public with a SPAC — is my guess.
Where does all of this put Gary Keller?
His company is privately owned. One estimate puts his ownership stake at 73 percent — making him a very wealthy man. The fact that he retained his ownership position through a long uphill battle to become one of the largest real estate companies in the world is truly amazing and unusual.
Companies that raise lots of outside money to get big can afford to make mistakes. But bootstrapped businesses are another matter: there is no money angel on one’s shoulder to bail out wrong-headed decisions. It’s proof Keller is one of the smartest people in the industry.
Operating efficiently and profitably, his private company status is the envy of many. Publicly-traded company founders must deal with the morass of all that comes with being listed on the stock market after giving up control when forfeiting a big piece of their ownership stake after an IPO.
But in this pivotal moment in the real estate landscape, access to capital has never been more important. It funds technology innovation, helps recruiting and is necessary to participate in the iBuying movement which is growing very quickly and requires lots of capital.
However, without going public — through a SPAC or IPO — Keller must borrow a massive amount of money to compete with this new round of well-funded competitors, or reinvest his profits, estimated at $100 million annually in the past and probably more this year. That seems to be what Keller is doing now, though there is no information on what percentage of those profits he is reinvesting. And it probably still falls short of what is needed right now.
I hear that Keller believes in leverage, like a mortgage loan, but personally he is not a fan of straddling his firm with debt.
A charismatic leader, Keller’s tradition, when change is looming, is to rally the troops and weather the storm around him. That strategy has worked well in the past.
But access to more capital is clearly on his mind. Everything in this article and much much more are considerations and ideas that Gary Keller has thought through and through over the years.
And in the end, it may be more personal. Does he have the stomach for giving up control? Self-made success has a unique DNA.