Inman Connect Las Vegas returns live, Oct. 26-28, 2021, at the Aria Hotel and Resort in Las Vegas, Nevada. In the lead-up to the big event, we’re talking with scheduled speakers about the moments that made their careers. Consider this just a taste of all the knowledge that will be shared at ICLV. Make plans to join us.
One year ago, Chicago-based brokerage @properties embarked on a new adventure.
The company has existed for more than two decades and has distinguished itself for, among other things, taking a tech-forward approach to real estate. But last fall, @properties started offering franchise opportunities. The first franchise debuted in February in Detroit, and over the ensuing months additional operations launched in Indiana, Wisconsin and Texas.
To better understand @properties game plan, as well how the company is navigating the market and tackling other challenges, Inman recently spoke with co-CEO Thad Wong. The conversation took place in advance of Inman Connect, where Wong will be among the event’s speakers. Wong touched on a number of topics while chatting, but the overall takeaway from this conversation is that he believes the housing market will stay strong in the near future, and @properties growth will only get faster.
What follows is a version of that conversation that has been edited for length and clarity.
Inman: First off, talk to me about how the market is doing right now and what do you see happening over the next six months to a year.
Thad Wong: The market everywhere in North America is strong. Some are stronger than others, some towns have challenges, but even towns that have challenges are still seeing appreciation and demand. I think COVID allowed Americans to look at spending a higher percentage of their income on housing. We’re heading in the direction of Europe, where people have always spent more on housing than they have in America. The stock market has continued to outperform. And the cryptomarket. Bitcoin yesterday hit all time highs.
There’s a lot of wealth being created in the economy and there’s a big focus on housing. I anticipate the spring market of 2022 being very robust.
In different parts of the country you’re starting to see more of a pull back and seasonality. From June of 2020 until June of 2021 it felt like a full year of spring market. Some areas are starting to get a little more normalized, while others still have big inventory issues. You saw big increases in pricing, but I still anticipate greater appreciation across the board.
I’ve seen speculation about a bubble. Do you see any indications of trouble, or are we doing good in terms of bubbles?
It matters where you are. For instance in Chicago, although we’ve had double digit appreciation in the last 12 months we’re still not back to 2006 peaks. Whereas a lot of markets hit 2006 peaks back in 2012, 2013, 2014. So it really depends where you are. We’re not a boom and bust market in Chicago, but in California you have boom and bust and you have for the last 100 years. So you can have lots of market pullback.
Housing has now become more important than just a place to live and a place for long-term wealth accumulation. Now it’s where you spend a significant amount of time. I think because of that, there’s a big catapult to get over to have a bust, where you have greater supply than demand, and a lot more supply than demand. I don’t know where that would happen in the country right now.
You have the narrative of people moving from city to suburb. I’d argue that all the people moving from the city to the suburbs are finding willing buyers for those homes from people wanting to stay in the city. You hear the narrative of people moving from New York to Florida. From California to Salt Lake. And there are people who are part of that story. But if you look at California, we’re seeing great appreciation and massive demand in California. So people are more than willing to live in Los Angeles and other parts of California while others are looking to move.
I don’t see any clouds in the market right now for the coming 12 months. There’s not going to be a big interest rate spike that’s going to slow down demand. Things are looking good.
You mentioned that bitcoin just hit new highs. How do you see the crypto story intersecting with the real estate?
I’m very heavily involved in blockchain and crypto. I bought my first bitcoin in 2014.
There are a lot of developers that are developing solutions. Not just for title, which is probably low hanging fruit when it comes to blockchain. But when it comes to the identification of properties, information on properties, etc. So I do believe that blockchain will be a big part of real estate’s future in the coming decade. There’s a lot of information and programming around it right now. And I think you’ll see it emerge in the coming years.
I think a decade from now, you won’t be involved in a real estate transaction that doesn’t include blockchain. The ability of a blockchain, from a decentralized security perspective for 100 percent accuracy and transparency, solves so many problems when it comes to the transfer and documentation and history of real estate.
At the end of the day it only will improve consumer security. It’ll only improve efficiency. And it’ll only improve the cost for the consumer. So I’ll have better data, more accurate data, safer data. And it’s less expensive.
Talk to me about franchising. You’re about a year into @properties franchising efforts. How has the last year gone and what have you learned so far?
The first year was great. We found three partners locally who were all within driving distance for us to transition to our first franchises. And that has been great. They come from small- to medium-sized companies. And we’ve done one startup in Dallas. Which has also been fantastic.
What I’ve learned is what was being offered — and not offered — by the legacy brands.
And I got an even greater understanding of what our value proposition is. When I talk about the value proposition, I think that from our competition, when it comes to a legacy brand, that’s really their value. The brand recognition. The franchisee gets this brand that is well known in every kitchen. And that’s where I think their value is.
Our value is different. Our value is getting them a contract-to-close, agent- and consumer-facing solution.
Where do you see your franchise operations moving in the future? What’s the next chapter in this story?
We were able to scale up in the first year by working with companies incredibly close to home, and one further away, and master that transition. But I think over the next 12 months you’ll see billion-dollar and up franchisees launching. You’ll begin to see billion and multi-billion-dollar companies from the West Coast to the East Coast to Texas and Florida. Closer to major markets.
I do see a lot of these companies that are in markets where there’s been a heavy focus over the last five years. That’s actually where we see the greatest opportunity to giving an alternative to agents that don’t have it right now in their markets. So effectively, big markets are where we plan on taking a big share.
I think if you look at the history of @properties, people were surprised at the scalability of our organic startup over the past 21 years. And I think they’ll be shocked with the speed and the scale of the partners and the affiliates.
I’m curious about the broader franchising question. There was a time when real estate was franchises and that was what everybody did. But that has become less the case, to the point that @properties strikes me as an outlier in that you’re a tech-forward, expanding brand that’s also investing in franchising. Talk to me about the role of franchising in real estate. Is this still the best option?
I think that because Compass has controlled the narrative for the last decade, or the last five years, the focus has been on a real estate roll up. It was really no difference from a healthcare roll up, or the traditional Wall Street roll up. And oftentimes they’re done by people who have no history in the industry. But they see an opportunity and they have capital. And it works. And it did work for Compass. They were able to take the company public in a very short period of time.
Where I see it very differently is that the issue Compass struggles with is profitability. And really, profitability is sustainability. Now that they’re public that gives them a greater cushion and more time to figure out how to get profitable and have reasonable metrics.
But what Compass did in a short period of time was shrink the margins for the industry by offering agents higher splits and signing bonuses. And when you start that as a culture, it’s pretty much impossible to turn that around. That created much more stress on independent brokerages, independent franchisees, while simultaneously making it incredibly competitive from a technology and marketing perspective. And simultaneously, there was commission suppression.
So the bottom line is that margin compression happened much faster than it would have naturally. That’s really what Compass did, they shrank the margins. So you have a lot of really good quality companies with quality agents and quality leaders that don’t have the ability to compete on technology, marketing, training and coaching. They don’t have the ability to offer all the resources to grow agents.
So from the franchise side, from our value proposition, that’s what we bring to the table. So you give them the best technology at a price they can afford. You give them the best marketing for that same cost. And they can plug into the training and coaching to grow their agents. They don’t have to look for an outside vendor for tech. They’re plugged into our ecosystem, which is ever-evolving.
When it comes to value, that’s what we really are. The motor and the engine, and they add their fuel, which is really their own personality and their own energy to grow their own company.