Real Estate

Bay Area's largest real-estate firm? It's a New York startup

Compass buys Alain Pinel in latest acquisition

Compass, the venture-funded real-estate startup that launched its first office in the local market just over two years ago, became the Bay Area's largest residential brokerage firm this month after acquiring Peninsula powerhouse Alain Pinel Realtors for an undisclosed amount on March 9.

The deal will nearly double Compass' Bay Area headcount by bringing on board 1,300 agents from Alain Pinel, a company whose sales volume topped $12.2 billion in 2017. With this addition, Compass will have approximately 3,000 agents working out of 97 offices in the Bay Area, including locations in Palo Alto and Menlo Park, the New York-based brokerage firm announced this month.

The sale comes just six months after Alain Pinel President Mike Hulme reportedly declined to sell his family's Saratoga-based company — one of the nation's top 10 brokerage firms — to Compass. Instead, Alain Pinel scooped up San Francisco's boutique brokerage Hill & Co. in September in an effort to compete with the rapidly expanding, $4.4 billion startup.

Hulme did not respond to interview requests for this article. But he reportedly said that he changed his mind and decided to sell this month after losing some of his top agents to Compass.

"We thought joining them versus fighting them was in our best interests," he told the San Francisco Chronicle following the sale of the decades-old company, which his father founded in 1990 and grew into one of the nation's top real-estate firms.

Compass has been shaking up the local real-estate industry with fast-paced acquisitions over the past year: This is the third time in eight months that the startup bought a top-selling Bay Area brokerage firm as part of its push to strengthen its regional footprint. Last July, Compass acquired Paragon Real Estate Group and a month later it bought Pacific Union International — both are based in San Francisco and rank among the top 10 residential brokerage firms in the nation based on sales volume.

The combined sales volume from Alain Pinel and these two residential brokerage companies totaled $22.4 billion in 2017, according to data from Real Trends. Sales figures from the top-ranked firm, Coldwell Banker Residential Brokerage, was just slightly higher at $24.2 billion.

According to a Compass spokeswoman, by combining the total sales volume of Compass, Alain Pinel, Hill & Co., Pacific Union and Paragon reported to Multiple Listings Service over the past 12 months, the company is now the largest residential brokerage in the country by sales volume, growing from $15 billion to more than $35 billion between January 2018 and January 2019. It's also the No. 1 brokerage by sales volume in San Francisco and Los Angeles, she said in an email.

Michael Repka, CEO and general counsel at Palo Alto's Deleon Realty, said only time will tell how the combination of the company's East Coast management coupled with a blending of agents from a variety of different brokerages will come together.

"There are certainly pros and cons to having one big player in the market. However, overall I think it's more negative than positive," Repka said. "I see a tremendous amount of conflict of interest from having the same broker or brokerage on both sides of the transaction. The potential for double commission, whether on the individual level or at the broker level, is generally not good. I am concerned that Compass' market share will be too large and ... will create temptation for off-market listings."

Repka said he's already heard that some agents are asking sellers for a period of exclusivity to market a property before officially listing it for sale.

Founded in 2012 as a real-estate technology company in New York City, Compass has raised $1.2 billion through funding rounds from investors, including Founder's Fund, Fidelity Investments, Wellington Management, Goldman Sachs, Salesforce.com CEO Marc Benioff and Softbank Vision Fund. Compass' headcount has grown to more than 10,000 agents across 248 offices in the country.

Co-founders Robert Reffkin and co-founder Ori Allon started Compass with a focus on technology, hiring 50-plus in-house engineers to develop a mobile app for its agents that provides real-time housing data to help streamline the selling and buying process. Agents can receive immediate status and price updates, see how many people are looking at a listing, use data analytics to determine the best time to list a property and collaborate with clients.

The company's technology was a key reason why agent Judy Citron, who had worked for Alain Pinel since November 2009, left to join Compass at the end of 2018. She said she's able to better serve her clients and work more efficiently by using the company's technology.

"The real estate landscape is changing," she said.

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