The Real Deal New York

Paydirt: The Compass unicorn, a more modest buyer pool, 23 Wall in play … & more

The industry news you need to know to start your week, and what’s ahead

September 06, 2016 09:30AM
By Hiten Samtani

From clockwise: 252 East 57th Street, 111 West 57th Street, an illustration of Bill de Blasio and Andrew Cuomo, Robert Reffkin drawn as a unicorn and 23 Wall Street in the Financial District (illustration by Lexi Pilgrim for The Real Deal)

(Paydirt is a new weekly column that riffs on the biggest NYC real estate news of the moment, providing analysis and historical context on the deals and players that make this town tick.)

I am unicorn, hear me whinny: Compass has become the New York residential world’s first-ever unicorn, Silicon Valley-speak for a startup valued at $1 billion or more. It’s a remarkable achievement for a three-year-old firm operating in an industry that relies on the talent of contract workers rather than any deep-rooted competitive advantage.

Let’s put that $1 billion figure into perspective: In 2013, Douglas Elliman was valued at a shade under $300 million, according to Vector Group’s regulatory filings. It reported revenues of $436 million that year. Publicly traded Zillow, which has about 2,000 employees and expects to cross over $825 million in revenue this year, has a market cap of $6.15 billion. Compass says it has hit more than $100 million in revenue so far this year, and, crucially, that it expects to earn three times as much as it did in 2015. Venture capitalists love to see that kind of rapid growth, and in a time of uncertainty are shepherding more money to companies that are already well on their way. No matter the industry’s misgivings about Compass, it’s clear that the firm has a prodigious ability  to woo investors and to scale.

What’s still worrying, however, is that it hasn’t changed the way it reports its numbers. Compass should ditch its nonsensical metric about representing $8 billion in annual sales, a figure that has little bearing on the brokerage’s actual performance and distracts from what actually matters.

It isn’t the only offender, though. Part of the problem is that residential brokerage doesn’t seem to have any universal metrics for judging performance — since many of the biggest firms are private, they can get away with providing whatever metric looks best that given quarter.

Billionaires hiding? We’ll take the millionaires: Compass’ valuation comes at a time when Manhattan’s high-end residential market is taking body blows. Developers finally seem willing to accept things aren’t where they were in 2014. They’re either offering fat discounts (Extell at One Manhattan Square, World Wide Group and Rose Associates at 252 East 57th Street), pushing sales back (JDS & PMG at 111 West 57th Street) or abandoning ship (Witkoff at Park Lane, Chetrit & Bistricer at the Sony Building).  “The next two years will be the year of the deal,” PMG’s Kevin Maloney told Bloomberg.

Developers who set their sights a little more main street have been faring better: Condos priced between $500,000 and $999,000 have sold five times as fast as their $10 million-and-up counterparts, according to a Miller Samuel analysis of a decade of residential sales.

You don’t know Jack: JTRE’s Jack Terzi is in contract to buy 23 Wall Street, a landmarked property that was once the headquarters of J.P. Morgan & Co. – it was dubbed the “House of Morgan” — but of late has been a pox on Lower Manhattan. The long-vacant building is owned by the shadowy China Sonangol, a joint venture between Sam Pa’s Queensway Group and the nation of Angola — go figure. Sources told the New York Post that Terzi will be buying the property at a discount to the $150 million Sonangol paid for it in 2008. That’s hard to fathom, except for the fact that Pa is under investigation for allegations of financial crimes, according to the FT.

Terzi, who grew up in Gravesend and cut his teeth at Hidrock Realty, has made a number of splashy acquisitions of late, including a number of $20 million-plus buys in Midtown East. But this deal, if he does close on it, elevates him to a different level — giving him control of more than 130,000 square feet in the heart of Lower Manhattan.

V for Vendetta: The cold war between Gov. Andrew Cuomo and Mayor Bill de Blasio is taking a real toll on the real estate industry. It’s affecting progress on policies crucial to the industry such as the 421a tax abatement, insiders say, and preventing Albany and City Hall from collaborating on big-picture issues. The worry is that the damage could have a lasting effect: one developer’s representative likened the battle to a game of water polo, with the “real kicks” happening below the surface.

(Read more from Paydirt here)

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