Masa Son’s investment in Compass is apparently worth imitating.
More than 1,000 agents at the SoftBank-backed brokerage have invested a portion — or in some cases, all — of their commission dollars into stock options totaling more than $20 million, the company said.
Although Compass has offered lucrative bonuses and equity to attract talent, CEO Robert Reffkin said the Agent Equity Program was the company’s response to agents who wanted to invest a portion of their earned commissions in stock options (much like he said lawyers, bankers and financial advisors often do).
“To be clear, with $900 million, it’s not something we needed to do to raise capital,” he said. “It’s purely an offering to respond to an agent’s desire to have ownership in Compass’ future success.”
Details of the year-old offering were first leaked in October, when Pacific Union CEO Mark McLaughlin touted the program — and other perks — to the California-based firm’s agents as a means to head off a potential exodus of agents in the wake of the merger with the venture-backed company, which is valued at $4.4 billion.
Reffkin said that since December 2017, when Compass officially let agents put their commission dollars toward options, some 1,149 agents have invested. Among the participants, 63 agents used 50 percent of their commissions to purchase options. Ten agents gave up 100 percent of their commissions to purchase options.
Compass agents can opt into the agent equity program each December, or within the first 30 days of joining the firm. The brokerage said it gives a 30-cent bonus for every dollar invested.
Nationwide, it has north of 7,000 agents, including some 1,400 in New York City. To date, the six-year-old firm has raised nearly $1.2 billion from investors. And since securing $400 million from SoftBank and Qatar Investment Authority in September, sources said Compass appears to be heading toward an IPO within 24 months.
Samantha Lynch, Compass’ senior director of corporate development and strategic finance, said all stock options will converge into the same type of common stock when the company goes public. But agents don’t have to wait for the as-yet-unannounced IPO.
“Historically, we have had more investor demand than capital we wanted to take, so there have been investors who bought shares from agents and early investors,” said Lynch. She said there have been four such “liquidity opportunities” to date.
Despite high levels of participation — nearly one in seven agents has purchased equity — some observers say the program is risky. There will be a lock-up period for agents waiting until an IPO to sell, limiting their ability to trade shares for a stretch of time. The value of the options would then be tied to whether the shares hold their value.
The price of shares purchased by agents — which is determined by Compass’ investors — has multiplied with each fund raise.
Compass’ Series A, which raised $33.24 million, was priced at $10 per share, according to PitchBook. The Series B was priced at $20.77, Series C at $40.50, Series D at $42.63 and Series E at 67.48. The Series F — in which SoftBank and QIA invested $400 million — was priced at $118.57.
That’s a far cry from where residential brokerage stocks are currently trading, although Compass does not consider itself a traditional brokerage. “I believe the traditional brokerage model is not sustainable,” Reffkin said on a panel at The Real Deal South Florida’s Real Estate Showcase & Forum last month.
Realogy — the parent company of the Corcoran Group, Coldwell Banker and Sotheby’s International Realty — has a market cap of $2.2 billion on Nov. 9, with shares trading around $18.25, down roughly 40 percent year over year. RE/MAX shares were trading at $32.68 per share, while Redfin was trading at $14.45 per share, down from $23.20 a year ago.