A year in, Compass is a top 10 firm in Chicago. Not everyone’s sold though

“We have the luxury to be building for a 10-year horizon”

Rob Lehman and Robert Reffkin (Credit: Getty Images, Columbia, and Compass)
Rob Lehman and Robert Reffkin (Credit: Getty Images, Columbia, and Compass)

Compass’ move into Chicago set off alarm bells in the city’s hitherto staid brokerage industry.

Now, a year later, the country’s most valuable brokerage on paper is among the top 10 firms in the city by deal volume. But given its ambition, its profile and the money it’s splashed on acquisitions and recruiting, rivals aren’t impressed by its impact so far.

“I would like to say I’m coming across them on the ground and losing listings,” said one top broker who was courted by Compass but didn’t jump ship. “It’s sort of an industry development more than anything.”

In its first year, Compass handled over $1.4 billion in total sales — making it the sixth biggest brokerage in the county by sales volume, according to The Real Deal’s review of county property transactions from December 2017-November 2018. (The figure includes more than $300 million in deals done by agents from Conlon Real Estate and the Hudson Company, which were acquired by Compass in April and June.)

The company, however, says it has done $1.7 billion in overall sales volume in the state from January 2018 to early December. That puts its market share in Chicago at 8.4 percent and in Illinois overall at 3.2 percent, according to Rachael Rohn, general manager for Compass Chicago.

Compass trails local giants @properties, with $6.5 billion in sales volume in Cook County last year, and Coldwell Banker, which had $4.6 billion in sales volume, according to TRD’s review. It did, however, do more business than local firm DreamTown Realty ($1.2 billion) and Redfin, the online discount brokerage that went public in 2017 and did $1.1 billion locally last year.

While Compass says it is satisfied with its numbers in the first year, it’s more focused on the long term, according to Rob Lehman, the company’s chief growth officer.

The first year in Chicago “certainly exceeded our projections,” Lehman said. “But for us what really matters is the quality more than the quantity. We have the luxury to be building for a 10-year horizon.”

The VC-backed firm that could

Compass, led by Robert Reffkin, entered Chicago just after Thanksgiving in 2017 with 13 brokers, a temporary Lakeview office and a lot of bluster: Like it does with all new markets, it targeted a 20 percent market share by 2020.

The venture-backed firm, valued at $4.4 billion after a fundraising round in September, now has over 500 agents here, both through recruitment and through acquisitions of rival firms.

The first big fish it landed was Jeff Lowe, Chicago’s top-producing agent who came over with his team from Berkshire Hathaway. The courtship started in late 2015, when the company was already worth a fair bit but far from the unicorn-like valuation it enjoys today.

“I get a lot of solicitation calls like every broker does,” Lowe said. “But I started following them more. I thought it was a really interesting company. My top few brokers were really excited about it — even more than me.”

After a year with Compass, Lowe remains the city’s No. 1 producer, with over $275 million in sales volume from December 2017 to November 2018, according to TRD’s analysis. He said his numbers for 2018 haven’t been finalized, but estimated he did about 5 to 10 percent more business than in 2017.

“That [higher sales volume] is something that [Reffkin] promised, but I didn’t believe him,” Lowe said. “We had a better 2018 than 2017, and I think few brokers can say that.”

Soon after Lowe, Compass recruited Joanne Nemerovski, another top producer from Berkshire Hathaway. Melanie Giglio came over from Jameson Sotheby’s. And Eudice Fogel came from Berkshire Hathaway.

Compass then upped the ante, first acquiring the 200-agent firm Conlon Real Estate and then Hudson Company, a move that gave it a foothold in the competitive North Shore market.

In building up its local team, Compass used now-familiar tactics like offering stock options, large bonuses and 100 percent-commission deals for the first year. Reffkin, like he has been in other cities, was heavily involved in the pitches to agents, sources said.

“Initially, I was impressed with their sales pitch to agents,” said one broker at a Compass rival. “They did a great job of making it sound like the next can’t-miss tech stock.”

One of the city’s leading brokers described the courtship, saying they received a call from the brass and discussed the firm’s investment in artificial intelligence and a new customer-relationship-management platform.

But the pitch was heavy on technology and light on local market specifics, another agent said.

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“It seemed like a lot of fluff,” the agent said. Real estate “is not like buying something on Amazon. It’s about relationships.”


While Compass says it’s on its way to being the leading brokerage in the city, not everyone is convinced it will have the impact it hopes to. Others say that even if it’s caused firms to lose talent and business, its arrival could be a net positive for the industry.

That’s because, in fretting about the new, deep-pocketed boogeyman, competitors have been forced to take a hard look at their own operations and strategy. It has also forced brokerages to invest and nurture their own talent to avoid a poaching frenzy, sources said.

“I think you naturally get nervous when you see a company with an unlimited bank account,” said Matt Laricy, a partner at Americorp Real Estate and one of the city’s top-producing brokers. “Maybe it was a needed hype, to have brokerages recreate the wheel a little bit.”

The poaching caused something of a panic among brokerages, sources said. In response, some offered key talent better splits and amenities.

“Initially, I was impressed with some of the agents they got to go over,” one broker said. “I think it will help top brokers like myself who are getting better deals to stay.”

Of the local competitors, @properties was the brokerage that came out swinging the hardest against Compass. The firm put up a billboard near Compass’ temporary Lakeview offices cautioning locals not to “ask for directions from a tourist.”

In April, @properties sold an unspecified portion of its company to Virginia-based private equity firm Quad-C Partners. At the time, @properties co-founders Michael Golden and Thad Wong said the deal will help the brokerage “accelerate and expand” its rollout of new technology and marketing tools for agents.

Bringing in the private-equity money was at least partly a response to Compass, three sources said.

“I have to assume they’re trying to keep the talent they have,” one said.

Whatever the motivation for the move, @properties was able to retain most of its stars. Of Compass’ top 15 producing agents in Chicago, none came from @properties, according to a TRD review of market data. The most high-profile defection from the firm was Heather Gustafson, who now heads Compass’ development division.

“I had a feeling they would make a splash,” Laricy said of Compass. “The question is how the older brokers are going to step up their game. It’s forcing these older companies to sort of rethink what they’re doing.”

Blinders on

After the $400 million round led by SoftBank and Qatar Investment Authority in September, Compass’ valuation soared to $4.4 billion, dwarfing the valuation of similarly sized firms like Douglas Elliman. When Douglas Elliman CEO Dottie Herman sold her 29 percent stake in the brokerage for just $40 million to her partner Howard Lorber in December, sources felt the numbers reflected the challenges the industry is going through. (Others, however, felt Herman sold at a below-market price.)

Can Compass can keep up the torrid pace? In an email to employees that leaked to the press, Reffkin told staff that Compass sold $35 billion in real estate last year, an increase from $15 billion sold in 2017. But he acknowledged it “fell short” in some areas.

There was the failed launch of Powered by Compass, a software-licensing venture that was scrapped after complaints from Compass’ own agents. And there was the rocky acquisition of California’s Pacific Union.

The industry is also staring at one of the softest housing markets in years. Couple that with advances in technology and an increased ability to cut out the middleman, and brokerages have a lot to think about.

In March, Compass agents will move into a new Lincoln Park office, which will become the firm’s local headquarters. It also plans to open an Arlington Heights office.

“We have a long way to go,” Rohn said. “The future is all about growth.”

In entering the Lincoln Park market, Compass is directly competing in a number of local competitors’ strongholds. But Rohn said the firm doesn’t spend much time thinking about that.

“We feel like there is enough to do,” she said. “Competition is healthy and good. We learn from them every day.”