Editor’s note: Clawbacks, SPAC attacks … and Barney

Feb.February 18, 2021 12:00 PM

Stuart Elliott

Compass brokers vomiting over clauses in their contract. The “Barney” theme song being used to torture homeless people. A SPAC-backed company being valued at 86 times its revenue.

This month’s magazine shows there is a lot more going on than coronavirus and presidential politics.

Our cover story looks at Compass, which has quickly become the nation’s third-largest brokerage and is about to go public. The company has touted agent retention as a key part of its rise, but less noticed are the onerous clawbacks in its contracts — where brokers have to pay back bonuses and other incentives they have already received if they decide to leave.

As E.B. Solomont and Erin Hudson report, one agent was recruited with a big bonus and lavish perks. But 12 months into a three-year contract, the agent wants to depart, frustrated by a perceived lack of support from the firm. “It won’t be easy to leave,” the story explains: The agent has calculated the cost of departing at $400,000.

While other brokerages have clawbacks, the issue is more pronounced at Compass thanks to its recruiting push in recent years. Some agents who missed the fine print have become emotionally distressed on realizing what they owe when they leave. “One agent broke down crying; another vomited,” the reporters write. 

Meanwhile, amid a booming stock market, special-purpose acquisition companies, or SPACs, have seen tons of activity. The so-called “blank check” firms — some backed by real estate names including Tishman Speyer and CBRE — raise money and then decide what companies to take public. A big focus has been proptech, and SPACs have taken such startups as Opendoor and home-services firm Porch.com the IPO route, with Latch (smart locks) and Matterport (3D software for virtual property tours) next.

But the sheer number of SPACs chasing deals — and the spate of investors putting in money into funds with no knowledge of which companies they will own — raises the specter of a bubble. Indeed, Latch’s $1.5 billion deal was more than 86 times its estimated net revenue, an astronomical multiple and a possible warning sign. See another must-read story by Solomont.

 Not everyone is trying to go public. Brookfield Property Partners, one of the world’s largest commercial real estate investors, plans to go private. “It’s a chance to reconfigure its extensive mall portfolio, which has been walloped by the pandemic,” Keith Larsen writes. And it would spare Brookfield from questions about its accounting method, which differs from that of most U.S. firms. Brookfield, for its part, claims it is being undervalued by the public markets.

Elsewhere, we examine what a post-Covid reckoning will look like, including for tenants behind on rent. As Georgia Kromrei writes, “Eviction bans and the weakening of the rental market have made landlords less inclined to play hardball when tenants miss payments or skip out on leases.” But renters collectively owe landlords $57 billion in missed payments, and 18 percent of U.S. renters are in arrears. Who foots the bill when the pandemic is over? Separately, what happens to the office market if WFH continues to predominate?

No doubt you were waiting to read about that purple dinosaur by the name of Barney. Well, in Los Angeles, landlord Jerico Development played the “Barney & Friends” theme song on an endless loop in an attempt to roust a homeless encampment from outside one of its buildings. Jerico might have gotten the idea from the CIA, which used the song in Guantanamo Bay to break the spirits of detainees (no joke). The landlord apologized, and the refrain “I love you, You love me, We’re a happy family” was heard no longer.

Enjoy the issue.


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