There’s a chilling scene in “Margin Call,” the tour de force about the financial crisis, where Jeremy Irons’ character, the head of a major Wall Street investment bank, approaches a key deputy, played by Demi Moore.
“Sarah, I need a head to feed to the traders on the floor,” he says. He means a sacrificial lamb, someone he can blame for the gargantuan mess the bank is in. “You’re going to be well taken care of,” he adds.
Public residential brokerages found themselves in a similar situation this year. After a giddy, record-breaking 2021 where everyone (well, almost everyone) made fat profits and executives talked up growth and diversification plans, 2022 was sobering.
Surging interest rates hobbled the housing market, and public brokerages’ tanking stocks forced their leaders to forget about growth and get expenses under control. For many, this meant taking a hard look at C-suite compensation. Formerly essential executives were now on the chopping block.
Ryan Gorman
Consider Ryan Gorman, who was pushed out this month as CEO of Coldwell Banker, a subsidiary of Anywhere Real Estate. Anywhere’s stock has fallen nearly 60 percent this year, and though it turned a sizable profit of $55 million in the third quarter, that was still half of the year-ago figure.
Gorman, a widely respected industry leader whose affiliation with Anywhere goes back nearly two decades, had made a hefty $3.5 million last year. Notably, Anywhere is not replacing him. Instead, the company is divvying up his role among other execs, saving itself a chunk of change.
Anywhere, which also owns Corcoran Group and Sotheby’s International Realty, isn’t alone in casting a gimlet eye on its C-Suite. Declaring “mission accomplished” on its tech platform, Compass let go of its chief technology officer, Joseph Sirosh, this summer, and parceled out his responsibilities to his deputies. Last month it also bid farewell to its top HR executive, Priyanka Singh, and isn’t replacing her either.
The moves come as part of wider layoffs at Compass, which hopes to cut costs by more than $300 million in 2022 as it stares down a harsh reality that no paeans to technology or to empowering agents can mask: It has lost nearly $1 billion since the beginning of 2021, and investors are losing patience.
Whose brand is it anyway?
I’m not sure if Ryan Serhant is a Bible man, but his approach to building out his eponymous firm has shades of Genesis 1:26: “Let us make human beings in our image, to be like us. They will reign over the fish in the sea, the birds in the sky, the livestock, all the wild animals on the earth, and the small animals that scurry along the ground.”
Ryan Serhant
The firm is what you get when you build a brokerage in its central protagonist’s image: The company, now just over two years old, drops a lot of the stuffy conventions of what a firm should be and instead presents itself as a hyperkinetic hybrid: content studio, digital ad agency and new development marketer.
When you open its website, there’s Serhant in all his Ken Doll glory, both the firm’s brand ambassador and its biggest rainmaker (he placed fourth in The Real Deal’s ranking of top New York agents last year).
The approach seems to be working: Serhant has closed some of the biggest deals in the country this year and is hawking some of the market’s most coveted listings, including the penthouse at Gary Barnett’s Central Park Tower, asking $250 million.
I’m not sure if Ryan Serhant is a Bible man, but his approach to building out his eponymous firm has shades of Genesis 1:26:
He’s using his social reach and star power to strike far outside his New York base, a bet that when it comes to selling the priciest real estate, name recognition and media savvy trump years of boots on the ground.
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The Alexander brothers, too, decided to venture out, departing Douglas Elliman in June to launch Official. They opted for the white-label approach, partnering with Guy Gal’s Side, a venture-backed startup positioning itself as a “you sell, we do everything else” service for top agents.
Tal and Oren Alexander
It was a big blow for Elliman — the brothers claim they accounted for 3.5 percent of Elliman’s business in 2021 — and a move that I predicted would push other top agents to ask themselves whether in the social media age they still needed the umbrella of a large firm.
Gal enjoys being a provocateur. He told me in June that he simply couldn’t understand why top agents were OK with standard commission rates. Side takes 10 percent of agent commissions, considerably lower than the 25 to 40 percent common at top New York firms.
“How are agents supposed to invest in their growth and service when they carry all the cost and risk, do all the work, and still give a quarter of their income to a company in exchange for a logo?” he said. “Wild.”
Meanwhile, in Los Angeles, Aaron Kirman, who ran a megateam at Compass that was the city’s top team by on-market deals last year, also left to do his own thing. Kirman, though, isn’t just betting on himself, but partnering with Christie’s International Real Estate, which Chicago-based @properties bought last year in a bid to leverage the venerated but dusty brand, tying up with prominent agents across markets.
“If you don’t have a brand that’s associated immediately with luxury, it makes it really difficult” to expand nationally, Thad Wong, co-founder of @properties, told me. “Because in real estate, you’d rather trickle down than trickle up.”
Not all name-brand agents, though, decided to leave the nest. Some expanded their kingdoms without giving up the big-firm infrastructure. Fredrik Eklund, for now, seems content in his Elliman cocoon, and continues to build out a mega-team across the country while peddling sex drinks on the side.
Innovation doesn’t pay the bills
This year also saw the capitulation, for the most part, of iBuyers, who thought algorithmically driven instant homebuying would revolutionize the process. The pitch was: Want to sell your home? We’ll use machine learning to make a fair, instant offer and guarantee a quick closing, in exchange for fees of between 6 and 10 percent.
The prospect was mouth-watering to venture capitalists. U.S. residential real estate “is the largest peer-to-peer market on earth,” Brendan Wallace of Fifth Wall, an early investor in iBuying pioneer Opendoor, told me in 2020. “It’s a gigantic eBay for homes.”
Zillow CEO Rich Barton
Zillow and Redfin also got in on the act, with Zillow CEO Rich Barton going as far as to call iBuying an “existential threat” to his business and saying that Zillow risked becoming obsolete if didn’t get with the program.
Then, reality hit: Zillow lost $900 million on iBuying and quit the game late last year as its stock took a beating. Last month, Redfin followed suit. Opendoor and Offerpad are still standing, but look out on their feet.
Vyacheslav Datsik finishes Big Foot in the 2nd round. Silva looked out on his feet pic.twitter.com/yAYSQwxJiK
— Matysek (@Matysek88) July 8, 2022
Offerpad was threatened with delisting by the NYSE in November, and its market cap is down to $129 million from $2.7 billion when it went public in September 2021. Opendoor’s market cap has fallen below $1 billion from a high of $18 billion. Its stock has plummeted 90 percent this year. Co-founder Eric Wu is out as CEO, and bean counter Carrie Wheeler has taken over.
“The path to profitability was supposed to be going to scale, adjacent services, improving unit economics,” residential tech analyst Mike DelPrete told me. “I think it’s fair to say those really haven’t panned out yet.”
Agents, as you can imagine, are pretty happy with how things have turned out. iBuying, after all, was supposed to replace them.
Lead-gen firms fizzle
Lead-generation firms promised to be a wake-up call for traditional brokerages. Instead, they became dinner.
Rather than shell out generous commission splits and signing bonuses to recruit big agents, companies such as LG Fairmont, TripleMint and Elegran Real Estate sought to build agents from the ground up, buying leads all over the internet and using technology to organize and deploy them.
Aaron Graf
“When we get to scale, we should be more profitable than a traditional firm,” LG Fairmont co-founder Aaron Graf told TRD in 2017.
But this year’s market proved too much. In July, LG Fairmont was absorbed — not purchased, mind you — by Compass, with its 60 agents moving over to the larger brokerage. Compass and LG Fairmont described the deal as a merger, but sources told me it was more a way for LG Fairmont to save face while keeping the lights on.
Triplemint met a similar fate. In 2021, a roaring year for the luxury market, the firm closed just $189 million in sell-side deals in Manhattan’s, according to TRD’s ranking. This May it was acquired by The Agency for an undisclosed price, and its brand was folded into the Beverly Hills-based firm. Triplemint had raised $20 million in venture funding, according to PitchBook. It’s unclear how its early investors made out.
Lead-generation firms promised to be a wake-up call for traditional brokerages. Instead, they became dinner.
Meanwhile, Elegran, which TRD found in 2019 to be at the center of a bizarre fake-website scheme, is still around. In September, it struck a deal to have exclusive New York representation for Forbes Global Properties, a joint venture between Hilton & Hyland founder Jeff Hyland and former Christie’s real estate CEO Bonnie Stone Sellers.
(Hilton & Hyland went through its own major changes after Hyland died earlier this year; his widow, Lori Hyland, bought out co-founder Rick Hilton’s stake to take full control, and Rick is forming a new firm with his son. The name, of course, is Hilton & Hilton.)
Cryptocracy crumbles
Sam Bankman-Fried (Getty, Internet Archive)
It was the best of times, it was the shortest of times. The rise of crypto led to the emergence of a buyer pool that made so much money so quickly that it became a boon for developers, particularly in crypto hubs Miami, New York and Los Angeles.
Then came the November collapse of Sam Bankman-Fried’s FTX, the second-largest cryptocurrency exchange. Its rapid and spectacular demise rocked the industry and is being called “crypto’s Lehman moment.” It remains unclear how developers will untangle any in-process crypto deals being processed through FTX. And cryptonaires who held much of their net worth in digital currencies may find they no longer have the budget for real-world real estate; Kirman, the L.A. agent, told me he had received calls from owners of trophy homes who were “in a jam” thanks to the crypto meltdown.
Metaverse turns to dust
Decentraland
When Tokens.com paid a record $2.5 million for property in virtual world Decentraland in November 2021, the CEO of Tokens.com, Andrew Kiguel, likened it to “buying land in Manhattan 250 years ago.”
Turns out, it was more like buying tulip bulbs in 1636. After a burst of activity in metaverse real estate late last year, triggered in part by Facebook’s rebrand as Meta and its giant bet on the metaverse, everything stopped. The Information, citing data from analytics firm WeMeta, reported that as of June, trading volume for land on six platforms, including The Sandbox, Decentraland and SuperWorld, had dropped 97 percent to just $8 million from a peak of $229 million in November. The number of sales fell to 2,000 from 16,000.
“The metaverse had so much hype at the beginning of the year and we’ve kind of lost it,” Eric Klein, founder of MetaSpace REIT, told the outlet. Billionaire investor Mark Cuban was slightly less charitable. This summer, in a rant against the sector, he called it the “dumbest shit ever.”