These resi brokerages are expanding

In a down market, a few residential brokerages are hustling to carve out new territory.

Compass has expanded into Arizona, Douglas Elliman has its eyes set to the West and Southeast, and Serhant recently expanded into six East Coast markets.

Expansion at a time of historically slow sales and low inventory seems counterintuitive, but it can give firms a leg up when the next bull market happens. It also capitalizes on brokers’ being more enticed by signing bonuses when their incomes have fallen.

Brokerages that racked up profits before the market slump were best positioned to be aggressive. But even Compass, which lost more than $600 million last year and paused growth as it sought to trim more than $300 million in costs, has gotten in on the action. The firm announced Thursday an expansion into Scottsdale, Arizona, with the acquisition of a 300-agent firm — with zero money down. On Monday it said it picked up a 15-agent Catskills brokerage.

Compass previously paused expansions and acquisitions because the up-front expense threatened its stated goal of becoming cash-flow-positive by June. A Compass executive said it bought Scottsdale’s Launch Real Estate in a deferred, all-equity deal.

“It’s a signal to the world that Compass is expanding again,” said Rory Golod, Compass senior vice president of growth and communications. The firm believes adding agents will benefit the bottom line if done cost-efficiently.

Meanwhile, Douglas Elliman’s limited exposure to the downswing has allowed it to be among the most aggressive brokerages. Elliman’s $5.6 million net loss last year pales in comparison to the red ink at rivals Anywhere Real Estate and Compass. Its most recent investor presentation shows that it eked out a $10 million operating cost reduction over the past three years and that commission splits have tilted in its favor over the past year.

The brokerage first expanded into Las Vegas in May. Though the market was still strong, the Federal Reserve had started raising interest rates and other firms were already bracing for consequences. Undeterred, Elliman doubled down on expansion in November, near the bottom of the market, by launching three offices in Washington, D.C.

“We’re opening in markets in a slightly different way than those that just go out and buy other companies,” Elliman chairman Howard Lorber said on his company’s third-quarter earnings call.

Elliman plans to expand to Arizona, Utah, North Carolina and South Carolina this year. That sets up a showdown with Serhant, which beat Elliman to the punch in the Carolinas with an aggressive move of its own last month down the Eastern Seaboard.

Serhant opened offices in Florida, North Carolina, South Carolina, New Jersey, Connecticut and Pennsylvania. Rather than look west as Elliman did, Serhant opted for New York City feeder markets and luxury markets with a lot of referral traffic from the city.

CEO Ryan Serhant said the expansion was also made possible by his firm’s profitability — though that couldn’t be verified because his company is private, so Serhant doesn’t have to open his books like Elliman and Compass.

“We’ve been EBITDA-positive from day one,” he said, referring to earnings before interest, taxes, depreciation and amortization.

Corcoran, which most recently expanded to northern Italy, added eight affiliates last year, but its office count fell by 50 percent and its broker count by 1,100 because of the spectacular collapse of its oldest and biggest franchise, Corcoran Global Living.