When word spread last week of Compass’ acquisition of @propeties Christie’s International Real Estate, the city’s largest brokerage by dollar volume, their competitors were quick to look in the mirror and analyze what this would mean for their own companies.
Discussions rapidly took place about how they could shift strategy and branding to take advantage of the combination — as well as its ultimate impact on what many consider a beloved homegrown hallmark of local business in @properties.
Compass has been Chicago’s second-largest brokerage for several years, meaning the combined firm will hold the lion’s share of the market.
“We’ll leverage anything at our disposal to reach the consumer, and so it’s exciting to me because the company that I am with right now — the differentiation is even more clear,” Baird & Warner executive Laura Ellis said.
Baird & Warner’s identity as a top firm that was “born and bred in Chicago” and has remained independently owned is a more unique selling point now, she said.
“It definitely is a shifting of the competitive landscape from agents’ perspectives, and there’s just a lot of unknown right now,” Ellis said.
Like Chicago dealmakers, brokerage executives were surprised by the announcement last week, and celebrated the success of @properties co-founders Thad Wong and Mike Golden in building a business worth $444 million — the valuation of the deal. The acquisition is considered to be beneficial for all parties involved, with one expert calling it “the deal of the decade for real estate.”
With this acquisition, “they created an even bigger company. And I feel that agents who appreciate that would like that, and then agents who are looking for something smaller will find a lot of other options,” Dream Town Real Estate CEO Yuval Degani said.
Some @properties brokers are already considering other options.
Baird & Warner is not looking to stoke the flames of brokers’ uncertainty about the merger as they want to be “empathetic” to agents, Ellis said. But they have gotten calls from some who are grappling with whether they want to move their business elsewhere, she said.
“We are receiving some calls from people at (@properties) saying, ‘I’m not sure how I’m going to be able to differentiate myself,’” Ellis said. “A lot of people really care about that ‘shop local’ idea. Unfortunately, when companies get to that massive size, they’re looked at a little bit more like a big-box store.
“I’m not against big box stores, necessarily,” she added. “But real estate is lifestyle, and it’s personal, and it’s community-based. So it’s going to be a real shift for the @properties agents with regard to their identity.”
Asked about how @properties is supporting brokers to quell such uneasiness around potential brand shifts, Wong said, “it has never been our mindset to play defense.”
“Exceptional agents are attracted to us because we provide the culture, resources and training to support them in their pursuit of excellence,” Wong said. “Our entire focus is on creating the strongest value proposition and differentiation for our agents and clients, so that the @properties and Christie’s International Real Estate brands can compete against any brand in any market and win.”
The acquisition does not mean that the firm’s identity or culture will change, Wong said.
“Innovation, culture, thoughtful leadership, a strong work ethic, and love have defined our brand and made it a local icon for 25 years,” he said in a statement Tuesday. “We will continue to have our own unique identity, essence and soul.”
@properties will continue to operate as a “separate business unit” and its co-founders, Golden and Wong, will stay on as co-CEOs of the brand, a Compass spokesperson said Tuesday.
Whether this arrangement will stand the test of time, however, is another matter.
“That’s often what’s said in the beginning,” Ellis said. “I’m not trying to say I know what Compass and @properties’ plans are ultimately, but it’s hard to imagine that they won’t be looking for efficiencies and, at some point, to combine the brand.”
Berkshire Hathaway HomeServices’ acquisition of “iconic” Chicago firms like Koenig & Strey and Rubloff Company are examples of that, she said. When that deal closed 10 years ago, the re-branded brokerage name was originally Berkshire Hathaway HomeServices KoenigRubloff Realty Group, yet was changed thereafter and is now consolidated into what is known as BHHS Chicago.
“Sometimes when you look at a merger, you wonder if that means we just lost one competitor because now they just became the same name,” said David Bracy, managing broker of BHHS Chicago’s Michigan Avenue office. “But no one knows whether that’s going to be how it plays out or not.”
Private equity’s haul
The @properties acquisition wasn’t entirely unprecedented.
Private equity firms like Quad-C Partners, which bought majority ownership in @properties in 2018, typically want to see a return on their investment in about five years, Ellis said. With Quad-C’s capital, @properties was able to begin expanding nationally and purchase Christie’s International Real Estate.
“The private equity company, being an investor, is looking to liquidate at some point,” Ellis said. “When @properties took that partner on a few years ago, many people in the industry speculated that at some point in the near future @properties would be sold.”
REAL Trends Consulting President Steve Murray was involved in the 2018 deal, as his firm performs valuations of brokerages to assist in such transactions.
“You could calculate that Quad C owned in the ballpark of 80 percent,” Murray said of the deal.
That means Quad C likely had a large amount of sway when it came to the decision to sell to Compass and will likely reap a large amount of the payout.
Acquisitions and mergers of large corporations have become increasingly common across various industries, Murray said.
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“On the horizon, three, four years from now, you’ll find that in most major markets, there will be three to five firms that have 60 to 75 percent market share. Because the cost of running a brokerage is extraordinary,” he said. “And so either you have to be very small, very niche, focused, or you have to be very large. There’s not a lot of room in between.”