An online real estate platform that launched in 2012 with the stated goal of “simplifying the real estate process, one market at a time,” was, at one point quite recently, expecting to receive a valuation of around $10 billion when it went public on the New York Stock Exchange. The company had already raised $1.5 billion from investors, including Softbank, Goldman Sachs, and the investment board of Canada’s Pension Plan. Softbank backs the online real estate platform, and Goldman Sachs, Morgan Stanley, and Barclays are serving as the lead underwriters for the IPO.
Since the company opened its “doors” in 2012, it has done more than $300 billion in gross transaction volume through the online real estate platform. Federal regulators approved the IPO in late March, and Compass rattled some investors when it downsized the offering just hours before the projected start of the share sale. The company announced it would seek $475 million via an offering of 25 million shares at $18 to $19 a share rather than the targeted $936 million announced in earlier marketing. The former amount would have required shares to be priced between $23 and $26 each, and the company could still get near the much-touted $10-billion valuation, although it is more likely to end up with a valuation around $9.5 billion.
According to Compass, investors should not view the platform as a traditional real estate brokerage. Thanks to $152 billion in residential real estate transactions last year (about 4 percent of the U.S. market), it appeared that many would agree that the brokerage should be treated as a tech company. Compass has poured large amounts of capital into artificial intelligence, marketing materials, and communications systems designed to enable agent users to reach clients more easily, work with clients more effectively, and, ultimately, save all parties a great deal of time while providing better, more efficient and productive service. 2020’s transaction numbers in the system would seem to support the argument that Compass is much more than just a brokerage, but this could also be due to the restrictive environment in which many home-buyers and -sellers spent 2021. If the “return to normal” includes more traditional home-selling procedures, Compass could face difficulties, at least in the short-term, convincing investors that it can compete with in-person real estate.
Real estate investors and other real estate professionals should watch the progress of this IPO closely and track Compass share values over the next 12-24 months. Their performance could provide insight and even early indications of how COVID-19 will permanently change how real estate is transacted – and what you need to do in order to be competitive in a post-pandemic world.