Some big name investors are pushing a startup’s valuations to astronomical heights as the company bets homebuyers want real-time real estate data.
Compass is a 2 year-old New York-based company that bills itself as a “technology-driven real estate platform.” And when it comes to technology, it has an impressive pedigree. Co-founder Ori Allon is a computer scientist who sold his “Orion” search technology to Google (GOOG, GOOGL) in 2006 and then sold another startup, Julpan, to Twitter (TWTR) in 2010.
So when Allon joined up with former Goldman Sachs (GS) senior banker Robert Reffkin to start what was originally called Urban Compass to bring smarter search technology to the real estate business, some boldfaced names in both real estate and tech were quick to open their checkbooks. Investors include Oracle’s (ORCL) Larry Ellison, Salesforce.com’s (CRM) Marc Benioff, Reffkin’s old employer Goldman Sachs, and real estate developer Jared Kushner, better known these days as Donald Trump’s son-in-law.
Data compiled by CrunchBase show that Compass has raised $123 million and is valued at $800 million. That’s more than 11 times that of the Corcoran Group’s sale price to National Realty Trust a decade and a half ago. The star of ABC’s “Shark Tank”, Barbara Corcoran, sold her company to what is now Realogy (RLGY) for an estimated $70 million.
According to Compass president Leonard Steinberg, the current boom in the real estate market is a reason why his company is priced the way it is. “Well maybe Barbara sells cheap,” said Steinberg. “Some people feel the valuation is bloated, but if you look at the value of Corcoran today as opposed to the time when Barbara Corcoran was selling, the prices of real estate were radically different. We are in multiple markets. And I think the quality of what we are doing, not only in the technology but how we are infusing a better level of quality in the agents, is going to be a revolution for the real estate world.”
When contacted by Yahoo Finance, Corcoran offered her own perspective on Corcoran’s valuations. “When I sold Corcoran in 2001 everyone in the industry thought I was overpaid! Not me,” she said to Yahoo Finance in an email. “I was totally thrilled with what I thought was a fair price. It was by far the highest valuation in the real estate industry at that time.”
“Leonard is a great guy and has always worked so hard that I hope he does very well going forward!” Corcoran added.
The Corcoran Group sued Compass in March for poaching several dozens of its agents. At one point, the New York Supreme Court issued a temporary restraining order to prevent Compass from taking more of Corcoran’s agents.
Compass is now dipping into its data-driven roots image by releasing a new app for its potential and current customers as well as its brokers.
This app, called Compass Markets, promises real estate buyers the real-time data on property transactions similar to what securities investors expect on stocks or bonds. It’s an aggressive approach in an industry known for its lack of transparency, special situations deals, and delayed transaction reporting. So far, the app only covers New York City.
Steinberg is confident the time has come for Compass Markets’ real-time information. “The reality is that traditional quarterly reporting is terrible,” said Steinberg. “If you were to buy Apple (AAPL) stock today and you were given quarterly assessment of pricing, you would laugh at me. You’d want to know what Apple was trading for today. So the fact that this is in real time is a revolution in the real estate industry.”
One person not convinced is Jonathan Miller, president of the appraisal company Miller Samuel and preparer of the New York real estate quarterly reports for Steinberg’s old employer, Douglas Elliman.
“They are presenting closed data which lags contracts by an average of 60 days,” said Miller.
And while Steinberg calls the use of market averages in real estate “hideous”, Miller defends them, noting that certain property types don’t trade regularly.
“For the past 3 years, there has been an average of one, 4-bedroom condo sale in Chelsea per month,” said Miller. “There were periods with no such sales in 3 months. The only way the app can provide information to a buyer looking at that market is to place the data in a moving average which typically would be anywhere from 60 to 180 days.”
Steinberg maintains however that Compass will carry the day with apps like Compass Markets.
“The Web has really exposed to the world just how much information is out there and it keeps improving,” he said. “We aren’t quite there yet but Compass is at the forefront of really pushing this so that the data the consumers and the agents have is really accurate and meaningful.”
For the moment at least, judging by its valuation, the markets seem to be buying Steinberg’s story.
http://finance.yahoo.com/news/does-the-real-estate-market-need-real-time-data-202949952.html#Barbara Corcoran, Compass, Compass Markets, Corcoran Group, Jared Kushner, Ori Allon, property transactions, real estate market, startup valuations