Compass COMP, + 1.76%, the residential real estate brokerage, went public on Thursday, at a time when both the IPO and the real estate markets are at a crossroads. Before its debut, Compass lowered its target price range and slashed the number of shares sold by nearly a third to 25 million. The company set its initial public offering in the lower end of its target range, at $ 18, but the stock rose as much as 23% after its debut.
It closed at $ 20.15, which was 11.9% above the $ 18 IPO price. Compass CEO Robert Reffkin compares the company to Shopify. “If you are a merchant, you can go to Shopify and meet all your needs in one place,” Reffkin told MarketWatch. “[Real-estate] agents deserve the same, and Compass is the only company that believes that. ”However, some analysts were skeptical about the attractiveness of the company to investors before its IPO. New Constructs analysts argued that Compass is not very different from competitors like Realogy and that its success comes from having “access to large amounts of capital from SoftBank that allows it to burn more cash than its competitors.” Prior to its IPO, Compass had attracted more than $ 1 billion in backing. venture capital, including support from SoftBank. The company offers a more generous split for real estate agent commissions than some of its competitors, The Wall Street Journal previously reported. Compass’s IPO comes amid growing skepticism relative to the strength of the IPO market.While Compass shares exploded, other companies that went public this week were less year-old. rtuned, including Frontier Group Holdings ULCC, -0.79% and Deliveroo ROO, -1.90%. So far, 10 companies have chosen to postpone their listing this year. But the brokerage is also going public at a critical time for the nation’s housing market. Like other real estate businesses, Compass has benefited from the COVID-driven real estate boom. The company has nearly 19,400 real estate agents who sold approximately $ 152 billion in residential properties last year. Many Americans rushed to buy homes last year to take advantage of historically low interest rates and secure more space in the new era of remote work. With the inventory of homes for sale already limited and some sellers reluctant to move amid a global pandemic, competition for properties is fierce. Now, home prices have risen at the fastest pace since the Great Recession and mortgage rates are rising again, a challenging combination for prospective home buyers. MarketWatch spoke with the CEO of Compass about the health of the housing market and the timing of the company’s public offering. The following interview has been edited for length and clarity. MarketWatch: The timing of this IPO is remarkable, both in terms of what we’ve seen in IPOs in recent months and how hot the real estate market is. Did you do the IPO in light of the performance of both markets? Robert Reffkin: The IPO was primarily driven by the team and the results. We wanted to wait until we had the right equipment and the right results. I think the results speak for themselves. The average agent grows their business 19% after their first year with Compass. We have better results for your clients. We sell homes in 21% fewer days on the market than our peers, and because of those results, we have industry-leading agent retention. We have retained our agents in excess of 90% every year that we have existed. These are some of the key results and outcomes that tell investors that we are building the future of real estate. MarketWatch: What have you been hearing from your agents in terms of the state of the housing market right now? Reffkin: He’s busier than ever. There was only one market that struggled last year, New York City, and now it’s back. There were record sales in New York for several weeks in a row. And from a country perspective, what COVID has done is create a permanent shift in the demand curve. This is what I mean: everyone now wants more space, more indoor space, more outdoor space, more space for private offices, more space for a second home, and it’s not going away because people now have the flexibility to work. from home. They won’t be mandated to work from home forever, but if they have the flexibility, they will take advantage of it. Therefore, having a private office is more important. And then in terms of second homes, not all homes have to be in the Hamptons or Santa Barbara. You can have a nice second home and a place like Raleigh, North Carolina, Nashville, or Austin where it’s getting a lot cheaper. You could work there three months a year. That opens up a whole new world, and then you can rent it on Airbnb when you’re not there. It creates a whole new world of opportunity and it will take years to meet that demand. MarketWatch: One of the challenges in today’s real estate market is the limited supply of homes for sale. How does that create problems for your company’s agents? Are they losing business that they might otherwise get if there were more homes for everyone? Reffkin: Historically, there are very, very low interest rates. If anything, at this level it creates urgency and buyers want to get in before interest rates continue to rise. In inventory, as prices go up and up, more are sold in the unlisted market, where people can take advantage of the prices they can get right now. That is why you need a good real estate agent. Good real estate agents can create inventory that is not publicly available. We have many tools in Compass to help you do that. An example is our Sell Probability tool, where we are likely to sell scores. Any agent in your company’s CRM can rate all of your customers on how likely they are to sell using a wealth of proprietary data, as well as mortgage record data, list data, and census data. That helps our agents identify the people in their sphere of influence who are likely to sell to create inventory. When they reach people who are likely to sell, they get 61% more list conversion than when someone randomly enters the CRM.