Real Estate Brokerage Compass Plans a 2021 IPO — What We Know

There certainly hasn’t been a shortage of real estate companies going public lately, and it doesn’t look like the trend is coming to an end anytime soon. We recently learned real estate brokerage startup Compass has filed paperwork with the SEC indicating it could pursue an IPO in the near future.

Compass confidentially filed its S-1 registration statement, so there’s quite a bit we don’t know, but here’s a quick overview of what Compass does, what we know so far about its IPO plans, and what investors should keep in mind.

What does Compass do?

Compass is a real estate brokerage that operates a tech-focused platform. The general idea is that the platform leverages technology to make the homebuying and selling processes as efficient as possible for all parties involved. The company has more than 17,000 real estate agents across the United States and is the largest independent real estate brokerage in the nation.

The company was founded in 2012 by Ori Allon and Robert Reffkin, who currently serves as Compass’s CEO. Compass agents tend to specialize in higher-priced homes in expensive markets. As I write this, the cheapest of the seven featured listings on Compass’ homepage is $1.25 million.

Compass is backed by some pretty serious investors, including the SoftBank Vision Fund (OTCMKTS: SFTBY), Founders Fund, and Fidelity Investments (NYSE: FNF).

What we know about Compass’ IPO plans so far

The short answer is that we don’t know much yet, other than the company is apparently planning to pursue an IPO through the traditional route (as opposed to merging with a special purpose acquisition company, or SPAC, like many other companies are doing). Because the company’s S-1 was filed confidentially, we don’t have information like Compass’ growth, profitability, as well as other information investors and analysts could use to value the company.

We do know a few things about the business, however. Compass agents participated in $91.2 billion in home sales in 2019, double the year before. And we knew before this filing that Compass was planning to go public, as the company hired investment banks to underwrite its potential IPO in November 2020, and CEO Robert Reffkin sent a memo to Compass agents in December, emphasizing that an IPO would allow the company to raise more capital and build out its agent tools even more.

We also have no idea when the company plans to go public, how many shares it will sell in its IPO, or the company’s valuation. However, we do know that the last time Compass raised capital, it had a valuation of about $6.4 billion, so given the current IPO market, it’s safe to assume its public valuation could be significantly higher.

One important thing for investors to keep in mind

With Compass joining several other high-profile real estate companies that have gone public recently or plan to do so in the near future, it’s important to keep one thing in mind: 2020 was a very good year to be in the residential real estate business. A combination of record low mortgage rates and rising home prices led to record earnings for many brokerages and mortgage lenders — one big reason we’re seeing so many of them going public now. In fact, mortgage lender loanDepot, which recently filed its registration paperwork, reported its origination volume through the first nine months of 2020 increased by 116% compared with the same period in 2019.

Simply put, growth numbers like this aren’t sustainable. That’s not to say Compass or any other upcoming real estate IPOs aren’t worth buying, but when you see the recent growth figures, take them with a big grain of salt.