2022 – Subscription number: Why did real estate companies stop offering their shares for public subscription?

These include MainThe Scottsdale, Arizona brokerage firm, which released its financial statements in January, and Keeler Williams Realty, which has always faced rumors of an initial public offering, or at least for the past five years. Messages left on HomeSmart are not returned. Keeler Williams declined to comment.

According to industry experts, there are two reasons to stay private. The first is that people don’t like where the economy is going.

said Thomas McGuinte, equity analyst at Keefe and Pruitt Woods Focusing on real estate and mortgage companies.

However, there is another reason, which is the waning enthusiasm of investors and underwriters for an IPO, where a company can turn the poorly fragmented residential real estate industry upside down.

“For many years, everyone thought the brokerage was ready for a big change,” said Jill Duranton, a professor of real estate at the University of Pennsylvania. New projects tried to disable it in various ways. But no one has really managed to make a huge impact.”

see red

The latest wave of brokers’ IPOs started in 2017 with Redfin. With a popular listing website, employee agents, and eventually iBuying, the Seattle-based company fits the idea of ​​a technologically advanced company that can turn things around.

CEO Glenn Kellman described his company as “Amazon of Real Estate,” a one-stop shop for everything related to life. “We can’t just reinvent half of it,” Kellman explained at the time of the company’s initial public offering.

after one year, eXp RealtyA brokerage firm known for its virtual platform and multi-level marketing plan has moved from a Canadian OTC stock exchange Nasdaq.

Then, a year after the outbreak of COVID-19 in the US, Compass, a brokerage that touted its technology as a benefit to real estate agents, Offerpad, Opendoor, iBuyers, and also registered brokerage firms, went public. These companies debuted on Wall Street amid the highest home valuations and home sales in 15 years.

“The 18-month period after COVID has provided an excellent window for any company that relies on volume of real estate transactions to obtain attractive opening valuations,” McGuint said.

But these reviews have receded. The compass, for example, first appeared in New York Stock Exchange It is trading at $19 per share with a valuation of $8 billion. The company’s stock is currently trading at just over $5 with a market capitalization of just over $2 billion.

Redfin stock has seen a lot of ups and downs. Shares of the company started trading at $22 per share in 2017 and rose to a share price of $76 this past February. But today, Redfin’s stock is just over $9, with a valuation of just over $1 billion.

The stock price was not correlated with Redfin’s sales or bottom line earnings. Redfin lost $91 million in the first quarter of 2022, compared to $36 million in the first quarter of 2021. But the company’s revenue more than doubled to $597 million. The increased revenue but increased losses are due to an internal increase through iBuying.

What’s up with the stock price? The company, which declined to comment, has generally linked its fluctuations to investors’ general ideas about real estate, rather than anything specific to Redfin. In other words, the overall background.

“With mortgage rates rising, Wall Street expects home sales to fall, so it’s lowering its earnings outlook for everyone,” said Steve Murray, senior advisor at RealTrends.

There may also be some investor frustration with Redfin and other real estate firms, said Jay Ritter, a University of Florida professor of economics who focuses on stock market activity.

“Redfin remains a legitimate, and potentially successful, company,” Ritter said. “But a lot of this intensification has always had higher expectations for the future.”

Ritter said there is some hope among investors that Redfin, or Zelov or compass, or which company which they bet can emerge as a one-stop shop, “take advantage of some network effects and become dominant.”

But, right or wrong, investors now see no model that could disrupt the brokerage industry with dozens of well-established players in the market.

Duranton pointed to a possible exception, Compass, which has become the largest broker in terms of market share in a decade. But Compass did so after making “significant investments” and creating a brokerage model that “minimally” differs from competitors Sotheby’s International Real Estate or Douglas Elleman.

“Investors are finally realizing that whether or not these IT companies are rapidly increasing their returns, there is no path to profitability for some or most of them,” Murray said.

Let’s keep this private

Earlier this month, Rainy Hake Austin was excitedly planning ahead. your mediation, agencyThat has grown significantly since Austin took office in late 2020, had just announced its acquisition of New York Brokerage. Triple Mint.

“We’re going to build from coast to center,” Austin said of the agency’s statewide plans.

What about public appearances?

“That’s a possibility,” Austin replied. “But that’s not the only option.” Then the CEO went on to talk about the initial development of the mortgage agency, property and other ancillary services.

Side is also planning to see how much it can grow before it goes public, according to company employees, who spoke on condition of anonymity.

What’s less clear is the future of HomeSmart, which on Jan. 7 S-1 filed its first corporate filing statement before it went public. According to this statement, HomeSmart . has maintained JP Morgan And the Bank of America Securities Among other things, to subscribe for shares. HomeSmart has declared itself “a revolutionary real estate company powered by our comprehensive technology platform,” according to S-1.

The company made no other filings other than the revised S-1.

Meanwhile, Keeler-Williams faced constant calls to advertise the company, especially after the holding company was formed. kilowatt In October 2020.

“We know what HomeSmart was trying to do, and we heard that Side was planning something,” Murray said. “Aside from rumors that Keeler Williams is planning to do something, whether it’s an IPO, a private sale or SPAC, we don’t know of anyone considering that.”