“$200 million is no problem for Mr. Sekiguchi,” said billionaire real estate developer Takeshi Sekiguchi, speaking of himself in the third person about his investment in SRE Matrix, a discount brokerage he founded in 2014. SRE stands for “Smart Real Estate.”
A company spokesperson confirmed that Sekiguchi has poured an additional $100 million into SRE, which purportedly brings its total funding — all provided by Sekiguchi — to $200 million.
This staggering sum exceeds funding rounds by venture capital-backed firms like Redfin, Opendoor and Compass.
Funding a nationwide search site and expansion to 50 states
Takeshi Sekiguchi
SRE will use the money to launch a nationwide listing search site in early 2017 and eventually provide brokerage services in all 50 states, either directly or through partner firms, said Rob Young, executive vice president at SRE.
Sekiguchi’s latest investment comes after SRE has made some tweaks to its growth strategy, including possibly paying larger fees to cooperating brokers.
The capital ensures SRE won’t have to rely on third-party investors anytime soon and can therefore “operate freely without external pressure,” Young said.
“It’s obvious we’re not going away,” he said. “If [competitors] don’t get it now, they never will.”
Sekiguchi is prepared to plough additional truckloads of cash into the firm, “as much as $100 million every two years,” according to Young.
How SRE is different
SRE is a “hybrid brokerage” that uses a combination of salaried agents and commission-only agents to purportedly provide a traditional level of service to homebuyers and homesellers at rock-bottom rates.
Drawing on Sekiguchi’s deep pockets, SRE regularly charges about a third as much as competitors.
It plans to sustain its low pricing by eventually charging vendors for advertising on a yet-to-be-built platform that provides agents and consumers with everything they need to complete a transaction.
Other Hawaii-based brokers weigh in
While SRE has spent tens of millions on advertising, it remains to be seen whether the firm has hit on a winning formula.
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The firm closed 123 transactions through the HiCentral MLS, Hawaii’s largest MLS, from August 25, 2015, to August 25, 2016, according to Bryn Kaufman, broker-owner of Kailua, Hawaii-based OahuRE.com.
That accounted for about 1 percent of transactions recorded by that MLS, showing the firm has made inroads but remains far from a dominant force in its home market.
SRE expects to close 175 transactions total in 2016, which would be more than two-thirds higher than its 2015 total, according to Young. And the firm has already tripled its 2015 dollar sales volume this year.
Some brokers remain skeptical, however.
Sekiguchi is a “legit billionaire,” said one Hawaii broker. “But that might be where the legitimacy stops.”
The broker claimed SRE has had “zero impact” as far as he can tell on Hawaii’s commission structure “or anything of any relevance.”
“The [Honolulu] Star-Advertiser and Pacific Business News must love him,” he said, referring to two Hawaiian newspapers. “Have you seen the (insane) print ads?
“Really it’s just entertainment,” he added.
Changes to SRE’s expansion plans
SRE Matrix’s explanation of its buyer services.
Not everything has panned out as SRE had anticipated.
The brokerage planned to have set up shop in 14 states by July, but it’s currently only operating in Hawaii and San Diego. It decided to hold off on expansion until it could field a nationwide property search site, Young said.
Led by Lucas Haldeman, a former product manager at realtor.com operator Move, more than 20 engineers are working out of an office in Scottsdale, Arizona, to have the site ready for primetime sometime in the first quarter of 2017, according to Young.
SRE, which plans to expand to Phoenix, Arizona, in September, has broker licenses in 44 states so far, Young says.
The startup plans to have a presence in all 50 states, by starting brokerages from scratch, partnering with local brokerages to service SRE-provided leads under SRE’s pricing model or swallowing competitors.
Its company-owned brokerages and partners will provide MLS feeds that SRE can use to power its property search site.
“Some brokers have indicated a desire to become SRE, so it’s potentially a situation where SRE would buy them, or if not, they would evolve over time into an SRE-owned or backed brokerage,” Young said.
Tweaking discounts to accommodate buyer’s agents
SRE appears to be more open to playing nicely with buyer’s agents these days.
The firm has always advised clients to only offer 1 percent of a home’s sales price — much less than the typical 2.5 or 3 percent offer — to buyer’s brokers, according to Young.
It pockets a 1-percent fee for representing sellers in a sale, meaning sellers pay a 2 percent commission if clients make SRE’s recommended offer of compensation to buyer’s brokers.
But a majority of SRE’s listings in HiCentral MLS now offer 2 percent or more to buyer’s agents, he said.
“I assume the feedback was so negative on their 1 percent commission that many SRE agents are recommending offering 2 percent,” Kaufman said. “At 2 percent, they still discount but not so much compared to many brokers, including us offering 2.5 percent.”
Young acknowledged that some sellers wish to offer more than 1 percent because they fear that buyer’s agents will avoid showing their homes to clients if they don’t.
But he maintains that, looking at SRE’s listings across all MLSs, the firm still usually only offers 1 percent, and that doing so hasn’t hurt the firm’s ability to sell properties.
SRE pockets 1 percent of the sales price of a home for representing a buyer and rebates the remainder. That means SRE buyer clients frequently get rebates that are larger — often equal to 1.5 or 2 percent of the sales price — than the commission their agent walks away with.
Is SRE relying too heavily on its billionaire’s capital?
SRE’s reliance on capital from Sekiguchi doesn’t fully align with the fundraising strategy that SRE articulated to Inman in December 2015.
At the time, Young said SRE had raised $50 million in a funding round on top of an initial $50 million seed investment from Sekiguchi.
He declined to name investors in the round but said Sekiguchi’s partner in SRE Matrix was an American company “considered to be one of, if not the, biggest real estate investors in the world.”
Young clarified to Inman that the $50 million funding round didn’t involve any third-party investors, and that Sekiguchi hasn’t “consummated” a deal with the American real estate company.
“He’s putting some of his billionaire buddies in his back pocket, just kind of waiting to see if he would need that,” Young said.
Young said SRE has spent “less than half” of Sekiguchi’s initial $100 million investment, so that would suggest it currently has more than $150 million to spend.
Young said the latest $100 million investment is “all cash, no other assets” and has been dispersed across SRE bank accounts. Sekiguchi got the cash for the investment by selling his interest in some oceanfront property for $180 million, according to Young.
“The additional investment comes as SRE prepares to open real estate brokerages in all 50 states — a SIGNIFICANT investment,” Young wrote in an email. “Along with that we’re adding engineers, a call center, support staff and are ramping up for a major nationwide marketing initiative.”
SRE needs to develop a big audience for its property search site and build its larger transaction management platform for agents and consumers before it can make the big bucks by selling advertising on that platform, Young said.
Young said the firm has discussed advertising partnerships with many vendors, primarily mortgage companies.
This story has been update to correct that Young said SRE has spent “less than half” of Sekiguchi’s initial $100 million investment in SRE, not $50 million.
