In 2017, the founding principals of Benoit Mizner Simon & Co Real Estate, a Massachusetts-based luxury brokerage, opened up their books to Compass during a series of nearly a dozen meetings to discuss a possible acquisition.
Characterized as cordial, the talks spanned nearly a year and veered into the company’s business model, market data for the Metrowest Boston area and performance metrics of its top agents, two of the company’s principals, Sheryl Simon and Amy Mizner, told Inman.
But by February of this year the pleasantries came to a halt. Following meetings in which the principals began to sense mixed messages among Compass executives, including former Chief Financial Officer Craig Anderson, Benoit Mizner Simon put an end to the negotiations. Within a month, Compass had reversed course, moving aggressively to recruit eight of the brokerage’s top agents by dangling six-figure signing bonuses and high marketing budgets.
“It was a very long process,” said Simon, a founding principal of the brokerage, who believes Compass, now a direct competitor, is armed with proprietary information gleaned from earlier meetings that could give them a competitive advantage in the Boston area. “Perhaps in the end they realized after a year that they hadn’t made an acceptable offer. That’s when they started pressing us.”
The Massachusetts brokerage isn’t the only company to endure aggressive recruiting at the hands of Compass, a firm that over the past year has sought to expand by acquiring smaller companies and hiring top talent nationwide. Beside Benoit Mizner Simon, Zephyr Real Estate in San Francisco and Modern Spaces in Long Island City have been targeted by the company in such a manner that judges felt compelled to grant temporary restraining orders that prevent Compass from trying to recruit its agents and managers. At Zephyr, one manager claimed Compass intended to siphon a whopping 35 percent of market share in San Francisco.
Compass told Inman, when asked about the allegations from Benoit Mizner Simon, that it believes all agents have the right to choose the firm that is best for them.
There’s nothing unlawful about recruiting top talent from other firms, and agents jump from brokerage to brokerage frequently, lured by the promise of ever-higher splits, more exposure or better technology. Additionally, sharp elbows in major real estate markets are common, as are lawsuits such as those filed by Zephyr and Modern Space.
Acquisitions often fall apart, even at the last minute, laying a company bare. That is the risk of entering these discussions whether it be with Compass, Realogy or Berkshire Hathaway, the big firms in the real estate M&A space. Understandably, some brokers who have “been left at the altar” feel violated under these circumstances.
Specific terms of the non-disclosure agreements that the parties enter into should guide behavior like agent recruitment and identify any damages. Many of the court cases will turn on these agreements.
Nevertheless, according to some real estate agents in Massachusetts, New York and California, Compass has repeatedly deployed recruiting tactics they characterized as ruthless.
Since launching under the name Urban Compass in 2012, the tech-forward brokerage has grown exponentially. Fueled by $750 million in venture capital investment, the company has embarked in an unprecedented buying spree culminating in the acquisition this week of the California-based Pacific Union International, among the country’s top five largest brokerages by sales volume. Prior to that sale, the brokerage has recruited top agents in Chicago, New York and Dallas, among other markets, in its quest to gain 20-percent market share across the U.S.’s 20 biggest markets by 2020, a strategy laid out by Compass CEO Robert Reffkin last year.
“In the top 20 cities, 20 percent market share by 2020,” said Reffkin during an address to employees in October. “How are we going to do that? By investing in our agents, giving them support and building more than any company in the history of this country.”
More recently, however, the CEO of a mid-sized real estate brokerage stung earlier this year by Compass’ recruiting efforts, said the company’s guiding strategy, no matter the market, has always been to divide and conquer.
“[Compass’ business model] is to desecrate any competition, build mass at any cost and take out every competitor — then change the game,” the New York City-based chief executive told Inman under the condition of anonymity.
“In every industry there are disruptors,” the CEO added. “They don’t fit that category — they’re more like destructors.”
Dubious behavior cuts both ways.
Syd Leibovitch, president and owner of the Beverly Hills, Calif.-based Rodeo Realty, Inc., published voice mails of office managers from a big franchise (not Compass) recruiting his agents. They falsely claimed that Rodeo had been acquired and that the agents should jump ship.
The company has engendered fear and loathing from broker owners who feel threatened by Compass. Until last week when it acquired his company, Pacific Union CEO Mark McLaughlin lashed out frequently at what until very recently was his arch enemy, blasting Compass recruiting tactics and criticizing their thunderous entry into the California housing market.
Below are three accounts of brokerages that have felt burned by or taken legal action against Compass’ aggressive recruiting.
Zephyr Real Estate files lawsuit against Compass after acquisition attempt
Zephyr Real Estate, a San Francisco-based indie brokerage that closed more than $2 billion in sales in 2017, filed and was granted a temporary restraining order from Compass on August 13. Court documents show an aggressive recruiting effort by Compass – while the two were in the midst of acquisition talks – and the order prevents Compass from snagging more top talent in the same market where Compass recently acquired Paragon Real Estate Group and Pacific Union International, Zephyr’s top rivals.
Zephyr Real Estate CEO Randall Kostick (photo courtesy Zephyr Real Estate)
Randall Kostick, Zephyr’s president and CEO, said he entered into a mutual confidentiality agreement (MCA) with Compass in April 2018, as the two companies spoke about a potential acquisition. Shortly after Compass signed the MCA, Kostick realized it was still recruiting its top managers.
“This year, Zephyr was approached by a national, New York-based company, Compass, that expressed interest in acquiring Zephyr,” the company said in a statement. “While we agreed to listen to a proposal from Compass, we did so only under the condition that Compass would keep information Zephyr provided confidential and that Compass would not exploit the process by trying to convince our valued personnel to jump ship.”
Despite Kostick’s attempt to confront Compass CEO Robert Reffkin personally about the matter, he claims Compass’ efforts continued – and the brokerage succeeded in recruiting two top producing managers, Aimee Aronst and Kevin Koerner as well as four agents, according to the complaint.
“As explained in the lawsuit that Zephyr was forced to file in San Francisco Superior Court on Monday, August 13, Compass signed the confidentiality and non-solicitation agreement and then violated the agreement almost before the ink was dry,” the statement from Zephyr reads. “We have asked the Court to stop Compass from trying to poach Zephyr personnel in violation of the agreement. The Court has issued a temporary restraining order against certain Compass personnel, including its CEO Robert Reffkin, from engaging in improper solicitation while this lawsuit proceeds.”
On August 1, Kostick held a company-wide all-hands meeting to inform staff and agents that Zephyr had terminated talks with Compass about a potential acquisition.
“We hope our efforts will protect Zephyr, other local real estate companies, and local real estate agents from unwanted and aggressive solicitation by a large, out-of-state company that may not have the best interests of San Francisco and its residents at heart,” the statement from Zephyr Real Estate adds.
Included in the court filings is the story of Michael Barnacle, a managing broker based out of Zephyr Real Estate’s Pacific Heights office. In a complaint, Barnacle said he met with Rob Lehman, Compass’ chief growth officer. Lehman was recruiting him for a sales manager position and told Barnacle that Compass was seeking “35 percent of San Francisco market share.”
After discussing the role with multiple individuals at Compass,Barnacle turned the offer down, only to receive a voicemail from Compass CEO Robert Reffkin.
“Based on my many years of experience in the real estate industry, I have seen a pattern that agents do follow a strong manager if the manager switches firms,” Barnacle writes in the complaint. “I believe that their persistence in attempting to recruit me demonstrates a desire on their part to disrupt Zephyr’s business.”
The number of local managers Compass has hired appeared, to Barnacle, to be excessive based on his experience in coaching and managing real estate agents. “They are focused on the disruption of local firms,” Barnacle added, alleging that Compass attempted to recruit at least eight agents in his Pacific Heights office and several others in Zephyr’s other offices. “I am convinced that many of these managers will be dismissed in the coming years once they’ve met their recruiting goals.”
In the same complaint, Matthew Borland, chief operating officer and managing broker of Zephyr’s Upper Market and West Portal offices, claimed Lehman also attempted to recruit him for a sales manager position. Like Barnacle, he turned down the offer after speaking with multiple recruiters.
Compass, however, persisted, with a recruiter attempting to set up a conversation with Reffkin, the complaint continues. Borland said in the complaint he never contacted Compass prior to their efforts to recruit him.
“My opinion is that Compass is trying to destabilize Zephyer,” said Borland in the complaint. “I believe that Compass was trying to recruit Zephyr managers away to get the agents who would follow these managers.”
Borland said he knew of managers with two other firms in the market that switched over to Compass and in both cases, the agents on the team followed them.
“I believe Compass is doing whatever it can to pull managers over and when they are not interested in a sales management position, offering them a ‘dream job’ in an effort to make the firms’ agents more recruitable,” said Borland, in the complaint. “The practice creates a level of chaos in the agent ranks and actively attempts to destabilize the firms.”
Compass declined to comment on the ongoing legal case.
Agents poached after Benoit Mizner Simon & Co. halt acquisition talks
Discussions with Compass about an acquisition went on for about a year, but it took less than a month after breaking off talks for the real estate technology giant to recruit its top talent, according to Benoit Mizner Simon & Co Real Estate, a Massachusetts luxury indie brokerage. And thanks to those discussions, Compass was allegedly privy to the inner workings of what was set to become a market rival.
Sheryl Simon, Debi Benoit and Amy Mizner, founding principals at Benoit Mizner Simon & Co., Real Estate.
“We took the discussions further with Compass because we thought there would be a good partnership and synergy with our company and their brand,” Amy Mizner, a founding principal and broker at Benoit Mizner Simon & Co., told Inman. “As the dialogue proceeded we made a business decision as an independent brokerage to stay the course.”
The principals at Benoit Mizner Simon & Co said Compass first reached out to them because of their success in the suburbs of Boston. The brokerage has more than 100 sales agents at four offices – in Weston, Wellesley, Needham and Sudbury – and finished 2017 with more than $600 million in market share.
Ultimately the principals decided to stay the course, a decision they said was financially sound. They didn’t believe Compass’ marketing strategies would work in their market.
“It was a very long process,” Sheryl Simon, another founding principal of the brokerage told Inman. “Perhaps in the end they realized after a year that they hadn’t made an acceptable offer. That’s when they started pressing us a company.”
“There was nothing ever agreed upon,” she added. ”When we started scratching the surface we realized this was not a good fit for us.”
Based on the discussions they had with Compass, the Benoit Mizner Simon and Co. principals concluded that Compass was intent on acquiring market share in an effort to hit the ground running in the Boston housing market. “They’re buying market share to grow in different markets,” Mizner said.
Ultimately, the principals informed Compass in March that they had decided to remain an indie. Less than a month later, the New York City-based brokerage made what the principals characterized as an “aggressive” move to recruit agents.
In an effort to snare top agents, Compass dangled $100,000 signing bonuses, generous marketing budgets and stock in the company.
All of which is perfectly legal.
Another real estate CEO that had multiple brokers recruited also heard that Compass offers some agents it recruits $100,000.
“We lost three agents,” he said. “One of them had never made a penny here and he got a $100,000 signing bonus.”
Mizner said she’s heard other similar stories from brokerages.
“I think, looking at the negotiations, it makes perfect sense, because if they enter pre-negotiations with the option to acquire and it doesn’t work, they have to do the next best thing: they have to acquire experience in that particular market,” Simon said.
For Benoit Mizner Simon & Co Real Estate, however, yet another downside emerged. Compass, they claim, now has access to proprietary information. During acquisition discussions, they said, the principals opened up their books to give Compass a unique look at the company’s business model, market data and an itemized view of each of their agents’ performances. The trove gives Compass, now a director competitor, a unique window into the smaller company’s business, the principals told Inman.
In any type of acquisition that falls apart, the risk of negotiating a sale with a buyer is they often in due diligence get access to all customer information, financials and contracts.
Besides customer data, it is unclear what valuable trade secrets a local real estate brokerage might have. And no brokers provided evidence that customer information was used in Compass’s business.
Modern Spaces granted a restraining order against Compass
In February, QNS first reported that Long Island City-based real estate brokerage Modern Spaces was suing Compass for recruiting real estate agents and proprietary information.
Modern Spaces, claimed in the lawsuit, obtained by QNS, that Compass’ “main corporate strategy appears to rely on undermining its competition by unlawfully ‘poaching’ Modern Spaces’ real estate agents while simultaneously misappropriating Modern Spaces’ confidential and proprietary information to gain an unfair advantage in a competitive market.”
The suit claims that Jessica Meis began working for Modern Spaces as an agent in July 2017 and left the company to work for Compass in January 2018. In the few days prior to her resignation, she allegedly emailed files to herself that included, “proprietary customer and listing data,” according to the complaint.
In the complaint, Modern Spaces argues that by taking marketing materials – including photographs – and posting them on Compass’ website, she was breaking her confidentiality agreement.
In July, Modern Spaces was granted a temporary restraining order, preliminary injunction and final injunction which would prevent Compass from poaching agents from Modern Spaces and gaining access to proprietary information, according to QNS.
“Compass has never been found liable by court of committing any of the allegations set forth in Modern Space’s complaint,” a spokesperson for Compass told Inman.
In the past, Corcoran and Citi Habitats – both subsidiaries of Realogy – filed lawsuits against Compass in the for issues over their recruiting tactics, according to The Real Deal. Citi Habitats, accused Compass agents of improperly accessing Citi Habitats’ listings database and Corcoran accused Compass of raiding its office and hiring managers to lure agents away. Corcoran also alleged that several agents took exclusive listings to Compass.
All three firms reached a settlement in in August 2015 to dismiss their pending lawsuits.
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