What do real estate “disrupters” Compass Real estate, REX Real Estate, and Better.com have in common with Theranos and WeWork? We’re going to break this down and show you. Check it out.
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You’ve probably listened to the podcast or the live-action shows WeCrashed and The Dropout. These are based on companies that were valued in the billions at one point. In the case of WeWork, mismanagement and overspending led to a valuation that was a fraction of what was initially projected.
For Theranos, once valued at nearly 10 billion, massive amounts of investment capital were dumped into a product ultimately a complete fraud. Investors in both companies lost millions of dollars.
Rex Homes Closes Doors
First, let’s take a look at REX Homes. If you are not familiar with REX homes, they were initially a company that offered low-cost commissions to home buyers and sellers. They were put into the spotlight by spearheading the anti-trust lawsuit against Zillow and the National Associations of Realtors.
On May 11th, The American Genius reported that REX Homes may have closed its doors. A couple of days later, Real Trends reported an email sent by Steve Dawson, REX Homes’s chief compliance officer sent an email stating “Starting immediately, please transfer your license over to a new brokerage of your choice. This needs to be completed by day’s end tomorrow. Find a new brokerage and contact them requesting to transfer your license. If you are having trouble finding a brokerage who will take the current escrows, please look for smaller brokerage firms who might be more likely to assume the escrows.”
“Find a new brokerage and contact them requesting to transfer your license,” Dawson’s missive continued. “Let them know you have current listings and current escrows that also need to be transferred and taken over by the new brokerage.
“If you are having trouble finding a brokerage who will take the current escrows, please look for smaller brokerage firms who might be more likely to assume the escrows,” Dawson wrote.REX closes brokerage, hires David Boies in Zillow lawsuit
Wait, did I hear that right? They are telling their licensed agents to find another brokerage to transfer the escrows to? Like a traditional brokerage?
What has been especially interesting with this company is staff’s consistent fears of CEO Jack Ryan, consistently citing a fear of retribution not just professionally, but personally, and several told us we should worry about our own personal safety, having been the only news outlet covering REX’s unraveling.Has REX Homes finally ceased operations?
But let’s get back to what REX has in common with WeWork and Theranos.
- Also reported in the same real trends article, they hired David Boies, the high-profile litigation attorney that worked for Theranos and was featured on both the Podcast and Hulu mini-series The Dropout. He sat on the board at Theranos and was their hired legal counsel.
- Like the case of WeWork and Theranos, they brought in massive amounts of investor capital, and, like WeWork, they promised employees the chance to make money on the IPO, luring these employees to the company in the lure of lower pay, as the American Genuis article reports. Unlike WeWork, the company never went public.
Before we move on to the rest of the companies, I want to ask the audience – if Hulu or Apple TV makes a mini-series, who do you think will play Jack Ryan in the mini-series? I really want to know. I asked these questions to some broker friends of mine and one answered Shia Lebeuf. What do you think? I think it could work.
Let’s move on to Compass.
Compass Burns Through Cash
After losing nearly half a billion dollars last year, Compass reports another 1st quarter loss of $188M, according to the Real Deal.
“We will do more with less,” said Reffkin of the belt-tightening. “We are managing the business to ensure we will not require additional capital.”
Reffkin floated various ways the brokerage could mitigate its cash burn, including slowing its expansion into new markets and its pace of acquisitions.
Like WeWork, Compass had hundreds of millions of dollars invested in it from Softbank. Also, like WeWork, its initial public offering did not live up to expectations.
In The Real Deal article, Reffkin suggests they will be coming up with more ways to be profitable. What does that mean for its employees and real estate agents? With about 2.5 quarters of money left in its bank at the current burn rate, one could speculate that one of the more likely ways they could achieve this would be to drop services, cut staff, or raise commission splits to the brokerage from the agent’s portion of the split. Or even more likely, a combination of all of these.
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Another commonality of WeWork is that they boosted billions of dollars of revenue when their profit was in the negative.
When WeWork’s IPO failed in October 2021, many people made the statement that we no longer have the faulty outlook that a company’s value is based on current revenue with disregard to the old way of thinking, which is how much money the company makes.
This leads me to ask the question – What happens to Compass later this year when they’ve burned through money? Compass once had more than a billion dollars in the bank. Now it has less than half and they’re still losing money at a high burn rate. Please comment on what you think Compass can do to recover or if you think it will recover.
Better Mortgage Could be In Trouble
Now let’s look at another real estate disrupter, Better.com. The CEO, Vishal Garg, is certainly an interesting character. Note the headline to The Real Deal article, “He Threatened to Burn his Partner Alive, Now he’s a Billionaire”
According to Tech Crunch, Better.com CEO Vishal Garg acknowledged that he took a $750M loan that he is personally liable for to SoftBank. The article goes on to say, Garg,
“remains responsible for all such losses, which could require him to, among other things, sell a significant portion of his holdings in Better Home & Finance common stock, which could negatively impact the trading price of Better Home & Finance common stock.”
Once again, like WeWork, Better has been infused with capital by SoftBank.
Garg has a long history of erratic behavior. The Daily Beast reported in January that Garg, a volatile entrepreneur with a history of disgruntled business partners – had given huge amounts of equity to one of his most loyal lieutenants, in a way that violated norms and seemed to defy explanations.
Last fall, employees at one of America’s fastest-growing startups began making anxious phone calls. They believed that CEO Vishal Garg—a volatile entrepreneur with a history of disgruntled business partners—had been giving huge amounts of equity to one of his most loyal lieutenants, in a way that violated norms and seemed to defy explanation.
She was reportedly given 1.25M in options that were vested immediately, which is not the norm for most of these situations. Just four months later, she left the company.
The better.com announcement comes at a time when interest rates have soared from previous rates. Can this disrupter turn it around? According to the article from the Real Deal, Goldman Sachs recently sold the majority of its stake and of Better’s key investors, Pine Brooke Capital is threatening to sue the company and Garg over fiduciary responsibilities”.
I’m really curious to hear from the real estate and mortgage community as to what you think the future of these companies will be, especially in light of the recent real estate and mortgage slowdowns
Will they survive? Will Compass agents suffer from this? Will we see podcasts and mini-series popping up?
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