Zillow revenues are up, but losses are widening as it pivots to home-flipping
Earnings report comes as Spencer Rascoff steps aside as CEO
Spencer Rascoff and Richard Barton (Credit: iStock)
New Zillow CEO Rich Barton is shooting for the moon, but the company’s latest financials might have him crashing down to earth.
On the same day that Spencer Rascoff stepped aside as CEO, Zillow disclosed in an earnings report that it collected a record $1.33 billion in revenue last year, a 24 percent gain over 2017. But the Seattle-based real estate tech firm also racked up a net loss of $120 million in 2018, well above the $94 million loss in 2017.
It also suffered setbacks to its primary revenue stream, the advertising program Premier Agent, and saw its stock drop more than 25 percent in value year over year.
On the earnings call, new CEO Rich Barton acknowledged that 2018 was a volatile year for the company, as Zillow shifted from a housing search website to focusing on purchasing and flipping properties.
“Zillow is a very different company from where we started the year,” Barton told investors. “We are really in the process of remaking Zillow Group right now and formulating a new mission, one where we’re looking at the sky, we’re looking at the moon and saying: we want to walk on that thing.”
True to the lofty language, the company aims to massively expand its home-buying arm Zillow Offers to 14 markets by the end of 2019, with a projected annual revenue of $20 billion within five years. Still, it disclosed that its profit margins in the fourth quarter were tiny. Zillow made an average of just $1,723 (0.5 percent) per home sold in the fourth quarter (it posted better results earlier in the year).
If Zillow Offers is the future of the company, Premier Agent is very much the present. The advertising program again accounted for the bulk of Zillow’s profits. It was responsible for about $898 million in revenue in 2018, an 18 percent uptick from the year prior. But changes to the program — which agents said reduced the number of leads — resulted in increased cancelations.
“These changes have been well-received and the churn rate has started to return to historical norms as conversion and transaction rates are growing,” the company said in its earnings statement. “However, the mid-year challenges led to a projected cumulative annual recurring revenue shortfall in Premier Agent revenue entering 2019, or an estimated 6 month sell-through gap to close.”
Zillow projects Premier Agent to bring in between $905 million and $930 million in 2019.
In his call with investors, Barton said the leadership transition from Rascoff was a smooth one.
“We’ve collectively decided it’s time to turn our leadership triangle on its side and shuffle our seats.”
NRT CEO goes after Compass for “taking advantage” of its agents
Ryan Gorman blasted the brokerage in an email to his executives
Ryan Gorman and Robert Reffkin
With a $4.4 billion valuation and a massive national expansion, Compass has become a major player in the brokerage landscape — and attracted its share of criticism. This time, it’s coming from NRT CEO Ryan Gorman.
In an email to his executives, Gorman claimed Compass was “taking advantage” of its agents and said that brokers should be skeptical if recruited by the firm, Inman reported. NRT, the brokerage-owning entity of Realogy, includes Corcoran Group, Citi Habitats, Sotheby’s International Realty and Coldwell Banker.
“When I find that a competitor is taking advantage of the people I love… my jaw clinches, my focus narrows, and my resolve hardens. Most recently, the competitor fitting this description is Compass,” Gorman said in the email. “And I can no longer remain silent as entrepreneurs’ livelihoods are put at risk. I need to equip you, and arm our agents, with tools to excavate the truth.”
Along with the email, Gorman attached a two-page guide, entitled “Help Agents Avoid Being Thrown Off Course By A Spinning Compass.” It includes more than 30 questions agents should ask the brokerage during the recruiting process — including the company’s view on data as well as its financial stability and dependence on SoftBank’s funding.
“SoftBank’s Vision Fund is reportedly rapidly running low on cash,” the attachment said. “What does this mean for Compass? Is this why Compass is halting expansion?”
“What you talk about is a representation of what you are focused on,” Compass CEO Robert Reffkin said in a response to Inman. “We don’t tear down competitors, we don’t pay attention to the noise, what we focus on is empowering agents.”
To that, Gorman said he welcomes competition. “But when a competitor fails to uphold the basic ethics and integrity that this industry has together worked so hard to build, and puts the people I care about in jeopardy, I cannot sit on my hands,” he said.
Compass and NRT are both among the country’s top brokerages. Compass has grown to more than 8,000 agents nationwide and said it closed more than $35 billion in sales volume last year. By comparison, NRT closed more than $178 billion in sales in 2017.
Last month, Compass said it won’t enter any new markets in 2019 and will instead be focusing on hiring and growth in its current markets. The firm is hitting pause after encountering a few challenges in some of its new markets, Reffkin said at the time. While markets like Dallas launched smoothly, others — which he declined to name — faced issues like subpar office space, not having the right managers and under-supported marketing. [Inman] — Meenal Vamburkar
Naftali in contract to buy one of the last large dev sites on Williamsburg waterfront
Pricing for the property is said to be between $180M and $185M
Isaac Rosenberg (left), Miki Naftali, and 462-484 Kent Avenue in Williamsburg (Credit: Google Maps and Naftali Group)
The Naftali Group, which has been ramping up its development activity following a quiet period, is lined up to buy one of the last large development sites on the Williamsburg waterfront.
The Midtown-based development firm is in contract to buy the Rose Plaza site at 470 Kent Avenue from Abraham Rosenberg, sources told The Real Deal. The contract price is somewhere between $180 million and $185 million, sources said.
The company, headed by founder Miki Naftali, is working with a group of roughly half-a-dozen unidentified investors to purchase the property, a source told TRD.
Representatives for Naftali and Rosenberg did not respond to requests for comment.
Rosenberg started going through the city’s land-use review process in 2008 to rezone the South Williamsburg site to make way for a large-scale residential project. In 2010, the city approved a rezoning that allows for a set of five of residential towers on the 2.3-acre site with 754 units.
In return, the owners agreed to set aside 226 units as affordable housing and build out a public waterfront esplanade along the East River.
But the project still had hurdles to overcome in order to be realized. Rosenberg and his brother Isack came to realize that the property – a lumber yard that through the years had been used for several different industrial purposes – was contaminated with petroleum, pesticides, PCBs and other pollutants.
They also had to contend with the financial crisis and Isack’s untimely death in 2016 in a drowning accident off the coast of North Miami Beach in Florida.
As early as 2013, the Rosenbergs had looked to sell the site to a developer. They hired the now defunct Eastern Consolidated to market the property, with an asking price of $210 million.
Interest in the site seemed to fizzle – some people familiar with the property have cited the environmental remediation as a significant challenge to overcome – but in 2015 potential buyers started sniffing around again, and the property was said to be valued in the area of $250 million.
According to a lawsuit Isack Rosenberg’s estate filed in 2017, developer Roy Stillman and Michael Fascitelli’s Imperial Companies in 2015 entered into an agreement to join the Rosenbergs in a joint venture to develop the property under the state’s Brownfields program. The two sides apparently had a falling out, though, and had to settle their differences in an arbitration.
In the meantime, the Williamsburg waterfront has boomed around the Rose Plaza site. Three blocks to the north, Eliot Spitzer is wrapping up his 420 Kent Avenue development. And on the northern side of the Williamsburg Bridge, Two Trees is making progress on its Domino Sugar development.
Naftali, meanwhile, has once again become active on the development scene after sitting on the sidelines while prices for land peaked.
The company has over the past two years been working on putting together two different assemblages on the Upper East Side.
Exiled Chinese billionaire Guo Wengui sues Soho China for $300M
He says developer’s slander lawsuit against him cost loss of rental income, termination of construction projects & attorneys’ fees
Guo Wengui (right) and Pan Shiyi (left) with the Sherry Netherland building at 781 5th Avenue (Credit: Getty Images and Wikipedia)
Exiled Chinese billionaire Guo Wengui is suing Soho China — China’s largest office developer and a partial owner of the General Motors Building in Manhattan — for damages totaling $300 million.
Guo, who made his fortune in real estate in China, is now an outspoken critic of what he calls rampant corruption in the Chinese Communist Party. He has been seeking asylum in the United States since 2014.
He bought a $67.5 million co-op at the Sherry Netherland in 2015, where he lives in self-imposed exile while broadcasting his opinions on China on social media.
His latest suit was filed in response to litigation brought by Soho China, and its chairman Pan Shiyi, against Guo in June, 2017. In that case, Soho China and Pan sued Guo for slander, after a series of YouTube videos and other social media posts in which he accused the firm of illegally colluding with Chinese government officials, procured favorable zoning changes for their properties and violated government regulations in connection with their real estate business.
Pan vehemently denied Guo’s allegations, calling them “nonsense.” However, Soho China dropped the slander suit against Guo in February, 2018.
Now, Guo is coming after Soho China, claiming their “malicious and unjustified attack” cost him “the loss of rental income, termination of construction projects, and attorneys’ fees,” according to a suit filed in New York today. He is seeking $300 million.
Guo — who is also known as Miles Kwok — alleged in 2017 that Pan and other Beijing developers rigged bids for land near China’s National Stadium in 2006. He also questioned if Pan and his wife Zhang Xin really owned the Hong Kong-based development company.
Soho China did not immediately reply to requests for comment. Neither did lawyers for Guo.
In 2013, Soho China and the family of Brazilian banking magnate Moise Safra paid $1.4 billion for a 40 percent stake in the GM building.
This is not the only litigation Guo is involved in. In January, TRD reported that Guo was suing his former lawyers at the firm Boies Schiller Flexner, alleging malpractice. That suit was also brought in response to previous litigation filed by the law firm, who went to court in November to recover $640,000 in unpaid legal fees from Guo.
David Boies, a partner at the firm, was formerly Guo’s neighbor at the Sherry-Netherland, until he sold his $13.6 million apartment in January.
Guo is also seeking to sell his Sherry-Netherland pad. He first listed the seven bedroom, eight bathroom apartment for $86 million in 2015. Since then he’s dropped the price to $67 million.
Richard Steinberg of Douglas Elliman has the listing.
Zillow CEO Spencer Rascoff is stepping down as his co-founder takes over
Rascoff to remain with the company until March 22
Spencer Rascoff and Rich Barton (Credit: Getty Images)
Zillow Group is replacing CEO Spencer Rascoff with co-founder and former CEO Rich Barton, the company said in an SEC filing Thursday.
Rascoff, also a co-founder, led Zillow as CEO from 2010 through its IPO — and will remain with the company until March 22. He’ll stay on the board of directors after Barton takes over.
Barton has been executive chairman since stepping down as CEO. The move comes as Zillow has faced challenges amid slowing home sales and rising interest rates. The company’s stock is down more than 25 percent in the last 12 months.
This story is developing. Check back for updates.
Behind the demise of Advisors Commercial Real Estate
Its CEO Suneet Singal racked up 19 NYC lawsuits in five years
ACRE’s NY office at 1407 Broadway and Suneet Singal (Credit: Facebook)
Newly-rebranded Advisors Commercial Real Estate did not get off to a great start. Just months after the brokerage formerly known as Coldwell Banker Commercial Advisors was acquired by Sacramento-based First Capital Real Estate, vendors started to complain.
Data giant CoStar shut off its service for nonpayment. Phone and furniture-leasing companies threatened to do the same. And finally, towards the end of last year, the company was evicted from its New York office at 1407 Broadway for months of unpaid rent.
Brokers at the shuttered firm blame new owner Suneet Singal for the collapse, Crain’s reported. Public records show at least 19 NYC lawsuits involving Singal from the past five years, and as many lawsuits in Sacramento over the past 15 years.
“Everyone Googled him and was concerned by what they saw,” a former broker told Crain’s. Plaintiffs in the lawsuits included former business associates, employees, landlords and lenders. According to one 2017 suit, First Capital itself was kicked out of 60 Broad St. in Lower Manhattan for nonpayment of rent.
Singal deflected these concerns, saying such litigation “comes with the territory when we buy distressed companies” in a statement to Crain’s. “I have a decent net worth, and, being the guy at the helm, I get named personally. But that does not mean I have the liability.” [Crain’s] — Kevin Sun