Compass’ Robert Reffkin and 90 Fifth Ave in New York City (Google Maps, Compass, Getty)
Compass’ belt-tightening has come for its headquarters.
The brokerage, which lost nearly $1 billion between the first quarter of 2021 and the third quarter of 2022, is shopping its headquarters near Union Square in NYC for sublease, according to the The Real Deal.
Compass hopes to find a taker for all or a portion of the 89,000 square feet it occupies at 90 Fifth Avenue, with an asking price of roughly $60 per square foot. The company’s lease runs through 2025.
Compass confirmed that it is soliciting offers
A CBRE team led by Paul Amrich is shopping the space.
Compass occupies floors 3-11 at 90 Fifth Avenue, according to a representative, and had subleased space on floors five and eight, prior to Covid.
The effective blended rent on Compass’ space at 90 Fifth is in the high $60s per square foot, according to data from CompStak, which noted that the effective rent in the Midtown South submarket was $69 a foot in the third quarter.
The move to shed its headquarters is a departure from what Compass said in September, when it told TRD that it would not close offices even as it sought to slash expenses. “We don’t need to because we have other levers we’re focused on,” a company executive said at the time. “We’ve worked backwards and said to agents, ‘What’s ideal for you?’ Most of them have said, ‘We want to be in the office.’”
Compass now says that the move to sublet the headquarters doesn’t deviate from that plan. Its rationale: 90 Fifth Avenue is an employees-only office – Golod said the agent hub in the area is 110 Fifth Avenue – so agents won’t be affected by the decision.
“On the employee side it’s a whole different thing because the employee offices are not needed for branding and market presence,” Golod said. “The plan is still not to consolidate offices unless it’s a mergers-and-acquisitions situation.”
According to Compass’ annual filings, it spent $135 million on office leases in 2021, up from $122 million in 2020. Its future lease liabilities at the end of last year totaled more than $564 million. Some offices in primary markets are within minutes of each other. Compass is slated to release its 2022 annual results in February.
While all residential brokerages have been hit by the market downturn, caused in large part by the spike in interest rates, eyes have been on Compass because of its meteoric rise and because it’s never been profitable. The goal, until this summer, was expansion, CEO Robert Reffkin said at TRD’s Miami forum in November. Now, the goal is profitability.
Anyone who has read my Boston Real Estate Blog for any length of time, will recognize that I’ve been very critical of Compass. But on this point, I do have to give thumbs up that Compass is cutting its costs, particularly retail space.
I’m confused as to why it took Compass so long to make this move, they seem to behind the eight ball in comparisons to other brokerages.
Perhaps, I’m simplifying this, but Compass CEO Robert Reffkin said: “The goal, until this summer, was expansion. Now, the goal is profitability.” Anyone with a residential background knows about the ebb-and-flow of the hosing market. Shouldn’t someone have asked, “Are we overly expanding on retail space?” Perhaps if I was playing with someone else’s $1BillIon, I would have made the same mistakes.