Inside Avenue 8: A look at the playbook of the resi brokerage snapping up funding and big names
SF-based startup readying an NYC expansion
When Richard Grossman, a longtime executive and sales manager at Halstead and then Brown Harris Stevens, said he was joining Avenue 8, an 18-month-old San Francisco-based startup, even his own boss was left dumbfounded.
“I thought ‘Who the hell is that?’” said Bess Freedman, CEO of Brown Harris Stevens, New York’s biggest privately owned brokerage. “I had never heard of Avenue 8.”
Founded last year and backed by big names such as Warby Parker co-founders Neil Blumenthal and Jeff Raider and Joey Zwillinger, who created Allbirds, the brokerage says it closed $600 million of California sales in its first year of business. Now, Grossman is spearheading its expansion into New York’s clubby real estate market. Fittingly, it calls its first outpost a clubhouse, not an office, part of Avenue 8’s effort to shun the more typical storefronts used by its competitors.
The pitch: offer agents high commission splits and keep overhead low. The biggest infrastructure is a platform designed for mobile phones, drawing inspiration from Uber or Doordash rather than Salesforce. Avenue 8 is also striking relationships with direct-to-consumer home and lifestyle brands such as Brooklinen.
Breaking into New York can be an expensive and challenging move for outside firms. The residential market is dominated by co-op buildings, which can throw off even seasoned New York agents. Unlike most major markets, moreover, Manhattan lacks a multiple listing service, making solid data hard to come by without a reliable agent. And that’s not to mention the growing competition: At least two other West Coast brokerages plan to open in New York by early 2022.
“You have to be willing to invest a tremendous amount of capital and at least 10 years before people are going to look to the left and right and say ‘I think you should pay attention to these guys,’” said Eddie Shapiro, CEO of Nest Seekers International, the sixth-largest brokerage by closed sales volume in Manhattan, Brooklyn and Queens, according to The Real Deal’s annual ranking.
Yet Avenue 8, which has raised $18 million so far, is willing to pony up for talent like Grossman. While it has only 125 agents in the Bay Area and Los Angeles, and 40 full-time employees, the firm aims to eventually hire about 1,000 agents in New York. If they succeed, that would make it the city’s fifth-largest by headcount, trailing Compass, with 2,500, and Brown Harris, which has 1,420.
“It’s big enough to have scale, but not big enough to feel like Walmart,” said Michael Martin, who founded the company with Justin Fichelson, a former cast member of “Million Dollar Listing San Francisco.”
New York was the first East Coast destination in part because agents typically have lower commission splits, giving Avenue 8 an opportunity to up the ante. The firm is likely to offer splits of higher than 80 percent, in line with California and Florida, though Martin declined to give an exact figure.
Brown Harris and Douglas Elliman offer their top performers about 75 percent.
Avenue 8 will also charge agents a monthly platform fee starting at $200 and give them a choice to pay for additional services such as printing mailers.
“Agents at traditional brokerages don’t feel appreciated and they aren’t having fun,” Martin said. “Those companies are very, very big and kind of stuck in their ways. We’re building something that doesn’t exist yet.”
It took Compass about four years after its 2012 launch to establish itself as a contender despite a war chest of funding. By 2018, the firm’s aggressive recruiting tactics pushed splits in the city higher and forced several firms to adopt similar tactics.
Also eyeing New York is Side, a San Francisco brokerage that offers agents back-end services to develop their own independent brand and team. Side aims to launch in New York early next year. The Agency, a Los Angeles brokerage co-founded by Mauricio Umansky, plans to open offices serving Manhattan and the Hamptons late this year or in early 2022.
Umansky said Avenue 8 hasn’t “hit my radar” and said he doesn’t believe in entering a new market quietly.
“I never wanted to enter New York unless The Agency was going to be in a strong financial position to make some noise and go in there with tremendous strength,” he said.
Side CEO Guy Gal acknowledged the ascent of Compass as an example of how a new entrant can make an impact in the city, though he drew a line between it and his own firm.
“That’s not how Side does business,” he said. “We’re just about identifying really great agents and teams that effectively already run a business but don’t own it,” said, adding, “that’s not an existential threat to anyone.”
At Brown Harris, meantime, Freedman said she’s interested to see how Avenue 8’s model works in practice. She said the key for any new firm is whether they spend enough time learning the nuances.
“You don’t just show up on the scene and think you know everything. Knowledge is experience and we have 150 years of doing this,” she said. “We’ll see.”
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