Two of the leading boutique real estate companies in San Francisco, City Real Estate and Polaris Realty, kicked off 2023 by joining forces. The new company, which will operate under the moniker of City Real Estate, is now the second-largest boutique residential company in all of San Francisco with a massive $541 million transaction volume for 2022.
While mergers and acquisitions are nothing new to the industry, this historic partnership speaks to broader trends shaping the future of real estate. Traditionally, the only way for agents to initiate a merger or sell their business — not just the contents of their rolodex, but a profitable business — was to get their broker’s license and start their own independent brokerage. But taking that route requires agents to take on massive liability in exchange for, in most cases, razor-thin margins.
Now that Side makes it possible for top agents to create their own companies without operating a brokerage, more top agents will be able to realize the upside of the value they’ve created.
Here’s what this merger signifies about the future of the real estate industry:
1. More top agents are owning their futures
David Cohen and Ron Abta were both extraordinarily successful agents at traditional brokerages before deciding to found City and Polaris, respectively. In 2019, rather than continue to build equity in and brand recognition for someone else’s company, they each decided to double-down on their own reputation and start their own firm in partnership with Side.
David and Ron were right to bet that their experience and prestige as top agents would matter more to clients than their former brokerage’s name. In just a few short years, founder David Cohen grew City from $133 million to $326.1 million transacted in 2021, and expanded the team to 35 agents. Founder Ron Abta grew Polaris by $144 million to $207 million in that same year, and expanded the team to 12 agents.
As The Real Deal reported, this trend of top agents breaking free from large real estate firms to start their own companies is poised to get even more popular in 2023. After all, why rent someone else’s brand when you can own your own?
Why rent someone else’s brand when you can own your own?
2. More agents will be leveraging the equity they’ve built
Before 2019, there would have been no way for Ron or David to initiate this type of merger. As agents at someone else’s company, the only asset they owned was their own name and reputation. Many traditional brokerages take ownership of their agents’ client lists, meaning agents cannot sell or pass down their book of business when they retire.
By creating City and Polaris, David and Ron took ownership of the businesses they were already running. They built companies with true asset value and, in so doing, massively expanded the opportunities available to them. When you own your own company, you can also choose to sell your company for a profit, pass your company down to your children, or generate passive income through your agents as you step out of production.
When you own your own company, you can also choose to sell your company for a profit, pass your company down to your children, or generate passive income through your agents as you step out of production.
As more top agents break free from traditional brokerage brands to build equity in their own companies, we will start to see more mergers and high-value sales percolate the industry.
3. Boutique companies attract top talent
Starting a boutique company has proven advantages for agents looking to build out their teams. Agents have been shown to receive even greater benefits from joining a boutique team than they do from joining a team at a traditional brokerage. For instance, 96% of agents who joined a boutique team reported earning a higher income after the transition, compared with 76% of agents who reported higher income after joining a team in general.
This is in no small part because founders of boutiques have full control over how they run their teams. Boutique founders like David and Ron have far more leeway than their big-box counterparts to establish a compelling culture that encourages agents to flourish. After all, culture plays a huge role in agent retention — and it speaks to the strength of both company cultures that not one single agent left as a result of the merger.
4. Boutique companies will continue to dominate their markets
City Real Estate may be growing, but it’s sticking to the boutique roots that were so integral to its early success.
“We pride ourselves on being boutique even as we grow,” said David. “The pendulum is swinging away from the big-box brokerages and toward boutiques like City and the rest of our colleagues in the Side network. We know our respective markets better than any national brokerage, and because of that we are better equipped to serve our clients’ needs.”
City and Polaris both operate as locally-rooted boutiques with the full support of Side’s one-of-a-kind brokerage platform. That means they’re able to equip their agents with the technology and strategic guidance of a nationwide firm while maintaining a boutique client experience focused on individual attention and impeccable service.
And prioritizing that boutique experience has paid dividends when it comes to consumer interest. Today’s consumers prefer companies offering highly personalized, bespoke services — which boutiques are naturally positioned to provide. Furthermore, while many consumers negatively associate big-box brokerages with part-time agents, boutiques can emerge on the scene with a clean slate.
For all these reasons and more, boutique companies are on the rise. In fact in San Francisco, Side’s network of boutique companies accounted for a remarkable 10% of all transactions in the city in 2022.
The pendulum is, indeed, swinging towards the boutiques, which we can anticipate will account for even greater shares of the market in the years to come.