Michael Martin on Avenue 8, the residential real estate brokerage for the new age, built for modern agents

Michael Martin of Avenue 8 - Podcast Transcript

Scott:	Hey, it’s Scott Orn at Kruze Consulting, and welcome to another episode of Founders and Friends. And before we start the podcast, let’s give a quick shout out to Rippling. Rippling is the new, cool payroll tool that we see a lot of startups using. Rippling is great for your traditional HR and payroll. They integrate very nicely. But guess what? They did another thing. They integrate into your IT infrastructure. They make it really easy for when you hire someone to spin up all the web services in their computer. Which sounds kind of like not a huge deal, but actually we did the study at Kruze, we spend $420 on average just getting a new employee’s computer up and running and their web servers up and running. It’s actually a really big deal. It saves a lot of money. And the dogs are eating the dogwood. We see a lot of startups coming in to Kruze now using Rippling. So please check out Rippling. Great service. We love it. I think we have a podcast with Parker Conrad. You can hear it from his own words. But we’re seeing them take market share, so shout out to Rippling. And now to another awesome podcast at Kruze Consulting’s Founders and Friends. Thanks.
Singer:	(Singing) It’s Kruze Consulting Founders and Friends with your host, Scotty Orn.
Scott:	Welcome to Founders and Friends podcast with Scott Orn at Kruze Consulting. And today my very special guest is Michael Martin of Avenue 8. Welcome, Michael.
Michael:	Hey, Scott. Good to see you.
Scott:	Good to see you too. Everything’s good here. And maybe you can just kind of start by retracing your career and how you had the idea for Avenue 8.
Michael:	Sure. So, my co-founder, Justin, and I have been working at Avenue 8 for about two-and-a-half years. And we come from different backgrounds. Justin has been a career real estate agent, super successful, born and raised in the Bay Area. My background is different and more divergent, but I think in many ways Avenue 8 is the perfect combination of my various professional experiences. So, my first career out of school was working in New York in finance two years as an investment banking analyst at Deutsche Bank back when leveraged buyouts were driving the market. I was in the financial sponsors group and had the benefit of working on two really big transactions. The first was the buyout of Harrah’s Casino by Apollo and TPG.
Scott:	Oh, wow.
Michael:	Yeah, yeah. And then the second was the buyout of Clear Channel by TH Lee and Bain. And so, kind of by luck was able to work on two really large and complex transactions. And then left banking to go into private equity, ended up joining Apollo. And this was back in 2008, and just to give you a sense of what was happening back then, I remember we were looking at a business, and we put initial indication of interest in September for two-and-a-half billion. By the time that we walked away from the deal in December, the price had fallen to 700 million because the entire economy had changed as a result of the Great Recession. Back in 2008, one of Apollo’s major portfolio companies was Realogy, which is the biggest brokerage in the country. They own NRT, Sotheby’s, Coldwell Banker, Century 21, Better Homes and Gardens. And what was happening in 2008, transaction volumes were declining, which made revenue challenging. Also, Realogy as a business still does have billions of lease liability for all the office space across the country that it’s hard to unwind. Also, Zillow and Trulia were two years old in 2008. So, consumer search was beginning to move online and becoming more democratized, not going into the office anymore to sell your home or looking for an agent. Pretty amazing experience at Apollo, just they are experts in sort of dislocated markets and distressed markets and learned a lot about that type of investing. So, after a couple of years decided that I wanted to be more operational and also kind of tap into my creative side. In college, I was a comparative literature major and also studied art history and have always been drawn to design and aesthetics. So, I knew the two founders of a digital agency in New York called Code and Theory, which at the time was about 50 people. One of the first projects that we worked on when I joined was to redesign vogue.com.
Scott:	Wow.
Michael:	Just to give you a sense of that project, before the redesign, if you went to vogue.com, it was a one-page form where you could sign up for a print subscription, and then obviously-
Scott:	Well, but the redesign, there must have been so much pressure on that redesign. If that didn’t look beautiful and amazing, you were in trouble. That’s a really high bar.
Michael:	Yeah, it was a high bar. I guess it was a successful outcome because they asked us to redesign Vogue again in 2014 to kind of match more of a feed-based model of content delivery and consumption, just kind of given what had happened with companies like Buzzfeed, just creating higher velocity content distribution, and you really need kind of more of a flexible CMS to support that level of publishing. So, Code and Theory was amazing. I was there for almost a decade as a managing partner and had the privilege of working with really talented designers and developers and brand marketers for clients ranging from high end fashion like Chanel and Hermes to publishers like Bloomberg and The Huffington Post and a lot of companies in between. And so, I met Justin just through a mutual friend, and he had sort of a vision for where the industry could go, what a new brokerage could look like. And his experience as an agent, having been to a lot of different brokerages and never feeling like the value exchange was fair, really made sense to me for a couple of reasons. From the Apollo days, if you were to build a modern brokerage today and go back to first principles would look really different. It wouldn’t have a brick and mortar core. It would be totally decentralized. It would function much more as a platform, as opposed to a physical entity that people go to do work. And now that agents are living in a kind of post-enterprise cloud, post-mobile world, a lot of the solutions that they need to do their job can be delivered through API driven services. So, we kind of felt like the operating leverage a modern brokerage could deliver by being decentralized would be pretty amazing. And by being a brokerage and the regulatory counterparty in a transaction, you have a huge advantage over a pure play SaaS business because you can actually follow the payment [inaudible 00:00:06:25]. The other reason why it made a lot of sense was, from the Code and Theory perspective, I always think that if… We had 500 really talented employees at code in theory when I left. And if our only clients, instead of being Adidas and large brands, had been real estate agents, I mean, we could have supported a large number of them. They are all navigating very similar distribution channels. They all have similar content marketing needs and requirements. And that is time consuming and complex for brands, let alone an individual sales person who now has to figure out how to create content and define an SEO strategy and think about retargeting and make sense of the data and allocate a marketing budget and also sell homes.
Scott:	There’s no way.
Michael:	Yeah.
Scott:	No way they can do that.
Michael:	It’s really complex. And so, we really believe that if you’re an entrepreneur and you choose to pursue entrepreneurship through the path of selling real estate, you deserve a fair shot at that, which means intelligent data-driven marketing decisions, high quality, creative execution for support, and a UI that is not complex. I mean, I think there are so many dashboards and drop downs and all these affordances of how you can implement different workflows, and it gets unused. So, we said, “How can we create a radically simple mobile first user experience for agents, so that the experience for them doing their work doesn’t feel that much different than ordering ride share or food delivery?” Because it’s a lot of repetitive tasks, and the data schemas behind these tasks are often the same every time. So that’s sort of the vision for the product and how Avenue 8 came to be. And yeah, it’s been super exciting since then.
Scott:	It’s amazing. You said like 20 amazing things that you’re doing for your clients. But in my heart, I feel like you’re virtualizing real estate brokerage, and you touched on it with no physical leases. Whoever goes into a real estate office anymore? What broker wants to share their commission structure and have that commission structure going… I mean, there’s some sharing, but have a big portion of the commission structure going to pay for assets that are not valuable in any way. When you touched on it, the digital assets are what really matters to people now. So, I just think you guys are… I think you’re super well positioned, and I think it’s really exciting what you guys are doing.
Michael:	Thank you. I mean, we obviously did not expect that a week after launching shelter in place would happen, but in many ways, it’s accelerated the mental model and changes in the industry that we thought were going to happen regardless by a lot. I think a lot of the agents that we spoke to, even in January, that were saying, “Well, I like the office because I have a hard time working at home,” they’ve now become totally comfortable working from home. And I think a lot of the other agents as well that said, “Well, I like being at the big brokerage because I get open houses and that’s how I get business.” It’s like, well, now they need a totally new strategy because there are no open houses and likely will never come back in the form that they were. And the new strategy is intrinsically digital. And so, when you think about what are the core unmet needs of agents today, and what are the primary services that brokerages offer? They’re totally misaligned. And then layer on the fact that agents are 1099 contractors that own their customer data, do all of their own lead generation. And despite, that they arguably have worse economics than Uber drivers. In this country, [crosstalk 00:10:05]-
Scott:	That’s the one that killed me. That’s the one that just absolutely… Especially the lead gen, they’re generating their own customers. Kind of in life, if you can generate the customers, you tend to get paid well or have a big portion of the upside. But I feel like that’s the giant disconnect for me in your industry.
Michael:	Well, I mean, back in the day, it was all on-premise software. So, if you wanted to search MLS listings, you had to be in the brokerage office, and there was probably a computer at the office that had the software that had the listings. And then when Zillow and Trulia democratized search and consumers could find access to inventory without going in the office, they no longer needed to walk in. But agents are still operating in a world where it was kind of pre-DocuSign, and a lot of the marketing workflows were still very analog. But today, it’s all available through cloud services, increasingly through API driven services, and agents are direct to consumer brands. Because of social media, they have a direct relationship with their buyers and sellers. And so, the idea of relying on the brokerage brand for leads and business is no longer the case.
Scott:	Yeah. Everything you said is totally accurate. And I’m not even a millennial, I’m 43, and my wife’s like 35, but we actually prefer to interact digitally and not have to go in… There’re so many things about the process that… Forget the economics aspect of it, the customer preference aspect of it. The end customer, me as a someone who wants to buy a house someday, don’t want to deal with that stuff. I just think, what I love about Avenue 8 is you guys are isolating the things that the brokers really want and need and the customers want and need, and you’re stripping out the stuff that’s superfluous, but also costs a lot of money. So, the whole value chain is getting more efficient and more profitable, which is pretty exciting.
Michael:	I think, despite certain companies out there that are trying to disintermediate agents out of the transaction, we have 1000% conviction that given the fact that residential real estate is most people’s largest asset, it’s an incredibly emotional and complex transaction, we believe agents are here to stay for a very, very long time, and that they are the ones that are radically underserved in the market. So, our goal is to really supercharge them. And we get questions all the time like, “Well, why do you need an agent?” And I think try anyone that’s bought a home, try doing that again without an agent. I think there’s a reason why the hyper-local knowledge, the ability to get you into contract and the competitive market, just the understanding of the process, it’s really critical. And look at industries like travel. How long has Kayak and Orbitz and Booking.com been around? There are still travel agents. And that is a way less complex and emotional process than buying a home.
Scott:	Yeah, well, actually, but also to continue that analogy, one of our clients, Pana, is like a digital travel agent in the same way that you guys are a digital brokerage firm. And it works really, really well. So, the trend you guys are executing in the real estate industry is happening in travel, like you said. And every time you and I talk, I feel like we’re brothers or cousins because we’re doing the exact same thing in the accounting industry.
Michael:	Totally.
Scott:	And it’s liberating. It’s liberating not to have to charge people a ton of money just so that you can run it. Avenue 8 is not going to have the capital and the revenue stream that Avenue 8’s going to be required in their broker partners is not going to be monumental. There’s just so much room as an industry to be more efficient. It’s really cool.
Michael:	For sure. And I think also one of the opportunities that we have, given the fact that a brokerage is that regulatory counterparty in the marketplace of real estate, the ability for a brokerage to be part of the home ownership journey is tremendous. Because all of the adjacent services, if you’re a mortgage lender, if you’re a title officer, if you are a home insurer, if you are a home service provider, you better have a good bench of agents because they are your number one source of lead generation. So we, as a brokerage, at the beginning of the transaction life cycle have an opportunity to be very involved in the origination of the consumer experience for all of those adjacent services. And that relationship doesn’t need to end once the transaction is completed.
Scott:	Yeah. Well, there’s one adjacent service that we were talking about a couple of weeks ago. I found that I hadn’t really thought about it, but it makes so much sense. You guys are basically able to virtualize the staging process. And I’ve even looked at houses that are not staged, and if it’s not staged, it’s way harder for the person buying it to visualize what’s going to happen, and they don’t want to pay as much. So, staging is a good investment. But this didn’t even seem like that big of a deal to you, but kind of off the cuff, you’re like, “Oh, yeah, by the way, we’ve got staging now.” Can you talk about how you start adding these digital services?
Michael:	Yeah. I mean, there’s a lot of great companies that are focusing on rendering and virtualization technology. I think the ability to customize some of that for the tastes of different buyers is interesting. If you’re looking at a house, and you have a modern aesthetic, you should see it with modern furniture. If you have a traditional aesthetic, you should see it in that regard, especially if it’s virtual. I think the other big piece that we’ve been able to do on that side is more of a financial solution, which is by working with our agents, sellers can literally renovate and stage their homes with no upfront cost, and just pay out of escrow once the home sells. And I think a lot of times, historically, it’s the agents that have had to put up that capital on behalf of the seller or the seller has to front the cash. But just by virtue of some of the other financial services out there, we can now provide sellers that upfront experience in a turnkey sort of way. And then obviously, you can’t guarantee any outcomes, but typically homes that have a modernized kitchen or maybe some more paint, have a net positive ROI on the sales price.
Scott:	Yeah. That’s really, really smart. And I hadn’t thought of that. I didn’t know you could do that. But you can kind of roll it into like the escrow or when the house actually gets bought, then that’s when the distribution to the staging company happens… Or the repair people. That’s fantastic. That’s amazing.
Michael:	Yeah. I mean, it makes sense. And I think as long as you have the right partners in place that are willing to work around that working capital cycle, then it’s a really fantastic solution for sellers. Particularly in markets like the Bay Area where you have a lot of homes that are really desirable, but maybe the kitchen hasn’t changed since the ’70s. And it doesn’t take a whole lot to get it to meet the buyer’s expectation, but typically you can get a two to one, three to one, four to one return on some of those improvements.
Scott:	That’s amazing. I hadn’t thought about the capital outlay by the agent. And this is going to be slightly embarrassing, but I love watching Million Dollar Listing. And so, I’ll see some of these guys, I’m laughing, but it’s true, they’re squirming, the agents are squirming because they put a bunch of money into the marketing of the property, and they’re nervous that the property is not going to sell or whatever. And so, for you guys to be able to facilitate handling either the marketing expense or some of these refurbishments or staging, that’s really amazing.
Michael:	Yeah. Million Dollar Listing has really encouraged a lot of people to enter into the real estate industry. Justin, my partner, was the star of the show.
Scott:	That’s right. I remember you say… Yeah. What market was he in? Was it in San Francisco?
Michael:	San Francisco, yeah.
Scott:	Okay, yeah, yeah.
Michael:	San Francisco. And I think he was already successful and continues to be successful, but I think that show has inspired a lot of people to pursue being an agent. And I think one of the things you’ll see in the next few years, especially if the economy remains sluggish, is people looking for a secondary income. I think there’s a lot of people out there, whether you’re a teacher or a parent reentering the workforce, and you’re a social person, you’re smart, you like selling, and you decide to study and take your exam and get your license as a realtor, I think Avenue 8 is in many ways the lowest friction platform to begin that journey. And we would totally support that.
Scott:	That’s [inaudible 00:18:35]. The new one in our house is Selling Sunset. That could not be hotter.
Michael:	Yeah.
Scott:	And you know what’s kind of interesting about… I hadn’t thought of how that trend could really help you guys, but that’s such a woman-oriented show. Million Dollar Listing feels a little bit more oriented towards men, or I don’t know, maybe it’s me projecting here, but Selling Sunset’s like all women. And I got to say, my wife has that on every time I walk into the living room. I think we’re to season two right now. So that’s really exciting. I hadn’t thought about the kind of “side hustle” or secondary income. But as we’re seeing with COVID, I know our client base, people are moving everywhere across the country. Things are changing so fast. And I could see people wanting to do something on the weekends to make extra money, or they’re creative people and they like selling, in a way, that’s a creative outlet for them. So that makes a lot of sense.
Michael:	I agree. I think also real estate, it’s so many different things at once. Obviously represents home, but it’s also architecture, it’s design, it’s landscaping, it’s interiors, it’s fashion. So, I think it just hits on a lot of different interests for people. It’s a really dynamic asset class.
Scott:	Yep, it’s really cool. And you made the point also earlier that I loved about it being the single largest investment that people make in their personal life. So yes. And I’m with you, I don’t see a world without agents because it’s just too… We’re kind of navigating the process right now. We lean on our agent, Dirk, a lot. Without him, we wouldn’t really know what we’re doing whatsoever, so it’s pretty valuable. What is the next kind of… You don’t need to break any news on the podcast, but what are the next kind of things that you want to introduce to make agents’ life easier and make them more effective?
Michael:	Well, I think there’s a couple of things I’ll say. The first bit of exciting news is that we recently brought on our first agent in LA, which is really exciting.
Scott:	Nice.
Michael:	So, it’s our first expansion out of the core Bay Area market where the team is based and our first group of agents is based. But LA is an enormous market. I mean, you mentioned Selling Sunset. I think there are 10 times as many real estate agents in Southern California as there is in Northern California and also very competitive and attractive market dynamics down there. So that’s been super exciting. From a product perspective, I think one thing that we are spending a lot of time on right now is building out and enhancing our data infrastructure. The way that real estate treats data is unlike any industry I’ve seen. There are 800 different MLSs in this country, which historically all have different data schemas. And it is a very-
Scott:	How is that possible? Is it because each region has an MLS or something like that? How could-
Michael:	Yeah. So there there’s 75 MLSs in California alone. So, the first MLS was in the 1800s, and it was basically a centralized place to find listings and create some rules and regulations around how real estate is bought and sold. So, over the years, each MLS had its own local listings. Then eventually when computers became a thing, they built databases. And those databases were all built independently, so there wasn’t a singular architecture or schema around how that was built. And then eventually, the National Association of Realtors, which governs the MLSs said, “You all need to have an API.” And so, then a handful of companies kind of emerged that would create handshake deals with different MLSs and build a set standardized API, but even those have some differences. Despite the existence of organizations that have been pushing for uniform standards for years, the adoption has not been as quick as really as anyone would like. So, it still remains a pretty complex thing to navigate. And as a result, if you’re an agent and you are valuing a home, your dataset is often not totally complete. And even if it is complete, it’s not a complete picture of the value of the home. You can’t just look at the median price of the five properties in the surrounding area, then do an average, and say, “Hey, that’s what the home is worth.” There are so many different nuances. So, one of the big focuses of ours to provide value to our agents is to equip them with enhanced comps by leveraging a lot of alternative data sets, to make the views more multidimensional, and also just more thoughtful about how we assess value.
Scott:	So, I look at dollar per square footage, but you’re right. Some of the people in San Francisco refurbished an attic, the square footage, that’s like zero value square footage versus… So that’s a super simple… But you could probably do stuff like layer on proximity to schools or other interesting thing that makes these comps way more helpful, right?
Michael:	Yeah. I mean the possibilities, I mean, there’s a lot. So, the interior price per square foot versus the exterior price per square foot, if you’re thinking about a property, you have the land and the location of that land, which accrues in value. And then you have the literal house, which is probably like a car, you know?
Scott:	Yeah. Yeah, yeah, yeah.
Michael:	It’s a depreciating asset. That varies home to home. So that’s one way to look at it.
Scott:	I never thought about that. That’s really smart. Oh my gosh.
Michael:	If you think about permit data, you might have two properties that are identical, but one is on a block where 30 kitchen remodel permits have been issued in the last 12 months. So, what does that tell you about the direction of that street? Is there going to be more transaction volume coming up? Are those homes remodeled, and they’re going to increase the price because of gentrification. That’s one way to look at it.
Scott:	Wow. That’s really cool.
Michael:	Flipping the view, flipping the view, if you’re an agent and you want to grow your business, maybe your neighborhood’s [inaudible 00:00:24:32], all right, well buyers know value. Where do they work? Where do they get coffee? What brands do they shop online? How do we package storytelling that actually gets in front of them? So, I think there’s just so many possibilities of how alternative data, Foursquare data, Yelp data, can be kind of repackaged into a valuable product.
Scott:	Yeah. That’s amazing, Michael. I love it. Well, this has been amazing. Do you mind leaving the audience with just a way to get ahold of you, especially brokers out there who want to start working with Avenue 8? Should they go through the website? Should they reach out to you on LinkedIn? What’s the best way to get in touch?
Michael:	Yeah. The website avenue8.com. You can request information, and we are super responsive. So, if you’re an agent and are looking for some new energy and maybe more support on the things that take a lot of time, I think it’d be a really great fit. Right now, we’re only in California. So hopefully in the near future, we can expand out to some other states. But right now, we’re really just focused on building our business here. And then, yes, LinkedIn is a great place to connect. I think also if you are a realtor, LinkedIn is a huge opportunity for you. If you just think about what are the companies that are going public in the next six months? Who’s been working there for a long time and might have a liquidity event? And once they do that, they’ll probably want to make a transaction of some sort. It’s a great way to just build your sphere of influence.
Scott:	I love it. It seems like Instagram and LinkedIn are the two major social networks for real estate, real estate agents, or people who are potential buyers like you were saying. That’s where I spend a lot of time. I don’t know, every time we talk, I get super excited about your company because I feel like you guys, you’re right in the sweet spot. And COVID kind of accelerated this. I wouldn’t have thought about it, but it’s you guys, you just did a good job. And I know this is not an overnight success, you’ve been working on this company for a couple of years now. But it’s all about right time, right place, and I think you guys are there.
Michael:	Appreciate that. Yeah, there’s a lot of work to do. But certainly, I would say by virtue of being virtual, we’ve been able to adapt well. Even our team, the Avenue 8 full time team, and we have a couple of young parents on the team, I think it’s been challenging at certain times. Obviously having to play so many different roles at home, and work from home, and obviously be at home, and parent at home, and teach at home. So, we’ve tried to really create a constructive and collaborative environment for everyone. But 50,000 Slack messages in since February, I think the modern ways of communicating and project management are playing out.
Scott:	Yeah, I love it. Al right, man, thank you for coming by. I really appreciate it, and super excited about your company.
Michael:	Thanks, Scott. It was really fun.
Singer:	(Singing) It’s Kruze Consulting Founders and Friends with your host, Scotty Orn.

Michael Martin on Avenue 8, the residential real estate brokerage for the new age, built for modern agents

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