With more than 80,000 real estate brokers across the country, observers say the fragmented real estate industry is long overdue for consolidation at a faster pace than in the past. But whether 2005 will be the year the pace significantly speeds up may depend on other factors.
“Some of what we will experience next year will be determined by what kind of market conditions we have,” said Ron Peltier, president and CEO of HomeServices of America, which has built its business partly through acquisitions.
Peltier believes the market will soften somewhat during 2005, which means the industry will have “greater desire and opportunities for consolidation.” Since the market has been so robust in recent years, the consolidation scene has been fairly quiet, he said. That’s likely because some brokers who have thought about merging put the idea on hold while they took advantage of the industry’s continued run of record-breaking sales.
“I fully believe that many companies wanted to ride that horse the last mile before it got exhausted and take all that’s good out of it before they decide to make their company for sale and acquisition,” Peltier said. “Clearly you can’t blame them, that’s just good business on their part.”
HomeServices is planning four to six acquisitions next year, the same pace the company has followed in recent years, Peltier said. The company is focusing on acquisitions that are good fits and not just “grabbing any and all business at any cost,” he added. But if circumstances were right, the company might consider more than the planned four to six acquisitions.
Peltier pointed out that HomeServices isn’t the industry’s only acquirer. Other players, big and small, are expanding operations through mergers and acquisitions and will likely continue that trend into next year.
One of the industry’s largest, Cendant Corp., has its eye on more acquisitions in the future. Richard Smith, chairman and CEO of Cendant’s real estate division, recently told investors that the company’s acquisition pipeline remains full. Seven deals are under contract and another 50 are in the pipeline, he said. All are expected to close during the next year.
“There is considerable room for growth given the size and relevance of the industry,” Smith said.
Already, more than a quarter of all Realtors in the United States are affiliated with Cendant’s real estate brokerage franchises or brokerages owned by Cendant subsidiary, NRT Inc.
The Cendant franchise brokerages, which include Century 21, Coldwell Banker, Coldwell Banker Commercial and ERA brands, have a formidable force of about 200,000 sales associates and 12,000 offices. NRT, with corporate-owned brands including The Sunshine Group, The Corcoran Group, Coldwell Banker, Coldwell Banker Commercial, ERA and Sotheby’s, employs about 58,000 sales associates in 950 offices.
Acquisitions have been at the core of NRT’s rapid rise to industry prominence since its creation in 1997. The company has bought more than 250 real estate brokerages in its short history.
Earlier this month, NRT announced its first international acquisition with the purchase of Sotheby’s International Realty Limited in England. Bob Becker, chairman and CEO of NRT, said the acquisition represented a major milestone for NRT as it creates an “international doorway for real estate consumers.”
Steve Ozonian, Bank of America’s home ownership executive, believes industry acquisitions will continue at the pace they have been. “That’s sort of a forever process now, I think,” Ozonian said.
Part of the reason lies in the need for companies to seek more efficiencies and economies of scale. The real estate business requires more capital and technology than before, lending strength to companies that can combine those two, he said. Those are the types of organizations that will look to acquire others.
“On the residential real estate side, you will continue to see the players who have been making acquisitions continue at least at the pace they’ve been on,” Ozonian said.
Van Davis, CEO of Foxtons North America, sees consolidation continuing but doesn’t believe that it will materially change the real estate landscape. Independent brokers will continue to exist even as some become part of a larger entity.
Consolidation is likely to heat up on the mortgage side of the housing industry if the market slows as many experts predict. Rising interest rates in the past have led to consolidation of mortgage companies, said Doug Duncan, chief economist for the Mortgage Bankers Association.
Consolidation is not always a bad thing, said Pava Leyrer, president of Heritage National Mortgage Corp. Lured by low barriers to entry and the thought of easy money through mortgage refinancings, many people entered the mortgage business during the continued low interest rate boom. The refinance business has largely dried up, but there are still too many people hanging on who should not be in the business, she said.
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