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Get ready for real estate consolidation

News analysis: Following in the footsteps of the financial sector

Last week, it was announced that Brookfield Residential Property Services, based in Toronto, Canada, would purchase GMAC Home Services LLC, which operates one of the largest real estate brokerage companies in the United States (see Inman News article). Brookfield owns the Royal LePage, La Capitale, Johnston & Daniel, and Centract real estate brands.

Like the banking sector, other industries are expected to consolidate in response to tough economic times. And experts say this is just the beginning of a major marrying of unlikely bedfellows in the real estate industry.

"In the next 12 months we will see incredible consolidation, shocking partnerships. People and companies we would never dream of joining forces will do so," wrote Sherry Chris, president and CEO, Better Homes and Gardens Real Estate, in a Sept. 30 blog post. "My phone is ringing off the hook" — she would not say who was calling.

Better Homes and Gardens Real Estate is part of the Realogy franchise group, which also owns Century 21, Coldwell Banker, Sotheby’s and ERA.

Arguably, the consolidation began in 1995 when Realogy, formerly HFS, acquired Century 21 and ERA. Then in 1996, HFS snatched up Coldwell Banker Corp. for approximately $740 million.

Leveraged buyout artist Henry Silverman created HFS and rode the housing market from 1996 to 2007, when he sold out to an affiliate of private equity firm Apollo Management LP.

Realogy was mentioned among the possible buyers of GMAC, but it has been saddled with debt in the heavily leveraged buyout deal.

The consolidation frenzy that began in the late 1990s was in response to opportunity in the real estate sector. Mergers and buyouts today are more in response to hard and even desperate times for some firms that are having trouble keeping their doors open during this worst housing market in decades.

"As the year goes on, people are going to have to dump or close," said George Slusser, a real estate industry consultant who has worked on real estate mergers and acquisitions. "The semi-weak companies are hoping they have enough revenue to survive the next year," he said.

Iowa-based HomeServices of America Inc., owned by Warren Buffett’s Berkshire Hathaway, was another aggressive buyer during the market boom but has been relatively quiet on the real estate acquisition front in the last couple of years.

Brookfield also got GMAC Global Relocation Services and GMAC’s GHS Mortgage in the deal for GMAC Home Services. Brookfield real estate companies had a total agent count of about 15,000 that will grow to about 33,000 or 34,000 once the GMAC deal is finalized. The transaction is expected to close during the fourth quarter.

In 2006, General Motors sold a majority stake in its GMAC business to a consortium of investors. GMAC once owned the Better Homes and Gardens real estate brand rights, acquired from publisher Meredith Co. Those naming rights expired this year and were purchased by Realogy Corp., which in July rolled out Better Homes and Gardens as its own real estate franchise brand.


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