Get ready for real estate consolidation
News analysis: Following in the footsteps of the financial sector
By Inman News, Wednesday, October 1, 2008.
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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Submitted by Steve Simon on October 1, 2008 - 12:29pm.
"Soon all restaurants will be Taco Bells!"
If the answer to a complex problem is very simple, it is usually incomplete...
Steve Simon is the lead instructor at the Steve Simon School of Real Estate www.stevesimon.us
Submitted by Stefan Swanepoel on October 1, 2008 - 1:47pm.
Consolidation in the residential real estate brokerage industry will actually be a good thing for teh industry as a whole. We have way too many real estate brands, franchises, firms and agents.
Submitted by RK Ruthman on October 1, 2008 - 2:11pm.
Is the strategy:
The bigger companies that band together will expand together?
CONSOLIDATE in the future and CONTROL the future!
Sounds a little "microsoft", don'tcha think?
I am sure the DOJ won't be following that!
Submitted by Lenore & Alex Wilkas on October 1, 2008 - 2:40pm.
We've been watching this very thing taking place for over the past two years or so. But, while some of the real estate companies have merged, others have closed up. How to you factor the number of new one-man shops popping up all over the place? I guess they'll survive by doing those couple of deals a year (and that's possible in our market but not in most any where else).
The big question I have is how does the consumer fair? Going to the biggest isn't always the best for the consumer. We are losing our choices in the market place day by day.
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Lenore Wilkas
Prudential CA Fine Homes International
www.SanMateoRealEstateNews.com
Submitted by Marc Rasmussen - Sarasota FL Real Estate on October 1, 2008 - 4:48pm.
I am seeing offices merge and close on a local level in Sarasota, Florida. This is a challenging business right now and most likely not too profitable. The brokers that have deep pockets will be able to weather the storm until the market become healthier.
I recently moved from a small brokerage that bounced one of my commission checks to a larger, more established company.
Economies of scale work in this type of business climate.
Marc Rasmussen
www.LuxurySarasotaRealEstate.com
Submitted by Jodi Summers on October 1, 2008 - 9:34pm.
Profitability becomes more difficult every day. Agency overhead is high, and often time offices are fairly empty except for the paid staff. Companies will start crunching number and consolidating offices, or merging with other vendors.
Jodi Summers
Sotheby’s International Realty
jodi@jodisummers.com
www.SoCalOfficeRealEstateBlog.com
www.SoCalGreenRealEstateBlog.com
www.SantaMonicapropertyblog.com
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www.428hillst.jodisummers.com
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There are only two ways to live your life. One is as though nothing is a miracle. The other is as though everything is a miracle. - Albert Einstein
Submitted by Brad Garbutt on October 2, 2008 - 9:10am.
Out west, Realogy showed their true colors when they devised the Property I.D. NHD report kickback scheme. I would strongly consider leaving GMAC if Realogy bought our franchise. This corporation will throw business ethics out the window to enhance their bottom line. I would never work for one of their existing real estate companies. I would think any agents working their should give serious thought to their practices of using their agents as schills to line the company's pockets with ill-gotten fortunes. What other scheme will they devise to fleece their clients?
Submitted by John Keith on October 4, 2008 - 6:21am.
Who's calling you, Ms Chris - debt collectors?