Editor’s note: Cendant Corp., and predecessor HFS, have changed the face of the real estate industry by ushering in an era of large-scale consolidation. The Coldwell Banker brand, which was acquired by Cendant predecessor HFS 10 years ago, has also been a driving force for industry consolidation and is the top real estate franchisor in the nation. (See Part 1, “Cendant buys its way to the top.”)
In the weeks following the devastating 1906 earthquake and fires in San Francisco, Colbert Coldwell, 23, established a commercial real estate business that would aid the city’s rise from the rubble.
That company – Tucker, Lynch & Coldwell – would later become Coldwell, Cornwall & Banker and then Coldwell, Banker & Co. Coldwell met Benjamin Arthur Banker in a real estate transaction in 1913 and asked him to join the company. Banker became a partner in 1914.
The original company evolved to offer residential brokerage services – primarily to serve the housing transactions of its commercial clients. In 1968 the company made its first major residential real estate acquisition, and 25 years ago the company launched residential real estate franchise operations.
Today, Coldwell Banker is the largest real estate franchisor, with about 126,000 sales associates working in about 3,800 offices and 29 nations. That compares to 2,453 offices and 55,195 sales associates in 1995. In August the real estate brand will celebrate its 100th anniversary.
The history of the company is tied to a great catastrophe. It all began with an eye-opening jolt at 5:12 a.m. on April 18, 1906, 100 years ago today, and followed with a horribly violent minute-long quake that triggered dozens of fires. The fires raged for days and left San Francisco in ruins.
The toll was severe. The disaster killed an estimated 3,000 people in the San Francisco Bay Area, left about 225,000 of San Francisco’s 400,000 residents homeless and leveled 28,000 buildings, according to a compilation of reports by the U.S. Geological Survey. The fires burned an area spanning 4.7 square miles. The economic loss: $400 million in 1906 dollars. In those days, the average three-bedroom home cost $2,400.
With major disasters there often follows a period of chaos and lawlessness, confusion and turmoil. There are villains and heroes, wrongdoers and do-gooders, opportunists and entrepreneurs. In this trying time, Coldwell built a business, a brand and a reputation that has stood the test of time and steered the course of the real estate industry.
Jim Gillespie, president and CEO of Coldwell Banker Real Estate Corp., now a part of Cendant Corp., said that the original founders’ core business fundamentals remain ingrained in the brand.
“Our company wouldn’t and couldn’t have survived if we didn’t do things the right way and treat people the right way. For us to survive 100 years is tremendous, let alone be on top of the game. If we didn’t have core principals and culture we wouldn’t have survived at all, or if we did survive we wouldn’t be as big and powerful as today,” he said.
Gillespie, who joined the brand in 1976, said the real estate industry lacked standard ethics and guidelines when Colbert first got his start in the business.
Real estate brokers in those days typically had two approaches to working with sellers: a seller would state a price and the real estate broker would keep whatever profit they made above the seller’s expected price, or the broker would buy a property directly from a seller and then resell the property.
Coldwell established a policy, which stood for about 60 years, that prevented company salespeople from owning any real estate for investment. This was intended to prevent its sales force from working against the interests of clients in real estate transactions.
Coldwell sought to bring ethics and professionalism to the business of real estate, Gillespie said. “I’m proud to see that we’ve kept that tradition – high ethics and high morals and treat the customer as you would want to be treated yourself.” The company has been a pioneer in promoting disclosure of known defects, he said, and in setting service standards for its clients, for example. In 1996, Coldwell Banker became one of the first national real estate brands to launch a Web site.
The company values its leaders, Gillespie said. “Not only are we a strong and mature company but we retain our people. If you cut us we bleed blue,” he said, referring to the company’s blue logo. The company’s management team includes executives with decades of experience at Coldwell Banker, he said, and many company leaders have also worked as real estate sales associates. “We understand the business and can relate to our customers.”
Coldwell Banker became a publicly traded company in November 1968, and Sears, Roebuck & Co. purchased the company in 1981. In 1993 Coldwell Banker was acquired by The Fremont Group, an investment organization, and HFS – a hotel franchise company and predecessor to Cendant Corp. – acquired Coldwell Banker in 1996.
Avram Goldman, president and chief operating officer for Coldwell Banker Residential Brokerage in Northern California, though he never met the original founders of Coldwell Banker, said he has met Bill Banker, the son of Benjamin Arthur Banker. And by coincidence, Goldman said he learned that he lives in the same neighborhood in the San Francisco Bay Area where the Banker family has lived. Goldman attended University of California, Berkeley, the same college that Colbert Coldwell attended before leaving to pursue his career in real estate.
“To me what Coldwell Banker represents is what the two founders wanted to do when they got into real estate. There were a lot of shenanigans going on at that time because there was a lot of chaos and corruption. They wanted to found a company that was based on doing what was always right for the customer – not about self-interest. The customer truly is first … even if that means walking away from a transaction. And that was their philosophy. We change with the consumer and I think that’s why we’ve been here so long.”
Goldman was working at a real estate firm that Coldwell Banker acquired in 1983, and he decided to stay aboard. “I really saw the power of the brand. I was obtaining business that I never had before.”
Robert J. Arrigoni, former CEO for Coldwell Banker and a former executive at Cendant’s NRT subsidiary, said that despite several ownership changes through the years, Coldwell Banker’s operating philosophy has survived largely intact. And the company has helped to steer the course of the industry, he added. “Many of the laws and the way we do business today really came from (Coldwell Banker).”
While real estate is inherently a local business, Arrigoni said that Coldwell Banker was able to apply national standards to its offices across the country.
Managers, he said, “stressed that the service level be at a very high level in all of the offices. There was a great deal of commonality between the offices. One of the most difficult things was to take real estate offices around the country – which had a sort of indigenous way of doing business – and try to do a marketing philosophy and operating philosophy that would work.”
Arrigoni recalled the days when Merrill Lynch engaged in residential real estate operations and was a key competitor to Coldwell Banker. As with others who have held management posts within the Coldwell Banker organization, Arrigoni worked for a company, Valley Realty, that was acquired by Coldwell Banker during the company’s aggressive growth drive in the 1980s.
Joe Hanauer, former chairman and CEO of Coldwell Banker Residential Group, sold his Chicago brokerage company to Coldwell Banker in 1977 and oversaw a period of rapid expansion for the company’s residential business. “The company was almost solely commercial until the late ’70s, early ’80s,” Hanauer said.
The early ’80s proved a difficult time for the industry because the country was at the tale end of a recession and interest rates were sky-high – but this made it a good time for acquisitions. “Because we were able to make some very good acquisitions in key markets, that resulted in momentum,” he said.
“This whole notion of consolidation in the industry was starting to take root. Consolidations were things that people were prognosticating for a long period of time but really hadn’t taken root. It caused a lot of people in the business to take a look at whether they wanted to be part of a national company or not.”
During the 1980s Coldwell Banker operations had a compounded revenue growth per year of about 30 percent, he said, and the company integrated management teams from its acquisitions.
“There was a real conviction that we would try to create very strong local market knowledge, local leadership, and the role of the company as a key business partner in the local community. For the companies that we acquired, in almost every single case the selling shareholders became key parts of management,” he said.
There were plenty of skeptics, he said, who doubted whether a real estate brand could successfully go nationwide. “The conventional wisdom was that this was a local business and a local brand. A lot of people thought (Coldwell Banker) was a flash in the pan and was always going to be local. You can have this local knowledge, local responsiveness, local customer attention and still have the stability of a national brand. That was a big lesson.”
There was a focus on high productivity among agents, he said, as the residential business grew, and that perhaps stemmed from the brand’s success in commercial real estate. “When (the company) first started to do a little bit of residential, it did have this professional productivity approach.”
Hanauer said he attended a Coldwell Banker conference earlier this year in which the company celebrated its 100th anniversary. “You just had a feeling that you were with a bunch of pros – this wasn’t a house party,” he said.
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