Equitable Sotheby’s International Realty in Scottsdale, Ariz., has merged with Russ Lyon Real Estate Co. in Scottsdale to form the largest franchise in the Sotheby’s network.

The franchise network, a part of Realogy Corp., has about 9,500 sales associates in about 485 offices in the United States and 32 other countries and territories.

Equitable Sotheby’s International Realty in Scottsdale, Ariz., has merged with Russ Lyon Real Estate Co. in Scottsdale to form the largest franchise in the Sotheby’s network.

The franchise network, a part of Realogy Corp., has about 9,500 sales associates in about 485 offices in the United States and 32 other countries and territories.

The following is an Inman News interview with John Vatistas, who founded Equitable Real Estate in 2005 and in October 2007 became the first Arizona affiliate of Sotheby’s International Realty. Vatistas is now co-owner and co-chairman of the new company, Russ Lyon Sotheby’s International Realty, along with co-owner and co-chairman Jim Lyon.

Q: How long has this merger been in the making?

A: Five months. It took four months and three weeks longer than it should have, but it was well worth it.

Q: Why is it a good fit for both companies?

A: Our agents and management team from both companies are made from the same ilk. We competed intensely against each other like ladies and gentleman. It’s a perfect marriage of like-minded individuals.

Q: How did discussions begin?

A: I contacted Jim Lyon and told him we should do a deal together. He owned the franchise rights for Russ Lyon in northern Arizona — Sedona, Flagstaff and Sedona. He and I worked together in the past and really like each other. His companies achieved between a 30 to 40 percent market share in their respective markets. He and his partners are very aggressive, well-liked and were eager to tackle the Phoenix market given the right opportunity. I knew we’d make great partners. Thankfully, they felt the same way. We ended up agreeing on a deal in about four minutes flat, including a bathroom break.

Q: Why is this a good time in the marketplace for the companies to merge?

A: It’s actually perfect timing. Many companies are in full retreat right now. I’m a big fan of running away from the crowds. We are operating from a position of strength. We have a war chest of cash and we intend on deploying our resources quite creatively.

Also, competing against companies when they are in a defensive posture is fairly easy. Our company is now the 800-pound gorilla in our market in terms of quality agents who produce, represent their clients aggressively and have the massive inventory of the most-sought-after properties in our respective markets.

Unrelated to the market specifically, Dennis Lyon is 73. He has always aspired to sell the company to his son when the time was right. When his son approached him with the idea, the light bulb went off and he thought it made perfect sense to pass the torch.

Jim and I saw Russ Lyon as a sleeping giant. Not in terms of the agents, but in terms of what’s been done with the brand for the last 10 years. We’ve got our slingshots out and we’re aiming right between the giant’s eyes.

Q: How will this large franchise company better serve consumers?

A: It’s not really just a matter of size. It’s our talent pool and it’s vast. We have an exceptionally strong bench both in terms of management and our agents.

Q: How important is brand in the marketplace these days, and discuss the branding decision that came out of this merger?

A: I easily spent a few million dollars on branding Equitable. We had our "E" and Equitable on all of our yard signs, building signs, advertising and marketing materials. With a billion dollars in inventory and 300 agents in just two years, we exploded onto the scene in the Scottsdale-Phoenix marketplace. Our signs were everywhere. In doing this deal, Russ Lyon was in existence for 60 years. They had the premier name and were known nationally for anyone who understands the Arizona market. Our "E" was everywhere and we were really taking the market by storm. However, at the end of the day, to me, the "E" stood for ego. It was easy for me to let that go to be a part of something much bigger than me. Coupled with a 300-year-old internationally recognized name like Sotheby’s, Russ Lyon Sotheby’s International serves our agents locally, nationally and internationally.

Q: What elements of both companies are preserved in this merger?

A: First and foremost, our agent population is key. I don’t believe we are in the real estate business. We are in the agent business. There’s a big difference.

The names "Russ Lyon" and "Sotheby’s International Realty" were the big factors for both Jim and me. In fact, Jim told me flat-out if it was any other brand in the world besides Sotheby’s he would not have done this deal and would have stayed independent. I felt exactly the same way. I never would have bunked up with another franchise brand.

Also, Equitable was a very technologically savvy company. We were aggressive, nimble, and had great advertising and marketing. Russ Lyon had tradition, history, great producing and very loyal agents, a solid management team, and a longstanding brand in Arizona. It’s a formidable combination.

Q: What do you expect to see in terms of mergers and acquisition activity in the real estate marketplace in the short term?

A: Interestingly enough, not much. I think many companies cease to exist. Most real estate companies are run by former real estate agents. They don’t have access to sufficient capital to weather a market like this. Either they don’t have adequate funding or they are not business-savvy to be creative in running their companies. You have to be fearless in this market, as this is the time to make your mark.

Additionally, most companies are simply trying to preserve what they have or merely hang on. We are constantly looking for opportunities to improve. That doesn’t always mean growth in offices or agents. I prefer to go after talented managers and agents, or agents who have great potential. I love folks who want to better themselves, who are not jaded by the perception of the market. I enjoy working with agents who embrace change, regardless if they initially fear it or not — not just change for the sake of change, but change to help them and their clients be more successful.

Q: Which deals will be most abundant and which will be more rare?

A: I think deals that involve companies that will simply fold in their operations with stronger companies — with no upfront cash (or no cash for that matter) — are going to be the order of the day. I certainly would not want to be a seller in this market. Multiples for companies are next to nothing. The Russ Lyon merger was a no-brainer in my mind. However, I see very few opportunities in this marketplace that are accretive to earnings. Many companies have way too much debt, are slow paying their vendors, and are running on fumes. You have to be incredibly selective and understand financials backwards and forwards. Culture is critically important. In my view, most real estate companies aren’t run well or management doesn’t have solid business minds driving the ship. Our management team is diverse. Each person has a different life experience and tremendous real estate, business and entrepreneurial experience. That’s not an easy thing to duplicate.

Q: Are there fewer barriers these days for brokerage companies that seek to expand regionally?

A: Yes and no. If you want instant market share you have to buy a good company. That’s tough in our particular market because there’s no longer another independent real estate company of any meaningful size. The rest are either well-known brands and you really need to be a part of their network or they are mom-and-pop shops where there really is no intrinsic value.

For upstart brand companies entering our market, it’s really tough. I’ve seen some real bad moves with attempts to make a big splash and hire the wrong management team. Having the right team in place makes all the difference in the world. In our market, they are few and far between.

Q: What are the biggest challenges for joining companies?

A: There are several factors to consider. Most agents fear change. It can be paralyzing to a lot of good folks. The fear of the unknown is something I’ve not quite seen before in any other business I’ve owned or operated. That’s a big challenge. I actually am excited about helping transition a 60-year-old company to today’s latest and greatest technology.

Anytime there’s a merger management has to select the very best candidates for the job. When two people have the exact same job, some painful decisions have to be made and quickly. That doesn’t always sit well, despite it being the healthiest thing for the company. It has to be a fair and balanced process and playing favorites is simply out of the question. It needs to be transparent. You have to be able to prove you are genuinely doing what’s in the best interest of the company, which ultimately translates in what’s best for the agents. However, agents don’t always see it that way and good communication is essential.

At Equitable we took a very aggressive approach. We had no laurels to rest on. We had to blow away the market in order to attract and retain the very best agents. Mind you, I’m not just talking about the highest-producing agents either. There are plenty of high-producing agents out there we’ve turned down. They would either be disruptive to our existing culture, they have a bad attitude and/or they don’t play well in the sandbox. There are many agents in our industry who simply don’t conduct themselves in a manner consistent with our brand.

Then there are agents who cringe if a company makes any money on a transaction. They are comfortable with a win-lose proposition. What companies need are solid business partners. Many times some high-flying agents perceive themselves as "marquis" agents who will raise the profile of the company and draw other agents in as a result of their presence. I see that as a common mistake for a lot of real estate companies and very dangerous to maintaining a healthy culture.

Another challenge, believe it or not, is turning away agents who now want to join our combined company. We have to turn them away for the very same reasons stated above.

I measure agents in this way: if I would want them to represent my own family’s best interests if something ever happened to me. For every 50 agents, I’d say only one fits the bill. Therefore, we will never be the biggest real estate company in Arizona. Most agents wouldn’t qualify to join our firm.

Q: What role will technology play in facilitating this merger?

A: Russ Lyon has relied more on its solid name, great locations and successful agents — all very important qualities. Technology, in my mind, is two-fold. It makes the lives of our agents simpler. Most old-school agents fear technology. Once they are exposed to it and accept it, they absolutely love it and are proud to show off their newfound skills. The second component is through harnessing the power of the Web, whether it is search-engine optimization, Web functionality, e-mail, online advertising and marketing or, most importantly, touching potential customers. We have great tools to implement and consider it very high on our list, right out of the gate.

Q: Which types of real estate brokerage companies are most challenged in the current real estate market, and which types of companies are thriving?

A: I think any company that doesn’t have a war chest of cash and/or know how to aggressively manage its costs is struggling. I personally think all 100 percent companies in my market are really struggling (100 percent companies allow agents to keep the entire commission earned on a real estate transaction while paying a broker’s transaction fee and/or other costs).

Here’s why: In Maricopa County, Arizona, there are approximately 55,000 listings. Only 3,500 to 4,500 homes per month are selling. Many agents are going broke and fast. Being at a 100 percent company is like having a mortgage. You have to write that check each and every month, come hell or high water, not to mention getting nickle-and-dimed for paper clips, faxes, toner, copies and everything else.

***

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