An increase in real estate business closures and bankruptcies is an inescapable reality of any housing market downturn, and this cycle has been no different from those past. Though there are no hard statistics that quantify the number of companies that have closed their doors, merged with their competitors or filed for bankruptcy court protection, there’s no doubt that closures and bankruptcies are on the rise and that both large and small real estate companies have been involved.
A search of court records for real estate bankruptcies pulled up hundreds of records of personal and corporate filings, and seemingly no segment of the industry has been immune. The lengthy list of Chapter 7, Chapter 11 and Chapter 13 filings included individual brokers, sales agents, independent companies, franchises, developers, homebuilders, mortgage brokers, property managers, time-share operators and more.
LandAmerica, Foxtons, Help-U-Sell file bankruptcy
Bankruptcies of real estate companies have included:
- LandAmerica Financial Group, which was the third-largest U.S. title insurance company (see Inman News).
- Help-U-Sell Real Estate, a fee-for-service real estate brokerage franchisor that has nearly 1,000 offices in 46 states (see Inman News).
- Foxtons, a cut-rate commission real estate brokerage company in West Long Branch, N.J. (see Inman News).
- WCI Companies, a Florida-based luxury homebuilder (see Inman News).
- Prudential Americana, a brokerage company in Las Vegas that has 1,100 agents.
- Century 21 Town & Country, a real estate brokerage in Rochester, Mich., that has 550 agents.
- Century 21 Aadvantage Gold, a real estate brokerage in Las Vegas with 300 agents.
- Prudential Cranbrook Realtors, a real estate brokerage in Troy, Mich., that has approximately 90 agents.
- Haskins Realty Northwest, a real estate brokerage in Portland, Ore.
- Charlie Orden, broker/owner of RE/MAX Town Centre, a real estate brokerage in Orlando, Fla., that has approximately 60 agents.
- Ron Raitz, president of Real Estate Exchange Services, a 1031-exchange accommodator in Atlanta.
- Robert and Loraine Dyson, luxury-home real estate brokers in Solana Beach, Calif.
Bankruptcy doesn’t necessarily mean a company is out of business. Some, such as Foxtons, do close up shop and liquidate their assets.
But others reorganize and exit bankruptcy or are acquired by their competitors or other saviors: Prudential Americana Group exited bankruptcy in May 2008 and remains the largest brokerage in Nevada, according to a company spokesperson. LandAmerica was bought by Fidelity National Financial. Help-U-Sell was picked up by Infinium Realty Group, a privately held company in Sarasota, Fla., according to Robert Stevens, a spokesman for Infinium.
"Help-U-Sell will definitely continue. The 330 offices are all active and open at the moment," Stevens said.
Still other companies, like Century 21 Town & Country, try to keep their doors open while they attempt to reorganize.
Bill Martin, CEO of the Michigan Association of Realtors in Lansing, Mich., explains that Century 21 Town & Country President John Kersten filed for bankruptcy under Chapter 11, which allows for a reorganization, instead of other options that he says "would have been more devastating." …CONTINUED
"He could have taken Chapter 13 or just closed his doors, but he said, "No, we are going to try Chapter 11 and reorganize. That is pretty exciting because he thinks he is down for the fight and strong enough to get through it. That’s an important message," Martin says.
Franchisees that close their doors can lose their franchise affiliation if their agreement with the franchise company contains a "go dark" provision, according to John Young, a bankruptcy attorney with Markus Williams Young and Zimmermann in Denver, Colo.
"If you shut the doors for any amount of time, you have gone dark and that automatically terminates the agreement. Then the argument in bankruptcy becomes: Can you somehow resurrect the franchise agreement? It’s extremely difficult," he warns.
Bankruptcies set to rise this year
The rise in bankruptcies of real estate companies is part of a larger trend in U.S. bankruptcies overall. Total bankruptcy filings increased 31 percent from nearly 851,000 in 2007 to more than 1.1 million in 2008, according to the American Bankruptcy Institute (ABI), a nonprofit organization in Alexandria, Va., that is devoted to bankruptcy-related research and education.
Bankruptcies of businesses recorded an even sharper increase of 54 percent from 28,322 in 2007 to 43,546 in 2008. The 2008 figure was the highest number of filings since 1998. The organization doesn’t track bankruptcies on an industry-by-industry basis.
ABI analysts expect total bankruptcies this year to exceed 1.4 million, and it’s a reasonable assumption that some real estate companies will be on the list.
N.A.R. membership drops 12%
Other figures also hint at the extent of industry consolidation.
Membership in the National Association of Realtors declined to 1.19 million in 2008, a loss of about 12 percent compared with 1.33 million in 2007. The U.S. Realtor population peaked at 1.35 million in 2006, an increase of 76 percent compared with 766,610 in 2000.
The trend line has been similar in California, which has been hard hit by home-price declines and foreclosures. The number of real estate licensees climbed every year from 309,126 in 2000 to nearly 548,595 in 2007, and dipped down to 532,531 by December 2008.
The Association of Real Estate License Law Officials (ARELLO) also tracks licensee data. There were 3.1 million real estate licensees in the U.S. as of Jan. 1, 2009, according to the organization’s Web site. ARELLO declined to release any comparable data from prior years for this story. …CONTINUED
While court records and news reports hint at the extent of the carnage, these facts on the ground may both overstate and understate the true situation with respect to brokerage closures.
On the one hand, companies falter for a myriad of reasons during both market upswings and downturns. That means not all of the current crop of closures can be attributed to weak home sales or soft home prices, though those trends — and their impact on commission income — are surely an important part of the paradigm.
On the other hand, some companies escape the public disclosure of their burdensome debts by merging with a competitor who agrees to take over the troubled company. One example would be GMAC Home Services, which was acquired by Brookfield Residential Property Services, which operates several real estate chains in Canada.
"It’s a tough marketplace in Michigan, but we are not seeing a lot of brokerages collapse," says Martin. "We are seeing a lot more mergers."
‘Is Your Broker Going Out of Business?’
Of course, one company’s misfortune can be another company’s opportunity — or at least that’s how Max Kim, broker/owner of SoCal Avalar Real Estate in Irvine, Calif., might describe the current situation. Kim says he wants to open four new Avalar Real Estate offices in Orange County in the next five years and he plans to recruit more than 400 real estate salespeople to do it. To get their attention he created an ad with the headline: "Is Your Broker Going Out of Business???" The ad attracted agents who were "at the verge of wanting to give up on the industry," Kim says, and that has given him a chance to try to keep them in the business.
Editor’s note: This article was updated with information about the status of Prudential Americana in Las Vegas, which reportedly emerged from bankruptcy in May 2008.
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