Brookfield Residential Property Services has sold Chicago-based luxury broker Koenig & Strey GMAC Real Estate to HomeServices of America Inc., completing a planned disposition of corporate-owned brokerage offices Brookfield RPS acquired in its purchase of GMAC Home Services LLC last year.
As was the case in other recent sales of corporate-owned GMAC brokerages, Koenig & Strey will remain a franchisee of Canadian-based Brookfield RPS’ North American real estate network.
Brookfield RPS announced in July the sale of San Francisco Bay Area-based luxury broker Pacific Union GMAC Real Estate to principals of Morgan Lane Marin Inc. (see story).
Other recent deals include the sale of Boston-based Hammond Residential Real Estate to founder Saul Cohen, and New Jersey-based Gloria Nilson GMAC Real Estate to investors led by real estate veteran Dick Schlott.
Graham Badun, Brookfield RPS managing partner and chief executive officer, called the sale of Koenig & Strey to HomeServices "a great fit" because HomeServices has "a history of letting local operators operate their businesses.
"That was important to us," Badun said. "We continue to have aspirations to grow our franchise operations across the U.S., and these guys are a great partner for us."
Ron Peltier, chairman and chief executive officer of HomeServices, suggested the company will take a hands-off approach as the new owner of Koenig & Strey.
A leader in the downtown Chicago and North Shore luxury market, handling $2.6 billion worth of home sales in 2008, Koenig & Strey recently completed a restructuring in which it closed or consolidated seven offices. The restructuring left the company "right sized" at about 900 agents and 90 support staff in 21 offices, said Peltier and Doug Ayers, president and CEO of Koenig & Strey.
Ayers and other top managers are staying in place, and no layoffs are anticipated, Peltier and Ayers said.
"We have operations around the country and we make no effort to manage them from (HomeServices’ headquarters in) Minneapolis," Peltier said, calling Koenig & Strey "a storied company with a great history of success" since its founding in 1961.
Before its acquisition of Koenig & Strey, HomeServices operated about 300 broker offices in 19 states with 16,000 agents under 21 brand names, including Prudential California Realty, RealtySouth and Esslinger-Wooten-Maxwell Realtors.
"Since we are not a franchisor, we are not about changing the basic operation" of the brokerages the company owns, Peltier said.
HomeServices seeks economy of scale in providing technology support and human resource services to its brokerage companies. And because other HomeServices subsidiaries offer mortgage origination, title insurance and closing services, property and casualty insurance, and home warranties, the acquisition of brokerages like Koenig & Strey create opportunities for HomeServices to expand its sales of those services, Peltier said. …CONTINUED
"We are clearly not just a brokerage operation — we are a full-service enterprise of mortgage, title and insurance, and it’s clearly our strategy to price those services to as many Chicago clients as we can," Peltier said. "I don’t think a pure brokerage play as a business strategy is a viable play in this economy or going forward."
Ayers said the sale to HomeServices "really does secure the future for Koenig & Strey," as the company has a history of buying and holding real estate companies rather than trying to flip them or transform them.
HomeServices is owned by MidAmerican Energy Holdings Co., a subsidiary of Berkshire Hathaway Inc.
According to MidAmerican’s most recent annual reports, the HomeServices agent count fell from 19,000 agents at 370 offices in 2007 to 16,000 agents in 300 offices at the end of last year.
The company’s most recent annual report said HomeServices incurred $39 million in expenses related to office closures last year, which contributed to a $58 million operating loss in 2008. Revenue of $1.13 billion was down 24 percent from 2007 and 33 percent from the $1.7 billion tallied in 2006.
Brokerage transactions declined by 20 percent in 2008 and the average home sales price declined by 8 percent, reflecting the continuing weak housing market, the report said.
The latest report for the quarter ending June 30 showed HomeServices’ operating revenue down 18 percent from a year ago, to $279 million, but said the company managed to generate an $11 million operating profit thanks to lower operating expenses.
HomeServices’ residential real estate agents are independent contractors, not employees. According to Berkshire Hathaway Inc.’s 2008 annual report, HomeServices employed 2,602 workers in positions other than real estate agent.
"Last year was a terrible year for home sales, and 2009 looks no better," Berkshire Hathaway’s most recent annual report said. "We will continue, however, to acquire quality brokerage operations when they are available at sensible prices."
Peltier acknowledged that like many of its competitors, HomeServices expanded rapidly during the boom to "meet the demands of the marketplace," and has since been in the process of "getting infrastructure in line with the current market."
HomeServices’ vision is to be in more than 60 key markets nationwide, up from about two dozen now, he said.
"We have an appetite to identify companies with a strong reputation and a high level of operating integrity," Peltier said. "This type of environment is conducive for us to continue on that growth strategy."
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