In today’s residential real estate market, we’re seeing record private equity investments, secondary stock offerings and oversized venture backing from financial whales like SoftBank.
But this is not the first time that a Wall Street-funded steam roller entered the residential real estate business, snatching up market share from a sleepy industry that did not see it coming until it was too late.
Twenty-five years ago, New York City businessman Henry Silverman used his mighty bankroll to acquire the Century 21 franchise and a slew of independent C-21 regions for $340 million, followed by Coldwell Banker for $640 million, Sotheby’s for $100 million and ERA for $37 million.
This all came down in just a few years.
$1.1 billion later, Cendant (the old Realogy) had 26 percent market share and a grip on the industry like no one ever before. Everyone had to wake up and pay attention to the New Jersey juggernaut.
Just 10 years later, in 2006 before the housing market tanked, Silverman spun off the entire real estate package into Realogy and sold it for $7.75 billion to private equity firm Apollo Global Management. Silverman then married his yoga instructor after divorcing his wife Nancy of 32 years. In a feisty divorce, he claimed he was an “innate genius” to avoid paying her a big property settlement. His argument did not fly with the judge.
Realogy, on the other hand, was the other ex-wife who got stuck with more debt than assets.
The damage was done. Strapped with nearly $9 billion in debt, the company missed the innovation train as the housing market recovered. Zillow and Trulia took over as the top-of-mind consumer real estate brands.
A new generation of post-recession indie brokers began to bite at Realogy’s heels.
Warren Buffet more aggressively entered the biz through Berkshire Hathaway, which began acquiring companies. And more agile, privately-held Keller Williams took off, grabbing thousands of Realogy agents. More recently, tech brokerages Redfin and then Compass began feasting on the opportunity.
Not until the last year did the Realogy board face a new reality that it was still a big fish, but more like a beached whale than a soaring marlin. New management has been brought in to overhaul the company from top to bottom.
Now it’s catch-up time for savvy, gritty and determined new Realogy CEO Ryan Schneider. He is smart enough to know his challenges are daunting, so he is making big changes to the enterprise, which still enjoys significant global reach and envious margins.
The lessons from the Realogy history are profound today.
Real estate is a fragmented business, oddly leaving it easy prey for someone with a good idea and lots of money. Like now, it forces everyone with a real estate business, thriving or not, to smartly weigh their options. And there are choices, that is the good news.
When I was in my early 20s, I watched Walmart march into my home state in southern Illinois and decimate small business owners.
My mom and dad did not have lots of choices, but they escaped that inexorable Sam Walton force by selling everything — their small retail stores and their property — one year before Walmart opened its doors in Carlinville, Illinois.
At the time, they talked to my brothers and me about fixing up their storefronts (like a new website today), kicking out the retail clerks union they always supported (changing relationships with your agents) and lowering their prices to hang on (offering discount commissions).
Instead, my parents liquidated everything and drove their 1965 convertible tan Mustang to California. They never looked back and never lost their fierce optimism about the world.
Real estate companies today have three choices: 1. do nothing, 2. adapt to change, or 3. get out by selling. No. 1 may be the only option to avoid.