Red Carpet Makes Plans to Rebuild : New Chief Hopes to Double Ailing Real Estate Network

Times Staff Writer

Profit motive drove Edward J. Noonan into the real estate business, he says. The former flight test engineer for McDonnell Douglas Aircraft says he earned his real estate license in 1971 because he wanted to buy a house and, in the process, “cheat the real estate agent out of a commission.”

Noonan got the house and escaped the fee. He also took off on a new career: chasing homeowners for commissions.

Within three months, Noonan had quit his job with McDonnell Douglas and started working full-time in residential real estate sales. In 1975, Noonan and a partner bought the Century 21 master franchise for Missouri, southern Illinois and Kansas. The franchise was later sold back to Century 21, and Noonan was named regional president of Century 21’s Texas and Louisiana operations.

Ended Affiliation

This month, however, the 40-year-old Noonan ended his affiliation with the nation’s real estate leader and signed on as president and chief executive of Red Carpet Corp. of America, the struggling San Diego-based company that is generally credited with introducing franchising to the real estate industry in 1966.

“There were 30 preliminary candidates and eight finalists, and, as (Red Carpet Chairman James Kinney) told someone the other day, ‘We got our first draft pick,’ ” Noonan said in an interview after he arrived at his new job last Monday.


Noonan, who drives a yellow Cadillac convertible outfitted with air horns that toot “The Eyes of Texas Are Upon You,” views the task of rebuilding Red Carpet as “an opportunity to become the Lee Iaccoca of the real estate industry. I want to see one of the nation’s oldest real estate franchise systems increase its market share and again become a major force.”

Noonan candidly admits that it will take a lot to make Red Carpet fly again.

“We’re going to grow it,” Noonan said of the chain that has declined to just 500 offices clustered in California, Arizona, Texas, Oklahoma and Illinois from 1,400 franchises in 1979. “We’re not going to stay the same size for long.”

Although a sagging economy hit the industry hard during the late 1970s and early 1980s, Noonan said of Red Carpet’s problems: “We should call a spade a spade. It was management problems, structural design problems. . . . Red Carpet never had a sufficient system to service the franchise base.”

Noonan said he wants Red Carpet to have 1,000 franchises within 18 months. To help reach that goal, the company is developing a string of services, including relocation and “settling in” help, for households making a move. Noonan said he believes that the expanded selection of services will motivate independent real estate company owners to line up for franchises.

He indicated that much of the growth must come close to Red Carpet’s new San Diego home. Red Carpet, which was founded in Walnut Creek in 1966, moved to Oklahoma City in the early 1980s and relocated to San Diego earlier this month.

“Southern California is critical to our marketing strategy,” Noonan said. “We have to get that franchise penetration increased.”

Stephen Bottfeld, director of Insites, a monthly new residential housing survey conducted by the San Diego-based Goodkin Group, applauded that strategy.

“Southern California is the single-largest market in the U.S. and how well they do here determines how well they will do as a firm, " he said. “If Noonan is centering on Southern California at the outset, he’s going in the right direction.”

Red Carpet’s hopes for a renaissance center on Guild Mortgage, the San Diego-based company that bought a minority interest in August, 1984, and has since acquired 95% of Red Carpet’s outstanding stock. The 25-year-old San Diego-based firm services loans in six states and reported $90.2 million in assets and a loan portfolio of about $2 billion at the end of 1984.

$27 Million in Mortgages

Guild, in addition to supplying Red Carpet with much-needed capital, has developed programs that have helped more than 1,000 Red Carpet brokers become certified to originate home loans. Those brokers already are processing $27 million in mortgages.

The rebuilding plan also hinges on Red Carpet’s ability to cash in on the “booming market for S & Ls that want to own real estate offices,” Noonan said. He suggested that thrifts might follow the franchise route because it is the “easiest and fastest method of getting into the real estate business.”

Red Carpet could again be a major U.S. real estate force if it “bolsters its franchise base, builds on the Guild connection and develops the financial services that market leaders Century 21 and ERA already have,” Bottfeld said.

However, Red Carpet executives concede that the turnaround will be tough to pull off. “We’re very definitely playing catch up to Century 21 and ERA,” said Ira Diggs, a vice president. Red Carpet, he said, is one of several companies, including Realty World and Better Homes & Gardens, that are clustered together behind Century 21 and ERA.

If Red Carpet is to break away from that pack, it must first brighten its profit picture. Although the company reported a $100,000 profit for fiscal 1983--its first in many years--in 1984, despite $3.5 billion in revenues, it “went out and bought another bottle of red ink,” Diggs said. He declined to give the size of the loss.

Diggs said Guild’s arrival, with a much-needed capital infusion, should help Red Carpet escape the loss columns. The company has made major strides in that direction, according to Diggs and other sources.

Saddled With Debt

In the early 1980s, Red Carpet was saddled with debt and contingent legal liabilities totaling $60 million, according to former President Robert A. Dyson, who said the company erased most of those liabilities by settling 171 lawsuits out of court. The suits, some of which dated back to 1966, were brought against the corporation by disgruntled franchise owners and consumers, he said.

Dyson said Red Carpet’s finances improved as he unsnarled that web of lawsuits.

“The 1982 financials showed a $900,000 loss, but by 1983, we showed a $100,000 profit,” he said.

Diggs, a seven-year Red Carpet veteran, said some of the company’s problems undoubtedly stemmed from the parade of presidents--Noonan is the sixth since Diggs joined the company in 1978.

“We’ve been damaged, we have lost credibility and stability,” said Diggs, who added that while Red Carpet’s presidents have been changing, the rest of the corporate team has remained rock-steady.

Diggs said that except for Dyson and Noonan, Red Carpet’s presidents have “never been closely involved over a prolonged period of time with the brokers. The others were titular heads . . . ivory tower, aloof, hands-off,” choosing to delegate day-to-day operations to Diggs and other executives, he said.

Dyson, who served as president from 1982 until earlier this year when Guild appointed one of its own executives as an interim president, complained that, in addition to solving Red Carpet’s legal problems, he was forced to spend too much time soothing Red Carpet’s myriad stockholders. Guild’s arrival, he said, eliminated that problem.

When asked if Red Carpet is on the road to recovery, Dyson remained cautious.

“The most positive thing was (Guild’s) introducing mortgage banking to the franchises,” he said. “That will give (Red Carpet) a leg up on others without it.”

Dyson argued, however, that the outlook is clouded because independents now realize that they can survive without franchise backing. “The industry is so sick now that real estate franchising is a joke,” he said. “You can’t give them (franchises) away.”

Dyson said Guild has been “cleaning up Red Carpet’s act from a financial standpoint, but the question is whether or not they can make it profitable.”

“It will take deep pockets to make it a really profitable operation,” he said.

Noonan said profitability will come as Red Carpet develops new revenue bases.

At the same time that Red Carpet bolsters its residential resale efforts, observers suggested, it must enter the new-home sales arena, which has long belonged to developers of new homes.

Considering a Computer

Diggs said Red Carpet is also considering a move into property management and commercial sales. And company officials say they are considering installing a computer network to link its franchises.

“We do look for a bright last half of the 1980s,” Diggs said. “We have outstanding educational, training and recruiting programs within the system. However, we do not have a marketing arm that’s generating the growth we need.”

Noonan is optimistic, however.

“Red Carpet has experienced financial problems in the past and a declining dealership, but we feel that base has been stabilized and it’s time to turn around,” he said. TOP FRANCHISERS

Century 21, 6,500 Offices (U.S., Japan and Canada) ERA, 2,300 Offices Coldwell Banker, 1,425 Offices (company-owned and franchised) Red Carpet Corp., 500 Offices