Red Carpet Gets a New Look, Is Out for a Comeback : Real Estate Firm Copies Leader in Drive to Get Back on Path to Success

Ed Noonan’s office--which includes a roulette table and a slot machine embedded in a carved, wooden likeness of Uncle Sam--offers proof that the president of San Diego-based Red Carpet Real Estate Services isn’t afraid to gamble.

That gambler’s streak surfaced in 1985, when Noonan surprised associates by leaving his job as a regional vice president with industry leader Century 21 to become Red Carpet’s sixth president since 1978.

Noonan’s success will be determined by his ability to reverse an eight-year slide that saw Red Carpet’s franchise base slide from 1,400 in 1979 to just over 300 as of this month. The franchise count dropped because of what Noonan admitted were management problems and structural design problems. Red Carpet, he said, never developed “a sufficient system to service the franchise base.”

His gamble appears to be on track toward a payoff, according to real estate industry observers who credit Noonan and majority owner Guild Mortgage Co. with aggressively trying to turn Red Carpet around.

That repositioning has included one major step: Noonan dropped about 100 franchises that balked at signing a new agreement that increased Red Carpet’s franchise fees.

The fee boosts were justified, Noonan said, because of Guild’s increased investment in the network. An example is the new computer program that is designed to help franchise owners trim operating costs and bolster revenues, Noonan said. Red Carpet also is boosting its advertising budget significantly.

Despite the lack of growth and the acknowledgement that Red Carpet doesn’t expect to turn a profit during 1987, some industry observers agree with Noonan’s assessment that Red Carpet is poised for growth.

Noonan is relying on real estate franchise experience gained when he held the Century 21 master franchise in the Southwest, and his subsequent role as president of Century 21’s Texas and Louisiana franchising operations.

Not surprisingly, Red Carpet’s new look is being influenced by what Noonan observed during his days at Century 21. For starters, Noonan has set up regional management districts that will concentrate on corporate matters that previously were handled through the corporate office.

He also hopes to make Red Carpet a truly national company by selling franchises in the Midwest, Northeast and Southeast, regions of the country where it has traditionally been weak.

“What Ed is trying to do is mirror what Century 21 is all about,” according to Richard J. Loughlin, chief executive and president of Irvine-based Century 21 Real Estate Corp., one of the nation’s leading real estate franchising firms. “That’s very prudent of him because, with all honesty, we’ve been very successful.”

Noonan’s readiness to borrow from his Century 21 heritage became evident last year when Red Carpet turned its advertising and marketing over to Ramon Townsend, who crafted the marketing and advertising campaign that helped Century 21 boost its franchise total from 300 in the early 1970s to a high of about 7,000 during the early 1980s.

Hiring Townsend was an “absolutely outstanding move,” acknowledged Loughlin, who oversees about 6,500 franchises in the U.S., Canada and Japan. Townsend has “a great knowledge of franchising and he (helped build) Century 21 to what it is today,” Loughlin said.

Though Townsend won’t be responsible for attracting new franchises, a successful “image” advertising and marketing campaign will make it easier for Noonan to attract new franchises--and for existing franchises to attract home buyers and sellers.

Franchise growth is essential for Red Carpet, Noonan acknowledged.

When he joined Red Carpet in 1985, Noonan predicted that the franchise total would mushroom to 1,000 from just about 400 within 18 months.

However, that goal has proved elusive. During the past year, Red Carpet’s franchise total actually fell to about 300. Noonan and majority owner Guild Mortgage dropped franchises to eliminate a hodgepodge of franchise contracts.

That decision delighted franchisees who signed the new contracts because Noonan effectively ended “sweetheart deals” that offered franchise fee reductions to larger brokers.

“There were a lot of side deals going on with brokers,” according to Poway broker Bill Barger, who owns Red Carpet Stoneking Realty. “Ed impressed a lot of people with his pledge not to sign side deals with anyone.”

Red Carpet needed to trim its ranks because the company “basically had a confederation, where everybody made different deals,” according to a real estate consultant who is familiar with the company. “Some of the bigger (franchises) were getting away with murder because they had weaker contracts.”

According to the observer, Noonan had only two alternatives: Maintain the status quo and run the risk of antitrust lawsuits from disgruntled franchise owners, or “biting the bullet and getting rid of the sweetheart deals.”

Noonan believes that the restructured Red Carpet is poised for a return to its role as a leader in the residential real estate franchise business. He expects a new emphasis on franchise marketing, when coupled with Townsend’s image advertising campaign, to add just under 400 franchises by 1989.

Noonan eventually wants to expand Red Carpet, which is one of the nation’s oldest real estate franchise operations, to include about 3,000 franchises, each staffed by as many as 35 “sales associates.”

That sales force eventually will capture 15% of the nation’s residential market, Noonan believes.

Attracting new franchisees could prove to be difficult, even though the Chicago-based National Assn. of Realtors says that just 15% of the nation’s real estate offices are affiliated with a national company.

“It’s going to be a tough job for anyone to make any kind of market penetration,” according to Jim Bassarear, senior vice president and San Diego area manager for Merrill Lynch Realty. “Selling franchises is one of the most competitive businesses around.”

Noonan believes that publicly owned, San Diego-based Guild Mortgage, which acquired 95% of Red Carpet in 1985, will play an integral role in rebuilding the real estate franchise company.

“For the first time, Red Carpet has both money and management in place at the same time,” Noonan observed.

Red Carpet will need that financial backing from Guild Mortgage because the real estate franchising business expects to generate losses for 1986 and 1987.

Guild Mortgage does not break out revenue or profit figures for Red Carpet, but Noonan said Red Carpet’s continuing operations are likely to generate a very small profit during 1986. However, write-offs on bad debts will generate an overall loss for the year, according to Noonan.

Additional costs associated with Red Carpet’s ongoing turnaround effort will generate an additional loss during 1987, Noonan acknowledged.

“Red Carpet had a lot of holes in it, and it’s going to take a strong commitment from the parent corporation to go out and do the stuff that has to be done,” Century 21’s Loughlin said.