Coldwell Buy Escalates Consolidation Trend
The pending acquisition of Coldwell Banker Corp. has moved the nation’s slow-to-change real estate industry another big step toward consolidation, with analysts suggesting that the industry could eventually become a high-tech network of “one-stop shops” that will change the way homes are bought and sold throughout the world.
New Jersey-based HFS Inc., parent of the Century 21 brokerage, confirmed Thursday that it has agreed to buy Mission Viejo-based Coldwell Banker, one of the nation’s largest residential real estate brokerages. The deal, worth $740 million in cash and assumption of debt, solidifies HFS’ national dominance in the area of real estate franchising.
The deal boosted HFS stock prices $3.375 to close at $55 a share in New York Stock Exchange trading.
The planned transaction is part of a consolidation wave in real estate, the same trend gripping such other areas as banking and telecommunications. Facing declining profit margins and technological advancements, the real estate industry is expected to show widespread changes in the coming years.
For now, experts are divided on whether these corporate consolidations will make it any cheaper for consumers to buy and sell homes.
Small independent brokers, who face extinction from the ever-expanding real estate conglomerates, believe that customers will always prefer the small-town touch.
But analysts predict that the market will continue to shrink as “one-stop shops” where buyers can get a home, a mortgage, title insurance, home security systems, buy a car or hire a moving company and get phone service installed become commonplace.
“Real estate has long been a fragmented industry of small players, and now it looks like the residential brokerage area is the arena that’s consolidating first,” said Richard Peiser, director of the Lusk Center for Real Estate at USC. “Eventually, the whole industry will shrink.”
Within the last year, HFS also purchased ERA Franchise Systems, the fourth-largest real estate brokerage firm, and Century 21, giving HFS an estimated 25% share of the real estate market.
“We’ve started the consolidation trend,” said Henry R. Silverman, HFS chairman and CEO, who said he plans to keep Coldwell Banker in Orange County and does not expect any layoffs.
“This is a business where, over time, the independent Realtor as we know them will disappear,” Silverman said. “And the reason is simple: This industry is oversaturated. You just have way too many people.”
But Bill Plattos, vice president of FirstTeam Real Estate in Costa Mesa, an independent brokerage, disagrees.
He said the increased consolidation is a windfall for independent agents. Real estate is a local industry, he said, and buyers and sellers want people who know the local markets.
“Consumers won’t be able to tell the difference between Century 21, Coldwell Banker and ERA. The people who run these companies now aren’t real estate people, they are controllers, money people who toss companies around like footballs,” Plattos said.
In Southern California, the consolidation push has already begun.
This week, Coldwell Banker bought Waterfront Homes, a luxury brokerage firm in Newport Beach. Last year, well-known Los Angeles real estate broker Jon Douglas merged his 30 offices with Prudential California Realty.
At one of the nation’s top two real estate firms, Re/Max International in Denver, executives said they didn’t expect the HFS acquisition to affect their business and said they were not in any type of acquisition negotiations with HFS.
“It’s still going to be the Coldwell Banker agent competing with the Re/Max agent out in the street. It’s just different ownership. There wasn’t a significant change when Coldwell was sold to Sears,” said Daryl Jesperson, executive vice president with Re/Max International.
Silverman at HFS said consolidation and one-stop home shopping should make it cheaper for consumers to buy homes. He said HFS does not set commission levels that agents receive.
“All pricing decisions are made by franchisees and their agents,” Silverman said.
Some independent agents said more consolidation might make it more expensive for buyers as certain firms gain more market share, although other analysts disagreed.
“I don’t think it’s going to have a lot of impact for home buyers--there’s still a lot of competition out there,” said Peiser of the Lusk Center. “And I think the technological revolution has a bigger impact on the way people buy and sell homes.”
The California Assn. of Realtors, which has nearly 100,000 members in California, reported that the number of real estate agents has declined during the recent real estate downturn. Association membership has declined by nearly 48,000 agents since 1990. With fewer homes sold in past years, real estate firms have merged with larger companies or been driven out of business.
“It’s another benchmark of a consolidation wave in real estate throughout the county. We’ve already seen this in banking,” said Rick Snyder, president of the association.
Snyder said that over the long term, the closing costs of buying a home should decrease and the time it takes to buy a home will be reduced.
Chandler B. Barton, president and CEO of Coldwell Banker, said the company would continue to grow under its new ownership and be able to offer home buyers and sellers more amenities.
“It’s very difficult for small companies to provide all the services that go with the closing of a real estate transaction, and create a one-stop shop,” Barton said. “Buying a home is just one of several contracts you enter. Larger companies are better able to provide all the services.”
Coldwell Banker was founded in San Francisco 90 years ago and is owned by the San Francisco-based Fremont Group, a privately owned company.
The brokerage will keep its name and remain separate from HFS’ other real estate firms, Silverman said.
The only national firm offering both residential and commercial brokerage services, Coldwell Banker franchises about 2,200 offices in the United States and Canada and owns about 325 additional brokerage offices.
For 1995, the company reported revenue of about $700 million. Real estate transactions in which Coldwell participated totaled about $65 billion.
