HFS, Partner Form Realty Brokerage Venture
HFS Inc., the hotel and real estate brokerage franchiser, on Tuesday said it formed a $232-million joint venture with financier Leon Black to buy residential brokerages and convert them to one of HFS’ Coldwell Banker, Century 21 or ERA names.
In its first move, the venture agreed to buy the nation’s largest U.S. brokerage firm--National Realty Trust--for an undisclosed amount, moving HFS for the first time into ownership of real estate offices. HFS also has preliminary agreements to buy several others, the companies said.
The venture is the most aggressive bid yet to accelerate the pace of consolidation in an industry dominated by small operators whose profit margins are being squeezed by higher commission levels and by the cost of investment in new office technologies.
“A lot of consolidation has already happened on the regional level and we plan to take it to the next level, which is national consolidation,” Henry Silverman, chairman and chief executive of HFS, said in an interview.
HFS estimates there are 48,000 real estate brokerage offices in the U.S., and about 39,000 of them are not affiliated with any of HFS’ three franchise systems.
“In this business the bigger firms are in a better position to make money by offering one-stop shopping services,” said Stephen Murray, head of Denver-based Murray Consulting, which advises brokerages on mergers and acquisitions.
Murray said that as much as $28 billion in sales volume could be bought by other firms this year, up from $16 billion last year.
National Realty, which owns 400 offices, was created by HFS last year after it bought Coldwell Banker for $740 million, retaining the franchising operations and spinning off the brokerages to National Realty.
HFS’ shares rose $1.44 to close at $64 on the New York Stock Exchange.
Parsippany, N.J.-based HFS will invest $157 million in the joint venture, to be known as NRT Inc., through the purchase of senior and convertible preferred stock. Black, through his Apollo Management LP investment fund, will invest $75 million in NRT through the purchase of 100% of the common and junior preferred stock.
