The Real Deal New York

Warren Buffett pays $130M to buy Brookfield out of brokerage

Berkshire Hathaway acquired PE firm's one-third stake in HomeServices
By E.B. Solomont | May 08, 2018 06:30PM

Warren Buffett (Credit: PxHere, Pixabay, Wikimedia Commons)

Warren Buffett’s Berkshire Hathaway has paid $130 million to buy out Brookfield Asset Management’s stake in the conglomerate’s fast-growing real estate brokerage.

Berkshire exercised its option to acquire the Toronto-based private equity firm’s one-third stake in Berkshire Hathaway HomeServices in February, Brookfield disclosed during an earnings call Monday. The deal closed last month.

“We like this business and under normal circumstances we [would] choose to continue the joint venture,” Brookfield CEO Cyrus Madon said on the call. “However, this arrangement was made several years ago in the context of a broader, very successful real estate services initiative.”

Madon said Brookfield has seen a 25 percent return on its total investment of $225 million in the brokerage business.

Buffett — who has been extremely bullish on real estate brokerage over the past year — got into the business almost by accident in 2000 when Berkshire Hathaway acquired an Iowa-based utility company, MidAmerican, which owned HomeServices.

Berkshire added to HomeServices with a string of acquisitions over the next few years. Then in 2012, it entered into a joint venture with Brookfield, paying $119 million for a controlling interest in the Prudential and Real Living brokerage brands, which were folded into HomeServices. The following year, Berkshire began franchising the HomeServices name.

Last year, Berkshire’s brokerage became the second-largest firm nationwide, according to research firm Real Trends.
Nationwide, Berkshire Hathaway HomeServices has 1,330 offices and more than 45,000 agents.

“Despite its recent acquisitions, HomeServices is on track to do only about 3% of the country’s home brokerage business in 2018,” Buffett wrote in a letter to shareholders in February 2017. “That leaves 97% to go.”

The brokerage generated $220 million in 2017 earnings, down from $225 million in 2016. Revenue grew 23 percent to $3.5 billion.

During 2018’s first quarter, the brokerage’s revenue jumped 30 percent year-over-year as a result of “recent business acquisitions,” Berkshire said in a May 5 earnings report, which did not mention the Brookfield deal.

Last year, Berkshire Hathaway opened an office in Manhattan, though many have predicted it would be hard to gain traction in the New York City market. The New York City brokerage is headed by Ellie Johnson, a former Sotheby’s International Realty manager. Reba Miller, who had her own boutique firm, R.P. Miller Realty Group, joined the firm in February.