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

Berkshire Hathaway acquired PE firm's one-third stake in HomeServices

TRD New York /
May.May 08, 2018 06:30 PM

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.

Related Articles

Zillow CEO Rich Barton (Credit: iStock)

Zillow and Opendoor aren’t making much on home-flipping

This week, the State Department of Taxation and Finance issued a new memo that notably made no mention of condos. (Credit: iStock)

Regulators quietly change stance on condos in LLC law

Realogy CEO Ryan Schneider (Credit: iStock)

Realogy’s plan to stop the iBuyers from gaining a foothold in Chicago

Daily Digest Thursday

Worker killed at Lam Group construction site, Uber signs WTC lease: Daily digest

From left: Brookfield's Ric Clark, 3333 Broadway and L+M's Ron Moelis (Credit: Brookfield, L+M, StreetEasy)

L+M, Invesco close on Putnam portfolio with $823M in Wells Fargo financing

Developers are offering to pay the increased mansion and transfer taxes to give them an edge in a difficult market. (Credit: iStock)

Amid slow sales, developers give buyers a break on mansion taxes

Triplemint’s David Walker and John Scipione with Hoboken, New Jersey (Credit: iStock)

Triplemint expands to New Jersey

Brokerage firms are strategizing ways to make up losses after the cost of application fees was capped at $20. (Credit: iStock)

Brokerages on rental application fee cap: “It hurts”