Inside Berkshire Hathaway’s tri-state expansion strategy

The brokerage bigwig says NYC feeds tri-state sales and that acquisitions make more sense when redundancies can be eliminated and costs shaved

TRD TRI-STATE TRD ISSUE /
Dec.December 09, 2019 07:30 AM
Candace Adams (Photo by Emily Assiran)

Candace Adams (Photo by Emily Assiran)

The residential market may be sluggish in Fairfield County and other parts of the tri-state area, but Berkshire Hathaway HomeServices is doubling down on the region.

While the brokerage business is running on thin margins, Candace Adams — the president and CEO of the company’s New England Properties, Westchester Properties and New York Properties — said buying firms makes sense if redundancies exist and costs can be trimmed. And, of course, if the firms are well run.

“We’ve done some efficiency cost-cutting. We consolidated some offices — when you go into a real estate office, 99 out of 100 times, you have a lot of space, and no one there,” she said, noting that the company is investing in mobile tech for its brokers.

Adams — who is based in Wallingford, Connecticut, and oversees 1,800 agents — also noted that few brokerages can marshal the financial resources like Warren Buffet’s conglomerate.

The industry veteran was at Prudential Connecticut Realty for 18 years and was president of the firm — which had 50 office and 1,400 agents — when it was acquired by Berkshire Hathaway in 2012. Her division recently bought boutique firm Realty Seven, based in Fairfield’s Wilton. Meanwhile, BHHS New England Properties’ parent company — HomeServices of America, a Berkshire Hathaway affiliate — acquired Westchester brokerage behemoth Houlihan Lawrence in 2017.

Her division, she said, does about $3.5 billion to $4 billion annually in sales volume in the tri-state area.

Adams sat down with The Real Deal about HomeServices’ acquisition tear, its growth strategy going forward and how the firm’s startup New York City operation feeds deals in the tri-state.

What are some of the notable trends you’ve seen in the tri-state market? The high end of the market — when you look at Westchester and Fairfield County — has become very sluggish over the last few years. We continue to see increased inventory there, [along with] fewer buyers and massively discounted prices. But if the property is priced right, it will sell quickly. There’s a bit of a migration out of our states, because of SALT [state and local taxes and the new cap on deductions]. I think that was sort of the tipping point.

What is HomeServices’ game plan for the next few years? No doubt, continued growth. We have all been on a growth trajectory. It just started six and a half or seven years ago. We’re now in several countries. So we’ll continue with our global expansion, we’ll continue to expand in the city, and we’ll continue to look at key U.S. markets.

How does the firm’s commercial brokerage expansion compare with its residential? We’re actually rolling out a commercial franchise, and it’s going to be called Berkshire Hathaway Commercial Group. That is right now at the very embryonic stage of starting to roll out, so it’s not here yet. We are committed [to having a] wholly commercial entity rather than a hybrid with the residential, which is what it is today. … It’s kind of an afterthought.

HomeServices recently launched a tech support platform for its tri-state companies. What role do you see tech playing in the brokerage? We — meaning New York, Westchester, New England — looked at our technology platform, which is very, very robust, and said, “We have all this technology, and our agents aren’t using it because it’s a little complicated and they’re too busy selling.” So everything we’re bringing in now is going to be automated. For example, when they get a listing, they’ll get an email sent to them where they can literally click on any one of seven things to immediately have that technology begin for them, without doing anything but clicking the link.

Compass and HomeServices have both made inroads in the area at roughly the same time. What’re your thoughts on Compass’ strategy, and on brokerage competition in the tri-state generally? We believe that everybody, even a Redfin, or Zillow … [is a competitor]. Compass has come in very aggressively with packages for agents. They have some very significant resources to buy our agents, or not necessarily our agents, but the competition’s agents. They have a professed technology platform that is pretty robust, I believe. So I think we see Compass as another competitor just like we see anybody else. We really do, without arrogance, believe that we compete really well with them. We have, you know, $200 billion worth of assets behind us that are real … so we feel very secure about our future.

Margins in the brokerage business have become notoriously thin in recent years. Is the firm doing any cost-cutting to address that? We’ve done some efficiency cost-cutting. We consolidated some offices — when you go into a real estate office, 99 out of 100 times, you have a lot of space, and no one there. We’ve looked at building the office of the future … how to be more of a social gathering place than a business operation … so that they can come in and collaborate. Everything agents do is on their phone. They don’t even use computers anymore, most of them. So all of our technology is based on apps and mobile. With that, we’ll be able to cut costs, because we have 56 offices — that’s a lot of bricks and mortar.

Berkshire Hathaway has made a lot of brokerage acquisitions, both in the tri-state area and nationally. Why does it think that brokerage is a good business to be doubling down on when many say it’s struggling? We’re buying companies that we believe are very well run, that are aligned with our values. We’re not buying every company that comes to our door. And there are many, many companies coming to our door. Buffett’s sort of known for buying — when things are down, he likes to buy.

How often do you talk to Warren Buffett? I don’t. I’ve never talked to him, ever.

What is it about the tri-state area that’s more attractive than NYC itself in terms of setting up shop? Anyone who lives in New York City and ends up having two or three kids very often decides that they might want to move out to more space, and they want to do it within a region that’s convenient, with access to the city. Therefore, the tri-state area is very significant. And as demographics evolve, as millennials have children, and then as downsizers and empty nesters decide they want to move back into the city [these markets become even more important]. So there’s a lot of cross business here. It’s really amazing. I wish I could see, on a diagram, the people going back and forth.

One of Berkshire’s more recent acquisitions was of Wilton-based Realty Seven in Fairfield County. How did that deal come together? That was a great acquisition. That was a small boutique company that had been in business for many, many years. Very well respected, extremely well run. The owner and her agents really wanted to continue to operate autonomously, but under an umbrella that gave them tools and support and resources that they didn’t have.

Are there any other firms that you’re currently targeting in the tri-state area? We have many firms we’re talking to right now, and we start by making sure that their reputation is suited for Berkshire Hathaway. That’s first and foremost because many times, even though they might not be making as much money as they would under our umbrella, there are redundancies. So they have overlap in offices that … like at Realty Seven, for instance, we combined offices and got rid of their rents. And all of a sudden, their bottom line floated up, and it looked much, much better.

How much does the firm do in sales volume in the tri-state annually? Our entity itself does about $3.5 to $4 billion of sales a year. We’ll probably end up this year about $3.3 billion, $3.4 billion.

Last year, HomeServices New England, New York and Westchester Properties announced a partnership with private aviation firm NetJets, also a subsidiary of Berkshire Hathaway. Tell us about that — and other perks that come with being part of a big operation. Well, NetJets was the logical partnership for us to start off with, because we shared the same clientele. Our luxury clients deserve and need to have an aviation relationship … and our sellers are able to offer NetJets hours to buyers as part of the package or vice versa, for our agents. But Berkshire Hathaway owns hundreds of companies, and we have advantages with many of them, including Benjamin Moore, for paints.

What changes have you made to Houlihan Lawrence since your bombshell acquisition of that firm back in 2017? We’ve made no changes. They continue to operate autonomously. They have their own brand that’s been incredibly successful. They have a great business model.

Have you gotten backlash in any of the markets you’ve entered — with critics saying you’re just parachuting in? No. We’ve been so lucky. Typically, we’ll go in with an acquisition of a fine firm, and so we’re automatically recognizable and have business. The one [new brokerage] we’ve done is in New York City. Anyone would say, “You’re crazy. You’re doing a startup in New York City?” But we found that we wanted to make sure we had a position there because of our global growth. And as a result of being in New York City, we have been able to grow. No one’s thinking that we’re an interloper. They like us, and we are slowly growing with a lot of integrity.

—This interview was edited and condensed for clarity.

CORRECTION: A previous version of this story indicated that BHHS New England Properties’ bought the Westchester brokerage Houlihan Lawrence in 2017. It was BHHS New England Properties’ parent company — HomeServices of America, a Berkshire Hathaway affiliate — that acquired the firm. 


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