The Real Deal New York

Realogy’s realignment

New CEO Ryan Schneider starts off with a C-suite shakeup, but can he jump-start the residential behemoth’s stalled revenue growth?
By E.B. Solomont | February 01, 2018 11:00AM

Ryan Schneider (Photo by Jhila Farzaneh)

In 1996, when Richard Smith took the helm of Realogy, the housing bubble was in its infancy; there was no such thing as Zillow; and the concept of a startup brokerage with unicorn status was both inconceivable and 17 years off.

Having weathered all of the above — and then some — the veteran chief executive passed the baton on Jan. 1 to Ryan Schneider, a banking executive who’s vowed to accelerate the company’s turnaround.

For Realogy — a $5.8 billion goliath in the residential brokerage space — the handoff comes at a critical time, as industry stalwarts face unprecedented competition from new players. That’s impacted many of the company’s brands, including the Corcoran Group (which closed the highest dollar volume of Manhattan sell-side deals in 2017), Coldwell Banker, Sotheby’s International Realty and Citi Habitats.

New York-based Compass, for example, which raised $450 million from Softbank in December, has vowed to be in 20 major U.S. cities by 2020. Meanwhile, the Seattle-based Redfin, a low-cost tech brokerage, went public in a closely watched IPO last summer.

With such well-funded competitors nipping at Realogy’s heels, Schneider has zeroed in on harnessing technology and data to boost agent productivity.

“We are going to be relentlessly focused on agents,” he said late last month at the Inman Connect NYC conference in Manhattan.

He argued that Realogy has access to more data than its competitors, and that data can be turned into a “suite of things we can do for our agents.”

“I believe we have the scale and resources to do that,” he added. “If we don’t keep up, we will fall behind.”

Still, the high stakes of today’s landscape made Schneider’s appointment all the more surprising.

It’s highly unusual for such a major company to hire someone from outside the industry, said Jeff Wittenberg, managing director of Kaye/Bassman, an executive search firm in Texas. “To go outside the industry, in this case, is, I think, a pretty bold move.”

But several sources said Schneider may be just the silver bullet Realogy needs.

“Realogy is facing a number of strategic challenges … Despite a rally this year, the stock has underperformed broader housing-related peers,” Michael Dahl, a Barclays analyst, wrote in October, just after Schneider was named to the post. “Against this backdrop, our initial thought is that going with an outsider, all else [being] equal, is a positive.”

Jump-starting revenue

A graduate of Williams College, the 47-year-old Schneider earned a Ph.D. in economics at Yale University before taking a job at McKinsey & Co. As part of his dissertation, he worked with the economist Robert Shiller, the Yale professor best known for co-founding the S&P/Case-Shiller Home Prices Indices.

In 2002, Schneider took a job at Capital One, where five years later he was promoted to president of the credit card division, which he ran for the next nine years.

Analysts don’t have a great read on Schneider’s time at Capital One, saying the bank keeps its executives out of the spotlight. But the credit card division, its largest, grew during his tenure. “It varied between doing well and very well,” said one banking analyst.

The same can’t be said of Realogy, which has seen its revenue growth stall.

In 2016, Realogy reported $5.8 billion in revenue, up nearly 2 percent from $5.7 billion in 2015. But its stock — priced at just over $26 per share in mid-January — was trading at only 16 times the company’s earnings per share. By contrast, shares of rival RE/MAX — priced at $48 per share around the same time — were trading at nearly 37 times EPS. That means RE/MAX investors were earning more per share than Realogy investors.

“Mr. Schneider has to make changes in Realogy’s businesses and growth rate [and] improve the value of the company,” said Steve Murray, president and CEO of consulting firm Real Trends, which has valued hundreds of firms nationally. “That’s a big job.”

For more than a year, it’s a job that Smith and Realogy’s board have grappled with head-on.

After hemorrhaging agents in recent years, Smith vowed in February 2017 to turn the company into a “recruiting machine” in order to attract and retain top-producing brokers. Meanwhile, Realogy made nearly a dozen executive hires over the past year, culminating in Schneider’s appointment in October.

For his part, Smith was chairman and CEO of the real estate services division at Cendant Corporation before it was spun off into Realogy. He was at Realogy’s helm through a number of ups and downs, including being bought out by Apollo Management in 2007, the subsequent housing bust and the firm’s $1.08 billion Apollo-led IPO in 2012.

“I don’t know anyone in the industry that was up for taking Richard’s job, truly,” said Murray, who noted that Smith navigated a number of improbable “cyclones.”

New marching orders

Murray said Schneider’s task now is to take an unflinching view of the business and make changes as necessary.

Less than a week into the job, Schneider appeared poised to do just that, announcing a slew of management changes.

“We’re going to be decisive and fast,” he said at the Inman conference. “I want to get the best team on the field to support agents.”

Among the changes, Realogy tapped another Capital One alum, Dave Gordon, as chief technology officer on Jan. 10. And it promoted Ryan Gorman to president and CEO of NRT, the division that includes Corcoran, Citi Habitats and Sotheby’s. Gorman replaces longtime chief Bruce Zipf — now executive advisor to Realogy’s CEO.

Schneider also shifted responsibility for Corcoran and Sotheby’s — two of the company’s most lucrative brands — to John Peyton, president and CEO of Realogy Franchise Group.

In a Jan. 5 memo to agents, Sotheby’s President Kathy Korte said she was impressed with Schneider’s transparency and decisiveness.

In a similar note to Corcoran agents, CEO Pam Liebman said the moves reflect Schneider’s “emphasis on investing in people and technology.”

“The changes they’ve announced are great news for us,” she wrote. “More so than ever before, we will reap great benefit from being under the umbrella of the most powerful real estate company in the world.”