If a real estate conglomerate splits, and brokers in the commission-obsessed forest of New York City real estate don’t really need to listen, does Cendant make a sound?
Cendant, the national conglomerate that owns several Manhattan-based real estate brands through its subsidiary NRT, announced in October that it would split this coming summer into four companies to stop its stock price’s long, slow slide. Shares had lost 24.5 percent of their value between the end of 2004 and mid-November, while the benchmark S & P 500 stock index was up nearly 1.9 percent for the same period, a bad deal for investors who’ve tried to catch the real estate boom through equities rather than properties.
The split means something for shareholders and for top executives at Cendant-owned firms like the Corcoran Group, Sotheby’s International, Coldwell Banker Hunt Kennedy, and Citi Habitats, people whose money and decisions are tied to the mother company. For brokers on the ground throughout the city, though, the move means the day-to-day of New York real estate probably won’t change, post-split.
“It’s almost like ‘public company and residential brokerage,’ it’s almost like an oxymoron,” said Paul Purcell, a former Douglas Elliman president and co-founder of real estate consultancy Braddock + Purcell. “Brokers by their very nature and I understood this and grasp it, fundamentally they don’t care about the workings of a public company. They don’t care about the profits of a parent company. These are independent contractors, so it’s hard for them to have brand loyalty. It’s hard to be concerned with what the issues of the parent company are.”
The issues were at least paid rosy lip service by Cendant management through press releases. (Cendant did not return calls and emails requesting comment.)
“We believe that this is the right thing to do, for the right reasons and at the right time,” Cendant chairman and CEO Henry Silverman said. “Creating four strong and focused pure-play companies is the best way to unlock the full value of Cendant’s businesses for the benefit of our shareholders in both the short and long term.”
The upbeat assessments were understandable: Cendant’s stock has been sliding since an accounting fraud scandal broke in 1998; when the fraud was revealed in April of that year, Cendant’s stock value plunged in a single day from more than $39 a share to less than $20. In August, former Cendant vice chairman Kirk Shelton was sentenced to 10 years in prison and ordered to pay $3.275 billion to the conglomerate for inflating revenue by $500 million at Cendant and its predecessor company, CUC International.
Cendant’s revenue totaled $5 billion for the third quarter 2005, according to financial statements released shortly after the split announcement. That’s an increase of 12 percent over the third quarter last year, but still below pre-scandal numbers. The real estate division contributed $2.07 billion in sales during the quarter, making it the biggest driver of revenue for Cendant.
After the split retires the Cendant name, the real estate division which doesn’t yet have a name will likely continue to be a reliable cash cow. The conglomerate estimated that, in 2004, one in four homes bought or sold in the U.S. involved a Cendant-affiliated office. The real estate division will still be headquartered in Parsippany, N.J., and its current chief, Richard A. Smith, will continue as CEO, with Silverman as non-executive chairman.
Even Cendant, in what’s probably its most hopeful hour since the accounting scandal, said in a release that the above numbers and the executive shifts in the wake of the split will have little to no effect on workaday brokers. The split “should not affect the operations of [Cendant’s] business units” and “employees generally should not be affected” which shouldn’t be surprising inside the real estate brands.
“By the very nature of a brokerage business, [brokers] could walk out of the door tomorrow,” said Purcell, who added that time was still needed to tell how the split ultimately plays out. “They’re basically independent contractors in it for themselves.”