Over the course of the past year, the Corcoran Group has made a massive effort to target different market segments through its acquisitions.
There have been multiple buys in Palm Beach and the Hamptons to target the second-home market. Now, with the company’s biggest buy yet in the purchase of rental agency Citi Habitats, Corcoran has the biggest share of the Manhattan rental market and has become the largest residential real estate company in the city.
“We thought it would be nice to capture renters right out of college,” said Pam Liebman, CEO of Corcoran. “Then they buy an apartment, later a townhouse, and when they get older we send them to Palm Beach.”
“People keep asking us if we’re going to buy a funeral home next,” she said.
Perhaps it wouldn’t be surprising, considering Corcoran seems to be buying everything else in sight these days.
The giant merger with Citi Habitats brings together more than 1,300 agents in Manhattan alone (around 800 from Corcoran, a number that doesn’t include the company’s agents in the Hamptons and Palm Beach). Douglas Elliman has around 940 agents in Manhattan, the second highest total.
Citi Habitats’ offices will now operate as Citi Habitats, a division of the Corcoran Group. Citi Habitats affiliate SoLOFTS was also acquired, and will do business as the Corcoran Group.
All parties declined to provide a sales price for the deal.
Competitors weighed in on the deal with reactions ranging from “a step back for Corcoran” to “remains to be seen” to a good “synergistic buy.”
Frederick Peters, president of Warburg Realty Partnership, said the deal made sense for Corcoran in its quest to become the biggest.
“It is a synergistic buy, because Corcoran isn’t strong in rentals,” he said. “As they become enormous, it becomes more about going after the middle market, because that is where the transactions are.”
Peters said the acquisition won’t affect the upper-end market that Corcoran serves, even though rentals “are generally not an upscale business and Citi Habtats is not an upscale brand.”
“I don’t think it will have an impact on Corcoran’s high-end business,” Peters said. “They are such a well-known brand, and everyone already knows about them.”
Peters also said he didn’t think the recent upswing in the rental market had anything to do with the timing of the deal.
Liebman said discussions with Citi Habitats CEO Andrew Heiberger, who started the company a decade ago at the age of 25, about a merger began a few months ago with a breakfast at The Regency Hotel.
Heiberger, who will remain on as president of Citi Habitats, said he “wasn’t shopping the company around” at the time, but had already been approached by two other major residential brokerages in Manhattan, which he declined to name.
Citi Habitats, which controls around 50 percent of the Manhattan rental market according to Liebman, branched out into sales around three years ago. And while Heiberger said the sales division was “doing quite well,” he said the merger with Corcoran “accelerates our business plan by five to seven years.”
Heiberger compared Corcoran to a “Harvard” and Citi Habitats to the “University of Michigan,” saying, “they dress us up a little bit.”
On the technology front, the respective websites of the two companies will be linked, but the specifics haven’t been worked out yet, Heiberger said.
While Peters of Warburg Realty said the deal made sense, Halstead president Diane Ramirez seemed to have slightly more questions.
Ramirez said the results of the merger “remain to be seen,” adding that the sheer size of the combining companies could be a concern.
“The size aspect alone needs to be watched,” she said. “We’ll have to wait and see how the synergy occurs.”
Ramirez also noted that while her company has had a consistent presence in the middle-to-high-end rental market for the last 15 years, other companies like Corcoran had in the past embraced rentals then distanced themselves from them. Liebman acknowledged Corcoran is currently “not known for its rental strength,” and lacks a formal rental division.
This time around wasn’t the only occasion on which a deal had been floated between the two companies, apparently.
Heiberger told The Real Deal last July that he had approached Corcoran about working together in 1998, and that they had rejected his offer outright.
“Their view was that sales are very sophisticated and they don’t want to muddy their reputation with a dirty rental,” Heiberger said at the time. “I’m not saying they said those exact words. But that was the overall gist of the meeting.”
Corcoran didn’t confirm the meeting taking place at the time, but if it did, the company’s sentiments have clearly changed.
Dottie Herman, CEO of Douglas Elliman, had relatively little to say about the merger, beyond pointing out that her company “has a pretty big rental division.” Douglas Elliman also appears poised to grow to Brooklyn soon (see story in this issue).
One of biggest critics of the merger was Daren Hornig, CEO of Dwelling Quest, a company looking to take away market share from Citi Habitats.
“It’s like Peter Luger’s going out to buy a hot dog vendor on every corner because they are there,” he said. “I give Andrew [Heiberger] a lot of credit for creating a large and well known company, but I think it’s a step back for Corcoran.”
While Corcoran and Citi Habitats both seem to be banking on the fact that they’ll be able to turn Citi Habitats renters into Corcoran buyers, Hornig said the approach won’t work.
“To think there is going to be any continuity from one office to another, much less from one company to another, is wrong,” he said. “The companies don’t have lead sharing and referrals for people sitting next to one another. The same rental person doesn’t even do same rental transaction with the same person three years later.”
That concern appeared to be on the minds of both Liebman and Heiberger when they spoke to a class at The Real Estate Academy the day after the deal was announced. Both appeared to want to reinforce the notion that brokers need to hold on to clients, in order to convert them from renters to buyers, and to keep them as buyers or sellers.
“One of the number one things that is not being done is maintaining contact with clients,” said Heiberger, giving the recent example of a Citi Habitats broker who rented TV chef Emeril Lagasse an apartment but didn’t maintain contact. Douglas Elliman just stepped in to sell Lagasse an apartment the other day for $3.7 million, Heiberger said. “People even want to hear that nobody called if nobody called.”
“We’ve done surveys that show that sellers say the number one thing they don’t get from brokers is feedback, and enough contact,” added Liebman during the talk.
Peters of Warburg said the idea that renters will become buyers will work, but said it would be necessary for Corcoran to improve the training that Citi Habitats agents traditionally receive.
“It will work, with the caveat that those agents have to provide good service the first time around,” said Peters.
As the The Real Deal went to press, Corcoran announced it had just purchased 45-agent McCann Coyner Clarke Real Estate Inc. in Palm Beach. Read more on the deal.