Recent purchases by New York-area residential brokerages hint that the merger climate may be ripening.
In August, Corcoran Group corporate parent NRT bought Allan M. Schneider & Associates, doubling Corcoran’s presence in the East End. Also, RealStar bought both Century 21 Kevin B. Brown & Associates and Dwelling Quest to form Century 21 NY Metro, a new brokerage. The terms of both deals were not disclosed.
Observers say the recent buyout flurry could be the tip of the iceberg as brokerages start looking around for cheap acquisitions in a cooling sales market.
“Never buy high,” was the strategy at Douglas Elliman when Paul Purcell was there in the early 1990s. “We would try to watch the market, waiting till it softens and there were better buying opportunities, then snatch a lot,” said Purcell, a former Douglas Elliman president and co-founder of the consultancy Braddock + Purcell. “We would buy low and wait for the market to recover. By then, you’ve assimilated the mergers into the company.”
Finding the right time
The purchase of Allan M. Schneider by NRT came down to timing, said Corcoran CEO Pam Liebman. Liebman had been interested in Allan Schneider for a few years, but the company did not want to sell.
“They wanted to wait for the right time for them,” Liebman said. “They wanted to make sure they can take their business forward, which they can with the deeper pockets of Corcoran and the backing of NRT.”
As part of the acquisition, the 12 Allan M. Schneider offices in the East End will now operate under the Corcoran umbrella, giving Corcoran a dominant presence with more than 475 brokers in 21 offices in the area. Both Corcoran and Allan M. Schneider experienced banner years in 2005, Liebman said, and East End sales for Corcoran are expected to grow. Corcoran brokered $1.2 billion in sales, while Allan M. Schneider closed $1.4 billion.
Peter Hallock, one of the principals of Allan M. Schneider, will head Corcoran’s Southampton office. Timothy Davis and Peggy Griffin, the other principals of the former Allan M. Schneider, will continue to manage the Bridgehampton and Easthampton offices, respectively, as Corcoran managers.
Earlier this year, Corcoran closed some North Fork branches. Liebman said the merger will expand their presence now in the North Fork, as well as in Hampton Bays and Montauk on the South Fork. “I always knew we’d be back,” she said, “but it had to be in a bigger and better way. We are always looking to find the right fit, and we’ll certainly pursue it.”
Hunting in the quiet periods
In Manhattan, RealStar Realty purchased firms Dwelling Quest and Century 21 Kevin B. Brown to form a new brokerage with about 200 brokers in two Manhattan offices.
RealStar president Michael Simon bought Dwelling Quest from former CEO Daren Hornig, who now works with Shea Commercial (see Dwelling Quest CEO exits brokerage). Simon said that RealStar is looking into at least five more potential acquisitions in the New York City area.
“Any quiet period in the market is the most exciting time to start looking at acquisitions,” Simon said. “Prices have leveled out and expectations for sellers are more reasonable. There are limited exit strategies for smaller players.”
He also added that, in slower times, the alignment with large franchise brands increases, since brokers want brand awareness and the marketing advantages afforded by large-scale operations. Although it has a strong nationwide presence, Century 21 was not well known in the city, Simon said.
“In the mid-size company range,” Purcell said, “I do think to compete successfully with some of the mega brokers, they need to get some size in scale.”
The advantage in a slower sales market lies with bigger firms, said JoAnne Kennedy, a principal at Coldwell Banker Hunt Kennedy. “Right now,” she said, “the market dynamics have changed. A lot of company earnings are reduced, so you can buy for less because they are worth less. The smaller the company, the lower the multiple.”
But Kennedy said that when her firm has made acquisitions in the past, price wasn’t always a concern; the acquisition also had to be a compatible fit. Hunt Kennedy bought Charles H. Greenthal Group during the housing boom in 2003.
Mergers may offer advantages to the acquiring firm on paper, but in practice, not all are a surefire path to success. “They aren’t buying computers, just agents and their promise of future activity,” Purcell, the former Douglas Elliman president, said. “They’re buying something that’s hard to pin down.”
Which is why, he says, recruiting a firm’s brokers might be more efficient — and much cheaper — than acquiring the firm itself. “When I was at Douglas Elliman,” Purcell said, “we would get calls to sell from firms who wanted to sell. If they had a few people, there was no real interest; they were not really a competitor.”
Liebman also said her company is often approached by smaller firms looking to be bought out, but she is picky.
“We are always looking for the right acquisitions,” said Liebman, who says there isn’t a significant uptick in brokerage merger activity yet in general. “We are always approached by smaller firms, but we are careful with who we choose.”