Merger mania

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Recession? What recession?

For top residential real estate execs Patrick Grabill and Harley E. Rouda Jr., business couldn’t be better.

They’ve both been on recent merger and acquisition binges to take further advantage of a hot market fueled by the lowest mortgage rates in decades.

Grabill is CEO of Coldwell Banker King Thompson Realty (CBKT), which was created last July by New Jersey-based NRT Inc.’s acquisition and subsequent merger of King Thompson Realtors and Coldwell Banker Grand Traditions. When the merger was inked, Grabill proclaimed his appetite for growth. With the substantial financial backing of NRT, a multibillion-dollar real estate colossus, Grabill and President Mike Huntley are whetting that appetite with an initial buying spree.

First, CBKT acquired a pair of Licking County firms, Coldwell Banker McMahon and Guaniale & Johnson. A week later, it acquired Worthington’s Century 21 Roger C. Perry Ltd.

“We are focused on a long-term vision,” Grabill says. “We sensed it was the right time to grow, and NRT gave us the resources we needed. Now we can offer the tools needed to succeed.”

Even as Grabill and Huntley were integrating their acquisitions, market leader HER Realty was working on a blockbuster deal of its own. Last month, CEO Rouda announced his firm was taking a different approach to expansion by merging with Cleveland-based Realty One and Cincinnati-based Huff Realty to create Real Living, the largest residential real estate firm in the state.

“Both the Cincinnati and Cleveland markets are experiencing positive growth,” says Rouda, CEO and managing partner for Real Living. “We wanted to expand into major metropolitan markets in Ohio.”

While the two leaders are taking different paths, their long-term expansion plans are fueled by the same thing — a hot real estate market.

“The year (2001) is looking like it will be the best or second best ever (for real estate sales) in Central Ohio,” says CBKT’s Huntley, who expects the trend to continue in 2002. “January is off to a good start and interest rates are coming down. There are still good employment numbers in Central Ohio. There is no reason for this trend not to continue.”

Central Ohio’s balanced economic base adds strength to the local market.

“There are healthy industries, the state government is here and a major university. We are fortunate to be in this community,” Grabill says.

A final element undperpinning the strong market is demographics.

“The city is relatively young, with the average age of Columbus residents at 33. There are a lot of people in the home-buying age, and will be for the next 15 years,” Huntley says.

Building on local strengths

With so many favorable conditions, Grabill and Huntley felt the time was right to expand, and joining forces with NRT allowed their company to do so. But CBKT isn’t willing to acquire just any interested party.

“We are looking for companies that we can fold into our current market and that are leaders themselves,” Grabill says. “We can expand our markets by merging with companies that are No. 1 or 2 in the areas they serve.”

It’s that mutual benefit that is important in solidifying any deal.

“It has to make sense on both sides,” Grabill says. “We’re conducting ongoing discussions with a number of brokerages. Sometimes it’s not the right time — but we are constantly in discussion.”

Building a statewide market

Real Living’s Rouda’s operations have benefitted from these same economic factors — HER was the Columbus area’s largest residential real estate firm last year in terms of deals and dollar volume, by a substantial margin over the combined operations of CBKT.

But Rouda is looking for growth outside the Columbus market.

“We thought it was the most natural step in growth, expanding in major markets in Ohio,” Rouda says, hence the mergers in Cincinnati and Cleveland.

And Rouda says the firm is also exploring merger opportunities in Dayton and Toledo. Potential merger partners are companies with a similar culture to that of Real Living, he says.

“We are not targeting specific markets, but companies that are agent-centric, not brand-centric. It is our belief that the quality of the sales associates creates the quality brand,” Rouda says.

That’s a sharp contrast with NRT’s approach, which is heavily invested in the Coldwell Banker and ERA brands nationwide.

Strength in numbers

While the expansion plans are different at the two real estate powerhouses, the force driving them is the same: the ability to offer the right technology and marketing muscle to good sales agents.

“Sales associates want to know they have a relationship with somebody that has the tools they need to grow and succeed,” says Grabill. “And we need a professional, talented pool of people to have a better, stronger organization. It all comes down to quality people.”

He says a lot of good brokers don’t have the resources to provide associates with the latest technologies and training tools.

“We have been able to bring people aboard and provide them with education and training,” Huntley says. “They improve their skills, and it’s a win-win situation for everyone.”

Real Living offers its agents nationally recognized marketing technologies that give them a competitive edge.

“We understand that our clients, as a company, are our agents. If we provide the agents with what they need to serve their clients, they come out ahead and so do we,” Rouda says.

Despite the high-tech environment, Grabill says real estate is still a personal business.

“The tools we see having the most impact today are contact management systems, Internet sites and television shows,” says Grabill, noting that CBKT has spent more than $400,000 upgrading its computer technology.

“The most dramatic change for both the consumer and the sales associate is the Internet site,” says Huntley. “Now you can go on the Internet and eliminate homes that you don’t like. The consumer is more educated about what is on the market, and it shortens the time the customer has to spend in searching. And the agents are more efficient too.”

The more information consumers can gather on their own, the less time they spend searching for the right home, he says.

That was a key factor behind the development of the Web site recently launched by Realty One, one of Rouda’s merger partners. Outgoing Realty One CEO Tony Ciepiel says Web-using homebuyers look at half as many houses as non-Web users. The time and cost savings to Realty One, and now to Real Living, are substantial.

“For us, this was a very logical business decision,” Ciepiel says.

Rouda’s HER operation also has been taking advantage of technology.

“All of our agents have personal Web sites that contain local, state and national listings,” he says.

When a listing hits an agent’s Web site, it is available on 3,000 additional sites nationwide. As soon as the listing agreement is signed, the listing is posted.

“The agent can load up to 16 photos of the property or the home when the property is listed instead of waiting for (the Multiple Listing Service) to start advertising it,” Rouda says.

In addition, all of the documents needed to conduct business are online and can be transmitted at the touch of a button.

So can we anticipate continued mergers and acquisitions this year? Rouda says it’s a definite possibility.

“The industry will continue to consolidate due to marketing technologies applied to a larger base of agents and clients,” says Rouda.

And with Columbus real estate sales in January looking even stronger than in January 2001 (1,117 sales vs. 991), continued growth is almost a sure bet. How to reach: Coldwell Banker King Thompson, (614) 451-0808 or www.columbusohiohomesearch.com; HER Realty/Real Living, (614)459-7400 or www.herrealtors.com