Earlier today @REALTORMarley Twittered while at the Keller Williams Family Reunion (company annual sales conference): According 2 #yahoo financial #realogy (ie Coldwell Banker) likely to fail in 2009 HelpUSell filed for bankruptcy... #kwfr
Checking there's a bit of buzz over an article written by Rick Newman over at USA Today called 15 Companies That might not make it in 2009. #5 on his list in Realogy. For those of you not familiar with Realogy they own the likes of Century 21, Coldwell Banker, ERA, Sotheby's and a new entry Better Homes and Gardens. Realogy was purchased in 2007 by Apollo Management through Apollo Fund VI. Apollo owns numerous big name companies some of whom have recently filed for Bankruptcy including Linen and Things as one of the more recognized names to go BK.
My first reaction was that this was evidence that Bricks and Mortar are dead when it comes to real estate. Though this idea certainly has merit looking into the details further it looks like the challenge with Realogy is really one of significant debt and the inability for Apollo or Realogy themselves to be able to reoganize that debt in a timely basis. There also seems to be a suggestion that the companies ratio of assets to debt are out of whack and as a result bond holders could accelerate the repayment of the debt and then the last part of the puzzle that I was able to find was the idea that debt issued by Realogy is trading at a significant discount to face value. One post I read suggested it was trading a 6.5 cents on the dollar which suggests that the company is like a boxer who is already knocked out but for some reason won't fall down.
All that being said, what happens if Realogy actually files for a reoganization of debt? Well it turns out that Carl Icahn is a big holder of debt in Realogy and as a result he probably has some ideas for the company, however what does it do to on the ground agents at C-21, Coldwell Banker, Sotheby's or BHG?
My guess is that business on the ground won't even skip a beat.
Why?
Well if you think about other companies that are filing for BK, they almost all deal in a business where the inventory is either made or purchased by the parent company. Take autos. If GM declares bankruptcy and they are forced to shut down manufacturing facilities and close down product lines, dealers will ultimately either go out of business or do a whole lot less business because there is just less inventory to sell.
If you are a retailer like Linen and Things was then inventory is purchased (even if it is on terms) by the parent and as a result a store is only as good as the inventory that the parent is willing to purchase for the store. No inventory again no sales.
Real Estate is a different animal. The parent provides no actual inventory. They don't own homes, they in most cases don't even broker homes, they simply collect franchise fees for providing a selling system for agents. There is a possibility that national advertising campaigns might be cut which probably won't trickle into consumers awareness for quite a number of months and if the contractual relationship with the franchisees is solid maybe even that wouldn't be impacted.
Inventory is a function of agent quality and agent count. So unless there is a massive exodus of agents from these franchises relative to other firms, these companies will continue to maintain their marketshare.
So will an agent be impacted at these major firms? Other then a short term black eye, it's likely that the eye will heal and business will be back to business as usual. Of course given the state of the housing market that means working hard and bringing a big game to the table to make a modest income (if that).
Upside, a leaner and meaner corporate office (once the initial reality at the home office is over with). Downside, less personel supporting all the brands and the agents (because without a doubt there would be downsizing in a restructuring).
Anyway that's my first blush opinion on what might happen if Realogy did file BK.
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Hmmmmmm interesting ! thanks
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