Down real estate market creates opportunities to consolidate

First, Charlestown-based Randall Realtors acquired Kinlin Grover GMAC Real Estate on Cape Cod – a deal that involved 11 offices and 250 agents.
That was 18 months ago.
Then a few months later, there was the Caldwell Banker Atlantic purchase by Randall Realtors, also on the Cape, that added another two offices and 25 agents to the stable. A short time later, Randall picked up E. Melson Webster Inc., a one-office, six-agent real estate brokerage in Chatham, Mass.
Randall Realtors is among the brokerages that see opportunity in a cool real estate market, by strengthening their presence in certain areas, or expanding into new ones.
In some cases, some in the real estate industry say, smaller two- to three-person operations are packing it in after hanging on through very lean years recently, seeing better prospects in folding offices into bigger agencies.
“In difficult economic times, it’s the point at which some firms tend to grow the most,” said Michael Schlott, president of Randall Realtors and Kinlin Grover. “What occurs is some owners who are having financial difficulties look for a solution and sell. Or you get owners who are just tired and they run out of energy needed to run the day-to-day aspects of the business.”
In those cases, some larger firms are looking to capitalize on the economics of scale – the cost advantages of expansion – and agreeing to absorb offices and pick up agents often from well-established local realty brokerages.
Ronald Phipps, president of Phipps Realty in Warwick and president of the National Association of Realtors, said this type of consolidation is taking place across the country.
“The business is extremely expensive, and it’s difficult to be profitable,” he told Providence Business News. “It’s taking longer to sell properties, and it’s labor and cost intensive. You have to be efficient, and there’s a scale of efficiencies that [consolidation] enables. “I don’t think we should be surprised that a number of companies have gone down,” he added. “The raw amount of business that is happening is less. It’s a very competitive business.”
Phipps expects the consolidation to continue as the real estate market stabilizes. Then when sales start picking up, “you’re going to have a reaction in the other direction,” he said.
Stephen Antoni, Rhode Island Association of Realtors and a RE/MAX agent in East Greenwich, doesn’t see consolidation as much of a trend in the industry, at least not in Rhode Island, where there are more than 700 independent brokers.
“This is not a state of big-box firms swallowing up the smaller ones,” he said recently. “You’ve got your franchises that are independently owned and operated, but there’s not that much acquiring going on in Rhode Island.”
Indeed, Phipps said the smaller firms such as his own can still go head-to-head with agencies that have a wider reach. ‘There’s still room in the field for national franchises and true independents,” he said.
Still, there have been smaller shifts in the local market over the last year or so.
Lila Delman Real Estate purchased Jamestown Rental Realty in the fall. That followed Delman opening an office on Block Island in May last year, joining other independently owned real estate companies already on the island.
The East Providence office of EXIT Realty Consultants, a national firm with several independently owned outlets in Rhode Island, “absorbed” local real estate brokerage Red Realty, according to owner-broker Manny Menezes.
Red Realty owner Joseph A. Botelho Jr. closed his operation and joined EXIT, along with nine of his agents. The slow real estate market has much to do with such decisions.
“It’s like anything else, if you’re hitting home runs and you’re breaking records, you’re not going to make a move,” Menezes said. “The writing is on the wall for some of the smaller brokerages. If you can’t recruit agents and you can’t keep them in the company because you don’t have the tools or the training or the other systems that are needed nowadays, it’s difficult to compete. … There are a lot more things that come into play now. It’s not just putting a sign on a lawn and putting in a newspaper ad.”
In these cases of consolidation, there have been few job losses, real estate brokers say. Typically, agents are kept on, and the seller then goes to work for the acquirer, as either a broker or manager.
“For somebody who has one or two offices, they’re paying for the overhead, the staff, advertising; they’re solving all the problems everyday,” said Schlott, of Randall Realtors. “Some owners are looking for a solution that involves rolling into a company like ours.”
He acknowledges that some brokerages that are in the position to expand run the risk of biting off more than they can handle. “The dynamic is a challenge,” he said. “In this economy, the opportunities are much greater, but the risks are much greater, too.”
That said, Randall Realtors, which is also administered by CEO Doug Randall, is still on the hunt for more acquisition opportunities as other brokers “run out of economic steam and emotional steam” as sales continue to be slow, Schlott said.
He foresees consolidation accelerating a bit even as the market stabilizes, before things swing the other way.
“It will reach a point where the real estate economy will be back on its feet,” Schlott said. “And then we’ll see new brokerages opening up.” •