Home Brokers & Agents A Word (or Two) About Realogy

A Word (or Two) About Realogy

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Noah Rosenblatt over at Urbandigs notes potential huge problems over at Realogy (H/T: 4Realz):

According to Crain’s “Seven area firms make endangered list“:

The most vulnerable, according to S&P, include Realogy, the Parsippany, N.J.-based owner of such brands as Century 21 and Corcoran Group. The firm, which was taken private last year by Apollo Management in an $8.8 billion leveraged-buyout, has struggled mightily amid the housing crisis. Last week, the firm warned that it’s at risk of violating the terms of its bank loans and is trying to swap $1.1 billion of bonds for new debt at a discount.A default does not necessarily mean the end of a company. Traditionally, many companies in default have been able to negotiate new debt terms with their creditors. But with so many defaults looming, experts warn that fewer companies will be able to restructure their debt. As a result more of troubled firms could wind up in bankruptcy court and being liquidated.”

I think Noah is right to point out that this was likely a foreseeable event given the state of the financial markets back in mid-2007:

I discussed the LBO Buyout Boom as a Reason To Worry way back in June of 2007, as cov-lite (great for borrower, bad/riskier for the lender) deals were being done as LBO deals started to dry up after an unsustainable buyout boom:

My Point – Forward thinking. I am by no means an expert of leveraged buyouts, credit risk, derivative products, cdo/abx markets, etc.. However, it doesn’t take an expert to see how the industry adapts to continue to be able to lend to support such massive buyouts in the private equity sector. I’ll repeat this again –> Right now you are seeing an environment that is a result of years of ultra cheap money and tons of liquidity. What is yet to be seen is the effect of globally rising interest rates to levels we see today; that will take 1-2 years. For the near future, I don’t think the end result will be that bad, in fact I think the environment will remain bullish for some time. However, red flags are waving for the years to come when we will be able to look back at how many of these massive buyouts were successful, and how many caused major problems to banks and other lenders”

However, I think in this case, Crains (and others) are hyperventilating just a wee bit at least as far as Realogy is concerned.

The reason isn’t that I know something others don’t about the strength of Realogy or any such thing.  The reason mostly has to do with incentives for bankers and bondholders to allow a default and the consequences of such.  There is next to zero incentive for any creditor of Realogy to force the company into bankruptcy.

Realogy has next to no assets.  Really.  If you think about their business model, as a franchisor of service businesses, their main assets are the brand names and the people who work at their various company-owned stores or franchisees.

In the case of some of the other firms named by Crains, such as JetBlue or Hovnanian Enterprises, they own real assets that can be auctioned off or sold off to raise a fair amount of money.  Airplanes and real estate are both real assets.  In those cases, it might make a lot of sense for creditors to push those companies into Chapter 7 liquidation proceedings and recover their losses that way.

But Realogy’s real assets are negligible, to say the least.  It owns no buildings that I know of (unlike other franchise models where the franchisor owns the franchise location and receives rent from the franchisee).  All of its company owned stores are lessees of other landlords.  Whether its servers, technology equipment, office equipment, and such are worth a lot is unknown, but one suspects that Realogy probably doesn’t own the equipment in its datacenters (it probably leases them from the hosting facility), and used furniture isn’t exactly going to make a huge dent in the billions owed.

In a Chapter 7 liquidation, you can’t hold on to any of the talent that makes Realogy the company it is.  People will get laid off, or walk out, but they’re not going to be sold at auction to repay creditors.

The best chance of getting repaid for a creditor is to let Realogy continue to operate, until things turn around.  That Realogy lost $200m or so in the past three years is relevant only to the shareholders of Realogy, namely Apollo Management, the private equity fund that bought Realogy in 2007 for $6.6B.  I’m sure their equity is hovering near zero at the moment.  But I’m equally sure that Realogy has been making all of its loan payments, including interest, for the past year and a half or so.

Realogy still owns NRT, which is still the #1 brokerage in the country by quite a margin, and did 323,000 sides in 2007.  Even if we assume that the NRT’s sides are down significantly, it will still be doing a couple of hundred thousand deals.  And that’s just NRT; all of the CB, C21, ERA, and Sotheby’s franchises (not to mention Coldwell Banker Commercial) will do deals.  They are perenially among the top brokerages in the country, some with billions in transaction volume.

The cashflow from all those operations are still quite significant.  Creditors want to keep that going for as long as possible.  Forcing Realogy into bankruptcy will likely cause significant disruptions of that continuing cashflow.  Certainly, forcing Realogy into liquidation will.

What could happen, of course, is that significant creditors end up replacing Apollo Management as the beneficial equity holders.  When Realogy debt is trading for pennies on the dollar, it’s impossible to think that Apollo’s equity is worth very much.  It may be that the banks and bondholders simply restructure the loan, extend the timeline, etc. but take over Apollo’s equity in Realogy in exchange.  That way, when the market turns around, those creditors will realize a fairly significant gain.  Chapter 11 bankruptcy is a popular way to make those kinds of deals happen, especially if Apollo ends up trying to resist the takeover by bondholders.

But however such boardroom intrigues play out, the real point is that a company that is generating very significant cashflow — even at a loss after all the expenses and such are taken care of — but has no real assets is not one that creditors want to exterminate.  To say Realogy is on the Endangered List is hyperventilating by a bit.  It is in financial difficulties, sure, and in the short-term there will be (and has been) layoffs, cost cutting, and so on.  It will, however, survive on the strength of its ability to generate revenues and operating cashflow.

-rsh

PS: While I worked at Realogy for years, I own no Realogy stock (unless one of my mutual funds bought it), have no inside relationships, etc.  This is just my opinion as an observer of the industry.

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Rob Hahn
Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

43 COMMENTS

  1. Rob,

    I find your site very informative. As the Director of PR for Century 21, I follow all of the industry blogs. I will be watching yours. What did you do for Realogy when you worked with the company?

    Regards,

    Matt Gentile

  2. Rob,

    I find your site very informative. As the Director of PR for Century 21, I follow all of the industry blogs. I will be watching yours. What did you do for Realogy when you worked with the company?

    Regards,

    Matt Gentile

  3. Thanks Matt –

    I used to be the Sr. Director of Interactive Marketing for CBC. 🙂 Say hello to the good folks at 1 Campus for me, hehe.

    -rsh

  4. Thanks Matt –

    I used to be the Sr. Director of Interactive Marketing for CBC. 🙂 Say hello to the good folks at 1 Campus for me, hehe.

    -rsh

  5. Great blog! I agree with your evaluation of Realogy except for one key factor. Eroding commisions,lower home sale prices and less sales transactions have devasted the revenues of this company. There is much less money in the transactions than you think. I have been a CB agent for 15 years. Top producer – always proud of the brand and our quality, a true company person. The company is being run into the ground and it is pitiful to watch! The cost cutting measures and consolidations result in a loss of key market share and cause agents to move on to other companies. There is no support left for agents in a difficult market. No seminars , sales motivation, training,or even a pep talk from upper management to keep the agents going. The branch offices are shabby and not being maintained, (denied a carpet cleaning requisition- what a joke) key talented managers have left. In January 2009 as is customary new contracts are negotiated with the agents and more than likely the next strategy to cut costs will be to offer less commision splits to the agents which will result in the departure of many talented top sales agents . The short sited mentality of mangement is good riddens one less mouth to feed when the reality is these agents are the only source of revenue the company has. It is a tough market but as an independent sales agent I have had to figure it out and make my business run profitably which I have successfully done. Unfortunately Realogy has failed to do this. They would be better off focusing on the agents and coming up with a strategy to strenghthen their sales force to generate MORE revenue. They refuse to give the agents the tools and sales strategies needed to survive this market. Instead they have stripped away even the basic marketing tools, watered down the brand and cut employees that ensure the high standard of customer services the CB brand was built on. Revenue will keep going down and they will not keep up with the debt. They are going down…..

  6. Great blog! I agree with your evaluation of Realogy except for one key factor. Eroding commisions,lower home sale prices and less sales transactions have devasted the revenues of this company. There is much less money in the transactions than you think. I have been a CB agent for 15 years. Top producer – always proud of the brand and our quality, a true company person. The company is being run into the ground and it is pitiful to watch! The cost cutting measures and consolidations result in a loss of key market share and cause agents to move on to other companies. There is no support left for agents in a difficult market. No seminars , sales motivation, training,or even a pep talk from upper management to keep the agents going. The branch offices are shabby and not being maintained, (denied a carpet cleaning requisition- what a joke) key talented managers have left. In January 2009 as is customary new contracts are negotiated with the agents and more than likely the next strategy to cut costs will be to offer less commision splits to the agents which will result in the departure of many talented top sales agents . The short sited mentality of mangement is good riddens one less mouth to feed when the reality is these agents are the only source of revenue the company has. It is a tough market but as an independent sales agent I have had to figure it out and make my business run profitably which I have successfully done. Unfortunately Realogy has failed to do this. They would be better off focusing on the agents and coming up with a strategy to strenghthen their sales force to generate MORE revenue. They refuse to give the agents the tools and sales strategies needed to survive this market. Instead they have stripped away even the basic marketing tools, watered down the brand and cut employees that ensure the high standard of customer services the CB brand was built on. Revenue will keep going down and they will not keep up with the debt. They are going down…..

  7. @salestar – thanks for your comment. 🙂

    I don’t disagree with you that the business of real estate is in trouble. Commissions are headed southwards, and until the macroeconomic conditions improve, sides and prices are both likely to be flat or down.

    And I can’t speak to what’s going on in terms of management of the brand itself — I don’t know enough to say one way or the other. (Although there are some really bright people over at 1 Campus who are very capable.)

    At the same time, all of the issues you’re mentioning are solvable only by an ongoing concern. If creditors put Realogy into bankruptcy, then not one of those problems can be fixed.

    What I am curious about is your mention of “stripped away even the basic marketing tools” — because I do happen to know a bit about what the national CB brand offers its franchisees, and some of the best marketing tools in the business are in that mix. What are they stripping out that you feel is necessary? That might be something folks at 1 Campus might want to hear.

    -rsh

  8. @salestar – thanks for your comment. 🙂

    I don’t disagree with you that the business of real estate is in trouble. Commissions are headed southwards, and until the macroeconomic conditions improve, sides and prices are both likely to be flat or down.

    And I can’t speak to what’s going on in terms of management of the brand itself — I don’t know enough to say one way or the other. (Although there are some really bright people over at 1 Campus who are very capable.)

    At the same time, all of the issues you’re mentioning are solvable only by an ongoing concern. If creditors put Realogy into bankruptcy, then not one of those problems can be fixed.

    What I am curious about is your mention of “stripped away even the basic marketing tools” — because I do happen to know a bit about what the national CB brand offers its franchisees, and some of the best marketing tools in the business are in that mix. What are they stripping out that you feel is necessary? That might be something folks at 1 Campus might want to hear.

    -rsh

  9. Sir,

    First and foremost, please accept my sincere appreciation for your thoughtful input. You are now bookmarked! In my casual following of Cendant, then Realogy, then it’s sale to Apollo – combined with today’s economic environment – I have been searching for more information and commentary on this private company.

    While I no longer work in the RE industry, many close colleagues still do, and most of those for one of Realogy’s brands. I do have one question / point that I would appreciate your comment on.

    In terms of the franchised side of Realogy’s revenue mix, and the resultant cash flow from those operations, I have heard from both those inside of Realogy at 1 Campus, and those in franchised offices, that many franchised offices are suffering and closing. I’ve been reminded that this very franchise model usually consists of just one or two small-business people as owners, who, with all the other expenses involved in running a business, are just not able to financially weather this storm. Realogy can not depend upon it’s “mom-and-pop” franchise offices to carry it through to 2010 or 2011.

    I’m hearing of two situations that one would think could hurt Realogy. First, the sales agents at a franchised office have seen there income drastically reduce, and are therefore leaving that franchised office to an independant broker to alleviate themselves of paying franchise fees. Think of it as a 5% – 6% pay raise. They’ll say, “Sure, CB is a great name, but a majority of my clients came to me, not to CB.” After all, haven’t we all been marketed to by real estate agents promoting themselves, their photo, their own phone number, and not that of their broker/owner? As you are well aware, it is an extremely competitive industry, and many agents will jump ship long before giving up their BMW or Mercedes.

    Secondly, the franchise owners are not able to stay afloat with rent, phones, insurance, marketing, etc., and therefore their franchise fees (or what’s left of them) do not get paid. A number of Realogy’s franchised offices in my metropolitan area have shuttered in 2008, and sadly I can only expect that to continue in to 2009. This also has it’s attendant affect on the notes/loans that Cendant, and now Realogy has made to it’s franchised offices, as incentives to sign franchise agreements. I wonder if those will be or can be ever paid off?

    I guess what I’m asking is, how can one be assured of Realogy’s continuing cash flow when their assets, and those of the franchised offices, walk out the door every night? Yes, franchising has been and can be an extremely profitable enterprise, notably for the franchisor, but these are unique times, and I can only suspect that this cash flow is drying up as we type. There is a reason that Realogy rarely releases this type of information, and one can’t blame them – it’s an advantage to be private. But no news can not be good news.

    Best-
    A.T.

  10. Sir,

    First and foremost, please accept my sincere appreciation for your thoughtful input. You are now bookmarked! In my casual following of Cendant, then Realogy, then it’s sale to Apollo – combined with today’s economic environment – I have been searching for more information and commentary on this private company.

    While I no longer work in the RE industry, many close colleagues still do, and most of those for one of Realogy’s brands. I do have one question / point that I would appreciate your comment on.

    In terms of the franchised side of Realogy’s revenue mix, and the resultant cash flow from those operations, I have heard from both those inside of Realogy at 1 Campus, and those in franchised offices, that many franchised offices are suffering and closing. I’ve been reminded that this very franchise model usually consists of just one or two small-business people as owners, who, with all the other expenses involved in running a business, are just not able to financially weather this storm. Realogy can not depend upon it’s “mom-and-pop” franchise offices to carry it through to 2010 or 2011.

    I’m hearing of two situations that one would think could hurt Realogy. First, the sales agents at a franchised office have seen there income drastically reduce, and are therefore leaving that franchised office to an independant broker to alleviate themselves of paying franchise fees. Think of it as a 5% – 6% pay raise. They’ll say, “Sure, CB is a great name, but a majority of my clients came to me, not to CB.” After all, haven’t we all been marketed to by real estate agents promoting themselves, their photo, their own phone number, and not that of their broker/owner? As you are well aware, it is an extremely competitive industry, and many agents will jump ship long before giving up their BMW or Mercedes.

    Secondly, the franchise owners are not able to stay afloat with rent, phones, insurance, marketing, etc., and therefore their franchise fees (or what’s left of them) do not get paid. A number of Realogy’s franchised offices in my metropolitan area have shuttered in 2008, and sadly I can only expect that to continue in to 2009. This also has it’s attendant affect on the notes/loans that Cendant, and now Realogy has made to it’s franchised offices, as incentives to sign franchise agreements. I wonder if those will be or can be ever paid off?

    I guess what I’m asking is, how can one be assured of Realogy’s continuing cash flow when their assets, and those of the franchised offices, walk out the door every night? Yes, franchising has been and can be an extremely profitable enterprise, notably for the franchisor, but these are unique times, and I can only suspect that this cash flow is drying up as we type. There is a reason that Realogy rarely releases this type of information, and one can’t blame them – it’s an advantage to be private. But no news can not be good news.

    Best-
    A.T.

  11. @Aaron –

    Thanks for your kind words. I want to caution you again that I am merely an observer of the industry and of the company, with no special information (anymore) now that I’m no longer there.

    WRT your question:

    In terms of the franchised side of Realogy’s revenue mix, and the resultant cash flow from those operations, I have heard from both those inside of Realogy at 1 Campus, and those in franchised offices, that many franchised offices are suffering and closing. I’ve been reminded that this very franchise model usually consists of just one or two small-business people as owners, who, with all the other expenses involved in running a business, are just not able to financially weather this storm. Realogy can not depend upon it’s “mom-and-pop” franchise offices to carry it through to 2010 or 2011.

    Obviously, I don’t know what is going on with Realogy’s various franchisees. But I do know that these franchisees represent some of the largest and strongest companies in brokerage. If you look at various reports, like RealTRENDS 500 list, or the RISMedia’s PowerBrokers list, you’ll noticed that a big chunk of those top brokerages are affiliates of one of the Realogy brands.

    With the market heading south, I rather think it benefits Realogy and its power companies, as they will start to buy out marketshare via M&A or walkovers, and simply take down weaker competitors.

    From a franchising standpoint, I’m not sure that the number of franchisees matters as much as dollar volume franchised. And if Realogy franchisees (who are among the top companies in brokerage) are buying up the dollar volume, then I don’t see that as a negative at all.

    On the two situations you mention, both (an agent going independent to avoid the 6% haircut, and franchise owners closing down) scenarios are possible. I think time will show which was things are actually flowing. Because conversely, I can also see that now is NOT the time to strike out on your own without the name recognition that a Realogy brand (or a competitor brand) provides. In what is absolutely a buyer’s market, being an unknown independent might not be the ideal solution for a top agent.

    In fact, there was a note in one of the 10-K’s or 10-Q’s where Realogy management noted that it retained almost all of its top quartile agents at the NRT. That is a hint that perhaps there is value in the brands after all.

    Franchises closing will of course hurt Realogy, but I just don’t know how widespread the problem is.

    At the end of the day, how can one be assured of Realogy’s continuing cash flow? One cannot. But, unless people simply stop buying and selling homes (which the data does not support), someone has to transact that business. Chances are very good that some Realogy affiliate is involved in that transaction. That generates cashflow, at ridiculously high margins for Realogy.

    My point simply was to ask, “Why kill the golden goose?” Putting Realogy into bankruptcy proceedings may do precisely that. This is a company without hard assets, whose assets do walk out the door every night (but have strong incentives not to leave the brands as long as the brands are recognized and valuable), that is still generating cash to service debt (until now at least). Why kill that?

    A bankruptcy filing immediately puts a stop to all debt service for all holders, and may lead to significant restructuring that isn’t in anybody’s interest. Might be better to let Realogy limp along, do private deals with its creditors, and so on.

    Of course, extinguishing shareholder equity (to get Apollo out) might be exactly what some creditors might be looking to do, but that to me is a ‘strategic bankruptcy’ rather than a financial one.

    -rsh

  12. @Aaron –

    Thanks for your kind words. I want to caution you again that I am merely an observer of the industry and of the company, with no special information (anymore) now that I’m no longer there.

    WRT your question:

    In terms of the franchised side of Realogy’s revenue mix, and the resultant cash flow from those operations, I have heard from both those inside of Realogy at 1 Campus, and those in franchised offices, that many franchised offices are suffering and closing. I’ve been reminded that this very franchise model usually consists of just one or two small-business people as owners, who, with all the other expenses involved in running a business, are just not able to financially weather this storm. Realogy can not depend upon it’s “mom-and-pop” franchise offices to carry it through to 2010 or 2011.

    Obviously, I don’t know what is going on with Realogy’s various franchisees. But I do know that these franchisees represent some of the largest and strongest companies in brokerage. If you look at various reports, like RealTRENDS 500 list, or the RISMedia’s PowerBrokers list, you’ll noticed that a big chunk of those top brokerages are affiliates of one of the Realogy brands.

    With the market heading south, I rather think it benefits Realogy and its power companies, as they will start to buy out marketshare via M&A or walkovers, and simply take down weaker competitors.

    From a franchising standpoint, I’m not sure that the number of franchisees matters as much as dollar volume franchised. And if Realogy franchisees (who are among the top companies in brokerage) are buying up the dollar volume, then I don’t see that as a negative at all.

    On the two situations you mention, both (an agent going independent to avoid the 6% haircut, and franchise owners closing down) scenarios are possible. I think time will show which was things are actually flowing. Because conversely, I can also see that now is NOT the time to strike out on your own without the name recognition that a Realogy brand (or a competitor brand) provides. In what is absolutely a buyer’s market, being an unknown independent might not be the ideal solution for a top agent.

    In fact, there was a note in one of the 10-K’s or 10-Q’s where Realogy management noted that it retained almost all of its top quartile agents at the NRT. That is a hint that perhaps there is value in the brands after all.

    Franchises closing will of course hurt Realogy, but I just don’t know how widespread the problem is.

    At the end of the day, how can one be assured of Realogy’s continuing cash flow? One cannot. But, unless people simply stop buying and selling homes (which the data does not support), someone has to transact that business. Chances are very good that some Realogy affiliate is involved in that transaction. That generates cashflow, at ridiculously high margins for Realogy.

    My point simply was to ask, “Why kill the golden goose?” Putting Realogy into bankruptcy proceedings may do precisely that. This is a company without hard assets, whose assets do walk out the door every night (but have strong incentives not to leave the brands as long as the brands are recognized and valuable), that is still generating cash to service debt (until now at least). Why kill that?

    A bankruptcy filing immediately puts a stop to all debt service for all holders, and may lead to significant restructuring that isn’t in anybody’s interest. Might be better to let Realogy limp along, do private deals with its creditors, and so on.

    Of course, extinguishing shareholder equity (to get Apollo out) might be exactly what some creditors might be looking to do, but that to me is a ‘strategic bankruptcy’ rather than a financial one.

    -rsh

  13. Would you please provide an analysis of who the suitors would be for the Realogy brands in the event of a bankruptcy? I hear a lot about the failures of Apollo’s Fund VI, but very little about what the aftermath would look like after a total collapse of its holdings.

  14. Would you please provide an analysis of who the suitors would be for the Realogy brands in the event of a bankruptcy? I hear a lot about the failures of Apollo’s Fund VI, but very little about what the aftermath would look like after a total collapse of its holdings.

  15. @Jake –

    Umm… what you’re asking for is beyond my ken. 🙂 I think you might want to check out some Wall Street analysts or finance insiders on that sort of info.

    I imagine that if Realogy is put into bankruptcy, it will likely be a pre-arranged Chapter 11, where creditors simply extinguish Apollo’s equity interests, restructure all of the debt, and take over as owners, while keeping Realogy intact as a “going concern”.

    I could see, in that scenario, some ancillary units being sold off or spun off. Coldwell Banker Commercial, where I used to work, is an ideal candidate for sale — probably to CBRE, if they wanted it, since the “CB” in CBRE stands for Coldwell Banker.

    But who knows? Unless it’s a pre-arranged Chapter 11, however, the distraction that a protracted bankruptcy proceedings would have on management at Realogy will hurt creditors far more than just letting it continue as is.

    -rsh

  16. @Jake –

    Umm… what you’re asking for is beyond my ken. 🙂 I think you might want to check out some Wall Street analysts or finance insiders on that sort of info.

    I imagine that if Realogy is put into bankruptcy, it will likely be a pre-arranged Chapter 11, where creditors simply extinguish Apollo’s equity interests, restructure all of the debt, and take over as owners, while keeping Realogy intact as a “going concern”.

    I could see, in that scenario, some ancillary units being sold off or spun off. Coldwell Banker Commercial, where I used to work, is an ideal candidate for sale — probably to CBRE, if they wanted it, since the “CB” in CBRE stands for Coldwell Banker.

    But who knows? Unless it’s a pre-arranged Chapter 11, however, the distraction that a protracted bankruptcy proceedings would have on management at Realogy will hurt creditors far more than just letting it continue as is.

    -rsh

  17. Hereis the live video of the case in case anyone is interested. The case is probably in process.

    Number:
    4200
    Start Date:
    December 15, 2008
    End Date:

    Description:
    Billionaire investor Carl Icahn sued Leon Black‘s Realogy Corp. over claims the company’s planned $1.1 billion debt exchange is a fraudulent transfer of money that will only delay its inevitable failure

    Location & Judge
    Judge:
    Stephen P Lamb
    Courthouse:
    New Castle County Courthouse
    500 North King Street
    Wilmington, DE 19801
    courts.delaware.gov/Courts/Court%20of%20Chancery/
    Jurisdiction:
    State Trial Court
    Delaware Court Of Chancery
    CourtroomLive is brought to you by CVN
    About CVN.com | Customer Support
    Related sites: CourtroomConnect.com | RemoteCounsel.com
    It requires a subscription.

  18. Hereis the live video of the case in case anyone is interested. The case is probably in process.

    Number:
    4200
    Start Date:
    December 15, 2008
    End Date:

    Description:
    Billionaire investor Carl Icahn sued Leon Black‘s Realogy Corp. over claims the company’s planned $1.1 billion debt exchange is a fraudulent transfer of money that will only delay its inevitable failure

    Location & Judge
    Judge:
    Stephen P Lamb
    Courthouse:
    New Castle County Courthouse
    500 North King Street
    Wilmington, DE 19801
    courts.delaware.gov/Courts/Court%20of%20Chancery/
    Jurisdiction:
    State Trial Court
    Delaware Court Of Chancery
    CourtroomLive is brought to you by CVN
    About CVN.com | Customer Support
    Related sites: CourtroomConnect.com | RemoteCounsel.com
    It requires a subscription.

  19. I’m sure you’ve seen Realogy listed on today’s “15 companies that might not survive 2009”

    You got it first though!

  20. I’m sure you’ve seen Realogy listed on today’s “15 companies that might not survive 2009”

    You got it first though!

  21. @Aaraon –

    Thanks for the tip.

    I suppose Realogy may go bankrupt. Again, I’m not sure I really see the value of doing that if I’m holding Realogy debt. The company has no assets, apart from the brands themselves and the experience/knowledge of the people at Realogy who know how to sell/service affiliates.

    Again, I could see a pre-arranged Ch-11 bankruptcy for Realogy, but in that case, Apollo will take a hammer to the forehead and have its equity extinguished, and the bondholders take over. Does that mean Realogy fails to survive? Meh… Chapter 11 doesn’t strike me as a “death” of a company, especially one like Realogy.

    Maybe that’s the ideal scenario, I don’t know. It certainly would let Realogy out of some of their leases for the NRT operations…. Bondholders go write off huge losses, and hope that when the RE market turns around, their equity in Realogy turns into a home run.

    We’ll see what happens.

    -rsh

  22. @Aaraon –

    Thanks for the tip.

    I suppose Realogy may go bankrupt. Again, I’m not sure I really see the value of doing that if I’m holding Realogy debt. The company has no assets, apart from the brands themselves and the experience/knowledge of the people at Realogy who know how to sell/service affiliates.

    Again, I could see a pre-arranged Ch-11 bankruptcy for Realogy, but in that case, Apollo will take a hammer to the forehead and have its equity extinguished, and the bondholders take over. Does that mean Realogy fails to survive? Meh… Chapter 11 doesn’t strike me as a “death” of a company, especially one like Realogy.

    Maybe that’s the ideal scenario, I don’t know. It certainly would let Realogy out of some of their leases for the NRT operations…. Bondholders go write off huge losses, and hope that when the RE market turns around, their equity in Realogy turns into a home run.

    We’ll see what happens.

    -rsh

  23. I agree wholeheartedly with your level-headed analysis. However, one result of any BK filing, would likely send jitters through the real estate agents’ minds. Typically, an agent trying to convince YOU, to use them to buy or sell your next home (now more than ever, the single most significant transaction for almost every American)would feel just a bit hampered with the fact that the logo on their business card is the same that is splashed around the media associated with the word “bankruptcy”.

    While you or I don’t associate that word nesessarily as “The End”, most folks do. Just as the CEO of GM recently told Congress, people will not buy a car from an automaker that has filed for bankruptcy. We must remember that it’s the perception that matters here. If I were a Real Estate Agent, I certainly would not want to be affiliated with a company in BK.

    Also, any filing would also most likely send Realogy’s franchisees running for the door looking for an escape clause as well.

    So, while it may not make the most sense for the bondholders, and while it may be a good strategic restructuring idea, the perception on Main St. would be devastating.

    Methinks anyways. But we shall see.

  24. I agree wholeheartedly with your level-headed analysis. However, one result of any BK filing, would likely send jitters through the real estate agents’ minds. Typically, an agent trying to convince YOU, to use them to buy or sell your next home (now more than ever, the single most significant transaction for almost every American)would feel just a bit hampered with the fact that the logo on their business card is the same that is splashed around the media associated with the word “bankruptcy”.

    While you or I don’t associate that word nesessarily as “The End”, most folks do. Just as the CEO of GM recently told Congress, people will not buy a car from an automaker that has filed for bankruptcy. We must remember that it’s the perception that matters here. If I were a Real Estate Agent, I certainly would not want to be affiliated with a company in BK.

    Also, any filing would also most likely send Realogy’s franchisees running for the door looking for an escape clause as well.

    So, while it may not make the most sense for the bondholders, and while it may be a good strategic restructuring idea, the perception on Main St. would be devastating.

    Methinks anyways. But we shall see.

  25. Good points, Aaron, about perception of a bankruptcy filing.

    But I do think Realogy (and other services companies) are a rather different animal. GM is right that people won’t buy a car from a bankrupt carmaker, but that’s in large part due to the fact that consumers rely on the manufacturer for ongoing support. If I buy a Chevy, and two years out, it needs a new carburetor, I need to know that I can find the parts, and the dealers, and the technicians to fix my car. Financial institutions are in a similar quandary: if I’m going to deposit my money with you, I want to know that I can get it back when I want.

    Realtors, however, are a one-and-done entity that provides no ongoing value to the consumer past the transaction. Sure, they would like to become more of an ongoing source of value, but they are not there yet. I buy a house from a seller, use a broker to help, and then I’m on my own. Whether the broker is or is not bankrupt has very little impact on me or my transaction.

    Would franchisees flee? Perhaps. But there are some rather significant switching costs involved — just redoing all of the signage and business cards can run into tens or hundreds of thousands of dollars. Unless the parent company of the national brand of which I am just a part going bankrupt means my consumers in my local market stop wanting to do business with me, I doubt I’d take the trouble.

    In a weird way, if Realogy were to go bankrupt, and consumers did start saying things like, “You know, I really like you, and think you’re a great realtor, but since Century 21 is bankrupt, I don’t feel comfortable having you show me that home”… it would be the greatest proof that these brands do matter to the consumer.

    The fear/problem today is that no one would care that the parent company of the national overbrand went bankrupt. 🙂

    -rsh

  26. Good points, Aaron, about perception of a bankruptcy filing.

    But I do think Realogy (and other services companies) are a rather different animal. GM is right that people won’t buy a car from a bankrupt carmaker, but that’s in large part due to the fact that consumers rely on the manufacturer for ongoing support. If I buy a Chevy, and two years out, it needs a new carburetor, I need to know that I can find the parts, and the dealers, and the technicians to fix my car. Financial institutions are in a similar quandary: if I’m going to deposit my money with you, I want to know that I can get it back when I want.

    Realtors, however, are a one-and-done entity that provides no ongoing value to the consumer past the transaction. Sure, they would like to become more of an ongoing source of value, but they are not there yet. I buy a house from a seller, use a broker to help, and then I’m on my own. Whether the broker is or is not bankrupt has very little impact on me or my transaction.

    Would franchisees flee? Perhaps. But there are some rather significant switching costs involved — just redoing all of the signage and business cards can run into tens or hundreds of thousands of dollars. Unless the parent company of the national brand of which I am just a part going bankrupt means my consumers in my local market stop wanting to do business with me, I doubt I’d take the trouble.

    In a weird way, if Realogy were to go bankrupt, and consumers did start saying things like, “You know, I really like you, and think you’re a great realtor, but since Century 21 is bankrupt, I don’t feel comfortable having you show me that home”… it would be the greatest proof that these brands do matter to the consumer.

    The fear/problem today is that no one would care that the parent company of the national overbrand went bankrupt. 🙂

    -rsh

  27. A number of C-21 offices closed in Atlanta because the Franchise owners had financial problems. Real Estate is a relationship based business and most Buyers and Sellers choose an agent first not the Brand. As pointed out the assets of the Company are its agents. additionally, their listings. The individual agents will be the first to jump ship and without them there is NO business. Franchise owners may stay in longer because of an investment and as pointed out they are the owners of the Real property and assets.

    I would have moved my business already. There is enough drama for Sellers to deal with now. I would not want to add any additional.

  28. If they file, its the sales associates at the NRT offices that will be hurt the most. A trustee will own their listings and any transactions that they have in contract or escrow become property of the trustee as well. Tens of thousand of agents will looose all of their income and potential income to the trustee. Franchisees will be damaged by the it as well. The press will be all over it and no consumer in the right mind will list with a Realogy franchisee. Everybody looses. ( except the competition)

  29. If they file, its the sales associates at the NRT offices that will be hurt the most. A trustee will own their listings and any transactions that they have in contract or escrow become property of the trustee as well. Tens of thousand of agents will looose all of their income and potential income to the trustee. Franchisees will be damaged by the it as well. The press will be all over it and no consumer in the right mind will list with a Realogy franchisee. Everybody looses. ( except the competition)

  30. It’s been ages since I’ve reviewed the relevant parts of the Bankruptcy Code, but I really doubt that the trustee will own an NRT agent’s listings, transactions in contract, or escrow.

    Escrow doesn’t belong to the NRT; it belongs to the buyer until closing, when the funds are released to the seller. It’s a strictly custodial account. I see no ownership interest by the NRT or the agent there.

    Transactions in contract, or listings on market — it’s entirely unclear to me that these can even be considered assets.

    Plus, I’m pretty sure all NRT agents are 1099 independent contractors, which means that any money owed them from a transaction is governed by terms of their contract. I don’t know whether real estate agents would be considered employees or vendors for purposes of determining priority of payments, but I’m pretty sure either way, they’d rank above shareholders.

    It will be disruptive, for sure, but I don’t think the doomsday scenario is quite what will happen.

    -rsh

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