HFS Inc. said it formed a $232 million joint venture with financier Leon Black to buy residential real estate brokerages and convert them to one of HFS’ Coldwell Banker, Century 21 or ERA names.
In its first move, the venture agreed to buy National Realty Trust, the largest U.S. brokerage firm, for an undisclosed amount, moving HFS for the first time into ownership of real estate offices rather than franchising them. It said it also has preliminary agreements to buy several others.
The venture is the most aggressive bid yet to accelerate the pace of consolidation in an industry dominated by small operators whose profit margins are being squeezed by higher commission levels and the cost of investment in new office technologies.
“In this business, the bigger firms are in a better position to make money by offering one-stop shopping services,” said Stephen Murray, head of Denver-based Murray Consulting, which advises brokerages on mergers and acquisitions.
This year, Murray said as much as $28 billion in sales volume could be bought by other firms, up from $16 billion last year. Still, that only represents about 5 percent of the industry’s total sales volume.
“The real estate brokerage industry is extremely fragmented and represents a huge opportunity for consolidation,” Henry Silverman, chairman and chief executive of HFS, said.
Parsippany-based HFS estimates there are about 48,000 real estate brokerage offices in the U.S., with about 39,000 of them unaffiliated with one of HFS’ three franchise systems.
