Brokers consider buying Coldwell Banker offices.

Westside firms could spread influence with purchase

Chicago-based Sears Roebuck & Co.'s Sept. 30 announcement that it will sell its 2,000-office Coldwell Banker Residential Group has sent rumors thundering through the Los Angeles residential brokerage community about possible sales scenarios.

Though headquartered in the Orange County city of Mission Viejo, Coldwell Banker has some 30 offices in Los Angeles County, with more than 1,100 brokers and sales associates. That places it among the top four largest residential brokerages in the county.

Coldwell Banker does not get a large portion of its listings in upscale Westside neighborhoods such as Malibu, parts of Santa Monica and Beverly Hills. So either Jon Douglas Co., Fred Sands Realtors or the Prudential California Realty -- all major Westside players -- could quickly spread their influence in the region by purchasing Coldwell Banker's Los Angeles County offices. A brokerage can spread its influence over a new region more rapidly and for less expense by buying an existing brokerage network, rather than establishing one from scratch, say Los Angeles residential real estate experts such as Fred Sands.

Other possible Coldwell Banker purchase scenarios being bandied about by the residential brokerage community range from a leveraged buyout by existing management to a piecemeal sale.

If Coldwell Banker is bought by a residential brokerage that already has a sizable L.A. County presence, that buyer would likely become the country's largest residential brokerage after adding Coldwell Banker's 30 L.A. offices.

Though he would not mention names of prospective buyers, Coldwell Banker Chairman and Chief Executive Officer Chandler B. Barton admitted there is a lot of interest. But until the New York office of Goldman Sachs & Co. finishes a report itemizing the company's assets and liabilities, Chicago-based Sears Roebuck & Co. cannot proceed with any negotiations. That Goldman Sachs report is due out in mid-November.

"To the best of my knowledge, there are no offers or negotiations underway to sell," Barton said. "At the time Goldman Sachs finishes its evaluation of the company, they will deal with any potential buyers."

Fred Sands, who asserted he has taken a look at Coldwell Banker, said it is doubtful Prudential California Realty, the third-largest residential brokerage in Los Angeles County, would make a play for all or even a portion of Coldwell Banker.

Though Sands just received State of California approval to start selling franchises for Fred Sands Realtors, he said he is anxiously waiting to see what asking price and terms Sears and Goldman Sachs come up with.

"We are looking at the situation and considering our options. Coldwell Banker isn't strong in the Westside market and the upscale neighborhoods where we are," Sands said. "But they are extremely strong in other markets around the country."

It is more likely that a company not already in the residential brokerage business that has huge reserves, such as a Fortune 100 company or an insurance company, would make a play for the entire company, Sands said.

"It is Coldwell Banker's franchise offices that provide the greatest opportunity for income," Sands said, adding that Metropolitan Life Insurance Co. did a similar deal when they bought the Century 21 franchise operation in the late 1980s.

Local real estate executives and financiers who asked not to be named said New York Life Insurance Co. and GE Capital Corp. are looking for acquisitions.

Executives at Jon Douglas and Prudential could not be reached for comment.

Experts on national real estate franchises claimed Coldwell Banker would fetch more money if sold intact, rather than piecemeal. But they added that the timing for such a sale might not be right.

Los Angeles real estate experts expressed doubts that a single national brokerage would want to risk duplication of offices. So offers for only a portion of the offices are more likely, they said. For example, a Los Angeles-based brokerage that focuses on Southern California may try to expand its regional presence by buying the Coldwell Banker offices in Northern California. Less likely, but still possible, is an insurance/financial services firm buying the entire network to compete head-on with other national networks.

Del Mar-based Bob Dyson, owner of Dyson & Dyson Real Estate Corp. and former owner of the national franchising company for Red Carpet Real Estate brokerages, questioned how good a buy Coldwell Banker would be for anybody.

"I've looked at the company's last financial statement, and they had an average office profit of $31,000 per year," Dyson said, though he admitted that many Southern California offices probably exceed that amount. "Whoever buys Coldwell Banker will have tremendous liability to keep paying the leases for all of the offices," he added.

On a more positive note, Dyson concurred with Sands by saying the opportunity to sell additional Coldwell Banker franchises could be lucrative to whoever buys the network. Those future franchises might be less lucrative for franchisees, he said.

"You have a lot of managers and top producers who want to go out and buy their own offices," Dyson explained. "But in most instances, (the managers who would be taking ownership) have worked in a situation where the corporation has taken care of advertising and administrative support. When they become franchisees, they have to pay for all their own administrative support. And many times they don't have the experience to manage their financial affairs properly."