Industry Watch: Public Real Estate Companies Realize Robust Earnings

March 1, 1999

Publicly owned real estate brokerages are few in number. But recent reports from some public companies indicate they're experiencing very positive financial results. The DeWolfe Cos., operators of New England's largest residential real estate brokerage, recorded a 197 percent earnings increase in 1998 compared with 1997. The company recorded a net income of $3,233,000 (95 cents per diluted share) on total revenue of $135.4 million and a total net of $51.6 million after pay outs.Comparable figures for 1997 were $1,070,000 in net income (32 cents per diluted share) on a total revenue of $103.1 million and a total net of $39 million.

St. Joe Co., which bought Prudential Florida Realty last July and changed its name to Arvida Realty Services, is enjoying substantial results from its acquisition. In establishing a record year for home sales in 1998, Arvida Realty Services posted a gross sales volume of $5.9 billion--a $1 billion, or 20 percent, increase over the $4.9 billion it generated in 1997. It posted 33,349 total sales transactions in 1998, a 15 percent increase over its 28,892 transactions in 1997.

CalEnergy, an Omaha-based utility holding company, last week acquired Des Moines-based MidAmerican Energy Holdings Inc., and will take the MidAmerican name and move its headquarters to Des Moines. MidAmerican reports that its residential real estate brokerage division, MidAmerican Realty Services, contributed nearly $4.2 million to the parent company's 1998 earnings. For the year, the MRS closed 68,831 transactions on homes valued at $9.6 billion. MRS was created in May of 1998, the product of the acquisition of Edina Realty (in Minneapolis-St. Paul and other areas of Minnesota and Wisconsin), Iowa Realty, and First Realty--Better Homes and Gardens (in Iowa), CBS and Home Realty Services (Omaha, Neb.), Carol Jones, REALTORS®, (Springfield, N.J.), and J.C. Nichols Residential Inc. (Kansas City, Mo.).

Following a lull in its acquisition activities through most of the fourth quarter of 1998 and well into 1999, expect NRT Inc. to soon add to its extensive holdings. Rumors are that NRT, the active acquirer of megabrokerage companies and largest franchisee in the Cendant Corp. network, wishes to complete several major pending transactions before the initial public offering of its common stock, slated to come to market before the end of the second quarter.

Real estate companies attempting to strengthen their market presence by hiring top managers from other brokerages have found the task challenging this year. With the industry's 1998 record-setting dynamism continuing into 1999, many managers’ earnings are at all-time highs. Only by offering big, guaranteed salaries and paying signing bonuses are recruiters having any success--but even then, not much.

With the recent creation of its Extraordinary Properties Division, Long & Foster, REALTORS®, the powerful mid-Atlantic megabroker headquartered in Northern Virginia, joins a growing number of leading companies that have established separate divisions to serve upscale clientele. Often carrying separate identities, these company divisions generally promise sophisticated marketing services and novel approaches to assist upper-bracket buyers and sellers. Such services are also frequently accompanied by commission rates at a point or two higher than those normally charged by the companies.

Look for more legislative and judicial battles involving land use as various land protection groups seek restrictions and controls ranging from density standards to construction styles. Recent examples: Houston's planning commission proposed capping inner-city density at 30 units per acre, sparking a fierce debate with urban dwellers and builders. The ordinance doesn't affect the density of apartment units but targets the townhome trend that's flourished inside the city's loop.According to commission officials, the cap of 30 units per acre will freeze the density of townhome development at its current levels, prohibiting future building. Several grassroots civic groups would like to see that cap lowered even further.

On fashionable Fisher Island, a 216-acre private tract of land off the coast of Miami Beach and home to 563 condominiums, residents are preparing to fight additional condo development on an infrastructure that can't support it, even though an independent study argues that it can. The fuss began last summer when John Melk, a resident and Chicago developer, bought the island's remaining undeveloped 40 acres from MBL Life Assurance Co. Zoning laws allow Melk to build as many as 637 new units. But he plans to build only 315 to keep the neighbors happy. Happy they're not. A group of owners has hired a lawyer to petition a court to void the prior zoning approvals and force Melk to seek new approvals before building anything. The case is pending.

In the meantime, Melk's plans are progressing on schedule. In fact, 50 percent of the units in his first two new buildings sold the first week the sales center opened. Adding fuel to the fire, half the units were purchased by Fisher Island natives looking for a new place in paradise to house their treasures.

In several markets around the country, residents are petitioning government officials to require diversity in architectural style, external appearance, and lot placement in subdivisions to avoid the boredom of sameness they say characterizes far too many new communities.

State and local REALTOR® associations can now get a free impact analysis of land-use proposals that spring up in their area. In a pilot program that runs through May when it'll be evaluated at the NAR Midyear Business Meetings, NAR has enlisted the Hartford, Conn., law firm of Robinson & Cole to perform proposal analyses and provide strategic guidance to associations.Robinson & Cole is already analyzing land use proposals from Alabama, California, Colorado, Idaho, Utah, and Wisconsin, according to NAR's Government Affairs staff.

Real estate organizations are affording Republican presidential aspirant Elizabeth Dole great opportunities to practice her mastery of addressing convention groups. In early March, she was the keynote speaker at RE/MAX International's annual convention. Later, she was at it again, headlining at GMAC Home Services--Better Homes and Gardens' annual conference.

The real estate community lost a stalwart member with the March 5 passing of REATLOR®Ralph Martin. President of Kunkel, REALTORS®, in the Chicago suburb of Des Plaines, Ill., Martin was a veteran NAR director and served on numerous committees and task forces. He was a past president of the Illinois Association of REALTORS®, the Northwest (Ill.) Suburban Board of REALTORS®, and the Northwest Suburban MLS. Martin was Illinois REALTOR® of the Year in 1986-87. He served a four-year term as a Des Plaines councilman and devoted two decades of service to the city's Economic Development Commission. In addition, he was the former chairman of and adviser to the Real Estate Advisory Board at the local Oakton Community College.

Veteran industry observer Tom Dooley is president of TWD Associates, a real estate consulting firm in Arlington Heights, Il., and editor of two monthly newsletters. Contact him at 847/398-6410;

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