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Prudential Setting Up Real Estate Brokerage Chain Based in Costa Mesa

November 17, 1987|MICHAEL FLAGG | Times Staff Writer

Prudential Insurance Co. of America will take on real estate giants Century 21 and Coldwell Banker with a national network of real estate brokers based in Costa Mesa.

A newly created Prudential subsidiary will begin offering franchises to real estate brokers in 32 states in February.

Within five years, the nation's largest insurance company said, it expects to have 3,500 U.S. brokerages.

If it attains its goal, Prudential will become one of the nation's biggest brokers of homes and the second major Orange County-based real estate chain. Century 21, America's largest brokerage organization, has headquarters in Irvine.

The new Prudential Real Estate Affiliates will try to cash in on a trend toward large, national brokerage chains and away from small, local brokers.

Larger Share

"The top 10 companies are accounting for a larger and larger share of the market," said Jack Rodman, managing partner in the Los Angeles office of Kenneth Leventhal & Co., a consultant to the industry.

"Eventually only a few firms will dominate the market."

The new Prudential unit also reflects a trend among financial institutions toward becoming "financial supermarkets," offering a wide variety of products, including insurance, stock and real estate.

Prudential, based in Newark, N.J., will be able to put its financial strength and an already-familiar name behind its fledgling subsidiary. Brokerage chains spend heavily on advertising.

"The bigger you are, the more you can spend on big television advertising campaigns," said Dan Bolar, a tax partner at the accounting firm of Deloitte Haskins & Sells in Costa Mesa.

"Name identification is just extremely important in this industry," said Bolar, who is a consultant to Century 21.

The new Prudential unit will sell franchises to what president Jerome M. Cole says is an untapped market: big real estate brokers in large cities.

"These are companies that are dominant in their marketplace, and the smaller brokers have had to join franchises to be able to compete with them," Cole said.

"These dominant brokers haven't joined a franchise operation because they're very particular about who they get into bed with, and they didn't want to be associated with Mickey Mouse brokers."

In addition to its Costa Mesa headquarters, Prudential will open regional offices in February in Costa Mesa, Chicago, Philadelphia and Orlando, Fla.

By August, the company plans to expand to the remaining 18 states, with regional offices in Boston, Dallas and Columbus, Ohio.

Prudential estimates that within five years, it will employ up to 200 people in Costa Mesa. The subsidiary's headquarters have already opened in the Great Western Bank Building on Park Center Drive, a building owned by Prudential.

With 3,500 offices, Prudential would still rank far behind Century 21 Real Estate, which now has 6,700 franchises in the United States, Canada and Japan. Century 21 sales representatives earned about $2 billion in commissions last year.

"We'll be behind them in number of offices," said Prudential's Cole, "but because our local franchises will be bigger, in five years we figure to be No. 1 or No. 2 in revenues."

The real estate franchising industry is still relatively young: Century 21 was not founded until the early 1970s.

But already, Prudential's Cole estimates, national chains have captured up to 40% of the market.

Like the new Prudential unit, Century 21 is also a subsidiary of an insurance company, Metropolitan Life Insurance in New York City.

Trailing Century 21 is Sears, Roebuck & Co.'s Coldwell Banker unit, with an estimated $600 million in commissions last year, Rodman said.

In the same league with Coldwell Banker are ERA and Merrill Lynch's real estate subsidiary. A handful of smaller companies round out the top 10.

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