The parent of Coldwell Banker Residential Brokerage said Thursday that it bought Jon Douglas Co. of Beverly Hills, the nation's third-largest real estate brokerage, for an undisclosed price.
Coldwell Banker, already No. 1 nationwide among real estate brokerages, doubles its size in Southern California with the purchase and will obliterate the Jon Douglas name everywhere but in its West Los Angeles stronghold.
The transaction is part of a growing consolidation craze in the fragmented real estate industry, led by HFS Inc., the giant Parsippany, N.J.-based travel services and real estate brokerage franchiser.
The deal also represents a vote of confidence in the California real estate market by NRT Inc., a joint venture created by HFS and the Apollo Management investment fund to buy residential real estate brokerage companies. NRT, the parent company of Coldwell Banker, on Wednesday bought a Northern California brokerage firm called Cornish & Carey, which operated 18 offices with 730 real estate agents.
"If you're going to be consolidating . . what you want to do is buy the biggest and the best, and Jon Douglas and Cornish & Carey were the biggest and the best," Henry R. Silverman, HFS chairman and chief executive, said in an interview.
Jon Douglas, who signed the sales agreement Wednesday night on his 61st birthday, said the company he founded 26 years ago was prospering but that the offer made by NRT was too tempting as retirement age loomed.
"I guess I'll play a little golf and get a suntan--except I don't play golf," quipped Douglas, who signed a five-year non-compete agreement with NRT. Douglas, who is chairman of the company that bears his name, and Chief Executive George Rathman will act as advisors to the merged operation but will have no other continuing role.
Jon Douglas Co. operates 62 offices--43 of them in Southern California--with more than 3,150 agents and recorded sales volume of nearly $11 billion in 1996. Coldwell Banker Residential Brokerage operates 41 offices in Southern California.
The combined 1996 sales volume in California of Coldwell Banker Residential, Jon Douglas and Cornish & Carey topped $23 million, NRT said.
The Jon Douglas offices will operate under the Coldwell Banker name everywhere except West Los Angeles, where they will be called Coldwell Banker/Jon Douglas.
Jon Douglas' biggest local competitor, Fred Sands, said he welcomes the merger.
"I'm the last big independent, and I think people prefer to work with someone whose name is on the building . . . and not some company that answers to Wall Street," Sands said.
A limited number of layoffs are expected among Jon Douglas' corporate employees where jobs are duplicated among the Coldwell Banker staff, said Bob Le Fever, president and chief operating officer of Coldwell Banker Residential's Southern California region. Jon Douglas Co. has about 500 corporate employees; real estate agents are independent contractors.
Jon Douglas Co. on Wednesday announced that it was dissolving its relationship with Costa Mesa-based Prudential Real Estate Affiliates Inc. The split was necessary to complete the deal with NRT, but it had been brewing for a year, Rathman said. "We had grown to a size that it made sense to go our own way," he said.
NRT did not disclose the terms of the deal except to say that it paid a combined total of about $310 million in cash for Jon Douglas Co., Cornish & Carey and National Realty Trust, a broker with 400 offices (most of them Coldwell Banker) and 14,500 agents that NRT bought from HFS. HFS and Apollo said Thursday that NRT has been funded with more than $600 million to pursue acquisitions of residential real estate brokerage firms.
The partnership has access to much more capital and is expecting to find many more owners like Douglas who are interested in cashing out of their relatively small operations but who have not been able to do so, Silverman said. Douglas said HFS first approached him a year ago with a lower offer, "but the market got better" and so did the purchase price.
"There certainly is a consolidation wave, and we're seeing it in every part of the industry," said Richard Peiser, director of the Lusk Center for Real Estate Development at USC. "The increasing presence of Wall Street and all the money that is being made available is certainly helping to feed it."
Consumers will notice the difference as NRT moves to "one-stop shops" that offer home buyers a wide array of services beyond the actual purchase, including securing a mortgage, finding a moving company and even hiring a gardener.
HFS also owns the Century 21 and ERA real estate franchising companies and is franchiser for such well-known hotel and rental car names as Howard Johnson and Avis. It owns a mortgage brokerage firm called PHH Mortgage Services, whose products will be marketed in the new Coldwell Banker offices beginning in the fourth quarter.