NRT Incorporated

339 Jefferson Road
Parsippany, New Jersey 07054-0259
U.S.A.
Telephone: (973) 240-5000
Fax: (973) 240-5271
Web site: http://www.nrtinc.com

Wholly Owned Subsidiary of Cendant Corporation
Incorporated: 1997
Employees: 52,801
Sales: $4 billion (2002 est.)
NAIC: 531210 Offices of Real Estate Agents and Brokers

Based in Parsippany, New Jersey, NRT Incorporated is the world's leading residential real estate brokerage firm, serving 30 major U.S. markets and boasting more than 900 offices and some 52,000 sales associates. Only in existence since 1997, NRT has been an aggressive consolidator in the highly fragmented world of real estate brokers. Once acquired, realty firms are converted to one of three brands—Century 21, Coldwell Banker, or ERA—owned by NRT's parent company, Cendant Corporation. Other NRT brands, gained through acquisitions, are The Corcoran Group and the Sunshine Group. In 2002 NRT generated $149 billion in closed sales volume and posted revenues in excess of $4 billion.

Events Leading to Launching of NRT in 1997

NRT was formed in April 1997 (and incorporated in August of that year) as a joint venture between Hospitality Franchise Systems Inc. (HFS) and Apollo Management LP, a New York City real estate investment firm. HFS was organized in 1990 by Blackstone Capital Partners LP to purchase the franchise systems of Ramada and Howard Johnson. Two years later it added the Days Inns franchise system, followed by the acquisition of Super 8 Motels and the hotel franchise systems of Park Inn and Villager Lodge. Although HFS was viewed by outsiders as a hotel business, the company regarded itself as a franchiser and moved aggressively into new areas in the mid-1990s. It become involved in casino development and bought the Avis car rental business. HFS also turned its attention to real estate. In August 1995 it paid $200 million in cash to Metropolitan Life Insurance Co. for Century 21 Real Estate Corp., the world's largest franchiser of residential real estate brokerage offices, numbering more than 6,000. In February 1996 it paid approximately $36.8 million to acquire ERA Franchise Systems. ERA was formed in 1972 as Electronic Realty Associates, a pioneer in the use of the fax machine in the real estate business. By the time of the HFS acquisition, ERA had grown to be the fourth largest residential real estate brokerage franchise system, numbering more than 2,500 independently owned operations. Finally, in May 1996 HFS paid $640 million in cash and repaid an additional $105 million in debt to purchase Coldwell Banker Corporation. Coldwell Banker boasted a long history, founded by Colbert Coldwell in 1906 in San Francisco in the aftermath of the great San Francisco earthquake that essentially leveled the city. He soon joined forces with Benjamin Arthur Banker, which led to the Coldwell Banker franchise system, which at the time it was acquired by HFS ranked as the second largest real estate brokerage network, with some 2,600 independently owned operations.

Coldwell Banker also owned 370 brokerage offices. In order to remain a pure franchiser, HFS elected to package these assets into an independent trust it named National Realty Trust, established in May 1996. A year later, NRT Incorporated was formed in conjunction with Apollo Management to purchase National Realty as a roll-up vehicle that would then be able to convert purchases to one of the three HFS real estate brands. For its part in the joint venture HFS contributed $157 million to buy senior and convertible preferred stock shares, while Apollo paid $75 million for NRT's common and junior preferred stock. In addition, HFS received an option to buy the common stock from Apollo for $20 million, with NRT required to pay Apollo an additional $166 million. NRT-acquired brokerages would also pay royalty fees to HFS for one of its three real estate franchise brands. Moreover, HFS would be able to boost the fortunes of PPH Inc., a mortgage subsidiary which became the sole mortgage provider for NRT acquisitions.

Robert Becker Heading Coldwell Banker in 1994

A month after NRT was created, veteran real estate executive Robert Becker was named chief executive officer. Despite his extensive experience in real estate, he maintained that he drifted into the business to assist his mother. She had become involved in real estate as a part-time associate and went on to own with her husband a Mountain Lakes, New Jersey, agency named Klintrup Realtors. When he was 19 he earned his real estate license in order to help her during the summers. In an interview with the Star-Ledger, Becker recalled, "Funny thing was, as I started to get involved, listing and selling real estate in my spare time, I found that I really loved it." Becker eventually bought the agency from his parents and built it into a two-office business, increasing the number of sales agents from three to four dozen. In 1980 he sold it to Coldwell Banker, became a manager, and began working his way up through the ranks of the organization. He became a regional vice-president, general sales manager, and senior vice-president before being named president and CEO of the firm in 1994. When HFS acquired the company he became president and CEO of Coldwell Banker Real Estate Corp., a position he held until asked to head NRT.

Becker and NRT wasted no time in pursuing the plan to roll up independent brokerages and become a major player in the consolidation trend taking place in the real estate industry. Not only did a booming real estate market make brokerages an attractive investment, many independents were owned by older individuals with no children interested in carrying on the business, and they were thus looking to cash in. In September 1997 the company acquired the nation's third and tenth largest residential real estate agencies, both operating in the California market. They were Cornish & Carey Residential Inc. of San Mateo, involved in annual sales transactions of $3.3 billion, and Jon Douglas Co. of Beverly Hills, California's largest independent real estate brokerage, handling more than $10.5 billion in annual sales transactions. It was also Prudential Real Estate Affiliate Inc.'s largest franchisee, but along with Cornish & Carey it would now become a Coldwell Banker franchisee. When the National Realty assets were combined with these two acquisitions, NRT accounted for $22.6 billion in transaction volume in the previous year, while posting $1.2 billion in revenues.

NRT's aggressive move into the West Coast, in particular the San Francisco area, was not free of controversy, however. According to an October 1997 Business Journal-Portland article, "Owners and agents of residential real estate companies in the path of NRT Inc.'s West Coast buying spree are telling some sordid stories about the tactics of the New Jersey-based company. There are tales of threats to company executives who refuse to sell, the hiring of private detectives to follow agents thinking about leaving companies already bought by NRT, and promises of retribution for agents that do leave." The article also reported that 130 Jon Douglas agents working in the Bay area were so disgruntled about the sale to NRT that they left en masse to join a rival brokerage. NRT was further alleged to have hired private detectives to take pictures of dissidents and threaten to have commissions withheld. NRT officials categorically denied all such charges.

Several months later, Business News New Jersey addressed concerns about NRT, but took a more positive slant: "NRT's steamrolling approach to growth caused substantial anxiety both industry-wide and in some of the brokerages that it acquired. Local firms feared losing their independence… . But the experience of NRT's acquisitions seems to have eased that concern. Burgdorff Realtors, whose 31 offices joined NRT under the ERA umbrella, initially with some skepticism, is now doing business much the way it always has, and has had little problem integrating new improvements." Furthermore, Becker, who knew the real estate brokerage business at every level, was adamant about not micromanaging, telling Business News New Jersey, "Real estate is a local business, and must be representative of the way in which business is conducted in its locale." Because of its sheer size and ability to achieve economies of scale, NRT was able to offer valuable support to the brokerages it acquired. In particular, the buying power of the parent corporation could significantly lower capital expenditures, a major factor in the profitability of midsize businesses. In addition to saving money, NRT could improve the technology capabilities of its affiliates, primarily through an Internet-based data-sharing platform that was robust as well as inexpensive. Savings were also reinvested to provide salespeople with marketing-oriented technology as well as advanced training.

NRT made great strides by the end of 1997. In addition to scores of smaller deals, the company completed six of the year's 13 most significant acquisitions, according to REAL Trends, an industry newsletter. Another significant occurrence in 1997 involved NRT's co-owner. In December HFS merged with Stamford, Connecticut-based CUC International Inc. in a $14 billion deal. CUC, a direct marketing firm, was best known for its NetMarket online superstore, Entertainment coupon books, and direct-markets club memberships. The resulting combination was named Cendant. The rationale for the merger was summarized by Mortgage Banking in a December 1997 profile: "The idea behind the merger was to combine CUC's marketing expertise with HFS's products and cross-sell everything from real estate, mortgages and home security systems to pizzas and rental cars… . It's a story Wall Street seems ready to buy. [Robertson, Stevens & Co. analyst Keith E.] Benjamin says Cendant has the capacity to dominate the entire homebuying process. 'We envision a corporate employee being transferred across the country, securing a preapproved mortgage through PHH, being shown a variety of homes by a Century 21 real estate agent while having the whole process managed by [HFS Mobility Services]. We also imagine this individual renting an Avis car and potentially residing in a Days Inn while in the homebuying process,' Benjamin says. And remember, every step along the way, Cendant will be collecting information about the buying habits of that corporate employee for its $5.5 million data warehouse."

Company Perspectives:

NRT is a family of companies dedicated to creating exceptional real estate experiences for our customers and communities through the passionate delivery of truly remarkable service.

IPO Cancellation: 1999

NRT continued to acquire independent real estate brokerages at a steady clip. By early 1999 it was ready to conduct an initial public offering of stock; taking NRT public had been part of the plan since the creation of the company. The goal was to sell a 41 percent stake and raise $225 million, of which $84.5 million was earmarked to redeem Apollo's Series C preferred shares, carrying an interest rate of 18 percent. Because 1998 had been a record year for new home sales, it appeared that the timing for an offering was ideal. By June, however, market conditions deteriorated to the point that the company called off the stock sale. In a prepared statement, Becker explained, "Thanks to the continuing, long-term commitment of our current investors, we are well positioned to await a more favorable IPO market. Meanwhile, we are fortunate to have access to the resources necessary to continue acquiring brokerages and enhancing our existing operations." Just two months later, and less than two years since being incorporated, NRT completed the acquisition of its 100th company, buying Boston-area's Papagno Real Estate. As a result, NRT maintained more than 340 offices and was involved in annual sales volume in the range of $94 billion.

NRT's acquisition spree continued during the balance of 1999 and into 2000. By October 2000, when NRT announced the addition of three large real estate brokerage firms located in California, Illinois, and Massachusetts, the number of companies acquired by NRT since its inception totaled 157. By the end of the year NRT completed one of its most important deals, buying Los Angeles-based Fred Sands Realtors, the largest independent residential broker in California, operating 23 offices and generating in excess of $5 billion in sales volume for 1999. Founded in 1969 by Fred C. Sands, the brokerage developed into a high-end realtor, boasting numerous film, music, and sports celebrity clients.

In 2001 NRT continued to add to its brokerage empire. It bought major firms in Sacramento; Lake Tahoe; Dallas/Ft. Worth; Denver; Columbus, Ohio; St. Louis; New York City; San Diego; and Atlanta. In April 2002 NRT's ownership arrangement changed shape. Cendant exercised its option to buy out Apollo in a $224 million stock deal in which Cendant paid the $166 million that NRT was slated to pay Apollo as part of the original joint venture agreement. Clearly, Cendant was pleased with NRT, which in 2001 contributed $220 million in royalty fees. NRT acquisitions mounted throughout 2002 and into 2003, despite the effects of a poor economy. Precisely when market conditions would show enough improvement to justify a public offering of stock, one of the company's original goals, remained uncertain.

Key Dates:

1996:

National Realty Trust is formed.

1997:

NRT Incorporated is formed to acquire National Realty and roll up independent real estate brokerages.

1999:

Planned public offering is canceled.

2002:

Cendant Corporation buys out Apollo Management to become sole owner of NRT.

Principal Operating Units

Century 21; Coldwell Banker; ERA.

Principal Competitors

HomeServices of America, Inc.; Prudential Financial, Inc.; RE/MAX International, Inc.

Further Reading

DeZube, Dona, "Putting It All Together," Mortgage Banking, December 1997, p. 12.

Feyder, Susan, "Deal Part of NRT's Rapid Growth Plan," Star Tribune, February 18, 1998, p. 1D.

Haigney, Karen R., "The Star-Ledger Profiles Bob Becker," Star-Ledger, May 12, 2000.

Jacobs, Charles, "NRT Builds Muscle," Business News New Jersey, May 18, 1998, p. 7.

Miller, Brian K., "Agents Decry Real Estate Giant's Tactics," Business Journal-Portland, October 31, 1997, p. 1.

Rich, Motoko, "Cendant Exercises Its Option to Acquire NRT Common Stock," Wall Street Journal, April 18, 2002, p. D6.

Taylor, Iris, "HFS Cuts a Deal to Grow," Star-Ledger, August 13, 1997, p. 33.

Timmons, Heather, "HFS Eyes Originations Push by Buying Brokerages," American Banker, August 14, 1997. p. 15.

—Ed Dinger