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This article was published on: 06/01/1996

HFS Lands Coldwell Banker in Bold Move to Nab Market Share

By Carole Fleck

News of yet another major acquisition has jolted the real estate industry.

The $640 million planned purchase of Coldwell Banker by HFS Inc., the world's biggest hotel franchisor, has left many real estate practitioners wondering about the impact of such a megadeal at a time when consolidations and mergers are changing the landscape.

Coldwell Banker is the latest and most expensive real estate-related acquisition by HFS. Last February, it purchased Electronic Realty Associates (ERA) for nearly $37 million, and in August, it acquired Century 21 for $240 million.

With Coldwell Banker in its vast empire, HFS is now the nation's largest real estate franchisor with 145,000 salespeople, 10,000 real estate offices, and a hefty market share estimated as high as 25 percent by HFS and industry observers. That means one of every four or five residential transactions will likely involve a franchise owned by HFS.

HFS President John Snodgrass said Coldwell Banker, one of the nation's largest residential real estate companies with about 2,200 offices and 55,000 salespeople, will continue to operate independently. An HFS spokeswoman said no layoffs are planned "at this stage."

Steve Murray, coeditor of REALTrends, an industry newsletter, called the acquisition "very significant," saying no one organization has ever had more than 20 percent of the market share before.

"You can believe HFS will support that [Coldwell Banker] brand name a whole lot stronger," he said. "People are likely to see ads, direct mail, and image-building programs that are far more aggressive than before, and far more money will be spent on them than before."

Due to the sheer volume of HFS-owned real estate franchises and hotel chains---including Days Inn, Howard Johnson, Knights Inn, Ramada, Super 8, Travelodge, and Villager Lodge---Snodgrass said the company can negotiate extremely favorable deals with many vendors of goods and services. For example, he said AT&T provides HFS with a very competitive rate for long-distance service to its hotels and real estate offices. And IBM discounts computers and equipment to HFS.

"It's our objective to increase the profitability of our franchises, and that's done through decreasing operation costs or increasing sales," Snodgrass said. "We have arrangements we're able to make with vendors due to our large size that allow the small operator of a Coldwell Banker or ERA or Century 21 office to increase their profits."

Those cost savings are expected to be passed on to homebuyers and homesellers, Snodgrass said, adding HFS has negotiated deals with a national automobile dealer and with a giant electronic manufacturer that would allow "an HFS chain's agent to be able to provide things others cannot to homebuyers and sellers," including discounted prices on vehicles and home satellite dishes.

While many real estate practitioners were eager to discuss the latest acquisition, industry observers agreed there is enough money to be made for small shops and midsize brokerages because, in the end, it is a "relationship business, and that hasn't changed," Murray said.

Here's What They're Saying About Coldwell Banker Acquisition. . .

For real estate practitioners "in the trenches making deals, they couldn't care less who the owner is. It's the relationship with the customer that's important, not the relationship with the company."
Daryl Jesperson,
executive vice president, RE/MAX International

"You're starting to see an evolution of a more sophisticated business. In the past it has been made up of small brokers, and all of a sudden, companies started to consolidate and come together, and now all of a sudden we have large companies, where management and organizational structures are different than managing one office."
Joe Aveni,
chief executive officer,
Realty One

"It's going to open up an opportunity for Prudential to further increase its brand awareness at the consumer level in a way that will differentiate us more than ever."
Steve Ozonian,
senior executive vice president,
Prudential Real Estate Affiliates

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