REALOGY JUGGLING DEBT
INDUSTRY NEWS, REAL ESTATE PRACTICE, SHASTA COUNTY
November 18th, 2008
Realogy, a global real estate brokerage and franchise 
company, is trying to refinance a portion of its $6.5 billion debt. Their brands include Coldwell Banker, Century 21, ERA, Sotheby’s and Better Homes and Gardens Real Estate. Inman News reported today that according to last weeks filing with the U.S. Securities and Exchange Commission, Realogy noted the following circumstances causing their financial losses:
- 9% year-to-year decline in home-sale transaction sides
- 7% tumble in home prices
- 20% rise in October of home-sale cancellation rates
The filing noted the price and sales decline will negatively impact the company’s debt-to-asset ratio and more importantly “there can be no assurance that we will not violate this or other covenants (loans) under our senior secured credit facility or that this will not result in a default under our indentures.”
Bloomberg reported that Realogy “is at risk of violating the terms of its bank loans”. To avert default, Realogy is trying to refinance roughly $592 million to lower interest expenses by about $19 million, according to the Inman News article. Christopher Garman, CEO for debt research firm Garman Research LLC stated in the Bloomberg article that the move to exchange bonds at a discount for new debt “is kicking the default can further down the road.” The company has not repurchased any of its debt and had a net loss of $50 million in the third quarter and a $27 million loss in the second quarter, 2008.
Realogy made big news in California earlier this year when it settled a lawsuit with HUD over a kickback scheme involving a Natural Hazard Disclosure (NHD) company, Property ID. NHD’s are unique to California. These reports detail flood, earthquake and fire risks to home buyers purchasing real estate.
The scheme involved shill companies that funneled millions to Realogy from Property ID for steering business to them. Terms of the settlement require that thousands of Californians duped by the scheme be tracked down and refunded the entire cost of the report which were about $100 apiece. Nearly $40 million has been allocated by Realogy and Property ID to settle the matter. Supposedly, $25 per report were funneled back to Realogy. The details of who was scammed and when were sealed in the settlement. Of course, they admitted no wrong doing but agree to refrain from conducting business in this fashion in the future. Because the settlement is confidential, the public will never know if they were victimized unless they are contacted by the company returning the report fee.
For more details on this scam, please see my post titled “Several Large Real Estate Franchises Involved in Illegal Kickback Scheme.” Hopefully, the victims will not be impacted by Realogy’s latest financial troubles.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL ESTATE PROFESSIONALS GMAC
QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
Google “GMAC woes”.
Apparently ResCap is having a tough time of it too. Wow, $1.9 billion in losses. That’s gotta hurt. Since the local Realogy franchises are independently owned, whatever happens at corporate Realogy is not all that much of a concern here locally. Is that true of GMAC and their debt problems too?
Nobody disliked hearing about Property ID’s back room shenanigans than I did, but I’m wondering how is that connected to to Realogy’s debt problems? Property ID has agreed to pay everybody back that used their reports. Now, NHDs are covered under RESPA, and that’s at least one positive outcome of the lawsuit. I don’t see the connection.
The connection Skip, is the millions Realogy is suppose to cough up for the Property ID kickback scheme could be impacted if Realogy defaults on their loans. Will the sellers that were duped have to stand in line with the other creditors? Will Property ID make up the difference?
If you have read my blogs I have detailed the struggles of many companies in the real estate industry. Title companies, real estate related Internet companies and yes franchises have all been blogged about.
ResCap does not own GMAC Real estate. GMAC was purchased in September by Brookfield RPS which has $98 billion in assets. They are based in Canada. The sale should close before the end of the year. Appreciate your concern though, Skip.
Point taken. I see the connection now. I hope everyone is paid, as well. The whole thing was awful to learn about. Interested readers might learn more here:
http://nhdreportsettlement.com/faq.php3
And I confess that I didn’t know that you guys had been had been sold off by GMAC. Now you are a foreign-owned company, eh?
Will you be changing your name? Just curious.
Foreign as in Canada …Brookfield is in the top ten developers in Northern California ..they have 20% of market share in Canada..Reology was after them to be purchased…but GMAC Real Estate showed the most promise…we are now 30,000 agents strong and 1500 offices total ..and one of the largest relocation companies in the world …the purchased closed last week ..
After looking at the Prop ID case closely, it basically came down to an economical decision. Settle for a certain amount or fight the case (which would have been won by Realogy, ReMax, and Prudential)and pay millions more in legal fees. I think the companies decided that the battle wasn’t worth the money, especially when most these large Franchisors have none.
As far as being “foreign” I would have to put Canada into that definition, next thing you know GMAC will be called Royal LePage and claiming they are locally owned and operated.
Thanks for the laughs guys.