But it isn’t going to be easy. Realogy is parent to Coldwell Banker, Century 21, Sotheby’s International Realty, Corcoran Group and other major brands. Its 16,000 affiliated offices doing business in 92 countries and 50 states all depend on the strength of the housing market — which few project will turn around anytime soon.
Also, Realogy’s balance sheet is precarious. Last year, Realogy’s revenue tumbled by $1.14 billion to $4.72 billion. The company had only $109 million of cash left over after paying $627 million in debt. The company also has $113 million available on its $750 million revolving loan as well as the $150 million promise from Apollo. But it isn’t clear that this stockpile will be sufficient if revenue continues to plummet.
While bondholders were reassured by Apollo’s $150 million infusion, Realogy bonds continue to trade at extremely distressed levels — as little as 11.5 cents on the dollar, according to MarketAxess, reflecting investors’ concern the company may file for bankruptcy soon.
“Their profitability has eroded significantly both because of steady price declines and volume declines in the last couple over years,” says Moody’s analyst Lenny Ajzenman. He downgraded the company’s debt to just three notches above default in December; few companies with a viable capital structure have lower ratings.
Apollo’s decision to put up $150 million into the struggling venture raised eyebrows in the private-equity world, where fund investors are resistant to throwing good money after bad.
Apollo recently succeeded in raising nearly $15 billion for its latest fund. But the $9 billion fund that owns the Realogy stake has spent most of its money, according to the fund summary. An Apollo spokesman declined to comment. In a statement, Marc Becker, a partner in the firm, acknowledged the “challenging task” facing Realogy’s management and the “extremely difficult time in housing.”
Nationally, the market is grim. Home resales fell to a 12-year low in January according to the National Association of Realtors, alongside a 14.8% slide in median home price.
To be sure, some regions of the country are seeing a surge in home sales, particularly suburban areas in which lenders are dumping large volumes of foreclosed homes at highly discounted prices.
But many of Realogy’s operations are in urban regions, where there is more of a standoff between buyers and sellers, reducing sales activity to a trickle. The firm’s brokerages and its franchises have offices in all 50 states, but Coldwell Banker — one of the company’s largest revenue generators — is concentrated in urban areas.
Corcoran Group, which handled $18 billion in home sales in 2007, operates in the once-robust New York City, Hamptons and Palm Beach, Fla., markets. In New York, transaction activity was down roughly 50% in February, compared to the same month in 2008, according to Brown Harris Stevens’s President Hall Willkie.
Another danger is high-producing brokers jumping ship. Since January, at least three high-earning Corcoran and Sotheby’s brokers have gone to a rival firm, according to local agents. Corcoran says such churn is normal and several agents recently joined the firm. To assure brokers that the company is solid, Mr. Becker, fellow Apollo executive Ali Rashid and Realogy’s Mr. Smith, organized a town meeting in February with Corcoran and Sotheby’s management, held in the headquarters of Sotheby’s auction house.
In an effort to shore up Realogy’s balance sheet last year, Apollo attempted a debt swap — essentially a gambit that asks bondholders to trade in their existing securities for new notes, often with worse terms.
But that strategy was stymied by Carl Icahn, who has battled or befriended Mr. Black on numerous deals. Mr. Icahn’s High River investment firm owns a portion of Apollo’s notes, which stood to lose their place in line if the offering went through, and successfully sued to block the exchange in December. In the suit, Mr. Icahn charged that Realogy was “deeply insolvent” and default virtually “inevitable.”
Daily Archives: March 10, 2009
You’ll recall I mentioned last week that Nancy Pelosi, scourge of executives who fly, rather than crawl to audiences before her, Miss Global Warming herself, was stuck in California two weeks ago when her jet was snowed out of Washington’s airport. Now comes this story: she treats the entire fleet of Air Force jets as her personal limo service.
* In response to a series of requests for military aircraft, one Defense Department official wrote, “Any chance of politely querying [Pelosi's team] if they really intend to do all of these or are they just picking every weekend?…[T]here’s no need to block every weekend ‘just in case’…” The email also notes that Pelosi’s office had, “a history of canceling many of their past requests.”
* One DOD official complained about the “hidden costs” associated with the speaker’s last minute changes and cancellations. “We have…folks prepping the jets and crews driving in (not a short drive for some), cooking meals and preflighting the jets etc.”…
* The documents also detail correspondence from intermediaries for Speaker Pelosi issuing demands for certain aircraft and expressing outrage when requested military planes were not available. “It is my understanding there are no G5s available for the House during the Memorial Day recess. This is totally unacceptable…The speaker will want to know where the planes are…” wrote Kay King, Director of the House Office of Interparliamentary Affairs. In a separate email, when told a certain type of aircraft would not be available, King writes, “This is not good news, and we will have some very disappointed folks, as well as a very upset [s]peaker.”
The Connecticut Judiciary Committee, astounded to learn that its proposal to regulate the internal affairs of a church might be a tad unconstitutional, has yanked the bill from consideration for this legislative session. “Well golllll lee” said Grand Duke Andrew McDonald (“No “a” before the “c”, boy, it’s Scots – get that right”) and the bill’s sponsor, “I just don’t see what all the fuss is about – going after godless Catholics is an old Nutmeg tradition, as old as the arrival of the first of those filthy potato pickers, as fresh as the latest bog wallower to come here looking for work. Sheesh, can’t a fella have a little fun anymore?” McDonald has referred the whole question to the state’s Attorney General and until that official returns with a decision, promises to devote his time to banning guns, the private ownership of chimpanzees and forcing citizens to sweep the snow off the roof of their cars. “Hey,” he notes, “we got some serious problems to attend to this year, understand?”
WSJ says Madoff will plead guilty Thursday. What about the boys? What about Walter? Later, maybe.
This nice little cape Georgian in Havemeyer was listed for $995,000 in September, 2005, raised to $1.1 million a month later and sold for $1.2 million. Four years later, the buyers have put it back on the market at $1.195. I don’t want to jinx them, but I think they’ll have a hard time reaching that.