Downhill charge
Gerard Bisignano, a partner in Peninsula Sotheby’s International Realty, stands before a $13.5 million Strand listing with a rooftop pool. Photo 
While some real estate experts herald a dawning comeback in the housing-sales market, the jigsaw of hotly competing brokerage firms in the beach cities will soon be rearranged. The Palos Verdes-based Re/Max Sanders Group plans to acquire the 28-year-old Re/Max Beach Cities, which filed for bankruptcy protection last week. And the Palos Verdes office of the international firm Sotheby’s has leased an office in downtown Manhattan Beach.
Asked about the coming incursions, two competitors with established offices in the beach cities focused their attention on the Sotheby’s move, which will add a new brokerage office in Manhattan’s downtown in the spring. Partners in both locally-owned powerhouses, Shorewood Realtors and South Bay Brokers, said they doubt whether an international firm can make waves in their stomping grounds, while a partner in Sotheby’s said the “global reach” and expertise of an international firm is exactly what the area needs.
Market toll
A steep decline in the housing market in recent years was cited as a major factor in the Re/Max reshuffle, in which the 25-year-old Palos Verdes Execs franchise will buy Marquee Partners, which owns Re/Max Beach Cities in Manhattan Beach and five other offices throughout the South Bay and high-end communities on the west side of greater L.A.
In a Feb. 11 letter addressed to agents, Kelli Todd, owner of Re/Max Marquee Partners and daughter of its former guiding force Bob Todd, said the downturned real estate market was part of a “perfect storm” that “has broken the back” of Marquee Partners.
“To start with the most obvious [factor], there has been a dramatic year-over-year downturn in our markets for the better part of the last decade, along with Realtors leaving the business. This has resulted in a substantial decline in revenue to the company as well as to other real estate companies throughout the nation,” she wrote.
“While cash flow remains feasible, there remains a large debt burden on [the company]. As you know, this economic crunch is being felt by many other real estate companies, despite how they may try to ‘sugar coat’ it in recruiting efforts,” Todd wrote.
Calls and emails to Todd and other officials of the two Re/Max franchises were not returned. But in her letter she described as “tearful” the decisions to file for Chapter 11 bankruptcy and sell to the neighboring Re/Max franchise.
“For me personally, this announcement comes with very mixed emotions including great sadness and disappointment. As you know, this was once my father’s baby, which he entrusted to me. Many tears and sleepless nights have been given to this decision, and my personal life has suffered,” she wrote. “However, I assure you that this difficult decision has been made with [the company’s] and your best interests in mind.”
She wrote with optimism of the sale of Marquee Partners to Re/Max Palos Verdes Execs, which is owned by Sandra Sanders and her son James. (Calls for comment from Sandra Sanders were not returned.)
“Once the decision [to close down Marquee Partners] was made, I spent hours upon days negotiating with lawyers, Re/Max International and other interested parties to determine the best way to preserve and protect our most valuable assets – namely you, our agents,” she wrote.
She “reached an agreement to sell the assets of [Marquee Partners] to the Re/Max Sanders Group,” she wrote. “…I hope you will see this as simply a move from one family business to another — from the Todd family to the Re/Max Sanders Group.
“I know that you will find them to be down to earth and good, fair business people. In that spirit, I am now passing my baby over to the Re/Max Sanders Group with complete faith and optimism for a brighter tomorrow for you, and for Re/Max. With the recent exchange of ideas between companies, I know that a stronger company will emerge.”
Todd also informed her agents of her plan to file for bankruptcy, which she did Feb. 16, according to court records. She wrote that she would continue to operate Marquee Partners for 60 to 90 days while the sale to the Palos Verdes-based franchise is reviewed by a bankruptcy judge.
She encouraged each agent to “continue your Re/Max affiliation with the new Re/Max Sanders Group.
“You are a Re/Max associate for a reason. Accordingly, I hope that you will not consider the many options that will undoubtedly present themselves to you until after you have explored an affiliation with the Re/Max Sanders Group.”
Expensive lawsuit
In addition to the downturn of the real estate market, Todd wrote that “another major contributing factor” in the decision to seek bankruptcy protection was a “lengthy and expensive trade name lawsuit” by All Cities Realty of Costa Mesa.
According to the lawsuit, the Costa Mesa firm held a federal trademark on the All Cities name, and Marquee Partners adopted the name as well from 2002 to 2007, which had the effect of redirecting internet traffic away from the Costa Mesa firm.
All Cities has also named numerous agents who worked for Re/Max at the time as defendants. In court documents, All Cities contends that Re/Max at one point “disclaimed responsibility” for its agents’ use of the All Cities name, then reversed itself on that point, but still failed to indemnify its agents from responsibility.
“Putting aside my personal feelings about the plaintiff, his counsel, and our belief about the meritless nature of the action, this has been a long, exhausting and costly drama,” Todd wrote to her agents.
Each side has blamed the other for delays in the trial, Todd complaining in the letter that a recent delay was caused “because one of the plaintiff’s witnesses allegedly became ill within days of trial.
“Suffice it to say, this litigation case has been dragging on for almost seven years, without any immediate end in sight, all at an enormous cost – both emotionally and in terms of the resulting legal expense to [Marquee Partners].”
High-end move
While the Sanders group of Re/Max prepares to spread northward, Sotheby’s plans a similar move, having leased space in downtown Manhattan Beach to expand from its existing Palos Verdes office.
Gerard Bisignano, a former Redondo Beach city councilman and a partner in Peninsula Sotheby’s International Realty, said the firm will bring its more traditional business approach to the new office in what he described as a counterpoint to the “rent-a-desk” model that Re/Max pioneered into mass use.
Re/Max, and later other companies, place varying amounts of emphasis on the rent-a-desk model, in which the brokerage firm leases working space to its real estate agents, who get to keep larger chunks of their commissions in return.
Sotheby’s Manhattan office will take a larger cut of its agents’ commissions, but Bisignano said the company will work hard to mentor a smaller but carefully selected number of agents, perhaps 25 to 40 of them per local office.
He said the Sotheby’s approach depends upon the agents’ success, because the firm makes money on agents’ commissions, not their rent.
“Our motto is if you don’t succeed, we don’t succeed,” he said in an interview on the rooftop deck – next to the rooftop swimming pool – of a distinctly modern Strand house he has listed for $13.5 million in Manhattan Beach.
Just the same, exponents of the rend-a-desk model that Re/Max popularized also said they rely on high-producing agents. A 29-year veteran of Re/Max said agents renting workspace must bet that they will be above average for the model to work in their favor.
Bisignano said the rent-a-desk model did poorly during the market downturn, because it requires large numbers of agents for the broker to grow, and while most agents don’t sell much during hard times, their broker continues to pay rent on large workspaces.
Kelli Todd noted in her letter to her agents wrote, “Our accounts receivables continue to rise as agents feel the downturn of the market…”
Companies like Sotheby’s aim to grow by recruiting and mentoring small numbers of agents who already have proven themselves, or who show ample potential, he said.
“My belief is the whole paradigm is shifting,” he said.
Bisignano said that the beach cities real estate market is “dominated” by locally-based outfits Shorewood Realtors and South Bay Brokers.
But he said it is rare for California coastal communities with expensive homes to be so heavily represented by locally-based firms, and he believes that Sotheby’s, with its “global reach” and international expertise, is well positioned to stake a larger claim in the beach cities.
In the downturned real estate market, potential buyers for expensive homes must be sought far outside the homeowner’s area, if need be, he said, pointing to the Russian buyer he found for a $7 million home on the Peninsula.
Foreign buyers of area homes are the exception, he said, but as high-end homes linger in the for-sale listings, the reach of an agent becomes more important. Bisignano said Sotheby’s listings are online with the New York Times, Wall Street Journal and Financial Times of London. The company’s listings, Bisignano said, “are in nine languages and five currencies.”
He said newer beach cities residents have come from the areas such as L.A.’s western reaches, where they have become “comfortable with the international players” in real estate, diluting the “tribal” nature of locals who hew to local brokers.
Holding firm
Arnold Goldstein, co-owner of four-decade-old Shorewood Realtors, with more than 400 agents and seven offices in the beach cities, Torrance and Palos Verdes, greeted news of the expansions from the hill with a shrug.
Asked if his company would take any steps to react to the Sotheby’s incursion, he said, “We do more dollar value than anybody in the beach cities…They would have to react to us.”
Shorewood ranked fourth in Los Angeles County and 62nd in the nation in dollar-volume sales last year, Goldstein said.
He said residents’ preference for local brokers has been a constant feature of the beach cities, and franchise firms have not done much business here.
Goldstein declined to discuss Shorewood’s business model and how it might differ from the approaches of the other brokerages.
Standing strong
Jim Van Zanten, a partner in the 24-year-old South Bay Brokers, also spoke of the value of the local brokerage in reaction to the Sotheby’s move.
“We are locally owned, we know this market,” he said. “I’m not sure an office from Palos Verdes is going to have much impact here.”
He said Sotheby’s is expected to go after “the upper end market” just as South Bay Brokers does.
Like Re/Max, South Bay Brokers allows its agents to keep a larger portion of their commissions in exchange for paying some of the costs of operation, but Van Zanten said the rent-a-desk label is inaccurate and “kind of demeaning.”
The brokerage, with offices in Manhattan Beach and Redondo Beach, provides its agents with services such as education, legal oversight and help with transactions, he said.
“We provide a lot more than desks,” Van Zanten said.
He said the South Bay Brokers model depends upon “high-producing agents.”
He said all South Bay Brokers’ 100 agents are fulltime agents, and said the downturn in the real estate market, which bottomed out locally in early 2009, culled part-time agents out of the business.
“We are seeing a consolidation back to agents who are fulltime professionals,” Van Zanten said.
He said as many as one third of the area’s agents left the business during the downturn, but will return as the market improves.
Van Zanten mentioned Bisignano’s former 16-year association with South Bay Brokers.
“I don’t know what Gerard is doing,” he said. “Gerard was with us up until a month ago.”
Bisignano said he left South Bay Brokers in mid-December, after telling the firm he had the opportunity to become a partner in Sotheby’s.
Staying steady
Steve Goddard, a broker manager and a seller for Re/Max in Manhattan Beach – and president of the California Association of Realtors – said the Sotheby’s and Re/Max moves would not mark sea changes in the local real estate industry, pointing out that area agents sell all over the area already.
“We’re all selling from El Segundo to the bottom of the peninsula, and some are selling out of the area also,” he said.
The soon-to-be-larger Re/Max franchise will certainly be able to claim larger sales after absorbing its neighboring franchise, for instance, but how much of a change in the industry would that actually represent?
Goddard said real estate sales are much more “localized” than an area-wide look at the companies would reveal. Agents become expert in selling individual neighborhoods, he said – so much so that he might call with a friendly ribbing if he breaks into a competitor’s established neighborhood with a listing.
“Real estate is very, very local. Your house is localized to its little area,” he said, and the homes in one small section could be three times more expensive than other homes just seven or eight blocks away.
In addition, he said, a small number of agents get the vast majority of the listings, and the rest do very little business, so the difference from agent to agent might be more important than the differences from broker to broker.
“There are about 4,000 people selling real estate from El Segundo to the bottom of the Palos Verdes Peninsula, and about 250 really sell a lot of property,” Goddard said.
“Sotheby’s won’t come in here and change everything,” he said. ER