It's been a while since Cendant Corp.'s mighty real estate division has bought anything big, the last major acquisitions were ERA and Coldwell Banker back in 1996. And according to Richard Smith, chairman and CEO of Cendant Real Estate, it may be a while before they go ahead and snap up something big again.

The reason, says Smith, is that the company feels confident it can grow on its own, using what he calls the "largest value circle in the real estate business."

Value circle, indeed. Under one umbrella, he explains, are the world's first, second and fourth largest brokerage concerns, an employee relocation service that commands a 52% market share, and a fast-growing mortgage company. By feeding off each other, homebuyers need mortgages, relocating executives need homes, the sister companies hope to achieve something fairly unusual at Cendant: organic growth.

On the brokerage side, Cendant's growth plans run towards wooing independent regional brokerages into the franchise fold. The prospects here are good --Smith says that about 60% of the nation's brokerages are not affiliated with a franchise.

The incentives for unaffiliated brokerages to join up are largely cash, consolidation and competition. "Keeping up with technological needs is an expensive proposition," says Smith. "Independents without cash have to try and face whatever comes up on the horizon."

Cendant's brands certainly offer their share of high-tech perks. The latest goody: on August 19th, Cendant entered into an alliance with RealSelect, which will now provide web-related products and services to Century 21, Coldwell Banker and ERA.

Smith adds that the average broker is 54 years old, so thoughts may be running towards retirement and succession planning. "Real estate right now is potentially at its peak," he says. "Independent brokers have to decide whether to sell or affiliate, and whether to do it now or later. And there's no time like the present."

Finally, consolidation can also eat away at independents, he says. If the competition joins forces, or suddenly has significantly greater resources, brokerages either have to fight or switch.

The only piece of the business that smacks of acquisition at the moment is Cendant's year-old joint venture with Apollo Management, called NRT. It's MO is to acquire regional brokerages, and it now operates 600 offices nationwide.

Cendant's mortgage business, which saw its revenues grow by 121% in the second quarter of 1998 over the same period last year, is perhaps best poised to take advantage of the so-called value circle. "We have the added advantage of being able to provide mortgage services to our three (brokerage) brands, and we've barely scratched the surface there," says Smith, adding that the secret to this business's success is selling through agents and brokers, rather than trying to go directly to the consumer.

He says the only pressing concern at the mortgage company is finding qualified employees -- it is hiring at a rate of 200 to 250 per week, and plans to move into larger quarters next July.

The strength of Cendant's real estate division, which boosted the latest quarterly figures, plus an overall healthy outlook for future earnings, has put the company back into some analysts favor. Mark Miller, who covers Cendant for Merrill Lynch, maintains a neutral rating on the company, but says that "its operations demonstrated resilience in 2Q despite the turmoil surrounding the company." He is, of course, referring to the alleged accounting fraud at CUC, which was merged with HFS to form Cendant last December.

And Smith is confident that the real estate division can continue to pull more than its share of the weight, which for now means embracing rather than acquiring. "Is franchising right for every broker out there? No," he says. "But more and more are going to begin realizing that it is right for them."

Published: August 24, 1998

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