Global trends boost business for brokers abroad…and at home
By Eugene L. Meyer
RISMEDIA, July 24, 2007–With a weak dollar, falling home prices, too much inventory, and a sub-prime market implosion at home, brokers are finding new frontiers in real estate by going global, opening offices and franchises overseas and elsewhere in the Western Hemisphere.
Well-known brands, such as Sotheby’s International Realty, RE/MAX and Century 21, are expanding their reach throughout Europe and beyond, in a market that, with today’s technology easing the way, transcends national borders.
“The world is shrinking,” says Oscar Gonzales, a Houston-based consultant to the real estate industry on ethnic marketing. “Brokers have to face the reality. They have to adjust to the new multi-national, multicultural reality.” Many are.
Going Global on the Homefront
U.S. brokers are increasingly catering to wealthy foreigners lured here by attractive currency exchange rates and this country’s political stability and security. Prominent among these are Mexicans of means who are snatching up high-end properties in order to provide safe havens for their families.
Mariana Saldana, a Houston broker and native of Monterey, Mexico, has developed an entire concierge business catering to such buyers, not only selling them properties but also referring them to bankers, lawyers, luxury car dealers and even private schools for their children.
“It’s crime and kidnapping that are making the affluent Mexicans come here,” she said. “People who are retired spend $500,000 for a house and live happily ever after in the U.S., as opposed to having bodyguards and living in Mexico. I have one guy who bought two penthouses for $1.5 million and $2.5 million.”
Her Uptown Real Estate Group is also now selling Houston homes to European buyers.
“I just sold a property for cash to someone from Spain,” she said. Belgian buyers, she notes, “like big spaces; they don’t like traditional; they like modern, and are willing to pay $2 million.”
Says Tom Kunz, Century 21 president and CEO, “When you look at the devaluation of our dollar compared to Euros, it’s like having real estate here on sale, so there are people who come to the U.S. and are looking to buy property not only for investment but sometimes to move here.”
Conversely, there are overseas brokers seeking to sell houses to immigrants in America who’ve done well and now might want to own another home in their native land. “We’ve been approached by some developers in countries outside U.S.,’ says Kunz. “They’ll have very high-end upscale project they’re doing and will come to Century 21 and say, ‘There’s a huge demographic of people from our country in US. Now here’s an opportunity for them to buy back into the mother country, and we try to link them up.”
Doing Business on Foreign Soil
Another major aspect of going global is selling to locals. But for Americans entering this field, success is not a given. “The challenge in globalization,” according to Aneel G. Karnani, a professor of corporate strategy and international business at the University of Michigan, is to “think global, act local. Firms have to combine globalizing processes—such as information technology systems and financial engineering—with a deep knowledge of the local market.”
Bill Sotoreff, RE/MAX senior vice-president for international development, said his company had a tough time when it entered the European franchise market, with him as chief operating officer in charge.
“We struggled for five years in Europe, introducing a concept that was a little bit different, dealing with [new] governments, new market places. We just didn’t do things well. We assumed that business people in different marketplaces, different countries and regions were at the same level of development as Canada, the U.S., South Africa, Australia. We assumed that people were ready to be independent contractors, to own their own businesses, that they had many years of background information.”
RE/MAX franchises had 665 agents in 20 different countries, Sotoreff says, but “the synergy was not quite there.” During his five-year stint overseeing the expansion, Sotoreff said, the agent count rose to 10,000 agents in 38 European countries.
“In Europe, half the countries were Communist 15 years ago,” Sotoreff says. “Their learning curve was steep. They went from a Communist era mentality to a market economy. But last year, we went into Hungary. In 12 months, they opened 24 offices.”
Now, RE/MAX International is in 65 countries worldwide. “We dominate the Caribbean, Mexico and Central America,” Sotoreff says. “We just opened Argentina and Chile.
We’re opening in Brazil this year. We feel very confident China will be the next marketplace for us. We’re also looking towards Indonesia and the Philippines.”
One harsh reality of going global is that the work day has no bounds. “I start at 4 or 5 a.m. and finish off at 11 or 12 at night,” Sotoreff said. “No matter where the sun shines, RE/MAX is there or expanding.”
The Luxury Component
Similarly, Sotheby’s Realty, an offshoot of the world famous auction house, has moved into the international arena. That move has accelerated since 2004, when Realogy bought Sotheby’s International Realty’s 15 offices and signed a 100-year licensing agreement to use the brand name. Sotheby’s is “really the only international luxury real estate model,” says Mike Good, president and CEO of Sotheby’s Realty International.
“The world is really flat,” he adds, “and what’s happening is that people of wealth, of substance, really have the ability not only to travel, but to buy properties, many of them second, third, fourth and fifth homes in many parts of the world. People are looking for properties [worldwide] because they can and they want to.”
Accordingly, 24% of visitors to the firm’s Web site last month were from outside the United States, and they came from 50 different countries. Sotheby’s currently has 400 franchises in 25 countries and has sold the rights to operate under the firm’s banner in 22 more countries and territories. Sotheby’s also has 55 offices of its own, 54 in the States and one in London.
“We leverage the auction house globally in several ways,” Good says. Sotheby’s clients receive its real estate arm’s magazine, Reside, three times a year. But there’s more beyond print. The newest feature, still being rolled out, is an “e-gallery” at Sotheby’s locations worldwide. These flat screens linked to the Internet provide views of properties selling for more than $1.5 million. Over the summer, e-galleries are scheduled to be installed in Sotheby’s London, Amsterdam, Munich and Milan offices.
“We are a luxury international real estate franchise model,” Good adds, “which means we actually create powerful marketing, advertising, and technology tools, and we offer consultation to assist companies grow their businesses. Whether the company is in Spain or Singapore or South Africa or New Zealand, we service them as if they were in Miami, Florida.”
Mike Russo is a Sotheby’s International broker in Aspen, Colorado, where, he said, single family home prices average around $5 million and many homes are priced above $10 million, attracting rich clients from abroad. “I associate with my fellow brokers in London, Spain and France because we actually have literally the same clients,” Russo says. “You just don’t know where people of wealth will come from today. We have a lot of European buyers, especially from England.”
A Franchising Natural
Going global is all about franchising, says Century 21’s Kunz. “I don’t think it’s the real estate side really driving the expansion,” he says. “It’s the business strategy for franchising that has been picking up more steam in the last few years.”
For Century 21, it began with Canada in 1975, then Japan in 1983. In the 1980s, the firm limited its expansion to one or two countries a year, Kunz said, “Although we had drawers full of people wanting to take the Century 21 brand to other countries, we wanted to do it right.
“There are a lot of things when you go globally you have to look at. A lot of these countries have no licensing laws, no MLS. It’s kind of a wild, wild West… There is a lot of turmoil in some of these countries. We have to be very cautious how we approach some of the countries that would like to get on board with us, because we want make sure it’s safe for our people to be there to help master franchisors.
“Our philosophy has been, and always will be, that we go in and look for an entrepreneur who has been in business in that country and understands the law, the regulations. It’s not Tom Kunz coming in and saying let me show you how it ‘s done.”
The philosophy apparently works. Today, Century 21 has nearly 4,000 franchised offices outside the United States in 52 countries, including China, which has 760 offices and is to have 4,000 by 2010. Century 21 is currently looking to India for its next frontier.
How the Trend Impacts Independents
“You are seeing the large franchises doing it in Latin America, Europe and Asia as well,” adds Gonzales. “Except for a niche market, you don’t see smaller independent brokerages doing it.”
Avalar, a Las Vegas-based firm that originated in California’s wine country and now has 125 franchises in 18 states, is among those independents trying to expand across borders, first into Canada. Avalar’s goal is for up to 20% of the company’s business to be international in 20 years.
“It’s a bit complicated,’ says Chuck Scoble, Avalar president and CEO. “Canada has its own requirements for franchise agreements, financial accounting, government regulation, banking issues, currency differentiation. It’s not an easy task.”
Scoble is also talking to potential master franchise holders in Europe and Central America, touting the Avalar’s patented business model, in which 40% of Avalar’s 5% franchise fee is returned as a bonus for recruiting successful agents.
“If it were just up to us, we’d be completed in Central America and Canada by the end of ‘07,” Scoble says. “But is the bureaucracy going to play ball? Sometimes paper moves very slow.”
Century 21’s Kunz thinks there’s still one universal law that applies. “Somebody asked me, going to all these countries, how is it different?” he recalls. “I say, at the end of the day, I have yet to be in country where there isn’t someone who wants to buy and someone who wants to sell and someone who wants to put it all together.”
Eugene L. Meyer is a former Washington Post reporter and editor who freelances from Silver Spring, Maryland.