Why CEO churn in the resi business is hitting new highs

As the housing market nationwide sputters along, many real estate firms are accelerating deal flow in one key area: their C-suites.

Since the start of last year, more than a dozen newly minted chief executives have seized control of the country’s largest residential companies, and some like Keller Williams’ Gary Keller and Zillow Group’s Richard Barton are taking a second shot at the job.

At Realogy — the massive brokerage conglomerate that’s seen its market cap plunge from $7.5 billion at its peak to less than $1 billion — CEO Ryan Schneider effectively cleaned house when he started in January 2018.

The industry-wide shakeup coincides with a growing recognition that the status quo isn’t going to cut it any longer in an industry besieged by competition. Facing razor-thin margins, many incumbents are tapping new leaders to give them a leg up as venture-backed startups nip at their heels.

“Firms are trying to put in place the right people to coincide with changing times,” said Bess Freedman, who was named Brown Harris Stevens’ first chief executive in November.

The CEO churn among real estate firms is not unique in corporate America, where stock market fluctuations and trade concerns are fueling C-suite changes across the board. There were 1,452 CEO swaps last year, up more than 25 percent from 2017, according to the Chicago-based executive search firm Challenger, Gray & Christmas. That number was just shy of the CEO departures logged during the financial crisis in 2008.

In real estate — where Challenger counted 27 chief executive changes in 2018, up from 14 in 2017 — part of the increase is related to industry consolidation and a shift from family to corporate ownership.

“Having a healthy churn of C-level executives is never bad for a company,” said Victor Lund, founder of the consulting firm WAV Group, which works with several residential companies. “Change is good — especially in a highly competitive market. You can’t just rinse and repeat.”

Fresh blood

When Schneider took over Realogy, change had been a long time coming.

His predecessor, Richard Smith, had been at the helm since 1996, steering the company through its IPO and two recessions. But with expenses rising and profits shrinking, Schneider has been forced to look unflinchingly at which parts of the business work — and which ones don’t. According to its most recent financials, Realogy has more than $3 billion in debt.

On Day 1, the former Capital One executive began assembling a team to execute a turnaround plan. That included naming technology and operations executive Dave Gordon as Realogy’s new chief technology officer and strategy and operations executive Ryan Gorman as the president and CEO of NRT.

Schneider also put John Peyton — the head of Realogy Franchise Group — in charge of lucrative brokerages including the Corcoran Group and Sotheby’s International Realty. Those businesses combined have more than 16,300 franchised offices with about 300,000 sales associates in 113 countries, according to Realogy.

“These guys were brought in to fix this company,” said Lund.

“Anyone who goes into a meeting with that team and says, ‘That’s not how we do it here,’ may as well not go into the meeting,” he added. “You’re either all in or go away.”

Under Schneider, his deputies have rejiggered how individual brokerage brands are run, too.

In March, Sotheby’s International Realty consolidated its franchise and company-owned businesses under CEO Philip White, who had been leading the franchise side for five years. Kathy Korte, who ran the white-glove Manhattan-based brokerage since 2006, stepped into an advisory role. Sotheby’s billed the change as a strategic move that is boosting its efficiency in the areas of marketing, training and technology. Combined, the businesses closed $112 billion in sales last year.

“I can get things done quicker,” White, who reports to Peyton, told The Real Deal. He emphasized that his job is to make decisions for both business lines.

That had become a point of tension in the past.

“Sometimes there’s been a lack of understanding on the differences in both businesses,” White said. “One is running a large franchise system with many, many stakeholders, and the other is a company-owned brokerage which is very agent-centric.”

And Realogy executives may do the same with Coldwell Banker. “Anything is possible,” its CEO Charlie Young told Inman News in March. “We are certainly interested in what [Sotheby’s is] up to.”

Of course, not all change is predictable.

This past January, Century 21 Real Estate’s president and CEO Nick Bailey stepped down after less than two years at the helm. At the time, Bailey said he wanted to leave the New Jersey-based firm and move his family to Colorado. But at least one source familiar with the matter said, “He was just the wrong guy for the job.”

Comeback kids

In the annals of business, there’s no greater comeback story than the return of Steve Jobs — who was ousted by Apple in 1985 only to return a decade later to save the company.

Copycats over the years have included Twitter co-founder Jack Dorsey, Starbucks’ Howard Schultz and Google’s Larry Page. And now real estate firms are ripping a page from their playbook.

In January, Gary Keller reclaimed the CEO role at Keller Williams, the country’s largest franchise brokerage, succeeding John Davis. To quell chatter about the circumstances surrounding his departure, Davis said he “simply resigned,” according to a letter published by Inman.

But coinciding with Davis’ resignation, Keller deputized Josh Team, Keller Williams’ former chief innovation officer, as the brokerage’s president. Sources speculated that Keller — who is now investing heavily in technology — saw Team as better-suited to run a tech-focused company. With more than 159,000 agents, Keller’s 2018 sales volume rose to $332.4 billion in the U.S. and Canada. But the nearly 10 percent jump was relatively low compared to 24 percent growth between 2014 and 2015.

Similarly, at a critical time, Zillow’s Barton took over the company he co-founded in 2006. In January, the former Microsoft executive replaced Spencer Rascoff as the online listing giant’s CEO.

Zillow’s struggling stock jumped 26 percent from $35 to $44 a share after Barton said he was coming back to execute an ambitious doubling down on a new home-buying business. “We think Rich Barton is a good jockey to lead the company on the moonshot opportunity,” Deutsche Bank’s Lloyd Walmsley wrote in one of the more colorful analyst notes at the time.

However, John Alschuler, chairman of the consulting firm HR&A Advisors, cautioned against making broad generalizations about founding executives. Afterall, Jobs led Apple to its greatest triumph, but not every founding CEO is so lucky.

Reprising the role does come with a competitive advantage though, Alschuler noted — perhaps most notably, prior knowledge of the company and the “courage to take important actions that need to get done and quickly.”

G is for growing pains

In a few rare cases of CEO churn in recent years, illicit forces were at play.

In February 2018, Adam Contos was named the sole chief executive of RE/MAX, after sharing the title with founder David Liniger for about a year. The move came after an internal investigation concluded Liniger inappropriately lent millions of dollars to Contos, who then used the money to buy a home below market rate.

More often, though, passing the torch is about ambitious expansion plans.

When BHS promoted Freedman last fall, the move was designed to give her more authority to run the brokerage across several regions, including New York City, the Hamptons and Palm Beach.

“There was a lack of cohesiveness,” said Freedman, who rose to CEO less than a year after being tapped as the firm’s co-president alongside Hall Willkie. “Hall was laser-focused on New York and we really needed to have someone who’d take on the whole thing.”

Though Freedman said there was no tension over the promotion with Willkie — her mentor and former boss — some veteran agents balked at the shakeup.

“There are agents who have been here for decades, who have a very strong allegiance to Hall,” Freedman said. “They needed to know Hall wasn’t going anywhere.”

In January, Berkshire Hathaway’s HomeServices of America also freshened up its executive suite to help the firm continue its rapid expansion.

Gino Blefari, who previously ran the franchise business, was promoted to CEO of the Minneapolis-based company, succeeding founder Ron Peltier, who became its executive chairman. The shakeup came on the heels of HomeServices going into contract to buy its largest affiliate in Florida, and executives projected at least four more acquisitions this year. Blefari will also spearhead an international expansion, the development of a national listings platform and the launch of a network of commercial brokerages, the company has said.

Meanwhile, it’s not uncommon for fast-growing startups to reshuffle their top ranks as management needs shift. The virtual brokerage eXp Realty, which went public last year, for one, has had a revolving door in its C-suite (see related story on page 78).

WAV Group’s Lund said sometimes it’s necessary for company executives to find opportunities elsewhere.

“You hire an executive to perform a role,” he noted. “Once they’ve done what they can do, maybe they don’t need to be there anymore. There are people that are really good at managing change but are bored to death of maintaining something.”