I rarely write about bearish trends or companies that I believe are destined to fail, but not because I’m anti-short selling. It’s just more fun to be bullish, and, in my experience, it’s a lot easier to make money on the long side than the short side.
However, earlier this month I stumbled onto a story about a group of exceptionally successful class-action litigators that want to disrupt the residential real estate industry by ending the decades-old practice of requiring home sellers to pay for the broker representing the buyer of their home. Suffice it to say if this class-action lawsuit goes the plaintiff’s way, the residential real estate industry will be turned upside down. And better yet, the next time you decide to sell your house, you could walk away with a whole lot more money in your pocket.
Now, if you’ve ever sold a home, you know how big a figure 6% can be. Between the 3% you pay your agent for representing you on the sell side, and the 3% you’re obligated to pay the buyer’s agent, you’re likely shelling out around $30,000 in commission fees if your home sells for around $500,000.
I, for one, would rather not have to pay thousands of dollars to the guy that’s negotiating against me and trying to get me to sell my house for less than I’m asking. And, if you’re buying a home but only need help filling out the home purchase agreement, is it necessary to pay a buyer’s agent $5,000, $10,000, or even $15,000?
The bottom line is we could be on the cusp of a radical shift in the costs associated with selling a home. And while this would likely benefit every American selling a home, it could take a painful bite out of the profits of public companies like Realogy Holdings Corp (NYSE: RLGY) and Re/Max Holdings (NYSE: RMAX), and radically change the ways homebuyers go about buying their next home.
On March 6, 2019 a class action lawsuit was filed with the US District Court for The Northern District of Illinois that lists Christopher Moehrl, and all others similarly situated as plaintiffs, and The National Association of Realtors (NAR), Realogy Holdings Corp (NYSE: RLGY), HomeServices of America — a Berkshire Hathaway (NYSE:BRK.A, BRK.B) Affiliate — Re/Max Holdings (NYSE: RMAX), and Keller Williams Realty as defendants.
The lawsuit, which is being spearheaded by Cohen Milstein Sellers & Toll PLLC and Hagens Berman Sobol Shapiro LLP, claims that the defendants conspired “to require home sellers to pay the broker representing the buyer of their homes, and to pay at an inflated amount in violation of federal antitrust law.”
The 30-page lawsuit filed by Cohen Milstein and Hagens Berman allege that the conspiracy “has centered around NAR’s adoption and implementation of a  rule that requires all brokers to make a blanket, non-negotiable offer of buyer broker compensation (the “Buyer Broker Commission Rule”) when listing a property on a Multiple Listing Service (MLS).”
Here’s what Steve Berman, managing partner of Hagens Berman had to say about the suit:
“When you compare commission rates in these affected housing markets to those in countries with competitive real-estate broker markets, the numbers tell a very clear story. We believe that NAR and Big Four have devised a series of checks on broker commission rates to all but guarantee their goal of price-fixing, costing home sellers thousands in excessive commissions paid on each sale.”
While most licensed real estate agents would have you believe that this lawsuit, like others before it, is without merit and destined to be thrown out of court, there’s something you need to know about the two lead law firms in this case.
Steve Berman, the managing partner of Hagens Berman, is considered one of the fiercest attorneys when it comes to class-action lawsuits. Berman served as special assistant attorney general for 13 states in the late-1990s when the tobacco industry was ordered to pay the states $206 billion – the largest civil settlement in history. Hagens Berman was also successful in securing a $1.6 billion settlement in the Toyota Unintended Acceleration Litigation in (originally filed on March 15, 2010 and settled on December 26, 2012).
Cohen Milstein’s laundry list of courtroom settlements include:
- A $400 million antitrust settlement in the 2014 eBooks price-fixing suit against Apple (NASDA:AAPL).
- $175 million stemming from a lawsuit that alleged British Petroleum (NYSE:BP) and two of its senior executives misled investors about the extent of the oil spill that resulted from the Deepwater Horizon explosion.
- An $835 million verdict against some of the largest chemical companies in the world for conspiring to fix the prices for certain chemicals used in the manufacturing of polyurethanes.
The takeaway here is neither Hagens Berman nor Cohen Milstein are poorly funded ambulance chasers.
These two firms have been awarded billions-of-dollars for their clients. And unlike many smaller class-action firms operating on a shoestring budget, Hagens Berman and Cohen Milstein aren’t strapped for cash. These two firms have the human resources and the money to see this lawsuit through to the bitter end.
Winners & Losers
While it’s difficult to say how this case ultimately plays out, there’s no denying that the buy-side of the real estate industry has been, and remains, ripe for disruption.
Think about the last time you were working with a real estate agent to buy a home. Your agent probably provided you with information on the current market conditions in your desired area, helped you figure out how much house you can afford, and researched homes for you using the MLS.
Well, thanks to the internet, sites like Redfin (NASDAQ:RDFN), Zillow (NASDAQ:Z), and Bankrate.com, you can do all that work on your own. And if you need to find information on school districts, tax rates, utility costs, and local zoning ordinances, that too is easily found on the internet.
All that’s left is price negotiation.
In my experience, buyers’ agents are great at relaying your offer price to the seller’s agent. Despite what you see on Property Brothers, House Hunters, and Million Dollar Listing, I don’t hear too many real-life stories of agents telling their buyers the exact price they should offer.
So, how much should a buyers’ agent expect to be paid for telling his clients to make an offer they’re comfortable with and is within their budget? I’d argue not much.
Now, while we are likely years away from receiving a verdict in this case, if Moehrl v. NAR, et al. goes the distance and a jury finds in favor of the plaintiffs, I’d expect the shares of RMAX and RLGY to take a substantial hit from what I believe will be a massive reduction in buyer-agent revenues.
Just as we saw when Amazon.com Inc (NASDAQ:AMZN) disrupted bricks and mortar, Netflix (NASDAQ:NFLX) upended Blockbuster, and Uber took a bite out of the taxi industry, established business rarely welcome disruptive innovation. And while full-service real estate firms may view Moehrl v. NAR, et al. as nothing more than a frivolous lawsuit aimed at breaking up the old guard, the bottom line is Cohen Milstein, and Hagens Berman represent disruptive innovation. And I do not doubt that innovative entrepreneurs will be ready to pounce before the ink dries on this verdict.
Centurion follows opportunity, buying 6 W. Canada apartments
Centurion Apartment REIT is both following the opportunities and continuing to diversify its portfolio with the purchase of six apartment properties in three Western Canadian cities, president and CEO Greg Romundt says.
Centurion is making the purchases in four transactions in Regina, Edmonton and Victoria. The properties total just over 1,300 apartment units and bring Centurion’s total assets under management to about $2.9 billion.
Three of the properties are new builds, while three of the Edmonton acquisitions are established properties.
“We’ve seen lots of opportunity in the new construction space in Western Canada, and in general. We’ve been pursuing a strategy for years of diversifying, not being just an Ontario-based shop, doing deals in Western Canada,” Romundt told RENX in an interview.
“We’ve been pretty active in B.C., Alberta particularly this year, and Saskatchewan and Manitoba have gotten a lot of our attention in the past couple of years.
“Part of it is certainly driven by the desire to have a diversified portfolio but the other is just the opportunity set.
“The stuff we’re doing in Western Canada not only is it hitting our dollar metrics, but we’re finding it easier to find, source and complete deals out there without having to pay through the nose to do it.”
The properties are: The Apex at Acre 21 in Regina; Grand Central Manor II and III, Oliver Place, Riverside Towers and The Mayfair on Jasper in Edmonton; and Hockley Corners in Langford just outside Victoria. Closing dates range from early December through March 2020.
Centurion’s $200M equity raise
Centurion is quickly putting to work funds from a successful three-phased share offering which was designed to raise $150 million.
“We decided to accept $200 (million) in three closes,” said Romundt, noting the first close on Nov. 1 was for $110 million. “It’s all allocated. We originally went out for $150 (million), we had subscriptions for $300 (million) and we accepted $200 (million).
“The apartment sector has been doing very well and I think there is a lot of recognition that it still has a lot of strong tailwinds behind it. Vacancy rates are low, interest rates are low, performance has been excellent but also, (in) portfolios across the country the market rent gaps are so large that forward-looking returns are still pretty attractive, too.”
Romundt said two years ago he hoped to build Centurion (Centurion Asset Manager, Centurion Real Estate Opportunities Trust, Centurion Financial Trust and other divisions) to $3 billion in assets within three years, $5 billion within five years.
Centurion again eyes Toronto market
“When all those complete, we’ll be at about $2.9 billion. We seem to be on schedule for that and I wouldn’t be surprised if we’re ahead,” he said, noting conditions have been ripe for portfolio expansions.
“We got in early into the new construction space, helping builders finance new developments.
“We weren’t the only guys who saw this, obviously, and there’s been a lot of product that’s now coming available. We’ve positioned ourselves very well to have this very deep pipeline of things we finance, also relationships from that effort that is spinning off into lots of new acquisitions of new product.
“So much being built today is being built by merchant developers, so they want to sell it. That’s perfect for us.”
In the near term, rapidly rising rents across Canada might reopen markets which have been difficult to access. Romundt said its focus has been on secondary markets, or regions just outside the biggest metropolitan areas because of pricing and intense competition in the cores.
Even markets like Toronto might soon be in play.
“We’re partners on a lot of builds. . . . In fact we are even looking at product in Toronto, deals that we’ve worked on for years and couldn’t make the numbers work,” he noted.
“Because rents have moved so much, some of these locations now are starting to make financial sense. I am actually getting a little more optimistic for areas where we would love to be able to build and own.”
Here are some additional details about Centurion’s pending acquisitions:
The Apex at Acre 21
Centurion is acquiring a 50 per cent interest in this new build, on which it was a development partner with Devereaux Group. It will bring Centurion’s portfolio to five properties and 571 rental units in Regina.
Completed in May 2019, the property is in the Greens on Gardiner neighbourhood in southeast Regina. The Apex at Acre 21 includes three buildings with 176 suites.
Apex offers one- and two-bedroom suites with dens and large living spaces. Condo-style finishes include luxury vinyl flooring, granite countertops, stainless-steel appliances, private balconies, ensuite bathrooms and walk-in closets.
The property has 233 surface parking stalls and a 2,400-square-foot Resident Clubhouse.
The Mayfair on Jasper
The Mayfair on Jasper is a class-A, mixed-use property completed in late 2016 at 10803 Jasper Ave. NW. It was developed and owned by ProCura Real Estate Services.
The 10-storey, 238-unit property has a mix of studio, one- and two-bedroom suites with luxury interior finishes. It has a smart-key system, premium concierge, parcel pending automated delivery system, fitness centre and dual rooftop parks. It also has 196 parking stalls and 24,901 square feet of main-floor commercial space.
Grand Central Manor II & III, Oliver Place, Riverside Towers
This family-owned portfolio of three high-rise buildings has 832 units and 38,702 square feet of commercial space. The acquisition would increase Centurion’s Edmonton portfolio to 1,278 rental units (including The Mayfair on Jasper).
The 17-storey Grand Central Manor II and III at 109th Street and Jasper Avenue offers 306 suites with one or two bedrooms, plus penthouses. All feature spacious balconies and six full-size appliances.
The 18-storey Oliver Place, also along Jasper, is a mixed-use building with 234 residential units, a four-storey parkade and a 37,788-square-foot commercial space on the main floor. It also has a fitness centre, social room, outdoor pool and resident lounge. The suites feature floor-to-ceiling windows, spacious balconies, in-suite storage and full-size appliances including dishwasher.
The third property is just east of downtown near the Brewery, ICE, Financial, and Government districts. Riverside Towers comprises twin apartment buildings with 292 units, a 914-square-foot commercial space on the main floor and a common recreational area connecting the two 21-storey towers. Units range from studios to three bedrooms and penthouse suites. All suites overlook the North Saskatchewan River Valley.
The newly constructed Hockley Corners is adjacent to five other properties Centurion purchased in July and will bring Centurion’s portfolio to 10 properties and 664 rental units in the Greater Vancouver Area.
The six-storey, purpose-built rental developed by Design Build Services of Langford at 765 Hockley Ave. was completed in August 2019. Hockley Corners has 63 residential units with underground parking and optional out-of-suite storage.
The suites offer one- and two-bedroom units, some with dens. They feature nine-foot ceilings, condo-quality finishes, stainless-steel appliances, individual heating and cooling system, and in-suite washer/dryer.
Hockley Corners is close to Millstream Village Shopping Centre, transit and Bear Mountain Golf Resort
Guelph real estate agents to trek 100 km in Sahara Desert
Four Guelphites will be trekking 100 km across the Sahara Desert in Morocco this month to raise money for the Guelph-Wellington Women in Crisis.
The venture organized in support of the Royal LePage Shelter Foundation will see local real estate agent David Halls along with his wife Robin-Lee Norris, real estate agent Ariana Chhina and John Van Buskirk trek for five days straight, seven hours a day across the sand in the hot and dry desert climate.
“Truly it’s about supporting our local shelters. All of us who are participating, we cover 100 per cent of our own costs, our own flights, our own hotels. Every penny that we raise feeds through the Royal LePage Shelter Foundation and then ends up coming back to shelters,” says Halls.
Halls indicates that as a real estate professional, his job is to help clients find the perfect safe place to call home.
According to Statistics Canada, there were 552 residential facilities for victims of abuse across Canada that have seen 68,000 admissions in 2017 — 60.3 per cent of them being women and 39.6 per cent being their accompanying children.
On the snapshot day of April 18, 2018, 3,565 women, 3,137 accompanying children and eight men were staying in residential facilities due to some form of abuse. Over 80 per cent of women on that snapshot day reported abuse as their primary reason for seeking shelter.
The trek this month will include 120 agents and hikers across Canada representing The Royal LePage Foundation where they will be divided into four groups between 29 to 30, reside in large group tents, use camp-stye bathroom facilities and live without electricity, cell phone service and the other comforts of a modern-day home.
To participate, members must raise 5,000 each and cover their own travel costs. Each agent raises funds in any way they can.
“Royal LePage corporately pays all of the overhead expenses, all the staff salary so that every penny raised goes out directly towards a shelter or to education programs against violence,” says Halls adding that each city supports their local shelter.
The trek to the Sahara desert will be Halls’ third trip with the foundation. In 2017, he travelled over 100 km across some of Iceland’s most actively volcanic areas and in 2015, he travelled to the ancient Inca capital of Cusco and visited Ina ruins and Spanish colonial churches where he hiked through remote areas that have been the same for centuries.
“I think part of the experience is that you’re putting yourself in such an uncomfortable position. Most of us are blessed to never have to leave our house and go into a shelter,” says Halls.
“You’re putting yourself in a position that’s uncomfortable for a little period of time just to try and remember there are ladies out there and kids out there who have to do this regularly.”
To date, the Royal LePage Shelter Foundation has raised over $30 million in support of Canadian women’s shelters and violence prevention programs.
Halls says he continues to see a passion from everyone involved in the project to support the charity.
“We have a thing through Royal LePage called the commission where every single deal we do, we have a slice of our commission that goes towards this charity. So collectively again across the country its millions of dollars raised. It’s phenomenal,” says Halls.
So far, Halls’ campaign raised helped raise $12,141 which is 1 percent over their goal before he officially kicks off toward the middle of the desert on Nov. 20.
Executive director Sly Castaldi says the Royal LePage Shelter Foundation has been extremely supportive throughout the years and are huge community champions for which the Guelph-Wellington Women in Crisis is extremely grateful.
“Their impact has been immeasurable to us,” says Castaldi
“Any funds they raise go toward our overall operation which we depend on in terms of overall fundraising goals and managing the organization,” she said adding that the impact is both national and local.
Richmond-based Chinese real estate company targeted by false posters
An online posting announcing the bankruptcy of a Richmond-based real estate agency is fake news, according to the owner of the company. It has just relocated to Vancouver.
Photos showing posters on the window of Maxcel Westcoast Realty, a real estate company located at 6020 Blundell Rd., began circulating on Chinese social media sites, including one of the biggest Chinese language online forums VanPeople.
These posters, dated Nov. 5, 2019, printed in Chinese characters, stated “the company has closed, which means it doesn’t exist anymore, please stop knocking on my door.”
However, when the Richmond News visited the office on Thursday, all the posters had been removed from the office windows.
According to Kathy Xu, owner and co-founder of Maxcel Westcoast Realty, the online posting isn’t real. The company is still operating and the whole team relocated from Richmond to Vancouver office earlier this week.
Xu isn’t aware of who hung these posters on the window.
A spokesperson from the Real Estate Council of British Columbia (RECBC) also confirmed that the company is licensed and they have just moved to Vancouver.
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