I just read an interesting article which predicts the next 15 companies that could likely fail in 2009. While some of them are no big surprise, like Chrysler, who should have failed decades ago, or Blockbuster, who has been struggling ever since online video rentals have taken off (I am an avid Netflix fan), some are rather surprising.

Well, OK. Krispy Kreme is really not that surprising. They over expanded in the United States and stretched themselves too thin. Sometimes, staying small is the best plan for long term survival. But one that I was surprised to see is Realogy, the largest real estate brokerage in the country:

Realogy Corp. (Privately owned; about 13,000 employees). It’s the biggest real-estate brokerage firm in the country, but that’s a bad thing when there are double-digit declines in both sales and prices, as there were in 2009. Realogy, which includes the Coldwell Banker, ERA, and Sotheby’s franchises, also carries a high debt load, dating to its purchase by the Apollo Group in 2007 – the very moment when the housing market was starting to invert from a soaring ride into a sickening nosedive. Realogy has been trying to refinance much of its debt, prompting lawsuits. One deal was denied by a judge in December, reducing the firm’s already tight wiggle room.”

It will be no surprise to me if some real estate brokerages go out of business in 2009 and 2010. Many just over expanded and overspent during the fat years, and left nothing for the lean years. I believe that the local Realtor association has said about 15% of the agents in town have left the business.

The funny thing about this, to me at least, is it seems many people and businesses should have reread the Biblical story of Joseph. See Joseph could interpret dreams and when Pharaoh had one he couldn’t decipher, Joseph came to the rescue and predicted that Egypt would see 7 years of famine after 7 years of feast. Their solution? Put some food aside during the seven years of plenty, so they would not suffer from hunger during the famine. Hmmm…there’s a novel idea.

But so many businesses, including our local governments, saw the money flooding in and decided to build larger buildings, expand, grow, grow, grow, and were so blinded by the wealth they violated history, and are now paying for it. Cities in Minnesota are right now debating on whether to cut school funding and after school programs…because they are facing a budget deficit. You’ve got to be kidding me. I don’t see them proposing to cut a few of those high paying government jobs.

Please, can someone answer how governments survived 5+ years ago, before the boom, on a budget, but cannot do it today?

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2 Comments

  1. Mark Panus February 10, 2009 at 1:15 pm - Reply

    We disagree completely with the inclusion of Realogy on such a ridiculous and subjective list that originated as a blog post but is now masquerading as a “news report” elsewhere on the Internet. As of January, there were 88 other companies with the identical Moody’s Speculative-Grade Liquidity rating as Realogy. Our company has the best brand networks and the most successful brokers and agents along with the most seasoned management team and the best employees in the industry.

    Although Realogy is currently in a quiet period pending the release of our fourth quarter 2008 earnings results in March, I would like to address a number of fundamental truths about Realogy that were clearly not taken into consideration in this flawed analysis:

    · During the past several years Realogy has moved aggressively to mitigate the impact of the economy on our company. We have successfully reduced our overhead by more than $350 million and continue to focus on maximizing the effectiveness of our cost structure.

    · As we have focused on costs we have been equally focused on growth. In spite of the woes of the housing market we have made great progress in advancing our company. From new franchise sales to the retention of the top-tier brokers and sales associates to signing new clients across all of our business units, we continue to be forward thinking and highly focused on the future of our company and the industry.

    · In 2009, we expect to benefit from considerably lower interest rates since a significant portion of our bank debt is tied to LIBOR;

    · None of our corporate debt is due until at least 2013; and

    · Unlike many companies in today’s economy, we have the support and commitment of one of the best financed private equity firms in the country, Apollo Management. Private equity funds managed by Apollo Management and co-investors originally invested $2 billion in Realogy so clearly Apollo has a substantial ongoing interest in the success of Realogy. If there is any question as to Apollo’s overall financial strength, one need only look to Apollo’s success in raising approximately $15 billion in capital last month for its newest investment fund.

    In summary, your readers who take the time to do their own due diligence should recognize that Realogy is one company that will survive in 2009.

    Mark Panus
    Senior Vice President of Corporate Communications
    Realogy Corporation

  2. Jennifer Kirby February 10, 2009 at 1:25 pm - Reply

    Hey Mark,

    I truly do hope that you survive not only in 2009 but into the future. If a company as large as yours failed, I would be honestly shocked. As I stated, the article was a prediction, and we all know how predictions go sometimes. I was suprised to see they singled Realogy out but not Apollo. Thank you for taking the time to let the readers know where your company stands. Too many times, we never get to hear a rebutal of things going around in the blogosphere.

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