Thursday, June 13, 2024

‘We still have an appetite’: Howard Hanna eyes growth amid downturn

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Flexibility and nimbleness are often touted as the top advantages of independent brokerages. All this November at Inman, we’ll explore what indies are doing to meet the moment as the market shifts. And we’ll consider how alternative brokerages are impacting the landscape. It’s Indie Broker and Alternative Brokerage Model Month!

This isn’t the Howard Hanna Real Estate Services of yesteryear.

The Pittsburgh-based real estate company has been expanding its market share in key cities, acquiring a number of independent brokerages while maintaining its privately owned status. If you go by Real Trends’ definition, Howard Hanna has become the seventh-largest independent brokerage by sales volume in the nation, trailing six publicly traded companies in the category.

But like the experience of every real estate business, Howard Hanna’s strategy has been running up against a swiftly contracting housing market, where higher mortgage rates have reduced demand for homes as well as revenue for brokers and agents.

Company President Hoby Hanna spoke with Inman on Tuesday over the phone to talk about the challenges and opportunities for independent brokerages in this market, as well as how the market has affected his company’s plans for future acquisitions. His comments below are edited for length and clarity.

Inman: Obviously this is an interesting and challenging moment for every brokerage. What are the biggest questions facing independent brokerages right now and in the months to come?

Hanna: Housing markets are cyclical. We’re in a market position where we’re coming off probably the two greatest historical years in terms of housing. It was like this perfect storm that benefited housing and the housing market, real estate brokerage firms and mortgage companies all alike. I think what I see right now is that eventually everybody looked at it and had to say, well, it had to slow down. You see cycles that come into the business, and you see that you have booms. You don’t always have busts, and you don’t always see busts. [But] there will be fewer units in 2023 to sell. I think that demand will still be high. I think that buyer demand and activity and interest rates – they’re slowing the market, but they’re not bringing it to a standstill.

One of the challenges that the industry faces is that the high-flyers, the publicly traded companies, the VC companies, are all beginning to be called out for not being profitable — let’s just call it what it is — for being so focused on topline and not showing the sustainable profitability and questioning what the business model takes place. What that does is that affects all of us as independents. That affects us, the brokerage firms that have been traditional, that have been through cycles, that have been through markets, and have had to stay strong to their fundamentals.

The challenges will be us as independents navigating through the noise that is set by these bellwether publicly traded companies that get a lot of attention. We have been in business through cycles. We’ve been in business as recessionary pressure in housing has come into play. So we come back to what we’ve done traditionally and stably, and make sure that we’re running good cash-flow businesses, that we’re being circumspect about investments, that we’re supporting our agents with great training and support, and we’re getting back to grassroots, which is the customer service business.

How do you think independent brokerages, and an independent model, can be an advantage going forward, versus some of the other business models you mentioned? 

I think most independent real estate brokers that I know, and I’ll definitely speak for us — we’ve grown through a lot of acquisition of independent real estate brokers — they make money. The margins might not be as huge as everybody would like, but if you’re tried and true, we’re still cash flowing and making money. And I think that puts us in a position to run with good discipline to do well in the market. We’re running these as businesses that are not just lifestyle, or just all about uber growth. It’s good, fundamental businesses. And I think agents appreciate that and customers appreciate that. So you won’t have to see a lot of drastic changes to take away services from customers and agents.

What advice would you give for independent broker-owners and agents at this particular moment in time, as they compete with other models but also navigate these market challenges?

Stay true to who you are. Focus on what you do best. I think as markets get tighter, whether it’s recessionary pressure, whether it’s lack of inventory, at least in my career there always seems to be a flight to quality. So No. 1, the agents need to make sure they up their game. [For broker-owners,] stick to what you do best, and pay attention to other companies that are doing some creative, innovative things. Maybe you can’t do it the same way, but what can you take away to support your customers and agents in that sense?

I think a lot of independents can pivot and move quickly on those type of things where they don’t have to worry about a board of directors approving it [or] shareholders who have quarterly earnings needed. They sometimes can find some innovation, put a real plan around it, take some risk, and use it to move in markets when they get a little tighter.

Howard Hanna had been expanding in recent years. At this particular moment there’s a contraction in the market. What do your plans look like in terms of expansion in the year to come, and also this past year? 

Just this past year, we weighed the market, looked at the value opportunities that were out there. Our expansion has been by merging and acquiring really well run, good, solid companies. In fact, we did some franchise deals, but many of them were done with independents that had a similar culture [as we have]. We do have two or three deals right now that we’re under letter of intent or in contractual stages that we’re hoping to close between now and sort of the end of January. But we’ll see what the first quarter does. We still have an appetite. Where we think we’ll have opportunity in the first half of 2023, after we close these last couple of deals, is to take our footprint, and for at least the first half of ’23, really look at where we can do some consolidation within our existing footprint in our markets. And I do think values will be attractive for acquisition in ’23. We think there will be some opportunities of people who are looking for an exit, or are looking for an opportunity to affiliate with a larger firm that can help them grow.

Real Trends lists Howard Hanna as the seventh-largest independent brokerage, behind companies like Compass and eXp. I’m curious what you think about sharing a category with these other companies? 

Well, I don’t really know how they’re ‘independent.’ I’m honored that they’re such large brokerage firms with public value and investor value that sees them as shining stars in the marketplace. So I guess I’m honored that we’re in that category, but I also sometimes wonder what makes somebody ‘independent’ if you’ve got multiple shareholders, as opposed to a true independent, family run business. But that’s just semantics. We’re happy with our status and being a privately held company, being a family owned business that can respond and react to markets and the people who work with us.

Email Daniel Houston

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