Sears Tries a New Look : Sale of Real Estate Unit to Separate Coldwell From Roots

Sears, Roebuck & Co.’s announcement Monday that it will sell the commercial brokerage division of its Coldwell Banker real estate unit--part of an overall restructuring--solves a dilemma for the giant Chicago retailer.

When Sears acquired Los Angeles-based Coldwell Banker in 1981, the reasoning was clear: Consumers who bought homes through Coldwell Banker’s residential brokerage division might also buy furniture from Sears’ stores, insurance from Sears’ Allstate Insurance unit and stocks from Sears’ newly acquired Dean Witter subsidiary.

Less clear, however, was how the commercial division would fit in. While its brokerage and leasing of office buildings could help find sites for Sears operations, the potential “synergies” were not quite as compelling, given the giant retailer’s primary emphasis on consumer markets.

Thus, Sears’ top brass finally resolved to sell the commercial division, a transaction that is expected to attract many potential U.S. and foreign buyers, because of the division’s strong reputation.

“The decision was designed to focus on Sears’ primary strategy, which is the consumer,” James J. Didion, chairman and chief executive of the commercial division, said Monday in an interview. “Sears has a franchise with the consumer, they want to devote 100% of their energy to the consumer.”

The move by Sears breaks up the nation’s largest full-service real estate brokerage--a firm that was among the first to create truly nationwide offices for commercial and residential real estate services in a business that previously had been largely regional in nature.

The move also removes Coldwell Banker’s founding base. The firm was formed in 1906 as a commercial real estate brokerage, and only entered the residential sector in the early 1960s.

“Commercial real estate is where they (Coldwell Banker) made their reputation,” said Sanford R. Goodkin, a real estate consultant with the accounting firm of Peat Marwick Main. “They know the markets, and they are particularly well regarded in Southern California.”

The commercial division--whose 100 offices and 4,700 employees in the United States and Canada accounted for about one-third of Coldwell Banker’s $1.24 billion in revenue last year--also faces challenges.

The division’s extensive research and databases on commercial real estate, including up-to-date information on office vacancies nationwide, are unmatched in the industry, experts said. And the firm’s nationwide network is attractive to firms considering office space in many markets nationwide, consultant Goodkin said.

But the division also faces competitive challenges, including those from such investment banking firms as Goldman Sachs & Co. and Morgan Stanley, which are increasing their presence in offering real estate investment services to pension funds and other major institutional clients. These investment banking firms also are seen as more sophisticated in the field of mortgage-backed securities, where real estate loans are packaged into securities and then sold to institutional investors.

Accordingly, some experts said, the division may be seen as an attractive acquisition for a U.S. or foreign investment banking firm.

“They’re a plum that may be quickly gobbled up,” consultant Goodkin said.

An Important Asset

The move leaves Sears with two divisions at Coldwell Banker that clearly fit in with the retailer’s strategy to become the nation’s biggest consumer financial-services supermarket, industry experts and company officials said.

“We feel that Coldwell Banker is a very, very important asset,” Sears Chairman and Chief Executive Edward A. Brennan said in an interview Monday. “As we look forward to the future, it will be an important source of profit growth.”

One of the remaining divisions, Homart Development Co., has long paid dividends for Sears. As the nation’s second-largest regional shopping center developer behind the Ohio-based Edward J. DeBartolo Corp., it finds and manages sites of many Sears stores.

“It’s a very consistent money maker,” said N. Richard Nelson Jr., retailing analyst at Duff & Phelps in Chicago.

The other division, residential brokerage, faces the challenge of becoming more profitable after years of somewhat modest results due to high costs of an ambitious expansion program.

In that expansion program, Sears has increased its national market share of the residential brokerage market to 11% from about 1% in 1981, largely through acquisitions of brokerage offices and internal expansion.

Last year, for example, the firm added 281 residential brokerage offices, raising its total to 2,039, including franchised and company-owned offices. The division, which employs 43,000, accounted for nearly two-thirds of Coldwell Banker’s 1987 revenue.

No. 2 Nationally

“Our emphasis was on market share rather than profitability,” Sears chief Brennan conceded. “Now that we have achieved this dimension, we intend to continue to grow the company, but at a much greater level of profitability.”

The moves make Coldwell Banker No. 2 nationally in total residential sales, behind the Century 21 Real Estate Corp. unit of Metropolitan Life Insurance Co., according to Roulac’s Top Real Estate Brokers, an information service of the Roulac Real Estate Consulting Group at the Deloitte Haskins & Sells accounting firm.

Sears has developed some synergies through the residential operations. For example, buyers of homes through Coldwell Banker also have received discounts on furniture and other goods at Sears stores. Such synergies justify the operation to Sears even though profits so far have been modest, said Walter F. Loeb, retailing analyst at Morgan Stanley in New York.

Beginning in January, the residential division will extend its search for synergies. It will be completely responsible for Sears Mortgage Corp., a mortgage loan company that previously had been jointly managed by Dean Witter and Coldwell Banker, Brennan said. The idea behind the transfer: Getting more people who buy a home through Coldwell Banker to also take out their mortgage through Sears, he explained.