The decision of one of this area's top real estate firms to stop selling houses may be part of an industry trend toward cutting losses by concentrating on more lucrative commercial and condominium markets, local brokers said this week.
The McLean-based Panorama Real Estate Inc. earlier this week confirmed that it is closing most of its 11 offices and cutting its staff from about 350 to fewer than 20. In recent years, it has been one of the top 10 real estate brokerages here in house sales.
Lykes M. Boykin, who announced six years ago when he took over as Panorama president that he intend to expand the firm to more than 80 offices and 2,000 agents, said this week that he was "disappointed" with the turn of events.
He blamed the situation on "a very depressed economy," high mortgage interest rates, inflation and "lack of public confidence." House sales in this area are down by 30 percent from this time last year.
Boykin stressed that while he made a "policy decision to terminate the residential resale brokerage of single-family homes," the firm is not going out of business. He said Panorama will concentrate on the marketing of commercial and industrial properties, as well as the development and sales of condominiums.
After expenses, Panorama's single-family house sales accounted for "a negative portion of the net income," he said. Calling the sustained losses "unacceptable," Boykin said he decided "to bite the bullet" and "realign our business."
He said he would "consider getting back in" if interest rates decline and the market begins to recover. At this point, however, "I can only see further erosion," he said.
"Panorama could represent the tip of the iceberg," said E. A. Baker Jr., president of the large Town and Country Properties Inc. Despite talk that this area is recession-proof, the debilitating effects of continuing inflation, high interest rates and growing unemployment have "filtered down to Washington for the first time," he said.
Panorama's decision "shows that no one is exempt" from the "unpredictable" residential housing market, said Peter Miller, an independent broker and consultant based in the District. Miller said the firm "has one of the shrewdest and most perceptive management teams you will find in the real estate industry."
Miller sees the Panorama situation as part of a series of trends. "As homes become more difficult to sell because of rising prices and historically high interest rates, they are also becoming more expensive for brokers to carry," he said, noting that firms of all sizes have been hurt by the decline in transaction volume.
"No firm of any size is immune to the economic trends," he said.
If the market doesn't turn around soon, "we'll see firms closing here and everywhere around the country--I don't think it's a local phenomena," Miller said, adding that some of the closings will be because of bankrupcies, not just decisions to retrench or consolidate.
Local firms have been closing branch offices for months to cut costs and to streamline large operations that have earned progressively smaller profits. And while some new firms have attempted to make a go of it here despite current market conditions, for every new firm set up here recently, at least one has gone out of business or merged with another, membership statistics compiled by local boards of Realtors have shown.
Panorama's decision is a sign "that many firms are having a difficult time earning the kind of income to support their overhead," said James G. Banks, executive vice president of the Washington Board of Realtors. He said that while some of the board's smaller member firms had two or three offices last year, many have cut back to a single office.
"What's happening here is that there hasn't been a window of relief," noted Town and Country's Baker. He said that because "a sustained period of strong sales" failed to materialize during March, April and May this year, many of the smaller and mid-sized firms soon will be under "a lot of pressure" to come up with enough cash to pay their bills. He expects to see "a number of companies" getting out of the business this summer and fall, he said.
"The Panorama experience is typical of mid-sized firms" that have overextended their overhead liabilities, said Ray Chappell, president of Merrill Lynch Realty/Chris Coile Inc. He said that because smaller firms have fewer expenses and lower overhead, it is easier for them to cope with unexpected drops in cash flow and profits. On the other side, the larger, more diversified companies "can muscle through" the hard times, he said.
Chappell said that his firm projected that the sales downturn would hit hard this spring and closed and consolidated six branch offices last fall in anticipation of the crunch.
Boykin "probably made a very wise move," said Shannon and Luchs' Foster Shannon. "It's very expensive to run a residential sales department," he said, noting that consolidation of offices as a reaction to a depressed market is not unusual. "Shannon and Luchs is still in the black, so we haven't seen a need to do that," Shannon said, but "I'm not saying we won't at some time in the future." He added that the market could take a serious turn for the worse "within a week or a month."
Coldwell Banker, the national real estate subsidiary of Sears, Roebuck and Co. that acquired the Routh Robbins brokerage here several years ago, has taken over two Panorama branches--one in Potomac, another in the District. Richard M. Caruso, president of the firm's Washington operation, said Coldwell Banker also has taken on about 140 staffers from the two offices.
About 15 agents from Panorama's White Oak office have gone over to Long and Foster's Wheaton office "and other agents are talking to us so we think we'll pick up a fair number of their agents," said Wesley Foster, president of the 39-office firm.
"Even though we've scrambled to pick up many of their agents, I don't think we did it with any glee," Foster said. He said he had known for many weeks that Panorama had been struggling and said the consolidation "was not a shock."
Boykin said that Panorama's headquarters have been moved to Arlington and that some of the now-defunct sales offices may be kept alive once a firm decision on how to "realign" the firm is made.