Realogy Holdings Corp. agreed to form a title insurance underwriter joint venture with a $210 million investment from private equity investment firm Centerbridge Partners, a move sure to shake up the title space.
The sale and JV formation will allow Realogy to gain liquidity from the sale of its title insurance business while still maintaining a position in title.
“It’s a smart move,” said Steve Murray, senior advisor to RealTrends. “They free up capital to invest in building title and mortgage faster and don’t lose any of the strategic advantages of their front-end origination services.”
Centerbridge funds will purchase a controlling 70% interest in Title Resources Guaranty Company, Realogy’s insurance underwriter, for $210 million in cash, subject to closing adjustments, valuing the asset at $300 million, the company said Wednesday. Realogy will maintain a 30% equity interest in Closing Parent Holdco, L.P., a newly formed limited partnership joint venture that will own the title insurance underwriter. The transaction is expected to close in first quarter of 2022.
“This agreement enables us to be even more laser-focused on Realogy’s core businesses, including critical consumer-facing transaction services in franchise, brokerage, title settlement and escrow, and mortgage,” says Realogy CEO and President Ryan Schneider. “Future growth upside from the underwriter venture, combined with our ability to unlock capital to further invest in Realogy’s strategic priorities, can help us generate additional value for both the company and our shareholders.”
This move comes on the heels of Compass acquiring three title companies in short succession: LegacyTexas Title Inc., First Alliance Title and CommonGround Abstract in September. With margin compression, today’s brokerages are finding relief in mortgage, title, insurance and other core services. In a recent panel at HousingWire Annual, it was noted by panelist Chris Kelly, president and CEO of Ebby Halliday Companies, a Berkshire Hathaway HomeServices company in Texas, that the value of a single mortgage origination is that of 10 real estate sales and title capture rates can be very high, thus underscoring the importance of these services to a brokerage’s bottom line.
The RealTrends 500 follows the number of real estate firms offering core services and subsequent transaction counts, although the information is not verified. In the 2021 report, Realogy was No. 1 in title closings and No. 2 in closed mortgage units. They ranked No. 2 overall in top core services providers. Minneapolis-based HomeServices of America ranked No. 1.
If the deal goes through, Centerbridge funds will purchase a 70% equity interest in the title underwriting joint venture in preferred units. Realogy’s portion of future minority interest earnings from its 30% common equity stake will be reported within the company’s Realogy Title Group segment, which includes the company’s title, escrow, and settlement services business, and mortgage origination joint venture.
Realogy continues to own and operate its national-scale title settlement and escrow services. Realogy’s title and escrow services operate across 43 states under 45 different brand names and in 2020, represented the majority of operating EBITDA generated by the Realogy Title Group segment, excluding equity earnings from the company’s mortgage origination joint venture.