Real Estate Giant Sees Nashville on Rise

Harold E. Crye is chief executive officer of Crye-Leike, Realtors, a six-state real estate empire that he and co-owner and president Dick Leike founded in 1977.

The Memphis-based company hit the $1 billion mark in sales volume in 1993 and passed $3 billion in 1999. It has about 2,300 agents in more than 60 company-owned and franchise offices in Tennessee, Arkansas, Kentucky, Mississippi, Georgia and Florida.

Crye says he started out as ”a small-town boy from a little town in Arkansas” who moved to Memphis, the nearest big city, to find a job after serving in the Army in Korea.

He was hired as a salesman with Container Corporation of America, but a real estate course at what is now the University of Memphis grabbed his interest.

Shortly after Crye earned his real estate license, he chatted over lunch break with a forklift operator at the Container plant.

”He and his wife were looking for a house,” Crye recalls. ”I said, ‘You’re kidding! I got a real estate license,’ and he said, ‘Well, sell us one.’ So I picked him up and sold him a house, and that kind of was the beginning.”

Recently, Crye spoke with reporter Kathy Carlson about residential real estate and the Nashville-area market, which Crye-Leike began to serve in 1992.

Q: How do you see the Nashville and Middle Tennessee markets fitting in with your other markets?”

A: Well, we’re in Memphis, Nashville, Chattanooga, Little Rock and in Johnson City, 51 or 52 offices and about 2,300 sales agents. ?

Nashville we see as a really strong growth market for us when we look at those markets we’re in. ? One, we’ve got 18 offices in place and about 800 agents, but the market here is a good bit larger market, large in the number of agents, large in the number of sales that are happening in the market. ? We already have the expenses ? all we have to do is increase the volume, and we will gain, I guess, a significant profitability.

Q; Is the Nashville operation profitable right now?

A: It is profitable, but it’s not at the level we would like for it to be, because we’ve spent these 10 years putting in facilities.

We’re now at the point where ? we’ve got locations in almost every location that you need an office, and so now is the time that we’re seeing the growth of the company, and the growth of the sales volume should be happening for us over the next few years. If our expenses are pretty well already set, then (with an) increase in volume that money goes to the bottom line.

Q: Can you put a number on how profitable Nashville is as compared to other offices?

A: Memphis is our most profitable, Nashville would be next, then Chattanooga. And Little Rock is still in the start-up level.

Q: What are you planning to do over the next few years to bring the profit margin up in the Nashville area?

A:  For us it’s maximizing the position that we’re already in. For instance, if we have the facilities in place, then we need to maximize those facilities. ? If we have an office facility that will house 50 agents then we need to be recruiting to get to that 50-agent mark to be able to maximize the utilization for that space, for instance. ? The first expense item is the sales associate, the next one is the rent.

Q:  How are commissions for agents split between the agent and the organization?

A: It varies depending on the associate and their level of production. It’s an incentive-type thing ? the more you make, the higher percentage you get. We start as low as 60% to the associate, and we can go as high as 95%.

Q: Where do you see the local market going in the next few years? You know, you see record year after record year in house sales.

A: We see Nashville as being on the growth curve. Nashville is ? I don’t know how I want to word this ? I run into people from time and time and say, ”What brought you to Nashville?” and it’s amazing.

There are people that pick Nashville out that have no family here. They pick Nashville out and maybe one spouse was into music or something like that, but there’s cases where they picked it because it was centrally located. I find that to be a little bit amazing, but they’re not too far south and not too far north, and they have family in Florida and they have family in Minnesota, and so they’re saying, ”This is perfect for me.”

? With all the growth ? of the peripheral areas of Davidson County ? Nashville over the next 10 to 15 years is probably going to outstrip most of the comparable communities in the region. I think most people would say (there’s) a better quality of life than what you’d see in Atlanta with all the congestion they’ve got there. There’s some lifestyle issues here that are attractive to most people.

Q: What’s your assessment of the overall housing market, just in terms of the economy?

A: Very, very strong. ? We’ve been enjoying for the last five or six years mostly record years and a very, very good real estate economy. I think some of us probably have wondered when the ride may be over with.

If you think of California and some of the problems that they may have had over the years where the housing prices go up and then they drop, Nashville really hasn’t had that. ? But if the interest rates moved up 2 percentage points today, a lot of real estate sales would dry up pretty quickly because most people have refinanced their house, and they’ve got a 5% rate and they would not be happy to go to a 7% rate. So that’s one of those things that if we get a little age on us we know that these things have cycles, and we’ve been through some cycles.

I was in the business when Jimmy Carter was president, and we sold houses at a 16.5% interest rate. Don’t want to see that ever again, but you never know. That’s scary to think about.

? We were a young company, and we were able to survive that because we were young and still growing. Today, at our size, ?. it would be difficult to downsize, and in an economy like that, you would see a lot of real estate companies close their doors. We had to get very creative to exist, to last.

Q: What were some of the creative things?

A: A lot of owner financing, a lot of second mortgages, wraparound mortgages, you name it, we were trying to do it. Lease-purchases. Every type thing you could think of we were trying to do back in those days to put a deal together. ?

Q: Well, what about the whole phenomenon now of zero down payments, the sub-prime lending, how do you see that affecting markets?

A: ? It’s created a new industry. ? We have a division, for instance, called our REO division, REO stands for real estate owned. ? Foreclosed properties. Banks do not like ”real estate owned” on their books, and they want to get them off as quickly as possible ? and they turn them over to companies like ours to dispose of them.

? In years past we didn’t have a division just for that, and now we’ve got one just for that and why is that? ? Because how many days a week do you get an envelope in the mail that says, ”Here’s a new credit card for you”?

? So the average American has got how many thousand dollars on their credit card, and many of them just don’t have the ability to pay. So they go bankrupt. They’re letting their houses go back, and that has created a new industry ? the industry of handling bank foreclosures. We see more and more of that because the banks are all aggressive in their lending trying to get the money out.

Q: When you were talking about California and their home prices going up and then drastically falling, can you see that happening here?

A: No, not to the degree, I don’t think. Ours is probably more cyclical than a bubble like California may be.

? The market is very balanced right now, and I think the bankers are probably a little smarter. I don’t think that they are as willing to let builders get too far ahead of the market. …

Q: I read a lot about people investing in real estate as opposed to stocks and bonds, and I see a lot of books in the bookstores about how to make money in real estate. What’s your sense of that market?

A: It’s a fairly substantial market, but the person has to be a real worker. They’ve got to be pretty astute, and they’ve got to know their values and they’ve got to be willing to ? make a lot of offers without getting emotionally involved in them.

? I’ve got a friend that does that, and he probably doesn’t buy one out of 20, he makes offers on, say 20 out of 20 but ? he makes low-enough offers that he doesn’t get many of them, but the ones he does get, he cleans them up and sells them and makes a nice profit. It’s a nice living.

Q: It looks like Crye-Leike has often become the No. 1 firm in a market fairly quickly. How have you guys done that?

A: What we bring to the table is a combination of services and facilities and commission schedule. Not many companies can deliver the services and facilities and a commission schedule.

Our niche is that we are a company with office locations in basically all the submarkets of Middle Tennessee. ? There are people wanting to deal with the largest, and there are some services that we have that other companies don’t have, and some of it is because we have the size to be able to deliver.

(One service is Crye-Leike’s appointment center, in which an employee) takes the phone calls, calls the homeowner and says, ”Mr. and Mrs. Smith, Mary Jones with XYZ Realty would like to show your house at 2 o’clock on Sunday. Is that convenient for you?”

In other words you can’t just show up on an occupied house ? someone has to call ahead. ?

? We know, for instance, Friday evening is a huge time because agents are setting up weekend showings so we max that thing out. ? I think we have 14 people working at that time taking those phone calls.

Q: So is this based here in Nashville?

A: Right now it’s based in Memphis.

Q: Since you’ve been in the business, what would you say would be the most important way the real estate sales profession has changed?

A: In a lot of ways it’s changed dramatically, and in other ways it’s still the same. It has changed dramatically in areas like technology. It’s still the same in that it’s still a people business.

… (National Association of Realtors) surveys all say about 85%-90% of the people were satisfied, are very satisfied with our Realtor service but less than 20% actually go back and use that same associate that sold them a house again.

Q: Why is that?

A: Because the typical Realtor does not stay in touch with the consumer, and they don’t know that they’re still in the business. … That’s just a NAR statistic; it’s a bad stat, but it is a fact.

Q: Any other things you want to add about the real estate market or your company?

A: One of the things that we have seen is a lot of consolidation and mergers in the business. ? You are seeing very few startups of new real estate companies. All of this is being caused by money issues ? or the agents are commanding a large share of the commission, leaving a very small share for the broker to pay all the bills and run their offices.

? The smarter brokers are doing what’s called one-stop shopping. One-stop shopping is what the consumer wants. ? They want someone to quickly take care of the mortgage, quickly take care of the homeowners insurance, ? the title, the closing ?

So the bigger companies ? the ones that I think are going to get even bigger, are the ones that are making (inroads) in ? ancillary services (in which) they can make additional money because there’s very little money coming to the broker off of the real estate transaction. ?

I don’t see a (real estate) bubble, I see us being in a cycle. Where we are in the cycle I don’t know. ? I think what we do know is that none of this works without job growth. Nashville is in the enviable position in that it is an attractive community, so we think job growth is going to continue. And that’s one of the reasons we are pleased with what we see in that aspect of Nashville.