John McGrath facing tough times ahead

Like any good real estate agent, John McGrath knows how to accentuate the positive.

So when when the 54-year-old fronted his company's annual Kickstart sales conference at Randwick Racecourse on Tuesday, an event attended by more than 1000 agents and staff members known as the "McGrath family", he did not dwell on what has been a chaotic start to the year.

"It's the best few days of my life rather than what could've been the worst," he said, thanking the agents for their support.

''I have more passion and determination than I have ever had."

It was a impressive performance even for a man once dubbed "Mr Sydney real estate".

Only three days earlier his board had met to discuss a worrying slide in earnings for the first half of the 2017-2018 financial year. Over the weekend it became clear to directors that McGrath would have to issue profit warning to the Australian Securities Exchange, the company's second downgrade in three months.

This was the final straw for directors including chairman Cass O'Connor, a former Goldman Sachs analyst during Malcolm Turnbull's time in charge of the bank's Australian operations, and chief executive Cameron Judson, who said they would resign over the coming weeks.

It was decided McGrath would

take on the role of executive chairman - a role he relinquished in 2016 - making him the only current director to stick around.

The bad news was announced on Monday, triggering a 12 per cent slump in the share price with the stock finishing the day at 51c. Investors who had bought in during the company's sharemarket float in late 2015, hoping to cash in on the company's east coast network estate agents in midst of a property boom, had paid $2.10 a share.

McGrath, who pocketed $37 million from the float and has retained a 26 per cent stake, refused to answer questions when approached at the Randwick event. But he clearly believes his decision to take back the reins is the company's best chance restoring shareholder value and the brand's reputation.

"We will be moving forward at a pace not seen before," he declared. "This business has incredible greatness and resilience."

Many observers are convinced some good will come of the turmoil.

They believe McGrath lives and breaths real estate and the business will benefit from having the founder back in charge.

''People do ask about the business and what they have read and heard in the media, but it has not impacted our business,'' says Peter Starr, an agent. "Adversity can bring you closer and there is a great atmosphere in the company."

When Mr McGrath asked the Kickstart audience what they learnt from conference, one agent replied: "the best thing I got from today so far was that you're taking back the wheel." His comments were met with applause.

However, others are not so sure. They question whether McGrath can even hit its newly-reduced earning targets. The say the loss of key staff has hurt a firm that has consistently over-promised and under-delivered.

"Look it's not complicated - this is a residential real estate business that has reported multiple profit downgrades during one of the biggest east coast residential property booms in history," says one rival, who did not want to be named.

On the road

One thing is certain. McGrath's attempt to fix the mess will end up defining one of the more remarkable careers in Sydney property.

Raised in Sydney's south by his mother, McGrath grew up in a working class home with dreams of becoming a professional rugby league player. However, a collapsed lung put an end to his sporting ambitions leading McGrath, who failed year 12, to take up a career selling homes.

He turned out to be good at it. At just 24 years of age he was one of the agents who sold a Wolseley Road residence in Point Piper for a then record $11.25 million.

Not long after he set up his own agency which eventually grew to become McGrath. Along the way he built a stake in a promising online property business called REA Group whose website was being used to buy and sell homes.

McGrath sold most of his shares in REA in 2009, netting himself $14.4 million. But had he held on to the stock the stake would now be worth almost $150 million - twice the current market value of McGrath.

McGrath is a private person who loves reading business books and follows entrepreneurs such as Tesla's Elon Musk. He relaxes at the movies and enjoys a punt.

In a rare profile piece in the Good Weekend magazine, McGrath came across as something of a control freak when it was revealed he colour-coded his shirts and arranged his socks and identically-folded underpants in individual enclosures, laid out in a grid pattern.

"It's not fanatical," he told GW, "but it's neat and tidy."

Another McGrath agent, who declined to be named, said relinquishing control of a company that bears his own name across the door was never going to be an option.

''He lives and breaths real estate and his business defines him,'' he said. ''But because of that passion, if it falters, will he be able to bounce back?".

Another agent, who declined to be named, said he was ''genuinely worried'' for McGrath.

''He is a very proud and successful man, and to have this happen with the share price falling and directors leaving, will have an impact on John,'' he added.

Hands off the reins

McGrath did loosen the reins in 2016, when he stepped down as chief executive to be an executive director. Around that time some of the company's key agents and sales staff had left to form a rival called The Agency. McGrath was not impressed, saying he had "zero respect for any of them" in a memo to staff.

McGrath will need to retain key employees this time round if he is to restore his business. He will also be hoping predictions of a softer Sydney property market are mistaken.

For these reasons some observers believe McGrath should take his business away from the glare of public scrutiny through a privatisation.

But outgoing chairman Cass O'Connor says this scenario is unlikely.

O'Connor does not expect McGrath to remain as an executive chairman in the long term and that the outgoing board would assist in recruiting new directors.

"John was very frustrated with the performance and wanted to have a more active role in the company. You can't have two CEOs.'' she said.

''John is going to be the clear line of accountability.''

This story John McGrath facing tough times ahead first appeared on The Sydney Morning Herald.