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Newmark is gearing up to go public – here’s how it stacks up against its competitors

From left: James Kuhn, Barry Gosin, Howard Lutnick (Credits: STUDIO SCRIVO and Getty Images)
From left: James Kuhn, Barry Gosin, Howard Lutnick (Credits: STUDIO SCRIVO and Getty Images)

From the New York website: Newmark Grubb Knight Frank has been making strides in Los Angeles — it placed sixth in The Real Deal’s ranking of LA brokerage firms based on 2014 and 2015 investment sales, and that was before the brokerage hired  rainmaker Kevin Shannon and his team last year, which likely kicked up its rank significantly. But the brokerage is struggling in the city that is home to its headquarters.

In New York’s investment sales market, there are the Big Four firms that collectively brokered nearly $40 billion in deals last year. And then there’s NGKF.

With just $522 million in deals in 2016, the brokerage placed 18th on The Real Deal’s latest ranking of New York’s top investment-sales firms. And though its New York team posted strong numbers on the office and retail leasing fronts, the bosses are likely to push for a surge in activity in the big apple as the brokerage gears up to go public.

When Howard Lutnick’s BGC Partners acquired Newmark in 2011, Lutnick described the move as a “dramatic new footprint in commercial real estate by BGC.” Last April, Newmark’s president Jimmy Kuhn said the firm quadrupled its revenue since the acquisition, and talked up brand-name poaches such as Shannon, a CBRE alum who is one of the top investment sales brokers on the West Coast, and Robert Griffin, who enjoys a similar reputation in New England.

What was missing from the playbook, however, was a similar caliber of rainmaker in New York. Though rivals such as the publicly traded Colliers International and Cushman & Wakefield – which is itself considering an IPO – have picked up some of the city’s biggest names, Newmark’s been relatively quiet.

In a Feb. 9 earnings call, after the firm had submitted initial documents to the Securities and Exchange Commission, its longtime CEO Barry Gosin talked up the firm’s growing capital markets group, which had just seen year-over-year revenue growth of 28 percent to $344.2 million. Newmark’s biggest competitors saw just single-digit growth, their earnings reports show.

“Our industry-leading real estate capital markets growth was almost entirely organic as the investments we made over the course of the last few years have begun to bear fruit,” Gosin said.

In New York, however, the dollar volume of the firm’s investment-sales group was down 11 percent year-over-year.

It’s unclear why Newmark’s growth hasn’t been reflected in New York. It’s been a top player in leasing, placing second in TRD’s upcoming Manhattan office leasing ranking with 8.7 million square feet of deals and fourth in TRD’s Manhattan retail ranking, with 626,000 square feet of deals. The firm did make an entry into the Brooklyn market last year when it hired MNS co-founder David Behin to lead sales in the borough.

A company insider told TRD that in January, Newmark brought Edward “Woody” Maher, a vice chair in the firm’s capital markets group in Boston, down I-95 to lead the sales team in New York. Other brokers doing investment sales here include Kenneth Zakin and David Noonan.

In an interview with the New York Times in late 2015, Gosin said the New York area represented between 15 and 20 percent of the firm’s overall business.

“We were a dominant player in the New York market for many years, but the bulk of our expansion is making New York a smaller proportion,” he added.

Joseph Harbert, president of Colliers’ Eastern region, said “it’s a big country, and to some extent capital markets is a national business.”

“They [Newmark] can have that component that’s national without a killer presence here in New York,” he added.

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Representatives for Newmark declined to comment for this story.

No one firm to rule them all

Real estate is far more fragmented than advertising or accounting, industries in which the four biggest firms utterly dominate the market. In the $182 billion accounting industry, for example, four firms together control nearly 72 percent of market share, according to Colliers. In contrast, the top five firms in the $150 billion global real estate services industry together control just 20 percent of the market share.

CBRE ranks first, with $13.1 billion of revenue in 2016, followed by JLL ($6.8 billion), Cushman & Wakefield/DTZ ($5 billion), Colliers ($2.6 billion) and Savills Studley ($1.7 billion).

Newmark did just over $1 billion in revenue during that same period, a growth of 6 percent year-over-year, according to its SEC filings. On the Feb. 9 call, Gosin said the firm expects “to grow our revenues and profits faster than the overall industry in 2017 and beyond.”

Newmark’s global footprint is limited due to an agreement with its partner Knight Frank, which handles the European markets. Lutnick said on a BGC earnings call on Oct. 27 that Newmark is the “masters of our own destiny” in Canada, the U.S., South America and Mexico – where it expanded to in October.

“It is simply only a matter of time before our business is international in its ownership,” he said.

In the U.S., its growth has largely been in markets outside of New York City with acquisitions like the national multifamily brokerage Apartment Realty Advisors and the full-service firm Cornish & Carey Commercial in Northern California and Silicon Valley.

“We anticipate making further accretive acquisitions and profitable hires over the coming year, as our recently hired brokers’ ramp up their productivity and as we continue to execute on our strategy,” Gosin said on the Feb. 9 call.

While Cushman and Colliers have reportedly offered heavy financial sweeteners to entice leading brokers to come over in recent months, other firms have been more conservative.

On CBRE’s latest earnings call, for example, company CFO Jim Groch said the firm’s overall recruitment level was down in 2016 compared to the past few years.

“We have remained disciplined in underwriting recruitment opportunities at a time when we view some competitors as offering uneconomic terms,” he said.

And even though the broader commercial real estate market has taken its lumps, investors are still keen on the big full-service firms.

“Since the election there’s been a surge in these stocks, more particularly in just the past few weeks,” said Jade Rahmani, an analyst at Keefe, Bryuette & Woods who covers the space. “Since these companies reported earnings you’ve seen 20-percent-plus moves in many of these stocks. So the stocks have risen meaningfully as a result of this renewed optimism about the commercial real estate cycle.”

Mark Maurer contributed reporting.

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