Newmark Takes On Debt As It Gobbles Up Market Share
Newmark losses expanded in the first three months of 2024, but executives from the New York City-based commercial real estate brokerage are more focused on ratcheting up their spending to bring in new talent and prepare for a wave of expected capital markets activity.
Newmark's revenue was up 4.9% in the first quarter compared to a year earlier, but the company posted a net loss of $29.8M, it revealed in its first-quarter earnings, released Friday. It had $546.5M in first-quarter revenue but $569.1M in total expenses, driven largely by equity-based compensation.
The firm issued $600M in new senior debt with a 7.5% interest rate that matures in January 2029. It also renewed its existing $600M credit facility and pushed the maturity date out two years to April 2027.
The debt is unlocking capital for Newmark to staff up, recruit brokers and eye deals associated with the $2T in U.S. commercial and multifamily mortgages coming due in the next three years, CEO Barry Gosin said on the Friday earnings call.
“We are at the beginning of a once-in-a-generation opportunity for Newmark to grow its business,” Gosin said.
He estimated that a third of the maturing loans would result in a sale, while another third would look for recapitalizations and the remainder would need advisory services to identify new lenders or investors.
Property owners and lenders have been involved in a “bit of a Kabuki dance” in recent quarters to keep loans from going sideways, Gosin said, but “ultimately it all plays out.”
“The opportunity is there. It's just a question of exactly when and how, but it will happen,” he said.
Newmark spent $161M in the first quarter on talent acquisition. Its noncompensation expenses grew 14.4% to $189.5M, which Chief Financial Officer Mike Rispoli said included costs associated with the $114.8M acquisition of UK real estate adviser Gerald Eve in May 2023. Newmark also opened a flagship location in France in Q1.
Its overall compensation and employee benefit costs were flat at $328.2M, and Newmark expects to complete a $75M cost-savings plan by the end of Q2.
“We are making considerable gains toward a goal of becoming the No. 1 capital markets adviser in the U.S. while also expanding internationally across all service lines,” Gosin said.
Gosin expects the focus on capital markets to have a “halo effect” on its other service lines, which showed mixed Q1 results.
Fees from management services grew 22.7% year-over-year to $182M, while leasing and other commissions were down 17.9% to $158.8M and investment sales revenue slid 1.6% to $70.8M. Newmark’s commercial mortgage origination operations brought in $59.9M, a year-over-year increase of 38.7%.
Gosin and Rispoli said the slide in leasing revenue was expected, but Gosin added that the firm expects leasing fundamentals to improve as “the recapitalization of properties at lower values leads to a more attractive leasing market.”
Industrial and retail leasing made up 41% of Newmark’s leasing revenue in the last 12 months, Gosin said.
Newmark left its guidance for the year unchanged and expects to see improvements in earnings in the second and third quarters, with Gosin highlighting the amount of investment equity still waiting on the sidelines.
“There are so many triggers and levers that create moments of opportunity, but there also is that wall of money on the positive side that is ready and sitting there, looking for the moment when the opportunity is to strike,” Gosin said.
