Newmark, After Profit Jump Fueled By Signature Loan Sale, Expects Bad Debt To Mean Good Business
New York-based Newmark's push to attract top brokers and market share paid dividends in the fourth quarter.
The real estate firm reported a 468% year-over-year increase in net income, attributed in no small part to its handling of more than $50B in loans from the failed Signature Bank on behalf of the Federal Deposit Insurance Corp., which CEO Barry Gosin said was the largest loan sale in U.S. history.
Newmark reported net income of $36.5M in the final quarter of 2023, up from $6.4M the previous year. Its revenues hit $747M, up from $607M in the same period in 2022. Those revenue increases included a 20% jump in leasing and other commissions, a 20% jump in investment sales and a 46% hike in revenues from commercial mortgage originations.
Removing the Signature transaction, Newmark would have tallied a 16% drop in investment sales volume and a 24% drop in debt brokerage volumes in Q4. Instead, those volumes rose 168% and 185%, respectively.
Newmark executives told analysts its performance outside of the Signature deals was in line with historic expectations, but they also touted their recent track record of hiring top talent from rival brokerages and acquiring smaller firms.
"We gain market share without the Signature transactions," Newmark Chief Financial Officer Michael Rispoli said during Thursday’s earnings call.
Newmark’s performance in a down year and its market share gains gave executives an optimistic outlook for 2024. It was the third-most-prolific investment sales firm in the country in 2023, even excluding the $20B equity slice of the Signature sales.
Predicting a return closer to normalcy in the second half of the year, Rispoli said the firm expects to grow total revenues between 3% and 7% in 2024, with revenues reaching over $3B annually once industry activity returns to normal by the middle of 2025. Its full-year 2023 revenue was less than $2.5B, an 8.7% decrease from 2022.
Part of Newmark's optimism comes from a massive onslaught of maturing loans in the coming months. The Mortgage Bankers Association projected that $929B in multifamily and commercial mortgages are set to mature this year, up 28% from 2023, Gosin said.
"We estimate that about one-third are underwater and reasonably likely to be sold, one-third will need assistance with restructuring or recapitalization, and one-third will likely require an adviser to help find new lenders," Gosin said. "As a service provider that does not own real estate, these maturities represent an enormous opportunity for us."
Like many of its peers, such as CBRE and Colliers, Newmark reported strong revenue growth in its management and servicing business in the final quarter of 2023, up nearly 20% to $187.5M compared to Q4 2022. Its mortgage origination business also surged nearly 46% to $106.9M in Q4.
Newmark continues to work through its $75M cost-cutting program announced last year, having already realized $35M with another $25M occurring this year and the remainder expected in 2025, Rispoli said. The firm also refinanced long-term debt in January, issuing $600M of senior notes at a 7.5% interest rate that mature in 2029. Newmark previously said it would use the proceeds to repay a portion or all of its $420M in outstanding debt and pay down its revolving credit line with Cantor Fitzgerald.
