Newmark Expands Cost Cutting Despite Turning Profit, Gaining Market Share
Newmark revised its earnings downward and announced an additional $25M in impending cuts, but it struck an optimistic note on its third-quarter earnings call, saying it is gobbling up market share and faring better than other major brokerages.
“We’ve sort of bottomed out, from an earnings perspective,” Chief Financial Officer Mike Rispoli said Wednesday on Newmark’s Q3 earnings call.
Newmark reported $616M in total revenues in Q3, down from last year's Q3 figure by 7.3%, though it said that should turn around in Q4. Rispoli said the company expects to clock up to $742M in revenues in the last quarter of 2023, which would surpass the same period last year by 22%.
The company completed its $50M fixed cost reduction initiative a quarter early and is adding another $25M in cuts, which it expects to complete by the second quarter of 2024, Rispoli said.
The brokerage revised its earnings projection downward for the year, saying it expects 2023 adjusted earnings before interest, taxes, depreciation and amortization to be between $375M and $400M, a decrease of up to $50M from last quarter's forecast.
CEO Barry Gosin said on the call that while leasing activity is down 7.6% for the firm, it is ahead of competitors, as U.S. leasing activity is down 15% to 20% overall.
Capital markets saw a similar trend. Newmark’s investment sales revenue dropped 28.1% and commercial mortgage origination revenue dipped 28.8%, which Rispoli said compared to a more than 50% decline in overall market activity.
Gosin said the firm gained “meaningful market share” against other brokerages in multiple service lines last quarter, including capital markets, leasing and management.
The company estimates $1.2T of outstanding commercial and multifamily mortgages in the U.S. are potentially troubled due to higher interest rates, cap rates and tepid lending, which Gosin said it views as an opportunity.
“Recapitalizations and restructuring volumes are expected to become an ever bigger part of our business,” Gosin said.
Gosin pointed to a number of major deals the firm was involved in last quarter as examples of where it intends to increase market share, from Public Storage's $2.2B purchase of Simply Self Storage to Park La Brea's $900M debt placement on a Los Angeles multifamily project and the sale of State Farm’s 2.2M SF DFW-area campus, which Newmark said is the largest U.S. office sale this year.
CBRE's Q3 earnings call was grimmer, with the brokerage reporting a 49.3% drop in cash flow from last year and a net income decline of 38% year-over-year to $226M. The company plans to continue with $150M in cost-cutting measures.
Cushman & Wakefield is doing the same and is considering selling pieces of the company, according to its Q3 earnings call. It reported a net loss of $33.9M, down from last year's gain of $23.9M. The Q3 total brought the real estate services firm's losses to $105.2M for its first three quarters, whereas last year's performance was a $166.6M gain.
