Newmark's CEO On Why The Brokerage Mega-Merger Is Dead For Now

The age of the blockbuster merger of commercial real estate brokerage giants could be at an end for the foreseeable future.

Newmark and Cushman & Wakefield were briefly rumored to be discussing a merger earlier this year, and JLL was whispered around the industry as a potential C&W buyer in 2020.

But Newmark CEO Barry Gosin threw cold water on any smoldering embers of merger talk on his company's recent earnings call when an analyst asked him if he thinks there is a "strong rationale for large-scale M&A" among the large publicly traded brokerage firms.

"No, I don't," Gosin said, according to a Seeking Alpha transcript. “I think the enormity of friction and the conflicts and the coverage and the crowded nature makes it very difficult for large companies to merge. There has to be a perfect synergy and fit. And there's a point of no return or indifference makes it really, really hard to do.”

Newmark is the nation's fourth-largest brokerage and has been making "bolt-on" acquisitions of smaller firms and broker teams across the country and in Europe, rather than chasing a big M&A deal, Gosin said on the call. Industry analysts told Bisnow this week they expected the other large, publicly traded firms, which include CBRE, Colliers and Marcus & Millichap, to follow the same course. 

“I imagine that bolt-ons will be the mainstay of consolidation,” Piper Sandler Managing Director of Equity Research Alexander Goldfarb told Bisnow Tuesday. “It's especially tough when you have two competitive firms and they feel they got the better of the other. That's a tough marriage. That's why the bolt-ons are great. Newmark merging with a smaller regional, I mean, you know who the winner is.” 

JPMorgan Executive Director Anthony Paolone, who covers the real estate services firms as an analyst, said for the major brokerages, there aren't many efficiencies to be found in merging.

“These companies all did a good job in the pandemic of cutting costs and becoming leaner, so there's probably less opportunity on that front,” Paolone said, adding that there would be a lot of overlap between the big firms that any added revenues by joining would be diminished. “One plus one doesn't necessarily mean two in terms of revenue. I think that right out of the gate it makes it hard to do these large tie-togethers.”

Instead, Paolone said he expects the bigger shops to continue to buy smaller, niche firms to make up for areas where they perceive they have a weakness, such as last year when CBRE purchased a majority interest in program and project management firm Turner & Townsend. Earlier this year, Colliers agreed to acquire a majority interest in Denver-based Versus Capital, an alternative real estate management firm, its second such acquisition in that industry vertical this year.

The global CRE brokerage and management industry is projected to reach $420B in revenues by 2030, which represents a 7.2% compound annual growth rate since 2021, according to a study by Allied Market Research.

The market has consolidated in the past decade, a result of previous mega-mergers like JLL's $2B acquisition of HFF in 2019, and DTZ's $2B merger with C&W in 2015. In 2012, Newmark's parent, BGC Partners, merged the brokerage firm with Grubb & Ellis Co. 

But large mergers can be messy. When JLL acquired HFF, a capital markets specialist, the competition over territory and business led to some turbulence and high-profile departures, The Real Deal reported a few months after the merger was finalized. 

“If you just break it down CBRE, JLL, Cushman, then drop off to Newmark, Colliers, Savills. I think we’re getting to a point at least in that population that value is ruined when firms are consolidated,” Cresa President Greg Schementi said. “If CB and JLL get together in a city, they’re going to lose brokers. A lot of broken glass. If you merge two firms with 100 brokers each in a market, it’s not 200 happy brokers.”

James Pitts, the founder of Greenwood Commercial Real Estate Group, an Atlanta-based commercial brokerage he launched last year, said he never understood why a Newmark-Cushman & Wakefield merger would make sense.

“I can't see why anybody would take on and duplicate if you have a very similar footprint. The legacy technology, the overhead, the debt,” Pitts said. "If you can't just buy the relationships, it doesn't make much sense."

Pitts, who worked for JLL and Grubb & Ellis in the early 2000s and spent 15 years at Kellogg Partners, said he expect the bigger shops to focus on recruiting top talent in various markets instead of pursuing a merger that would just lead to an even bigger company.

“The bigger you get, the attention to clients doesn't always remain the same. You start to trade quantity for quality,” he said. “When you get to that scale, it's kind of like why would Google buy Facebook? But Facebook and Google are going to buy a bunch of small companies that fix weaknesses they have.”