Newmark Knight Frank’s merger with BGC Partners, a spin-off of the brokerage and financial firm Cantor Fitzgerald, is expected to propel the company’s ambitions to become one of the dominant real estate services firms in the city and beyond.
“It’s a good opportunity for us to grow the business,” said Jeffrey Gural, chairman of Newmark in a conversation on Monday with Real Estate Weekly. “[In] management and leasing today, it’s important to have a big, global platform. In order to grow you need access to capital, that’s what being part of a public company provides, that pipeline [of money].”
Though smaller than rivals like Jones Lang LaSalle, CB Richard Ellis and Cushman & Wakefield, Newmark is considered one of the major real estate services companies in the city. With a roster of talented brokers and executives, the firm has developed a reputation for being scrappy amid a tough field of competitors and has won its share of deals, including a number of marquee assignments.
But insiders say that the company’s efforts to build and improve the firm’s national presence had lagged, even though Barry Gosin, Newmark’s chief executive, had made expansion a priority.
“You either take on debt or reach into [your] pocket,” said one Newmark insider. “All the expansion of Newmark was fuelled out of income, which is terrific, but it’s slow.”
Slow growth wasn’t just hindering Newmark in other markets. In New York City where there is an abundance of major corporate tenants with businesses that sprawl across the globe, the chance to do deals can often become predicated on a real estate brokerage firm’s ability to provide services elsewhere as well, the kind of one-stop shopping that JLL, CBRE, and C&W have perfected.
“When you want build around the country it takes a lot of capital,” said another Newmark executive. “We’re very mature in New York but if you look across the country, there is so much room to get to a different level.”
In the wake of a recessionary credit crunch and an economy-wide rollback to more conservative lending levels, access to the public markets has increasingly appeared like a necessary component to capturing a dominant share of various real estate businesses. Since the downturn, the market for acquiring large skyscrapers in Manhattan for instance has been largely won by public real estate investment trusts like SL Green, Vornado, and Boston Properties. JLL and CBRE, the biggest real estate services companies in the world, are both public.
Once a subsidiary of Cantor, which is a private company, BGC split off and went public in 2004. The firm, which is a major player in the business of executing stock and bond trades for investment companies, appears able to provide Newmark with the well of capital it has needed to transform itself into a dominant player.
Eager to utilize BGC’s financial resources, sources say that Gosin began private talks personally with Howard Lutnick, the chairman and CEO of Cantor who remained BGC’s chief executive as well after it broke off on its own. Gosin and Lutnick knew each other according to sources because both are board members for the Partnership for New York City, an influential pro business group. Top executives at Newmark such as Jeffrey Gural and Jimmy Kuhn, the company’s president, eventually became involved in the talks, but many executives and brokers at Newmark said they had heard only vague rumors leading up to the deal and others had heard nothing at all, a level of secrecy unusual in an industry that eagerly trades in rumors. When the acquisition was announced late last week it took many real estate experts by surprise.
Besides Gural, executives at Newmark refused to comment on the merger and a spokeswoman for BGC, Sandra Lee, did not return several calls seeking comment. BGC put out a single press release last Thursday announcing the acquisition without revealing how much it is paying to acquire Newmark. No executives briefed on the financial structure of the deal would comment even off the record on the details of the transaction or put a value on the merger.
The release depicted the deal as more than just a cash infusion to help Newmark bulk up. Cantor and BGC both have a reputation for developing and implementing software and technology that has boosted their profitability. In a statement, Lutnick indicated that BGC’s innovations in these areas would be used to enhance Newmark’s operations as well.
“Hiring and acquiring key experienced brokers, continuously investing in our proprietary technology, and expanding into new markets are the drivers for BGC’s growth, and we will apply those drivers to create new capabilities and opportunities in commercial real estate brokerage,” Lutnick said in the prepared statement. “By applying our world-class technology platform and management skills, we will provide superior support to Newmark’s brokers, further building Newmark’s business as we’ve done consistently with BGC.”
An insider at Cantor said that the firm has comprehensive software platforms that allow employees to track what their colleagues are working on, creating a level of transparency and organization that facilities collaboration and teamwork and has led to better performance the person said. The person imagined that such a system could be very useful in commercial real estate brokerage as well, an industry that many real estate executives say is generally hampered most by an unwillingness, even among colleagues, to share information and work in teams.
The person said that Cantor had developed even more sophisticated systems in recent months, including gambling devices for casinos in Las Vegas such as the Hard Rock and the Venetian that allow patrons to bet on individual plays in a sports match or similar event in real time.
“You could be watching a football game in the casino and with this device place a bet whether the team is going to make a first down on the next play right then and there,” the source said. “In basketball you can bet whether the guy is going make a jump shot or not. It’s unbelievable.”
The person said that Lutnick saw all brokerage businesses as fundamentally similar and BGC’s foray into real estate brokerage as a natural extension of its established skill set managing such operations.
Others in the real estate industry questioned whether BGC and Newmark were such a logical fit and if technology could have much more of an impact on the brokerage business than it already has. Many real estate executives look at real estate leasing as a business that, at its core, hasn’t changed in decades.
“When you have people who enter the market that think outside the box, I think it’s different and exciting and it will be interesting to see how the two platforms mesh,” said Bob Knakal, chairman of the real estate sales brokerage Massey Knakal Realty Services. “One thing I will say, in the tech boom there were 18 or 19 brokerage platforms that were completely web based that sprung up and many people began to fear that real estate brokers would be eliminated by the new technology. It clearly didn’t come to pass. Real estate is not a commodity and that’s even more so with investment properties. The uniqueness can’t be reflected with an empirical formula online. That’s not to say that Cantor or BGC can’t supply innovations in the field.”
Another element of uncertainty is whether BGC’s relationship with Wall Street will translate into connections that Newmark can now parlay into real estate clients, a possibility that both Lutnick and Gosin appear to be banking on.
“Both BGC and Newmark count the world’s leading banks and investment banks as clients, and we see exciting opportunities for cross-marketing, given the outstanding suite of transactional and consultative services Newmark offers the corporate and institutional market,” Lutnick said in the statement.
“We expect that BGC’s deep and long-standing relationships with the world’s leading financial institutions can only enhance Newmark’s reach in the marketplace,” Gosin stated.
Other real estate executives were not so sure.
“At a large financial institution, the people who are buying real estate services are typically totally separate from the people trading securities and making the decision which services to use in that area of the business,” an executive said. “Real estate decisions for these firms are such a big bet they want to have best in class service.”
Newmark doesn’t appear to need much help winning business in the city.
Barry Gosin, for instance, handles deals with large financial tenants including Morgan Stanley, who he is currently repping in a search for as much one million s/f of space in what is one of the city’s biggest active leasing assignments.
Newmark has a roster of brokerage stars beyond Gosin, including David Falk, Newmark’s New York area president who runs a number of prominent agency assignments such as 1251 Avenue of the Americas at the firm and is representing large tenants in the market such as the French media giant Havas and the apparel company Liz Claiborne. Last week Jimmy Kuhn helped broker the $160 million sale of an office condominium in the Times Square building 229 West 43rd Street to the Blackstone Group. Other top deal makers at the firm include Mark Weiss, Moshe Sukenik, and Neil Goldmacher.
Adding to the firm’s credentials, Newmark was the clear victor at the Real Estate Board of New York’s recent Ingenious Deal of the Year Awards held in early April, winning both first and second place, a prestigious and influential recognition in the industry. David Noonan, an executive at Newmark who specializes in investment sales deals, took top honors with colleague Jennifer Schwartzman for handling the complex sale of 31 West 15th Street and Mark Weiss, in partnership with Gosin, took second place for bringing the union Local SEIU-32BJ to 620 Avenue of the Americas in an over 200,000 s/f deal.
“We’re going to continue to continue to operate as we have,” one Newmark executive said indicating that top leadership at Newmark has made it clear to the company that BGC will not affect the firm’s culture or congenial atmosphere. “Literally if we have one commission dispute between brokers here a year, that’s a lot and no one expects that to change.”
With savvy leadership, top talent, and now, a powerful parent, Newmark appears poised to gain market share. Whether or not that upsets the hierarchy of firms in the city, brokers at other firms in the city saw the merger largely as positive news for an industry that took its bruises during the economic downturn when deal making was slow.
“I think it says a lot about the value of commercial real estate brokerage in general that a firm outside the industry would do a deal like this,” said Arthur Mirante, a former chief executive at Cushman & Wakefield, who is now a top broker at that company. “And I think that’s a message that’s good for everyone.”
Bruce Mosler, who stepped down as C&W’s chief executive last year and has also returned to brokerage as one of the company’s top dealmakers, was also positive about the Newmark acquisition and welcomed the firm’s ascendance in so far as it would stoke the flames of competition and push other firms to improve.
“I’ve known Howard Lutnick for a long time, we sit on a board together and I know that he is focused on brokers, knows how to manage them, and has the power to bring Newmark to the next level,” Mosler said. “He has a huge investment in technology that will raise not only Newmark’s game but the whole industry.”