Welcome to the 9:35 A.M. session of Citi's 2025 Global Property CEO Conference. I'm Michael Griffin with Citi Research, and we're pleased to have with us Newmark and CEO Barry Gosin. This session is for Citi clients only, and disclosures have been made available at the Corporate Access Desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC25 to submit questions. Barry, I'll turn it over to you to introduce Newmark and the team, provide any opening remarks, tell the audience the top reasons an investor should buy your stock today, and then we'll get into Q&A.
Is my mic? Oh, my mic's on?
Yep.
Great. Good morning, everyone. Happy to be here and happy to talk to you. So let me give you a little bit of a background on Newmark. I've been with Newmark since 1978. Newmark was a real estate brokerage company, a management company, and part ownership. And that brought us to 2000, in 2009, 2010, after the financial crisis, we came to the thinking that it was really time to do something different. And we looked at finding a strategic partner, provide us with the capital to grow. We grew to be the number one broker in New York. We think we had a model that was unique and that could be translated into every market. We decided that we didn't want to sell to a private equity firm because we thought that would be short-lived.
We wanted to find a partner who would be interested in building an enterprise for the long term. So, since that time, since 2011, we've grown 21% a year on average till the present day. We were a $230 million business. We're now a revenue business of $2.7+ billion . In 2021, we were $3.2 billion when the market had a brief repose from the COVID period. We expect, we fully expect to get back to that, so we, we went from a small company to presently a $3.7 billion market cap. We, we've, we've grown our earnings just as well. Last year, we grew, we grew our earnings by 17% on revenue growth of 10%. First quarter, we grew our earnings by 20% with revenue growth of 17%. We've, we've been able to increase our margin continuously.
We've increased our margin. Our margin is presently around 21% on an adjusted EBITDA basis, 21% in this quarter, and it was 16.9% prior to that. So what we've done, unique to us, is we've adopted a really simple strategy. We are the only really hybrid company. We're on the ground and in the air. So from a capital markets point of view, we cover every vertical and every market. And in the air, we have investment banking capability. We do continuation vehicles. Public to private. In the last year, we've advised Blackstone on the public to private of ROIC, who's a $4 billion transaction. We just sold a $5 billion senior housing business in Ontario. We were picked to sell the Signature loan portfolio last year, $39+ billion . We also did the Stargate transaction, which was announced by the Trump administration.
We did $3.4 billion in structured equity, bringing Blue Owl to Stargate with OpenAI, and then we did a $2.3 billion financing. Last year, we did $17 billion, we did $18 billion in data center transactions. CB, who's 10 x our size, did around $9 billion. So what we've created over this 12-year period is a best-in-class capital markets business and a growing best-in-class tenant rep business and a growing services business, which not only includes your typical property management. We have an asset servicing business. We do loan sizing for almost every bank in New York. We do asset services, so we do staffing. We have people sitting in JPMorgan Chase and in Morgan Stanley and MSD and many of the banks, as Newmark employees, which are outsourced to us. We also do property accounting.
These are businesses that are highly scalable, and there's an enormous amount of white space. And that's an opportunity for us. So through COVID, we've continued to grow our business and grow our market share. And when we hire someone, what we look at is not necessarily how much business they do, but what market share they have. Because at the end of the day, when the market normalizes, we know if someone has an 80% market share in a tough market, they're going to have an 80% market share in a good market. So for those of you who really look at investing in real estate today, Newmark is the gold standard. We've been in the process of building this. We're putting all the players on the field. We're missing a few, maybe a third baseman, maybe someone else in the field.
But in the next six months to 18 months, we will have the entire field. We will field an entire team. And then we focus on building our market share. We now have 9% of the market in the U.S. in capital markets. We built—we grew 300% in the debt market in the last year. So we continue to improve our chances, bring more people. Just last night, we hired the number one multifamily team on the West Coast from Eastdil. We hired the number one senior medical office building investment sales people to Newmark. There'll probably be an article in the Real Estate Alert talking about what we've accomplished. And we're incredibly excited about the prospects and looking forward to the next couple of years.
Thank you, Barry, for that overview. As you said, it seems like the business is running on all cylinders and heading for a really strong 2025, so can you give us a sense of what some of your key strategic priorities are for this year ahead across the transactional as well as the recurring business segments?
We continue to fill in the white space. Every day we take a step up. People want to be at Newmark. If you're at some of our competitors, it's really crowded. You're anonymous. You're fighting the guys to the left and the guys to the right. We have a view we're high revenue per capita. We're the highest revenue per employee in our business. We'll continue along that path. In terms of scale, our management services, we think we could scale that while we're keeping the lanes not crowded. So, in terms of what strategically we're looking at, we think next year we'll be the number one multifamily investment sales company in the U.S. We were number two-number three last year. Digital infrastructure, we've been way ahead of the game. As I said, we did the Stargate deal.
We raised $1 billion for the Koch brothers and their edge program with Microsoft. We have an amazing pipeline of digital infrastructure, which not only includes data centers, but it looks at power. It looks at chip manufacturing, semiconductors, and other advanced manufacturing. So that's a real opportunity for us, and you know, waiting for the market to come back.
As you said, you've had a number of high-profile hires over the past, you know, year plus or so. Is there a compensation structure difference or a competitive edge that Newmark has in order to gain that human capital compared to your competitors?
Our biggest competitive edge now is if you're great, you want to be at Newmark and other great people there, and when you look around you and say, "Who do I want to work with?" At the moment, we're not crowded, so our competitive edge, we have a unique structure. We have an Up-C structure connected to a public company. There's a partnership. All of our brokers are obligated to take 10% of their pay in stock. And that stock is incredibly sticky. Over time, it will reduce our compensation. By the second or third term of their renewal, they're probably unlikely that we pay them any money to stay. If you are a brokerage company and you stand naked at the end of their contracts, unfortunately, the world is a little bit, I guess, greedy.
It's, you know, they feel like they're athletes and they should be paid just like any athlete of any sport. But we have a significant amount of forfeitable stock. If they go to a competitor, they lose their stock. That's what they know coming in. So this is. I'm in my second and third generation of these contracts, and I've watched the comp go down for these brokers. And that is a unique structure. Now many of our brokers will come and they'll take stock, and we hold it for basically the entire term because they want to be working at Newmark. And that's nobody else does that. And it's and if you really look back at our, we had an equity event several years ago where we were as part of this spin-out, we were given eSpeed, which was part of BGC. And we had an accelerated equity event.
There was a $1.1 billion gain. As a result of having deferred tax assets in the form of stock, we accelerated their tax payments and were able to use that tax payment to eliminate any tax on the gain. So when you think about our stock, in the normal course, people look at it as normal comp. You get paid over three years, and it comes and goes, and it gets deducted from earnings. But the way we do it, it's really a deferred tax asset. So we were able to use that stock to pay off the broker's comp because it's compensatory. Their tax is compensatory. And then we avoided. We didn't have to pay a $400 million, potentially $400 million tax for that gain.
Maybe shifting to kind of the capital markets recovery and what you're seeing, what is your expectation for a recovery in this business line in 2025? And how could a higher rate environment, you know, impact this recovery?
If you notice, there's been a pick up of treasuries, which is interesting. There are a lot of different views on what that is. So we now see a lot more activity as a result of the treasury going down. In terms of BOVs, which is Broker Opinion of Value, we're probably running at about two to three times the amount. Now, that is. There isn't a direct correlation to sales, but if you do more analysis and people want more valuations, that always leads to an uptick in sales. So we're seeing a lot more activity and a lot more people coming into the industry, and they're tired of this four-year period of not doing anything, sitting on their legacy books. They're ready to take their capitulation and move on and build new funds.
What's also interesting in the market is in, say, 658 deals that we did in sales last year, 512 of those were unique buyers, which means that it's a lot of individual buyers that are not repeat customers buying, which bodes well for us because we have the strongest on-the-ground game, and it's hard for some of our competitors who may have only a small amount of brokers that do large deals to serve the client.
Are you noticing any particular property types or geographies that are doing better than others, either outperforming and some on the underperforming side?
We're seeing Silicon Valley stocks that really come alive, whether it's, it's AI, but we're seeing a lot more sales in Silicon Valley. That market is, I wouldn't say on fire since, you know, everything is still choppy. But, we're seeing a ton of activity in New York. People want to invest in New York. New York is, I think is in a good, good place and is starting to explode. I mean, at different valuations, but whether it's selling loans or selling even office buildings, selling multi, that's going really well. Digital infrastructure is a, is a very active business. Industrial is still very solid and growing. Multifamily has always been good, except for a handful of markets that might have overbuilt, but it's really been a function of interest rates. I mean, you're seeing a lot of new, whole new shift to new players in the debt market.
The debt funds, captive insurance companies that are playing a big role in financing. Fortunately, the CMBS market came back about a year and a half ago, and that opened up the market to finance, and if you're not financing, you can't really trade.
Are you seeing financings now even for, you know, sectors that have had their challenges like office?
Yeah, it's really a function of coverage, property type, weighted average lease term. Depends. I mean, if you look at the high-quality market, vacancy rates are very low. Rentals are as high as they've ever been. I mean, just looking at New York alone, the vacancy rate at the top of the market is 5-6%. The entire vacancy is around 17%, down from 22%. There's probably about 12 to 16 million sq ft of offices that are going to be converted to apartments, which is an incredibly low vacancy rate in many of these markets with high rent, for apartments. So the market will probably absorb another 19 million over the next two, three years without any building. There's not a lot of building in the country.
In terms of, you know, where we are currently in the commercial real estate cycle, you know, if we were to peg it in a, you know, baseball game, what inning are we in and how can Newmark best capitalize on today's current cycle?
I would say we're in the, it's, you know, it's really hard to say. I'm hoping we're only in the third inning because we're doing great and it's the third inning. But we're probably in the fourth or fifth inning of this game. I think once it normalizes, we stand to benefit more than anyone because of the nature of our capital markets business being down 45%. I think we did one point, we did $1.1 billion in 2021 with so many people that we've hired since then. So I imagine that our incremental margin will increase enormously as a result of a normalization of the capital markets. We're banking on that. But it's the same in almost every category of business. We've been incredibly creative as to the areas that we've focused on. I mean, we won't really be the largest facility management company on the planet.
The good news for us, we dodged a bullet by not investing too heavily in that space because that space, the margins are thinning out. The competition is intensifying. Companies now no longer attach transactions and high, high margin business with facility management the way they used to. When brokers were able to achieve enormous savings in operations, they don't - that savings are no longer there. So what we would prefer to do is do asset services, staffing, property accounting, which is a better margin business. We now have 1,000 people in India. We launched in Europe 30 months ago. We now have 1,000 people in Europe. We launched in U.K., France, and Germany. We're off to an incredible start, and it's an indication of how much interest in us is that what our strategy, that our strategy is working. People want to work for us.
Maybe switching over to the topic of leasing now, we've clearly seen sentiment improve there, whether it's improving business confidence or tenants more confident in their real estate needs. You maybe can give us a sense of what your outlook is, you know, for 2025 across property sectors. That'd be helpful.
Leasing has been relatively solid. It's if not up, up somewhat. We're out of the period of COVID. We're past the trough of leasing. People are coming back to work. The metrics are starting to show that productivity—there is productivity loss with working from home. And most of it has been anecdotal, but there's more and more evidence that it does affect productivity. And in particular, in certain kinds of industries, in AI, teams have to work together. Their coders work together. If you work from home all the time, they're—you know, who do you work for? Where's the culture and the company, which cannot create any sticky environment or any purpose for people working? People are starting to feel like that, feel that. Also the further we get away from COVID, more of the young kids want to come to work.
They want to be in the office. We're also seeing that. We've been in the office since June of 2020. I mean, our people are in. We're certainly at levels, if not more, than we were in 2019. So we're feeling good about that, and along with as we grow jobs in certain industries and financial services industries in New York has been great. People are expanding. Law firms are expanding. The issue right now is tech firms have not been coming to work, but that is changing, so I'm fairly optimistic about office. I think the market is not overbuilt. It's under-demolished, and some of these buildings have to be converted to something else or taken down, and new stuff has to replace it. I mean, in many markets there, it takes three, four years to build.
There is going to be a lag. If we have a burst in the economy and job growth, you know, the vacancy rate will decline. Equilibrium in most markets is 7-9%. Right now in New York, it's 17%. But if you look at the, you know, the strata of buildings, you'll find that A and even B plus buildings have very low vacancy.
And getting back to kind of what you were talking about, those, you know, recurring revenue business lines, you know, how do you look toward the balance of investing in those platforms versus kind of your more bread and butter, the transactional business lines?
I think there has to be a mix of both because right now we have 9% of the market share in capital markets. We have 1% of the property management business. You know, think of all the goodwill that we create by selling things to institutions. And we have a pretty good property management business. It's just a matter of time before we reduce that gap. Managed services like property accounting, we're one of the few people that are doing that. We, as I said, we have a thousand people in India that support that. We think we could grow that business tremendously. That's an arbitrage of labor and the rupee and other markets. So that has grown very quickly. Managed services where we provide staff sitting side by side with the real estate departments inside of banks and inside of funds, is another opportunity for us.
It's a pretty good margin business. And we train and provide analysts for those investment institutions. And that's a really good business. And we're building traction on that. And we think that could be a really big business in managed services. So we like those businesses for two reasons. We like them because there's a pretty good margin. We like them because we're not competing with our clients. We like them because it puts us side by side with the institutions that we want to do business with. And it doesn't, you know. One of our brokers, actually a broker we hired in Germany, said he was at a pitch for a $1.5 billion sale. And he was with the investors. And they were in a room in the office building. I think this was in Munich.
While he's in the pitch, someone with a jumpsuit came by with a name with letters on their back carrying a mop. He was put off on the fact that he was thinking, what's the connection between facility management and capital markets. It really isn't. The original rationale for facility management was to be inside the big corporations, give them an opportunity to save money. You would do that on the request that you would get their transaction business. That's how it started. When it started, you could go into any company and they were inefficient in their real estate and you could find a way to save them $10 , $20 , $30 , $40 , $50 million in their operating budget.
And what real estate person is not going to hire you if he could tell his boss, "I'm going to save $30 million this year in operating real estate." Now, first generation, second generation, third generation, that savings really is not there. Companies have become much more efficient. So the need for us to be able to provide that service to create that kind of operational savings is no longer there. So we would rather be thought of in the more bespoke, more unique, more creative, more value-added space with higher margin and higher level employees and build and elevate our brand so that people think of us as an institutional player in the capital markets and leasing and other businesses. So the kind of services that we provide will be much more bespoke, much more valuable to our clients. We think that's where we'll be sticky to them.
Maybe just shifting over to, you know, capital allocation and M&A. Can you talk about your capital allocation priorities and how you balance acquisitions versus reinvesting in the business or returning capital to shareholders?
So we spend between 40-60%. Is that correct?
50-60.
50%-60% on M&A and acquiring people. We spend 30%-40% on stock buybacks mostly and giving money back to the shareholders. The other 10% is probably CapEx and renewals. That's where our money goes. We have bought in the past over 55 companies, generally bolt-ons. Our view is that doing a major acquisition would be enormously disruptive and not necessarily as profitable. I've watched these big acquisitions that create scale, but so much friction that the detriments far outweigh the benefits after people leave and escape and are unhappy with different clashing cultures. For us, we look for a white space. We look for a category. We look for a market. We look for a vertical. We do more bolt-ons.
You know, we hired a team last night of 15-20 people that we believe is a $30-$50 million team. We think that's way more valuable for us. That creates virtually no friction. We're getting the plum without the pits. Sometimes you buy a large company, you get a lot of people that get most of the money who are unproductive and don't drive the business. The way we buy companies is very rigid. We're very strict about how we do it. Some of our competitors are looking for a quarterly accretive nature of a purchase. So what happens is, you know, you, most of the money goes to the person who sells a business. You lose the sellers three years later.
We will not buy a company that doesn't have a non-compete post term, a long term, and a non-reconstitute after that. So it's highly unlikely that the principals of this company are going to be opening, taking out a shingle across the street with their business, whatever it was called as 2.0.
It seems to that end, it's more the investment in human capital than necessarily buying a portfolio company or the, you know, smaller brokerages that might be market sharpshooter specific that you would look to acquire.
We've done, you know, the large, I mean, we've done several large transactions. We bought Gerald Eve, was a $100 million-plus transaction, which has turned out to be incredibly good for us. It has a little bit of girth. So we entered the U.K. market. We needed, you know, we needed to have a bunch of services with that. But we, we are driven by, you know, we bought the number one office investment sales team. We were number one logistics team. We bought a, we took over the investment bankers who left RBC to come work for us. So, so we are, everything we do is based on human capital. If you buy a $20-30 million company and those companies think they are a company, they are not. Basically, they are 10 people or less that drive 80% of the revenue.
They think they're like a public company and they're going to sell the company. The reality is, you're not buying a company. What you are is buying their talent. You have to make sure we'll never buy a company unless we have 70-80% of their brokers signed up on long-term contracts. Because we recognize that if you buy the company, you have to make sure you have the people. We are a talent business. Yes, human capital is what drives us. Even when we buy a business, we look at that unless it's a really large business. There are certain cases where we will consider a larger business.
Your previous chairman, Howard Lutnick, recently stepped down. You know, can you give us a little background on this and how it might impact Newmark going forward?
I mean, what Howard set up, the structure of the Up-C and the stock, and it was incredibly, you know, innovative. I would say then in the beginning, Howard was uniquely part of the creation of our structure. But the company is, you know, self-sustaining. We've hired; our management team has hired every broker. We curate the direction. We create the strategy. There's really very little involvement with Howard on most day-to-day things. He would weigh in on larger transactions. But he's a big personality and incredibly bright, well-known person. And having him in the White House, I think, is a benefit to the White House because he's incredibly smart and incredibly hardworking.
What is the biggest misconception you think the market has about Newmark? And are there any items that investors push back on?
I mean, it depends on where and how. I mean, we bought Grubb & Ellis out of bankruptcy and they had a bunch of offices that weren't so great. So sometimes when you build from scratch, you create your own brand. When you have a brand and people in the market look down, they say, well, I was, I grew up in an Ellis office, so I had to build over that, change that. And most of the markets, we've been able to do that. Newmark was a B building owner of property in New York many, many years ago. And we're brokers. We, you know, we've had so much. So there is always a certain amount of patina that's left, but that's all gone. I mean, today I would say, I'm most proud that we've eliminated any of that patina.
We've elevated our brand to be the gold standard. Certainly in capital markets. We were number one, last year in tenant rep in New York and in a bunch of the different gateway cities. We are the same. It's our end. We anticipate being in the top two or three in every market in virtually every category, other than, I would say, facility management.
Now we're running up on time here, so I've just got a couple rapid fire to end the session. What is your expectation for same store EBITDA growth for the commercial real estate sector overall, so not Newmark specifically, in 2026?
I think the market's going to come back, whereas I told people we're playing for 2026, which is, which has been our big advantage. We've been leaning down the mountain over the last four years, hiring great people. We think that it was the right strategy for us. I think all in all, it will be very good in 2026. We've guided for 40% growth by 2026. I mean, next year between 495 and 540 and the year after 630. I mean, we publicly have stated what we think of where the market is going. I can't comment on the inside of every one of our competitors, but I would suspect that a lot of them will do much better and it should be good for all of us.
Will there be more, fewer, or the same number of publicly traded commercial real estate services firms a year from now?
I think there is, there certainly is a consolidation in our business. There's always people cropping up with investors who, you know, the road will pave the new road to somewhere, but you know, the market right now is half a dozen players in the market. I mean, we're fourth in the U.S. We're fifth in the world. We continue to get better. There's a big gap between us and CB. They're just massive great company. You know, I think they've done an amazing job building that company, but it's a different company. It's a very different company than, you know, they'll go out and spend $1 billion on an engineering firm. That's not our strategy. When at some point your strategy becomes more, our strategy is more with less.
Great. Thank you so much.