The Real Deal New York

Newmark receives junk grade from S&P

In first standalone rating since IPO, rating agency cites lack of international footprint as a risk
By Rich Bockmann | October 25, 2018 02:00PM

From left: Barry Gosin, Newmark Group offices at 125 Park Avenue, and Mike Rispoli (Credit: Google Maps and LinkedIn)

Newmark Group received its first standalone credit ratings since its initial public offering in December, and the results were disappointing.

S&P Global Ratings gave Newmark Group a grade of BB+, which is a rating of a speculative, non-investment-grade company.

By comparison both CBRE and JLL have investment-grade ratings of BBB+ from S&P. Fitch Ratings gave the company a rating of BBB-, which is just one step above a junk-grade rating.

The S&P rating, in particular, is a black eye for Newmark executives, who view the company as an investment-grade firm.

“Newmark’s credit metrics … compare favorably to our full-service real estate peers,” Newmark Chief Financial Officer Mike Rispoli said on the company’s third-quarter earnings call Thursday morning.

“You see the credit ratings and you can read the reports and see why and how they view the company,” he said. “We obviously view the company as an investment-grade company.”

Rispoli said Newmark will strive to get the S&P rating up to BBB- over time. Receiving its own standalone credit ratings was a key step Newmark needed to complete in order to forward a spinoff from parent company BGC Partners that’s been delayed several months. The company expects to complete the spinoff before the end of this year.

Newmark’s stock price rose about 10 percent by midmorning from its opening price of $9.85 as the company announced third-quarter revenues of $518.8 million. Year to date, revenues stood at $1.4 billion, or nearly 25 percent above last year.

But the stock price is down nearly 30 percent from its initial public offering price of $14 per share in December.

Fitch noted the poor-performing stock price in its report. Newmark requires brokers to receive a portion of their commission in company stock, and the declining value could make it harder for the firm to acquire and retain top talent.

Fitch noted Newmark’s market position, its favorable leverage levels and track record acquiring smaller companies as positives. But it said the firm’s relatively smaller scale and lack of global operations were a limit to the rating.

“Newmark has limited scale relative to larger CRE services providers, several of which operate globally,” the report read. “Newmark’s smaller scale reduces its diversification to localized CRE cycles, which can be severe.”

Fitch pointed out that the three largest commercial real estate firms get 47 percent of their revenue on average from regions outside the Americas, where as Newmark gets less than 1 percent.

Barry Gosin, Newmark’s CEO, said on the earnings call that while the company has plenty of room to expand in Europe, the Middle East and Asia, he couldn’t really say Newmark has plans to grow internationally next year.

“We have plenty of white space in the U.S.,” he said.

BGC Partners, which retains majority ownership of Newmark following last year’s IPO, announced Thursday that its CFO, Steven McMurray, plans to retire at the end of the year.

Chief Operating Officer and executive vice president Sean Windeatt has been appointed interim CFO.