Newmark’s Class A play

While the firm may have a reputation as a smaller player globally, it’s beating out NYC rivals and trying to expand its footprint

Newmark CEo Barry Gosin acknowledged that his firm is smaller globally than some of its competitors, but said "we don't have any problem competing."
Newmark CEo Barry Gosin acknowledged that his firm is smaller globally than some of its competitors, but said "we don't have any problem competing."

From his office window in Midtown, Barry Gosin, CEO of commercial brokerage Newmark Knight Frank, can see the figure of Mercury — the god of commerce, travel and inventiveness — perched atop the entrance to Grand Central Terminal.

While Gosin, 60, may not spend much time pondering Roman deities, the statue can in many ways be viewed as a poignant mascot for his firm, as it tries to establish a stronger global footprint.

The company is one of the largest privately held real estate firms worldwide, and massively expanded its international trading in the first half of the last decade.

And although it is dwarfed by some of the competition in terms of size, Gosin said it has a leg up because it’s more innovative.

“We are earlier in our development [as a global company]. We were a local New York firm until the late ’90s. We started later, but we are picking up incredible momentum,” he said during an interview in his office last month.

Indeed, Newmark Knight Frank, which was born of brokers who dominated the loft and secondary office buildings of Midtown’s West Side, is now a major international player. Through its partnership with Knight Frank, a London-based global residential and commercial firm, it has more than 200 offices worldwide, with more than 6,300 employees.

Its combined revenues in 2009 were an estimated $811 million.

In Manhattan, the company has shown resilience as the market has rebounded in the last year, beating out rivals like CB Richard Ellis, Cushman & Wakefield and Jones Lang LaSalle for some of the city’s highest-profile leasing agencies. Last year, it took over the agency for the Empire State Building from CBRE, which resigned from the job. And just last month it snagged the agency for One Chase Manhattan Plaza, one of the largest office buildings in Downtown, at 2.3 million square feet — a plum assignment that many firms vied for. It’s also earned something of a reputation as a go-to tenant-side agent for law firms, brokering last year’s biggest lease, a 550,000-square-foot renewal signed by client Paul, Weiss, Rifkind, Wharton & Garrison at 1285 Sixth Avenue in Midtown.

“They’ve just risen their game to a level where they are going to be a challenge to compete with. Heretofore, it’s been sort of CB and C & W and, you know, JLL has been coming on in the last five years. And I think Newmark is right up there,” said one top industry executive, who asked not to be identified because he was discussing competing firms.

The company’s successes are not limited to Manhattan. Last year, it won the mega-assignment to lease the West Coast sales offices for investment bank Morgan Stanley. On the global services front, it took over a package of clients earlier this year that includes communication company Avaya, with 70 million square feet of space, Gosin said.

Yet despite those successes, there remains a nagging perception among long-time insiders in the New York brokerage world that Newmark is still a small player, more comfortable leasing up its B and C buildings than handling the city’s most high-profile towers.

From left: The Empire State Building, Chase Manhattan Plaza and the Flatiron Buidling
Others question how the partnership between the two international firms functions. They note that Newmark Knight Frank mostly operates in the United States. The far larger Knight Frank, which has a big residential presence, accounts for about 75 percent of the combined workforce and more than half of their total revenues, according to figures on the companies’ websites. The two firms are separate entities allied by a contractual partnership. They are not, in fact, one firm.

Gosin acknowledged that Newmark is smaller globally than CBRE and Jones Lang LaSalle and may miss winning some deals because of that. But he bristled at the suggestion that his company does not have a strong global presence or that it is too small to compete with the world’s largest firms.

“We are a big company,” he said. “We don’t have any problem competing with CB in any venue we have established ourselves in.”

He also said that it is Newmark in New York that runs the global corporate services division, which “is pretty much owned by us and their people report in to us.”


Unmatched growth?

The American arm of Newmark is something of a family business.

Founded in the 1920s as Harris, Newmark & Company, the firm changed its name to Newmark & Company in the early 1950s. The late real estate investor and broker Aaron Gural joined the firm in 1953, and several years later bought the company.

In 1978, after building a name for himself at a small brokerage called H.L. Richer, Gosin partnered with Jeffrey Gural, Aaron’s son, to buy the approximately 30-broker firm from the elder Gural.

They bought the company for what might have been “a few hundred thousand dollars,” said Gosin, who took over as CEO in 1979, before he turned 30. “We just had to pay [Aaron Gural] out of receivables as they came in.”

Along with the other equity partners at the time, Jeffrey Gural and Gosin built up Newmark Holdings, which was started under Aaron, and which now owns about 10 million square feet of office buildings in Manhattan, including major properties like the Flatiron Building (where it has a minority stake) and the 348,000-square-foot 515 Madison Avenue, as well as smaller assets. Meanwhile, in the late 1990s, Jeffrey Gural and Gosin began to expand the firm’s corporate services division to grow beyond its basic leasing and management operation. In 2005, they took another big step toward expansion, when they struck the partnership deal with Knight Frank, which started the following year.

At the time of the partnership announcement, the firms reported about 4,500 combined employees in 240 offices.

While Newmark Knight Frank has been publicly touting its “unmatched growth,” (most recently in an advertisement it ran last month in Real Estate Weekly, which stated that its global transactions have grown by 634 percent from $5.9 billion in 2000 to $43.3 billion in 2009), the math may not be that simple. It appears the vast majority of that growth can be attributed to the partnership — not an explosion in business. Indeed, when they announced their partnership, the firms declared $41 billion in combined annual transactions. So it seems transaction volume for the joint entity has grown by just 5.6 percent.

Top: Jimmy Kuhn; Bottom: Moshe Sukenik
Still, the firms have seen a more significant bump when it comes to revenue figures. When they first joined forces, they reported a combined revenue of $545 million — $370 million of which came from Knight Frank. In 2009, that increased to $811 million. Knight Frank, which publishes its own income statement annually, reported revenues of about $451 million from April 2009 to March 2010, indicating that Newmark’s revenues have also climbed. Newmark Knight Frank declined to provide The Real Deal with numbers.

While brokers outside the firm questioned the strength of the connection between the two entities, Michael Ippolito, who oversees activity worldwide as chairman of global corporate services at Newmark Knight Frank, insisted that over the past two years the firms have become more closely aligned.

Ippolito, however, would not provide any details on the partnership agreement, including the length of the partners’ contract.

“We are a private company,” Ippolito said. The contract “lasts a long time out into the future.”

Precisely because Newark is a private firm, gathering facts about it is difficult. Unlike Cushman, CBRE, Jones Lang LaSalle and a number of its other public competitors, Newmark doesn’t need to release its financial statements.

Combined global revenue for Newmark and Knight Frank was down 15 percent from 2008 to 2009. But if its claims of $811 million in global revenue for 2009 are true, it is not light-years behind the third-largest commercial services firm, Cushman & Wakefield. That company had global gross revenues of $1.5 billion for 2009. The top firm worldwide is CBRE, which had revenues of $4.2 billion in 2009.


Deep NYC bench

In Manhattan, Newmark Knight Frank is without a doubt one of the top three firms, behind CBRE and Cushman. It also dwarfs global rivals like Jones Lang LaSalle and Colliers International (which are both larger internationally) in the Big Apple.

Gosin and other brokers such as Moshe Sukenik have carved out something of a niche in the city representing major law firms.

The pair brokered the Paul, Weiss lease and also represented Orrick, Herrington & Sutcliffe, which signed a 213,231-square-foot lease at 51 West 52nd Street in 2009. Some credit the latter lease with establishing a floor for commercial leasing during some of the downturn’s darkest hours, when both landlords and tenants were apprehensive of making deals.

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“They really know and understand the New York market,” said Carl Schwartz, the chair of the real estate department at Herrick, Feinstein, which uses Newmark for its leasing transactions.

“There are a lot of law firms in New York, and lawyers are, for the most part, sophisticated consumers,” Schwartz continued. “They want someone they can talk the language with, and Newmark is certainly among them.”

Sukenik — who has twice won the most ingenious deal award from the Real Estate Board of New York and once won the most creative deal award — said he did not want to be pegged as just a law firm broker, however. He noted that the three Manhattan deals he’s done for more than 100,000 square feet this year, including Horizon Media at 1 Hudson Square and Sesame Street at 1900 Broadway, were not legal deals.

While Newmark is undoubtedly picking up steam, about a half-dozen brokers at competing firms, who asked to remain anonymous, said the firm is thought to discount commissions to win business. Some, however, conceded that most firms engage in the practice, but they claimed that Newmark does it more often. While it’s considered honorable in many trades to offer goods and services at the lowest cost, in the brokerage industry cutting commissions is considered to be an underhanded strategy to “buy” business.

When asked about whether the firm cuts commissions to get business, Gosin became noticeably irritated. He said sometimes Newmark charges more than its rivals — later adding that at times, competing firms cut their commissions.

Broker Scott Panzer left last year, saying the firm lacked global infrastructure. Newmark Knight Frank agreed last month to merge with San Francisco-based commercial service firm Cornish & Carey Commercial.

“We do not discount commissions,” he said. “Our fees are within pennies, more or less, of the competition. We win because of the work we do. Anything different is just sour grapes.

“We have the deepest bench in New York City,” Gosin said.

While Newmark is a powerhouse in New York City, it is not as deep nationwide, competitors said. One broker who left Newmark last year was quoted in the Observer at the time saying the firm lacked the global infrastructure to land large deals.

Gosin countered that, noting that Scott Panzer, the broker in question, who jumped with his team of roughly a dozen agents to rival Jones Lang LaSalle, took only one account with him.

And Ippolito said the global business services division was expanded under the umbrella of his division, providing more guidance and research for its brokers.

On the local front, it’s clear the firm excels in leasing and agency representation. Third-quarter CoStar data show it represents about 42.5 million square feet of office space in Manhattan, plus it picked up the One Chase Manhattan Plaza agency, which is another 2.3 million square feet. Cushman & Wakefield represents a similar amount of space, while CBRE has about 60 million feet. Those three are far above the next-closest rival, Colliers International, which represents about 13 million feet.

Newmark is weaker on the investment sales side, where it closed commercial building sales valued at only $109 million in the city last year. That figure did not even put them among New York’s top 10 investment sales brokers for 2009. In contrast, CBRE closed $595 million and Cushman did $282 million, CoStar data showed.

James Kuhn, the president of Newmark Knight Frank, leads the national capital markets group, and has represented major development projects here, such as Hudson Yards, in recent years. The company has, however, opted at times not to snag major sales brokers because the cost was too high, one top executive said.

“We have a good capital markets group,” Gosin said, noting that it’s expanding nationwide, but added, “New York is a little rough because the business is so concentrated in so few people. But we will get there.”


Making music

Here’s a window into Newmark’s company culture:

Three of the firm’s executives — Kuhn, William Mendelson and Nicholas Cangemi — play in a band with former Newmark brokers Michael Stein and David Katzman in a group called Square Feeet. Indeed, several times a year they can be heard singing songs such as Guns N’ Roses’ “Sweet Child of Mine” and Rolling Stones hits like “You Can’t Always Get What You Want” at the Red Lion in the West Village, among other venues.

While the principals are not in rock-cover-band mode at the office, sources said the office atmosphere is more laid-back than the more corporate environments at some competing firms.

Geoff Rockhill, who was at Newmark for seven years and now is a managing director at Jones Lang LaSalle, said the brokers at Newmark are “open and friendly” and he still has a lot of friends there.

That slightly more laid-back atmosphere is not to say that the work expectations are any less demanding. Gosin attributed the relaxed but hardworking environment to the Gurals. But others say that Gosin, who is known in the industry as an affable and straightforward deal-maker, sets that tone, too.

Gosin said he feeds off the energy of brokers hustling for deals around him. Indeed, in his office, where he has an expansive view of Grand Central out his window, Gosin opts to position his desk facing the door. “The feng shui of the office doesn’t work,” he said. “I never want to have my back to the company.”

Steven Simkin, a partner and chair of the real estate department at Paul, Weiss, said Gosin was also a voice of moderation during the boom years.

“I would say Barry, in general, was more bearish than many of his colleagues in other firms,” Simkin said. “Generally he has been cautious and has been bearish when he thinks the market [shows] more exuberance than was supported by the underlying data.”

Another industry source said Newmark handled the economic slowdown well. That might be because the New York firm took something of a beating in the recession in the early 1990s and learned its lesson.

“They did not do anything crazy [during this downturn],” the source said. “They never thought they were the smartest guys on the block. They were just trying to collect fees.”


Growing outside New York

Ippolito, the head of Newmark’s global corporate services, said the firm is more nimble than competing public companies.

Being private and smaller can have its advantages, he said, noting that the firm can make decisions faster than its larger counterparts.

He said a handshake agreement to merge with San Francisco-based commercial services firm Cornish & Carey Commercial, which was finalized last month, took just a week. Gosin said Newmark partnered with Cornish & Cary to increase its presence in the San Francisco area, where the latter company was the largest privately owned firm in the region, with 13 offices and 275 agents on the West Coast.

“We needed to increase our presence on the West Coast,” Gosin noted.

Continuing its growth, late last month, Newmark signed a partnership agreement with Denver-based full-service commercial firm Frederick Ross, a company founded in the 19th century that now has 170 employees.

These recent alignments show a new aggressiveness on Newmark’s part. And its caution up until now may have helped it get to this point. Several years ago, before the downturn in the market, the firm nearly purchased “a very large real estate company,” Gosin said, adding that the move would have been a mistake. Though he declined to name the brokerage, two sources said it was Grubb & Ellis, the debt-strapped public company.

“Some say we were lucky that did not happen,” he said.