Sales slowdown shrinks profits at Newmark, CBRE

A deal slump is hitting brokerages hard, CBRE and Newmark revealed this week on earnings calls.

Revenues went up last quarter at both commercial real estate brokerages, though earnings were down year-over-year, according to their earnings reports. Newmark’s total revenue was $585.8 million, down 22.4 percent year-over-year. CBRE posted $7.72 billion in revenue, up 0.7 percent from the second quarter last year.

Leaders of both companies projected optimism about the future on earnings calls this week.

“Despite the industry-wide headwinds, I have never been more excited about our future. We are on the cusp of a new market…we are in a unique position to capitalize on this changing landscape,” Newmark CEO Barry Gosin said Friday morning.

Gosin said he expects capital markets activity to rebound toward the end of the year as interest rates stabilize, creating a “robust back half of 2024.”

Newmark CFO Michael Rispoli attributed the slump to a 63 percent reduction in overall U.S. investment sales and a 52 percent decline in loan originations industrywide.

The capital markets cutback driven by rising interest rates and owners’ hesitancy to transact amid declining commercial property values, especially for offices, is dragging on the brokerages’ performance. Newmark’s adjusted EBITDA was $72.9 million, down 54.3 percent from the second quarter last year. CBRE’s core EBITDA last quarter was $504 million, down 45.2 percent from the second quarter last year, and its net income was down 58.7 percent over the same period.

But CBRE is starting to see signs that performance could improve next year, including an uptick in development, CEO Bob Sulentic said. He noted the firm capitalized 10 new development projects in the second quarter, up from 5 projects the prior two quarters combined.

“Looking ahead, we still anticipate a mild recession,” said Sulentic. “However, we now expect the recession to occur at least one quarter later than we previously thought.”

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Highlights for Newmark last quarter included serving as lead advisor to Blackstone in the firm’s $2.2 billion sale of Simply Self Storage and arranging the recapitalization of 15 Necco Street in Boston, the largest single building transaction in the life sciences sector so far in 2023.

Newmark has also been in growth mode, with Jason Sabshon of Keef, Bryette & Woods commenting on the call that “there seems to be a steady stream of producers that are leaving their current firms to join Newmark.” The brokerage picked up top investment sales brokers Doug Harmon and Adam Spies from Cushman & Wakefield in February.

“The best brokers want to be where the other best brokers are,” Gosin said.