Going for the Gold
- Jul 02, 2012
New-Look Newmark Grubb Knight Frank Aims for the Top of the Service Business
By Paul Rosta
The name has the ring of a white-shoe law firm: Newmark Grubb Knight Frank. More than just the latest iteration of an 83-year-old company, though, the new handle tells a dramatic story in only four words.
Over the past decade, the New York City-based company has become a national player through aggressive expansion and a series of watershed mergers. Those moves represent a throwing down of the gauntlet of sorts to its longtime competitors in the service sector, such as Jones Lang LaSalle Inc., Colliers International, Cushman & Wakefield Inc. and CB Richard Ellis Group Inc.
Teaming with BGC also gives the company the financial wherewithal to pursue additional acquisitions. The first of those closed in April, when Newmark Knight Frank wrapped up its acquisition of the troubled Grubb & Ellis Co. One of the first major service-sector consolidations to emerge since the Great Recession, the Newmark-Grubb & Ellis merger promises to have the impact of the past decade’s blockbusters, like Jones Lang LaSalle Inc.’s 2008 acquisition of The Staubach Co. and Trammell Crow Co.’s merger with CBRE Group Inc. in 2006. Acquiring Grubb & Ellis gives Newmark Knight Frank additional scale, doubling the number of offices to more than 100. It also adds about 100 million square feet to Newmark’s 200 million-square-foot corporate services portfolio.
In late May, BGC delivered an investor and analyst presentation projecting that second-quarter revenues from the real estate businesses would reach $110 million. Brokerage services are expected to yield about 65 percent of the total for the second quarter, with the remaining 35 percent from non-brokerage services like property management and facilities management. Combined with first-quarter revenues of $47.9 million, that would add up to about $158 million in revenues for the first half of 2012.
Broadly speaking, the new-look Newmark integrates business lines overseen by a trio of veterans with almost 75 years of tenure at the company among them, augmented by a 30-year veteran of the capital markets. Barry Gosin, who has served as CEO for 33 years, is responsible for day-to-day operations and oversees the leasing business. Newmark’s investment advisory service is under the supervision of company president James Kuhn, a 20-year company veteran. Heading global corporate services is Michael Ippolito, who started at Newmark as a tenant representation specialist in 1991. Rounding out the foursome is Michael Lehrman, head of BGC’s global real estate business and a former co-head of the real estate direct lending group at Credit Suisse.
Newmark Grubb Knight Frank’s current trajectory started about 2000, when the company successfully executed a program to expand beyond its stronghold in the New York City metropolitan region. By 2005, Newmark had established offices in Atlanta; Chicago; Dallas; Houston; Long Island, N.Y.; Los Angeles; Miami; Orange County, Calif.; San Diego; San Francisco; San Jose; and Washiington, D.C. In 2006, Newmark agreed to become the U.S. affiliate of the London-based services firm Knight Frank. That provided global reach and access to offices that now number about 340 in more than 40 countries.
Following that merger, Newmark Knight Frank further expanded its U.S. footprint. A 2009 alliance with Smith Mack made inroads into the Philadelphia metropolitan area, southern New Jersey and Delaware. In 2010, it became a force in Silicon Valley through a merger with Cornish & Carey Commercial.
The next watershed event unfolded last year with the October acquisition of Newmark Knight Frank’s U.S. business by BGC Partners Inc., the voice and electronic financial brokerage firm. BGC, which was spun off as a public company in 2004 from Cantor Fitzgerald L.P., views Newmark Grubb Knight Frank’s broad range of real estate services as a complement to its financial brokerage business and its proprietary technology platform. BGC, for its part, brings sophisticated technology tools that have applications for its real estate practices. It has invested $1.5 billion in its technology platform to date, and spends $120 million annually on developing software, noted Lehrman. “We grab the data, scrub it, analyze it,” he explained.
The Grubb & Ellis acquisition resolved a lengthy decline for the diversified service company, which had gone through multiple steps in an effort to survive in recent years. On Feb. 20, Grubb & Ellis filed for bankruptcy protection and simultaneously agreed to be acquired by BGC Partners. All told, BGC estimates that it will invest about $150 million in acquiring Newmark Knight Frank and Grubb & Ellis. Newmark’s leadership says that Grubb & Ellis’ protracted financial woes overshadowed the depth and breadth of its professionals’ talents. “Sometimes a few decisions by upper management may taint the other 95 percent of the company that does a great job at what they do,” observed Kuhn.
By the time Newmark arrived on the scene, Grubb’s brokers “were already at the end of their patience,” Gosin said. “We had to swoop in as quickly as possible to shore up the foundations and batten down the hatches.” In the three weeks after announcing the deal, company principals launched a whirlwind tour of Grubb & Ellis offices to meet the troops and discuss the merger. Newmark has inevitably encountered some bumps in the road during the process of integrating Grubb & Ellis’ professionals into a new platform. But Gosin reported that the leadership is pleased with retention levels. In June, for example, Cornish & Carey Commercial Newmark Knight Frank announced that it had added 28 former Grubb & Ellis brokers.
In addition to doubling its offices and increasing the size of its corporate services portfolio and increasing its corporate services portfolio, the legacy Grubb & Ellis team is enabling Newmark to tap into new opportunities. When Africa Israel USA Inc. recently decided to market a property in Los Angeles, Kuhn referred the investment management firm to Newmark’s brand-new L.A. team of Grubb & Ellis alumni. Grubb & Ellis also brings a deep bench in facilities management and project management to the mix that will expand its corporate services capabilities.
Another key addition is the Landauer Group, Grubb & Ellis’ legacy appraisal business. Last month, Robert Van Ancken, longtime head of the appraisal unit, was formally tapped to continue in that role. Summing up Newmark Grubb Knight Frank’s approach to integrating its new business lines, Kuhn commented, “I think you have to take your ego out of the equation and you have to embrace the parts of the company that may do things better than you do.”
Breaking Down Silos
In the two-and-a-half years before the Grubb & Ellis merger, Newmark Knight Frank realigned its own corporate services business. Business lines that had previously existed in multiple silos—strategic consulting, project management, facilities and property management—came together in a single multi-disciplinary group. “In a lot of companies, corporate services is a service line,” said Ippolito. “What we’ve done is to say, ‘This really is our platform.’”
The division overseen by Ippolito combines a full spectrum of transaction and consulting services in order to advise clients on meeting corporate needs. These days, Ippolito argues, corporate services means much more than merely helping clients “slash and burn; cut, cut and cut.” Instead, real estate is only part of the larger strategic picture. Newmark’s team starts by looking broadly at the client’s business operations to determine the strategies and best practices that will make the business operate most efficiently.
Recently, the company applied that approach to advising Elekta, which provides technology for cancer treatment, on its decision to locate its new headquarters. A team led by executive managing director Jeff Estep looked at the company’s long-term needs and recommended that Elekta move its North American headquarters to Atlanta. This year, Elekta is relocating into 70,000 square feet at The Terraces, a 1 million-square-foot complex in Atlanta’s Central Perimeter district.
Affiliation with BGC also adds to Newmark Grubb Knight Frank’s capacities, its principals contend. Lehrman said that the integrated specialties offer new potential for problem-solving. “If a tenant needs space, I want to understand the business,” he explained. Lehrman cited a hypothetical situation where a tenant has five years left on an above-market lease in a building that is in special servicing. The tenant’s first instinct might be to look for a lower-cost situation.
But a leasing broker who is also versed in the capital markets could recommend that the tenant and landlord agree to a new 10-year lease that reflects current market pricing, which is considerably lower than that when the lease was signed in 2007. Such a deal would benefit the tenant by lowering overhead costs. For the landlord, the lease would lock in a revenue stream for 10 years. That income, in turn, would contribute to refinancing the building’s debt—a prospect that the special servicer would view favorably.
Given Newmark’s relationship with BGC, expanding its real estate capital markets business is a top priority. BGC’s new real estate finance group will work closely with other business lines. Lehrman hired two Cantor Fitzgerald veterans in early June to take senior positions with the new group: Garett Stoffels signed on as senior managing director & head of equity capital markets, while Jonathan Falik was appointed senior managing director & head of hospitality capital markets.
Effectively devising client strategies calls for analyzing reports and figures from multiple databases that are unable to communicate with one another, Ippolito explained. BGC’s technology pulls information out of their respective silos and puts it in a format that allows consultants and clients to assess it effectively.
In BGC, then, Newmark Grubb Knight Frank clearly has a partner ready to invest in growth on multiple fronts. The company’s leadership demurs from discussing specific business lines and geographic areas of interest, but Gosin offers a hint of things to come.
“We’re not sitting on our laurels,” he said “We are going to continue to acquire.”