05/16/2012

Newmark Maps Capital-Markets Expansion

His rivals may be skeptical, but Jimmy Kuhn says the merged Newmark Grubb intends to build one of the top capital-markets platforms in the country — and do it within a year.

The initial goal is to establish or beef up investment-sales and loan-brokerage teams in up to 10 major markets, including New York, Boston, Washington, Houston, Chicago, San Francisco and Los Angeles.

“I think when you look at us one year from today, you’ll see a capital-markets powerhouse,” said Kuhn, the firm’s president.

Kuhn declined to specify how many brokers will be hired over the next year, but indicated that Newmark Grubb would recruit selectively. “Just adding a lot of bodies — that’s commodity recruiting,” he said. “We’re looking to elevate revenue-per-broker and profit margins.”

The envisioned platform — with a limited number of high-producing brokers operating in key major markets — isn’t patterned after any other firm, Kuhn said. But it is clearly closer in structure to that of Eastdil Secured and HFF, for example, than it is to CBRE and Cushman & Wakefield, which blanket the nation with brokers.

Newmark Grubb’s rivals privately express doubt that the strategy can be pulled off. They note the company will face plenty of competition recruiting top-tier brokers. For one thing, three other brokerages — Avison Young, Cassidy Turley and Colliers International — are already seeking to build national capital-markets operations. Meanwhile, some established industry heavyweights, most notably HFF and Jones Lang LaSalle, are in an expansion mode.

What’s more, Newmark Grubb has asked brokers it retained after the merger to agree to what some view as onerous noncompete provisions that would curtail their ability to jump to another firm down the road. That policy could hinder recruiting efforts, rivals said.

Kuhn brushed that issue aside, contending that Newmark Grubb’s platform will offer capital-markets pros opportunities for business and commissions that other firms won’t be able to match.

“If you’re Alex Rodriguez and you sign a 10-year contract with the Yankees, you don’t get to decide in three years you want to go to the Red Sox,” he said. “If you’re committed to the platform, those contracts won’t be an issue.”

The creation of Newmark Grubb was fueled by the desire of its parent, BGC Partners, to own a top full-service commercial real estate brokerage. BGC, a New York financial brokerage, is headed by Howard Lutnick, who is also chief executive of Cantor Fitzgerald, a New York investment bank and brokerage.

Last October, BGC bought Newmark Knight Frank, a New York brokerage. It followed that up last month by acquiring Grubb & Ellis out of bankruptcy and merging it with Newmark Knight under the Newmark Grubb name.

The acquisitions have given BGC the building blocks for a national brokerage. Newmark Knight, which was founded in 1929, was long regarded as a super-boutique brokerage focused on New York, but had expanded in recent years. It added offices in Texas, Chicago, Nashville and Indianapolis, and, in its biggest move, merged with 13 offices of brokerage Cornish & Carey in Northern California in 2010.

Grubb, a Santa Ana, Calif., firm founded in 1958, was one of the venerable names among full-service commercial real estate brokerages. But it was severely weakened by the downturn, which derailed an aggressive and costly expansion. The company did, however, bring to the merged brokerage a strong presence in the Midwest and on the West Coast.

While Newmark Knight and Grubb both had capital-markets staffers, the firms gave BGC a much bigger head start on the leasing and property-management fronts. So Newmark Grubb wants to grow on the capital-markets side.

Lutnick has indicated that he’s willing to spend heavily to acquire other brokerages and provide signing bonuses to recruits. Kuhn was mum on how important he thinks bonuses will be, but said: “I don’t think we’ll lose a top broker in any market over money.”

In making pitches to prospective recruits, Kuhn’s team will play up the shop’s ties to BGC and its relationship with Cantor Fitzgerald. He said the real estate investment banking arms of those firms will refer investment-sales and loan-brokerage opportunities to Newmark Grubb and will enable its capital-markets brokers to offer one-stop shopping to potential customers.

“I think quality capital-markets pros will go where they can take advantage of the greatest amount of tools to cross-sell to their clients,” said Kuhn. “You may be a great investment-sales broker, but the ability to raise equity and provide debt for that client elevates the platform.”

While Newmark Grubb already has a capital-markets operation in New York, Kuhn hinted that further hiring in the city is possible. “If you’re not a powerhouse in New York City, in general, it’s hard to be a powerhouse nationwide,” he said.

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