Cantor Fitzgerald, L.P. and, where applicable, its consolidated subsidiaries
Cantor Credit Agreement
Unsecured credit agreement entered into with Cantor on November 30, 2018, as amended by the First Cantor Credit Agreement Amendment on December 20, 2023
Cantor Entity Group
Cantor and its consolidated subsidiaries (other than any member of the BGC Entity Group or the Newmark Entity Group), Howard W. Lutnick and/or any of his immediate family members as so designated by Howard W. Lutnick and any trusts or other entities controlled by Howard W. Lutnick
Cantor Units
Limited partnership interests of Newmark Holdings or, prior to the Corporate Conversion, Newmark Holdings or BGC Holdings, held by the Cantor Entity Group, which Newmark Holdings units are exchangeable into shares of Newmark Class A common stock or Newmark Class B common stock and which BGC Holdings units were exchangeable into shares of BGC Class A common stock or BGC Class B common stock, as applicable
CARES Act
The Coronavirus Aid, Relief, and Economic Security Act
CCRE
Cantor Commercial Real Estate Company, L.P.
CCRE Lending
Cantor Commercial Real Estate Lending, L.P., a wholly owned subsidiary of Real Estate LP
CECL
Current Expected Credit Losses
Certificate of Incorporation
Second Amended and Restated Certificate of Incorporation of Newmark
CF Secured
CF Secured, LLC
CF&Co
Cantor Fitzgerald & Co., a wholly owned broker-dealer subsidiary of Cantor
CFE
Cantor Fitzgerald Europe
CFGM
CF Group Management, Inc., the managing general partner of Cantor
CFS11
CFS11 Holdings, LLC, a subsidiary of Cantor
CIO
Chief Information Officer
CISO
Chief Information Security Officer
Company
Newmark Group, Inc. and, where applicable, its consolidated subsidiaries
Company debt securities
The 6.125% Senior Notes, 7.500% Senior Notes, and any future debt securities issued by the Company
Compensation Committee
Compensation Committee of the Board
Contractual revenues, contractual services or contractual business
Includes business for which the Company has a contract with a client that is generally for a year or longer. Contractual business, when quantified, includes all revenues related to landlord (or agency) representation leasing, loan servicing (including escrow interest income), outsourcing (including property management, facilities management, and asset management), and lease administration. It also includes certain fees under contract produced by the Company’s flexible workspace and tenant representation service lines
Contribution Ratio
Ratio of shares of Newmark Common Stock that were outstanding compared to the shares of BGC common stock outstanding as of immediately prior to the Newmark IPO (not including any shares of our common stock sold in the Newmark IPO); this ratio was set initially at a fraction equal to one divided by 2.2
Corporate Conversion
A series of mergers and related transactions pursuant to which, effective at 12:02 AM Eastern Time on July 1, 2023, BGC Partners and BGC Holdings became wholly owned subsidiaries of BGC Group, transforming the organizational structure of the BGC businesses from an “Up-C” structure to a simplified “Full C-Corporation” structure
CoStar
CoStar Group Inc.
COVID-19
Coronavirus Disease 2019
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Credit Agreement
The Company’s unsecured senior revolving credit agreement with Bank of America, N.A., as administrative agent, and a syndicate of lenders, most recently amended and restated on April 26, 2024
Credit Facility
The credit facility pursuant to the Credit Agreement, as amended and restated, with a current maximum revolving loan balance of $600.0 million, which the Company has the right to increase up to $800.0 million subject to certain conditions being met, and a maturity date of April 26, 2027, bearing interest at either SOFR or a defined base rate plus additional margin
Delayed Draw Term Loan
The previously outstanding credit facility pursuant to the Delayed Draw Term Loan Credit Agreement, with an aggregate principal amount of $420.0 million (which could have been increased, subject to certain terms and conditions, to up to $550.0 million) and a maturity date of November 14, 2026, which bore interest at SOFR or a defined base rate plus additional margin
Delayed Draw Term Loan Credit Agreement
The Company’s credit agreement with Bank of America, N.A., as administrative agent, and a syndicate of lenders, dated as of August 10, 2023
Deskeo
Space Management (d/b/a “Deskeo”)
DGCL
Delaware General Corporation Law
Employees
Includes both employees and those real estate brokers who qualify as statutory non-employees under Internal Revenue Code Section 3508
EPS
Earnings Per Share
Equity Plan
Newmark Group, Inc. Long Term Incentive Plan
ESG
Environmental, social and governance, including sustainability or similar items
EU
European Union
Exchange Act
Securities Exchange Act of 1934, as amended
Exchange Agreement
Exchange agreement which provides (i) BGC Partners, (ii) Cantor, (iii) any entity controlled by either of them or by Howard W. Lutnick, and (iv) Howard W. Lutnick, his spouse, his estate, any of his descendants, any of his relatives, or any trust established for his benefit or for the benefit of his spouse, any of his descendants or any of his relatives, the right to exchange shares of Newmark Class A common stock into Newmark Class B common stock on a one-to-one basis up to the number then authorized but unissued
Exchange Ratio
The ratio by which a Newmark Holdings limited partnership interest can be exchanged for a number of shares of Newmark Class A common stock
FASB
Financial Accounting Standards Board
Fannie Mae
The Federal National Mortgage Association
Fannie Mae DUS
The Fannie Mae Delegated Underwriting and Servicing Program
First Cantor Credit Agreement Amendment
First Amendment to the Cantor Credit Agreement entered into on December 20, 2023
FHA
The Federal Housing Administration
FHFA
The Federal Housing Finance Agency
FOMC
Federal Open Market Committee
Forward Sales Contract
An agreement to deliver mortgages to third-party investors at a fixed price
Founding Partners
Individuals who became limited partners of Newmark Holdings in connection with the Separation who held BGC Holdings founding partner interests immediately prior to the Separation (provided that members of the Cantor Entity Group and the BGC Entity Group are not Founding Partners)
Founding Partner interests, Founding Partner units or FPUs
Founding/Working Partners units in Newmark Holdings or, prior to the closing of the Corporate Conversion, Newmark Holdings or BGC Holdings, that are generally redeemed upon termination of employment
Freddie Mac
The Federal Home Loan Mortgage Corporation
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Freddie Mac Strip
A three basis point servicing fee and/or up to a one-basis point surveillance fee on certain Freddie Mac loans after the loan is securitized in a Freddie Mac pool
Freddie Mac TAH
The Freddie Mac Targeted Affordable Housing Program
GCS
Global corporate services, Newmark’s consulting and outsourcing services business that focuses on corporate occupiers
GDP
Gross domestic product
GDPR
General Data Protection Regulation
Gerald Eve
Gerald Eve LLP, a London-based real estate advisory firm acquired on March 10, 2023
Ginnie Mae
The Government National Mortgage Association
GSE or GSEs
Government-sponsored enterprises (Fannie Mae and Freddie Mac)
H-Rights
Rights to exchange PSUs into HDUs
HDUs
LPUs with capital accounts, which are liability awards recorded in “Accrued compensation” in the Company’s consolidated balance sheets
HUD
U.S. Department of Housing and Urban Development
HUD LEAN
HUD’s mortgage insurance program for senior housing
HUD MAP
HUD’s Multifamily Accelerated Processing
Investment Company Act
Investment Company Act of 1940, as amended
Knotel
Knotel, Inc.
Kastle Barometer
Security provider Kastle Systems tracks the number of employees in ten of the largest U.S. metropolitan areas that were physically in offices and reports every work week as a percentage of the typical number physically present during the first three weeks of February 2020
LIBOR
London Inter-Bank Offered Rate
Limited Partnership Unit Holders
The individuals who became limited partners of Newmark Holdings in connection with the Separation and who held BGC Holdings limited partnership units immediately prior to the Separation and certain individuals who became or become limited partners of Newmark Holdings from time to time after the Separation and who provide services to the Newmark Entity Group
LPA Amendment
An amendment, dated as of March 10, 2023, to the Newmark Holdings limited partnership agreement
LPUs, limited partnership units, or limited partnership interests
Certain limited partnership units in Newmark Holdings or, prior to the closing of the Corporate Conversion, Newmark Holdings or BGC Holdings, held by certain employees of BGC or Newmark and other persons who have provided services to BGC or Newmark, which units may include APSIs, APSUs, AREUs, ARPSUs, HDUs, U.K. LPUs, N Units, PLPUs, PPSIs, PPSUs, PSEs, PSIs, PSUs, REUs, RPUs, and SPUs, along with future types of limited partnership units in Newmark Holdings
MBA
Mortgage Bankers’ Association
McCall & Almy
McCall & Almy, Inc.
MPC
Monetary Policy Committee of the Bank of England
MSCI
MSCI Real Assets (formerly known as Real Capital Analytics, or “RCA”)
MSRs
Mortgage servicing rights
Nasdaq
Nasdaq, Inc. (formerly known as NASDAQ OMX Group, Inc.)
Newmark
Newmark Group, Inc., and where applicable, its consolidated subsidiaries. Also referred to as the “Company,” “we,” “us,” or “our”
Newmark & Co.
Newmark & Company Real Estate, Inc., which for the purposes of this document is defined as all of the companies acquired by BGC Partners on October 14, 2011. Comparisons in this document to our 2011 revenues are based on unaudited full year 2011 revenues for Newmark & Co.
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Newmark Common Stock
Newmark Class A common stock and Newmark Class B common stock, collectively
Newmark Class A common stock
Newmark Class A common stock, par value $0.01 per share
Newmark Class B common stock
Newmark Class B common stock, par value $0.01 per share
Newmark Entity Group
Newmark, Newmark Holdings, Newmark OpCo and their respective consolidated subsidiaries, collectively
Newmark Holdings
Newmark Holdings, L.P., which is owned jointly by Newmark, Cantor, Newmark’s employee partners and other partners
NHL
Newmark Holdings Limited
Newmark Holdings limited partnership agreement
Amended and Restated Agreement of Limited Partnership of Newmark Holdings, dated as of December 13, 2017
Newmark IPO
The initial public offering of 23 million shares of Newmark Class A common stock at a price of $14.00 per share in December 2017
Newmark OpCo
Newmark Partners, L.P., an operating partnership, which is owned jointly by Newmark and Newmark Holdings and holds the businesses of Newmark
Newmark Research
A Newmark service providing real estate market reports and analysis to our professionals and clients
Newmark Revolving Loans
Certain loans that Cantor has agreed to make from time to time to Newmark pursuant to the First Cantor Credit Agreement Amendment in an aggregate outstanding principal amount of up to $150.0 million, on substantially the same terms as other loans under such agreement, except that until April 15, 2024, the Newmark Revolving Loans would bear interest at a rate equal to 25 basis points less than the interest rate borne by the revolving loans made pursuant to the Credit Facility
Newmark S11
Newmark S11 Holdings, LLC
NOL
Net operating loss
N Units
Non-distributing partnership units of Newmark Holdings that may not be allocated any item of profit or loss, and may not be made exchangeable into shares of Class A common stock, including NREUs and NPSUs
OECD
Organisation for Economic Co-operation and Development
Official Bank Rate
The rate the Bank of England charges banks and financial institutions for loans with a maturity of one day
OMSRs
Originated mortgage servicing rights
Open Realty
Open Realty Advisors, LLC and Open Realty Properties, LLC, which operate together as a retail real estate advisory firm
Preferred Distribution
Allocation of net profits of BGC Holdings or Newmark Holdings to holders of Preferred Units, at a rate of either 0.6875% (i.e., 2.75% per calendar year) or such other amount as set forth in the award documentation
Preferred Units
Preferred partnership units in Newmark Holdings or, prior to the closing of the Corporate Conversion, BGC Holdings, such as PPSUs, which are settled for cash, rather than made exchangeable into shares of Class A common stock, are only entitled to a Preferred Distribution, and are not included in BGC’s or Newmark’s fully diluted share count
Preqin
Preqin Ltd
Producers
Customer-facing, revenue-generating professionals, including brokers, salespersons, front-office personnel, and originators, who are directly compensated based wholly or in part on the revenues they contribute to generating
RBC
Royal Bank of Canada
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Real Estate LP
CF Real Estate Finance Holdings, L.P.
Recurring revenues
Includes all pass through revenues, as well as fees from Newmark’s servicing business, GCS, property management, its flexible workspace platform, and V&A, as well as Spring11
REIT
Real estate investment trust
RSUs
BGC or Newmark restricted stock units, paid or payable in shares of BGC Class A common stock or Newmark Class A common stock, respectively, held by certain employees of BGC or Newmark and other persons who have provided services to BGC or Newmark, or issued in connection with certain acquisitions
SEC
U.S. Securities and Exchange Commission
Securities Act
Securities Act of 1933, as amended
Separation
Principal corporate transactions pursuant to the Separation and Distribution Agreement, by which the BGC Entity Group transferred to the Newmark Entity Group the assets and liabilities of the BGC Entity Group relating to BGC’s real estate services business, and related transactions, including the distribution of Newmark Holdings units to holders of units in BGC Holdings and the assumption and repayment of certain BGC indebtedness by Newmark
Separation and Distribution Agreement
The Separation and Distribution Agreement entered into prior to the completion of the Newmark IPO by Cantor, Newmark, Newmark Holdings, Newmark OpCo, BGC Partners, BGC Holdings, BGC U.S. OpCo and, for certain limited purposes described therein, BGC Global Holdings, L.P., dated December 13, 2017, as amended from time to time, and as amended on November 8, 2018 and amended and restated on November 23, 2018
SOFR
Secured Overnight Financing Rate
Signature transactions
Newmark acted as the exclusive financial advisor to the FDIC on the sale of approximately $60 billion of loans, formerly owned by Signature Bridge Bank, N.A. The FDIC acted in its capacity as receiver for Signature Bridge Bank, N.A. The portfolio encompassed more than 5,000 housing, retail, office, mixed-use, and bridge financing loans. A portion of the loans did not relate to real estate.
The book value of the overall loan portfolio was approximately $60 billion when Newmark was retained as an advisor by the FDIC and approximately $53 billion when the Company began marketing the loans, while the completed transactions had a combined notional value of $39.5 billion. The latter figure consisted of $21.7 billion of equity placements recorded as part of the Company’s Investment sales volumes and $17.8 billion of loan sales recorded as mortgage brokerage and debt placement.
Spin-Off
The pro rata distribution, pursuant to the Separation and Distribution Agreement, by BGC Partners to its stockholders of all of the shares of Newmark Common Stock owned by BGC Partners immediately prior to the effective time of the Spin-Off, completed on November 30, 2018
Spring11
Spring11 Holdings, LP
SPV
Special purpose vehicle
Standing Policy
In March 2018, Newmark’s Compensation Committee and Audit Committee approved Mr. Lutnick’s right, subject to certain conditions, to accept or waive opportunities offered to other executive officers to monetize or otherwise provide liquidity with respect to some or all of their limited partnership units of Newmark Holdings or to accelerate the lapse of or eliminate any restrictions on equity awards
TAM
Total addressable market
TDRs
Troubled debt restructurings
Total debt
Newmark’s quarterly volumes from mortgage brokerage and GSE/FHA originations together
Tradeweb
Tradeweb Markets, Inc.
U-3
The number of unemployed individuals as a percentage of the entire labor force; considered the official unemployment rate by the U.S. Department of Labor
U.K.
United Kingdom
6
U.S. GAAP or GAAP
Generally Accepted Accounting Principles in the United States of America
UBT
Unincorporated Business Tax
V&A
Valuation and Advisory
Working Partners or Newmark Holdings Working Partners
The individuals who became limited partners of Newmark Holdings in connection with the Separation and who held BGC Holdings working partner interests immediately prior to the Separation, and certain individuals who became or become limited partners of Newmark Holdings from time to time from and after the Separation and who provide services to the Newmark Entity Group
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. These filings are available to the public from the SEC’s website at www.sec.gov.
Our website address is www.nmrk.com. Through our website, we make available, free of charge, the following documents as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC: our Annual Reports on Form 10-K; our proxy statements for our annual and special stockholder meetings; our Quarterly Reports on Form 10-Q; our Current Reports on Form 8-K; Forms 3, 4 and 5 and Schedules 13D filed on behalf of Cantor, CFGM, our directors and our executive officers; and amendments to those documents. Our website also contains additional information with respect to our industry and business. The information contained on, or that may be accessed through, our website is not part of, and is not incorporated into, this Quarterly Report on Form 10-Q.
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SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as “may,” “will,” “should,” “estimates,” “predicts,” “possible,” “potential,” “continue,” “strategy,” “believes,” “anticipates,” “plans,” “expects,” “intends,” and similar expressions are intended to identify forward-looking statements.
Our actual results and the outcome and timing of certain events may differ significantly from the expectations discussed in the forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to, the factors set forth below:
•macroeconomic and other challenges and uncertainties, including those resulting from the conflict between Ukraine and Russia, conflicts in the Middle East and other ongoing or new conflicts in those or other regions, downgrades of U.S. Treasuries, fluctuating global interest rates, inflation and the Federal Reserve’s responses thereto, fluctuations in the value of global currencies, including the U.S. dollar, liquidity concerns regarding and changes in capital requirements for banking and financial institutions, changes in the economy, the commercial real estate services industry and the global financial markets, employment levels, infrastructure spending, and energy costs, including such changes’ effect on demand for commercial real estate and capital markets transaction volumes, office space, levels of new lease activity and renewals, distressed non-GSE commercial mortgages, frequency of loan defaults and forbearance and associated losses, and fluctuations in the mortgage-backed securities markets, as well as potential changes in these factors as a result of the upcoming change in the U.S. presidential administration;
•challenges relating to our repositioning of certain aspects of our business to adapt to and better address the needs of our clients in the future as a result of the acceleration of pre-existing long-term social and economic trends, fluctuating interest rates and market uncertainty, and other legal, cultural and political events and conflicts, and governmental measures taken in response thereto, uncertainty in the timing of stabilization of interest rates and the recovery of transaction volumes, changes in the mix of demand for commercial real estate space, decreased demand for urban office and retail space generally which may not be offset by increased demand for suburban office, data storage, fulfillment, and distribution centers and life sciences facilities or otherwise, and which could materially reduce demand for commercial space and have a material adverse effect on the nature of and demand for our commercial real estate services, including the time and expense related to such repositioning, as well as risks related to declines in real estate values, including due to sales of loans previously held by failed financial institutions, increases in commercial real estate lending rates, and the volume of committed investment capital;
•market conditions and volatility, fluctuations in transaction volumes, including changes in leasing and lending activity and debt volumes, the level of worldwide governmental debt issuances, austerity programs, government stimulus packages, increases or decreases in deficits and the impact of changing government tax rates, repatriation rules, deductibility of interest, and other changes to monetary policy, changing regulatory requirements or changes in legislation, regulations and priorities, possible turmoil across regional banks and certain global investment banks, possible disruptions in transactions, and potential downturns including recessions, and similar effects, which may not be predictable in future periods;
•potential deterioration of equity and debt capital markets for commercial real estate and related services, potential unavailability of traditional sources of financing and a need for alternative sources, and our ability to access the capital markets as needed or on reasonable terms and conditions;
•pricing, commissions and fees, and market position with respect to any of our products and services and those of our competitors, some of which may have greater financial and operational resources than we do;
•the effect of industry concentration and reorganization, reduction of customers and consolidation;
•uncertainties related to our ongoing integration of Knotel, Deskeo, BH2, McCall & Almy, Open Realty, Spring11 and Gerald Eve or any other businesses that we may acquire and the synergies and revenue growth generated from these and other acquisitions as we build out our international and domestic businesses;
•liabilities in connection with our business, including appraisal and valuation, sales and leasing and property and facilities management activities, that exceed our insurance coverage;
•liquidity, regulatory requirements and the impact of credit market events, political events and conflicts and actions taken by governments and businesses in response thereto on the credit markets and interest rates;
•our relationship and transactions with Cantor and its affiliates including CF&Co and CCRE, Newmark’s structure, including Newmark Holdings, which is owned by Newmark, Cantor, Newmark’s employee partners and other partners, and Newmark OpCo, the timing and impact of any actual or future changes to our organization or structure, any challenges to our interpretation or application of tax laws to our structure, any related party transactions, conflicts of interest, or loans to or from Newmark or Cantor, Newmark Holdings or Newmark OpCo,
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including the balances and interest rates thereof from time to time and any convertible or equity features of any such loans, repurchase agreements and joint ventures, and CF&Co’s acting as our placement agent in connection with certain capital markets transactions;
•competition for and retention of brokers and other producers, managers and key employees, our ability to integrate newly hired producers, and the duration of the period between when we hire producers and when they achieve full productivity;
•the impact on our stock price from any future reduction of our dividend or future changes in our capital deployment priorities, including repurchases of shares, purchases of limited partnership interests, and our dividend policy, and in Newmark Holdings’ distributions to partners;
•the effect of any layoffs, furloughs, salary cuts, and lower commissions or bonuses on the repayment of partner loans;
•our ability to maintain or develop relationships with independently owned offices or affiliated businesses or partners in our businesses;
•the effect on our businesses of any extraordinary transactions, mergers, acquisitions, business combinations, dispositions, divestitures, restructurings, or reorganizations, including potential dilution, taxes, costs, and other impacts;
•our ability to effectively deploy our sources of liquidity to repurchase shares or limited partnership interests, pay any excise tax that may be imposed on the repurchase of shares, reduce our debt, and invest in growing our business;
•risks related to changes in our relationships with the GSEs and HUD and related changes in the credit markets;
•risks related to changes in the administration of the GSEs, including changes in the terms of applicable conservatorships and changes in their capabilities, and in their requirements for participating in their programs and any impact on transaction volume;
•risks inherent in doing business in and expanding into international markets or with international partners, including economic or geopolitical conditions or uncertainties, the actions of governments or central banks, the risks of possible nationalization and/or foreign ownership restrictions, expropriation, price controls, capital controls, foreign currency fluctuations, regulatory and tax requirements, economic and/or political instability, geographic, time zone, language and cultural differences among personnel in different areas of the world, exchange controls and other restrictive government actions, the outbreak of hostilities, the pursuit of trade, border control or other related policies by the U.S. and/or other countries (including U.S.-China trade relations), economic volatility in the U.K., rising political and other tensions between the U.S. and China, the conflict between Ukraine and Russia, conflicts in the Middle East and other ongoing or new conflicts in those or other regions, as well as potential changes in these factors as a result of the upcoming change in the U.S. presidential administration;
•political and/or civil unrest in the U.S. or abroad, including demonstrations, riots, boycotts, and rising tensions with law enforcement, the impact of elections, or other social and political developments, labor unrest, the impact of U.S. government shutdowns or political impasses, and uncertainties regarding the debt ceiling and the federal budget, including on HUD, as well as potential changes in these factors as a result of the upcoming change in the U.S. presidential administration;
•the impact of terrorist acts, acts of war or other violence, as well as disasters or weather-related or similar events, including hurricanes, and heat waves as well as power failures, communication and transportation disruptions, and other interruptions of utilities or other essential services, and the impact of pandemics and other international health incidents;
•the effect on our business, clients, the markets in which we operate, and the economy in general of fluctuating interest rates, market volatility, and inflationary pressures and the Federal Reserve’s response thereto, infrastructure spending, changes in U.S. and foreign tax and other laws, interpretation of tax law, potential policy and regulatory changes in Mexico and other countries, sequestrations, uncertainties regarding the debt ceiling and the federal budget, and future changes to tax and other policies resulting from elections and changes in governments;
•the impact of any claims or litigation related to compensation, or other transactions with our executive officers;
•our dependence upon our key employees, our ability to build out successful succession plans, our ability to enforce post-employment restrictive covenants applicable to certain of our key employees and the potential impact of the Federal Trade Commission’s ban on non-compete provisions, which may impact our employment arrangements and awards if such ban ultimately comes into effect, the impact of absence due to illness or leave of certain key executive officers or employees and our ability to attract, retain, motivate and integrate new employees, as well as the competing demands on the time of certain of our executive officers who also provide services to Cantor, BGC and various other ventures and investments sponsored by Cantor or otherwise;
•extensive regulation of our business and clients, changes in regulations relating to commercial real estate and other industries, changes in environmental regulations, including regulations relating to climate change and
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greenhouse gas emissions, and risks relating to U.S. and foreign tax and compliance matters, including regulatory examinations, inspections, audits, investigations and enforcement actions, and any resulting costs, increased financial and capital requirements, enhanced oversight, remediation, fines, penalties, sanctions, and changes to or restrictions or limitations on specific activities, operations, and compensatory arrangements, and growth opportunities, including acquisitions, hiring, and new businesses, products, or services, as well as risks related to our taking actions to ensure that we and Newmark Holdings are not deemed investment companies under the Investment Company Act;
•factors related to specific transactions or series of transactions as well as risks related to potential counterparty failure;
•costs and expenses of developing, maintaining and protecting our intellectual property, as well as employment, regulatory and other litigation and proceedings and their related costs, including related to acquisitions and other matters, including judgments, fines, or settlements paid, reputational risk, and the impact thereof on our financial results and cash flows in any given period;
•certain other financial risks, including the possibility of future losses, indemnification obligations, assumed liabilities, reduced cash flows from operations, increased leverage, reduced availability under our various credit facilities, and the need for short- or long-term borrowings, including from Cantor, our ability to refinance our indebtedness, including in the credit markets, on acceptable rates, and our ability to satisfy eligibility criteria for government-sponsored loan programs and changes to interest rates and market liquidity or our access to other sources of cash relating to acquisitions, dispositions, or other matters, potential liquidity and other risks relating to our ability to maintain continued access to credit and the availability of financing necessary to support ongoing business needs on terms acceptable to us, if at all, and risks associated with the resulting leverage, including potentially causing a reduction in our credit ratings and associated outlooks and increased borrowing costs;
•risks associated with the temporary or longer-term investment of our available cash, including in Newmark OpCo, defaults or impairments of the Company’s investments (including investments in non-marketable securities), joint venture interests, stock loans or cash management vehicles and collectability of loan balances owed to us by partners, employees, Newmark OpCo or others;
•the impact of any reduction in the willingness of commercial property owners to outsource their property management needs;
•our ability to enter new markets or develop new products or services and to induce clients to use these products or services and to secure and maintain market share;
•our ability to enter into marketing and strategic alliances or business combinations and attract investors or partners or engage in restructuring, rebranding or other transactions, including mergers, acquisitions, dispositions, divestitures, reorganizations, partnering opportunities and joint ventures, the anticipated benefits of any such transactions, relationships or growth and the future impact of any such transactions, relationships or growth on other businesses and financial results for current or future periods, the integration of any completed acquisitions and the use of proceeds of any completed dispositions or divestitures, the impact of amendments and/or terminations of any strategic arrangements, and the value of any hedging entered into in connection with consideration received or to be received in connection with such dispositions and any transfers thereof;
•our estimates or determinations of potential value with respect to various assets or portions of the Company’s business, including with respect to the accuracy of the assumptions or the valuation models or multiples used;
•the impact of near- or off-shoring on our business, including on our ability to manage turnover and hire, train, integrate and retain personnel, including brokerage professionals, salespeople, managers, and other professionals;
•our ability to effectively manage any growth that may be achieved, including outside of the U.S., while ensuring compliance with all applicable financial reporting, internal control, legal compliance, and regulatory requirements;
•our ability to identify and remediate any material weaknesses or significant deficiencies in internal controls that could affect our ability to properly maintain books and records, prepare financial statements and reports in a timely manner, control policies, practices and procedures, operations and assets, assess and manage the Company’s operational, regulatory and financial risks, and integrate acquired businesses and brokers, salespeople, managers and other professionals;
•information technology risks, including capacity constraints, failures, or disruptions in our systems or those of clients, counterparties, or other parties with which we interact, increased demands on such systems and on the telecommunications infrastructure from remote working, including cyber security risks and incidents, compliance with regulations requiring data minimization and protection and preservation of records of access and transfers of data, privacy risk and exposure to potential liability and regulatory focus;
•the expansion of our cybersecurity processes to include new businesses, or the integration of the cybersecurity processes of acquired businesses, including internationally;
•the impact of AI on the economy, our industry, our business and the businesses of our clients and vendors;
•the effectiveness of our governance, risk management, and oversight procedures and the impact of any potential transactions or relationships with related parties;
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•the impact of our ESG or “sustainability” ratings on decisions by clients, investors, potential clients and other parties with respect to our business, investments in us, our borrowing opportunities or the market for and trading price of our Class A common stock or Company debt securities, or other matters;
•the fact that the prices at which shares of our Class A common stock are or may be sold in offerings or other transactions may vary significantly, and purchasers of shares in such offerings or other transactions, as well as existing stockholders, may suffer significant dilution if the price they paid for their shares is higher than the price paid by other purchasers in such offerings or transactions; and
•the effect on the markets for and trading prices of our Class A common stock due to market factors, as well as of various offerings and other transactions, including offerings of Class A common stock and convertible or exchangeable debt or other securities, repurchases of shares of Class A common stock and purchases or redemptions of Newmark Holdings limited partnership interests or other equity interests in us or our subsidiaries, any exchanges by Cantor of shares of Class A common stock for shares of Class B common stock, any exchanges or redemptions of limited partnership units and issuances of shares of Class A common stock in connection therewith, including in corporate or partnership restructurings, payment of dividends on Class A common stock and distributions on limited partnership interests of Newmark Holdings and Newmark OpCo, convertible arbitrage, hedging, and other transactions engaged in by us or holders of outstanding shares, debt or other securities, share sales and stock pledges, stock loans, and other financing transactions by holders of shares or units (including by Cantor executive officers, partners, employees or others), including of shares acquired pursuant to employee benefit plans, unit exchanges and redemptions, corporate or partnership restructurings, acquisitions, conversions of shares of our Class B common stock and other convertible securities into shares of our Class A common stock, and distributions of our Class A common stock by Cantor to its partners, including deferred distribution rights shares.
The foregoing risks and uncertainties, as well as those risks and uncertainties set forth in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2023, may cause actual results and events to differ materially from the forward-looking statements. The information included herein is given as of the filing date of this Quarterly Report on Form 10-Q with the SEC, and future results or events could differ significantly from these forward-looking statements. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
11
PART I
ITEM 1. FINANCIAL STATEMENTS
NEWMARK GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(unaudited)
September 30, 2024
December 31, 2023
Assets:
Current assets:
Cash and cash equivalents
$
178,583
$
164,894
Restricted cash
105,755
93,812
Loans held for sale, at fair value
1,027,781
528,944
Receivables, net
542,889
622,508
Other current assets (see Note 17)
138,171
95,946
Total current assets
1,993,179
1,506,104
Goodwill
783,173
776,547
Mortgage servicing rights, net
506,962
531,203
Loans, forgivable loans and other receivables from employees and partners, net
788,233
651,197
Right-of-use assets
540,072
596,362
Fixed assets, net
173,273
178,035
Other intangible assets, net
73,003
83,626
Other assets (see Note 17)
146,161
148,501
Total assets
$
5,004,056
$
4,471,575
Liabilities, Redeemable Partnership Interests, and Equity:
Current liabilities:
Warehouse facilities collateralized by U.S. Government Sponsored Enterprises
$
985,801
$
498,631
Accrued compensation
343,131
400,765
Accounts payable, accrued expenses and other liabilities (see Note 26)
627,058
583,564
Payables to related parties
6,045
6,644
Total current liabilities
1,962,035
1,489,604
Long-term debt
770,405
547,260
Right-of-use liabilities
527,311
598,044
Other long-term liabilities (see Note 26)
251,982
241,741
Total liabilities
3,511,733
2,876,649
Commitments and contingencies (see Note 28)
Redeemable partnership interests
13,365
16,244
Equity:
Class A common stock, par value of $0.01 per share: 1,000,000,000 shares authorized; 219,910,910 and 209,511,896 shares issued at September 30, 2024 and December 31, 2023, respectively, and
146,962,810 and 152,639,359 shares outstanding at September 30, 2024 and December 31, 2023, respectively
2,199
2,095
Class B common stock, par value of $0.01 per share: 500,000,000 shares authorized; 21,285,533 shares issued and outstanding at September 30, 2024 and December 31, 2023, convertible into Class A common stock
212
212
Additional paid-in capital
723,120
657,736
Retained earnings
1,166,969
1,166,675
Treasury stock at cost: 72,948,100 and 56,591,397 shares of Class A common stock at September 30, 2024 and December 31, 2023, respectively
(721,023)
(569,235)
Accumulated other comprehensive loss
(459)
(4,555)
Total stockholders’ equity
1,171,018
1,252,928
Noncontrolling interests
307,940
325,754
Total equity
1,478,958
1,578,682
Total liabilities, redeemable partnership interests, and equity
$
5,004,056
$
4,471,575
The accompanying Notes to the unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.
12
NEWMARK GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Revenues:
Management services, servicing fees and other
$
282,623
$
253,749
$
802,335
$
706,701
Leasing and other commissions
214,581
203,268
581,937
600,185
Capital markets
188,708
159,266
481,514
416,040
Total revenues
685,912
616,283
1,865,786
1,722,926
Expenses:
Compensation and employee benefits
392,277
371,250
1,097,994
1,046,531
Equity-based compensation and allocations of net income to limited partnership units and FPUs
48,749
29,548
125,678
84,805
Total compensation and employee benefits
441,026
400,798
1,223,672
1,131,336
Operating, administrative and other
151,942
140,930
437,622
406,738
Fees to related parties
7,638
6,244
21,847
20,863
Depreciation and amortization
44,576
41,463
129,430
122,327
Total operating expenses
645,182
589,435
1,812,571
1,681,264
Other income, net
321
3,203
5,944
4,118
Income from operations
41,051
30,051
59,159
45,780
Interest expense, net
(7,863)
(7,542)
(23,341)
(24,727)
Income before income taxes and noncontrolling interests
33,188
22,509
35,818
21,053
Provision for income taxes
8,847
8,356
14,378
12,019
Consolidated net income
24,341
14,153
21,440
9,034
Less: Net income attributable to noncontrolling interests
6,547
4,206
5,620
3,007
Net income available to common stockholders
$
17,794
$
9,947
$
15,820
$
6,027
Per share data:
Basic earnings per share
Net income available to common stockholders
$
17,794
$
9,947
$
15,820
$
6,027
Basic earnings per share
$
0.10
$
0.06
$
0.09
$
0.03
Basic weighted-average shares of common stock outstanding
170,088
174,129
172,767
173,549
Fully diluted earnings per share
Net income for fully diluted shares
$
26,151
$
14,075
$
22,968
$
8,293
Fully diluted earnings per share
$
0.10
$
0.06
$
0.09
$
0.03
Fully diluted weighted-average shares of common stock outstanding
254,970
247,240
255,376
243,882
The accompanying Notes to the unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.
13
NEWMARK GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(unaudited)
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Consolidated net income
$
24,341
$
14,153
$
21,440
$
9,034
Foreign currency translation adjustments
10,186
(9,846)
5,124
(1,895)
Comprehensive income, net of tax
34,527
4,307
26,564
7,139
Less: Comprehensive income attributable to noncontrolling interests, net of tax
8,585
2,366
6,648
2,572
Comprehensive income available to common stockholders
$
25,942
$
1,941
$
19,916
$
4,567
The accompanying Notes to the unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.
14
NEWMARK GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share amounts)
(unaudited)
Class A Common Stock
Class B Common Stock
Additional Paid-in Capital
Treasury Stock
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Noncontrolling Interests
Total
Balance, July 1, 2024
$
2,165
$
212
$
703,299
$
(648,820)
$
1,154,280
$
(8,607)
$
320,434
$
1,522,963
Consolidated net income
—
—
—
—
17,794
—
6,547
24,341
Foreign currency translation adjustments
—
—
—
—
—
8,148
2,038
10,186
Dividends to common stockholders
—
—
—
—
(5,105)
—
—
(5,105)
Purchase of limited partnership interests
—
—
(9,066)
—
—
—
(2,218)
(11,284)
Earnings distributions to limited partnership interests and other noncontrolling interests
—
—
—
—
—
—
(12,358)
(12,358)
Grant of exchangeability, redemption and issuance of
Class A common stock, 3,384,588 shares
34
—
41,457
—
—
—
14,235
55,726
Contributions of capital to and from Cantor for equity-based compensation
—
—
(16,607)
—
—
—
(4,063)
(20,670)
Repurchase of 6,779,828 shares of Class A Common Stock
—
—
—
(71,949)
—
—
(17,601)
(89,550)
Forfeiture of Class A common stock, 26,879 shares
—
—
—
(254)
—
—
(62)
(316)
Restricted stock units compensation
—
—
4,037
—
—
—
988
5,025
Balance, September 30, 2024
$
2,199
$
212
$
723,120
$
(721,023)
$
1,166,969
$
(459)
$
307,940
$
1,478,958
Class A Common Stock
Class B Common Stock
Additional Paid-in Capital
Treasury Stock
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Noncontrolling Interests
Total
Balance, January 1, 2024
$
2,095
$
212
$
657,736
$
(569,235)
$
1,166,675
$
(4,555)
$
325,754
$
1,578,682
Consolidated net income
—
—
—
—
15,820
—
5,620
21,440
Foreign currency translation adjustments
—
—
—
—
—
4,096
1,028
5,124
Dividends to common stockholders
—
—
—
—
(15,526)
—
—
(15,526)
Purchase of limited partnership interests
—
—
(9,066)
—
—
—
(2,218)
(11,284)
Earnings distributions to limited partnership interests and other noncontrolling interests
—
—
—
—
—
—
(14,658)
(14,658)
Grant of exchangeability, redemption and issuance of
Class A common stock, 9,994,868 shares
104
—
79,300
—
—
—
30,444
109,848
Contributions of capital to and from Cantor for equity-based compensation
—
—
(16,960)
—
—
—
(4,148)
(21,108)
Repurchase of 15,745,930 shares of Class A Common Stock
—
—
—
(146,654)
—
—
(35,564)
(182,218)
Forfeiture of Class A common stock, 263,268 shares
—
—
410
(5,134)
—
—
(1,141)
(5,865)
Restricted stock units compensation
—
—
11,700
—
—
—
2,823
14,523
Balance, September 30, 2024
$
2,199
$
212
$
723,120
$
(721,023)
$
1,166,969
$
(459)
$
307,940
$
1,478,958
15
Class A Common Stock
Class B Common Stock
Additional Paid-in Capital
Treasury Stock
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Noncontrolling Interests
Total
Balance, July 1, 2023
$
2,053
$
212
$
613,847
$
(549,617)
$
1,130,645
$
(5,443)
$
303,514
$
1,495,211
Consolidated net income
—
—
—
—
9,947
—
4,206
14,153
Foreign currency translation adjustments
—
—
—
—
—
(8,006)
(1,840)
(9,846)
Dividends to common stockholders
—
—
—
—
(5,245)
—
(5,245)
Earnings distributions to limited partnership interests and other noncontrolling interests
—
—
—
—
—
—
(440)
(440)
Grant of exchangeability, redemption and issuance of
Class A common stock, 2,014,382 shares
20
—
14,385
—
—
—
5,585
19,990
Contributions of capital to and from Cantor for equity-based compensation
—
—
(1,445)
—
—
—
(486)
(1,931)
Repurchase of 2,787,291 shares of Class A Common Stock
—
—
—
(15,429)
—
—
(3,480)
(18,909)
Restricted stock units compensation
—
—
4,498
—
—
—
1,015
5,513
Balance, September 30, 2023
$
2,073
$
212
$
631,285
$
(565,046)
$
1,135,347
$
(13,449)
$
308,074
$
1,498,496
Class A Common Stock
Class B Common Stock
Additional Paid-in Capital
Treasury Stock
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Noncontrolling Interests
Total
Balance, January 1, 2023
$
2,011
$
212
$
584,709
$
(538,612)
$
1,145,006
$
(11,989)
$
343,528
$
1,524,865
Consolidated net income
—
—
—
—
6,027
—
3,007
9,034
Foreign currency translation adjustments
—
—
—
—
—
(1,460)
(435)
(1,895)
Cantor purchase of Cantor units from Newmark Holdings upon redemption/ exchange of FPUs, 422,646 units
—
—
—
—
—
—
1,760
1,760
Dividends to common stockholders
—
—
—
—
(15,686)
—
—
(15,686)
Purchase of noncontrolling interests
—
—
(3,462)
(18,484)
(21,946)
Earnings distributions to limited partnership interests and other noncontrolling interests
—
—
—
—
—
—
(32,179)
(32,179)
Grant of exchangeability, redemption and issuance of
Class A common stock, 6,218,592 shares
62
—
39,554
—
—
—
14,580
54,196
Contributions of capital to and from Cantor for equity-based compensation
—
—
(1,902)
—
—
—
(535)
(2,437)
Repurchase of 5,141,508 shares of Class A Common Stock
—
—
—
(26,434)
—
—
(5,836)
(32,270)
Restricted stock units compensation
—
—
12,386
—
—
—
2,668
15,054
Balance, September 30, 2023
$
2,073
$
212
$
631,285
$
(565,046)
$
1,135,347
$
(13,449)
$
308,074
$
1,498,496
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Dividends declared per share of common stock
$
0.03
$
0.03
$
0.09
$
0.09
Dividends declared and paid per share of common stock
$
0.03
$
0.03
$
0.09
$
0.09
The accompanying Notes to the unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.
16
NEWMARK GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended September 30,
2024
2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income
$
21,440
$
9,034
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Gains on originated mortgage servicing rights
(63,798)
(54,789)
Depreciation and amortization
129,430
122,327
Provision (benefit) for credit losses on the financial guarantee liability
(1,317)
3,405
Provision (reversal) for doubtful accounts
(371)
(1,330)
Equity-based compensation and allocation of net income to limited partnership units and FPUs
125,678
84,805
Employee loan amortization and other non-cash compensation expense
91,772
78,689
Deferred tax benefit
(136)
—
Non-cash changes in acquisition related earn-outs
(4,033)
381
Unrealized (gains) losses on loans held for sale
(29,937)
550
Income from an equity method investment
—
(14,221)
Unrealized (gains) losses on marketable securities
(38)
548
Unrealized losses (gains) on non-marketable investments
(48)
—
Loan originations—loans held for sale
(5,291,238)
(5,253,690)
Loan sales—loans held for sale
4,822,339
4,775,065
Other
(8,988)
11,236
Consolidated net income (loss), adjusted for non-cash and non-operating items
(209,245)
(237,990)
Changes in operating assets and liabilities:
Receivables, net
79,990
23,444
Loans, forgivable loans and other receivables from employees and partners, net
(209,771)
(209,591)
Right-of-use assets
56,290
52,835
Other assets
(45,242)
(13,440)
Accrued compensation
(98,091)
(90,918)
Right-of-use liability
(64,320)
(32,123)
Accounts payable, accrued expenses and other liabilities
78,475
28,841
Payables to related parties
(599)
(6,996)
Net cash used in operating activities
(412,513)
(485,938)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions, net of cash acquired and proceeds from divestitures
—
(99,885)
Proceeds from the exercise of redemption option
—
105,501
Purchase of non-marketable investments
(312)
—
Payments for intangible assets
(1,500)
—
Purchases of fixed assets
(25,490)
(43,821)
Net cash used in investing activities
(27,302)
(38,205)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from warehouse facilities
5,291,238
5,253,690
Principal payments on warehouse facilities
(4,804,069)
(4,781,639)
Borrowing of debt
835,000
250,000
Repayment of debt
(610,000)
(195,000)
Purchase of limited partnership interests
(11,284)
—
Treasury stock repurchases
(182,219)
(32,270)
Earnings and tax distributions to limited partnership interests and other noncontrolling interests
(32,325)
(31,655)
Dividends to stockholders
(15,526)
(15,686)
Payments on acquisition earn-outs
—
(983)
Deferred financing costs
(5,368)
(1,991)
Net cash provided by financing activities
465,447
444,466
Net increase (decrease) in cash and cash equivalents and restricted cash
25,632
(79,677)
Cash and cash equivalents and restricted cash at beginning of period
258,706
312,952
Cash and cash equivalents and restricted cash at end of period
$
284,338
$
233,275
17
Nine Months Ended September 30,
2024
2023
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest
$
29,767
$
24,359
Taxes
$
46,601
$
45,971
Supplemental disclosure of non-cash operating, investing and financing activities:
Right-of-use assets and liabilities
$
42,005
$
57,688
The accompanying Notes to the unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.
18
NEWMARK GROUP, INC.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
(1) Organization and Basis of Presentation
Newmark Group, Inc., a Delaware corporation, was formed as NRE Delaware, Inc. on November 18, 2016. Newmark changed its name to Newmark Group, Inc. on October 18, 2017. Newmark Holdings, L.P. is a consolidated subsidiary of Newmark for which Newmark is the general partner. Newmark and Newmark Holdings jointly own Newmark Partners, L.P., the operating partnership. Newmark is a leading commercial real estate advisor and service provider to large institutional investors, global corporations, and other owners and occupiers. Newmark offers a diverse array of integrated services and products designed to meet the full needs of its clients. Newmark’s investor/owner services and products include capital markets, which consists of investment sales and commercial mortgage origination (including the placement of debt, equity raising, structured finance, and loan sales on behalf of third parties), landlord (or agency) leasing, valuation and advisory, property management, a leading commercial real estate technology platform and capabilities for owners, business rates for U.K. property owners, due diligence consulting and other advisory services, GSEs and FHA multifamily lending and loan servicing, limited and special loan servicing and asset management, and flexible workspace solutions for owners. Newmark’s corporate or occupier services and products include tenant representation leasing, GCS, which provides integrated client solutions typically under long-term agreements, including project management, transaction management, lease administration, and facilities management, as well as corporate consulting services with respect to clients’ needs across real estate and supply chain optimization, site selection, workplace strategy, and occupancy, a leading commercial real estate technology platform and capabilities for occupiers, business rates for U.K. occupiers, and flexible workspace solutions for occupiers. Newmark has relationships with many of the world’s largest commercial property owners, real estate developers and investors, as well as Fortune 500 and Forbes Global 2000 companies.
(a)Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC and in conformity with U.S. GAAP. Certain reclassifications have been made to previously reported amounts to conform to the current presentation.
“Equity-based compensation and allocations of net income to limited partnership units and FPUs” reflects the following items related to cash and equity-based compensation:
•Charges with respect to the grant of shares of common stock or limited partnership units, such as HDUs, including in connection with the redemption of non-exchangeable limited partnership units, including PSUs;
•Charges with respect to grants of exchangeability, such as the right of holders of limited partnership units with no capital accounts, such as PSUs, to exchange the units into shares of common stock, or HDUs, as well as the cash paid in the settlement of the related Preferred Units to pay withholding taxes owed by the unit holder upon such exchange;
•Preferred Units granted in connection with the grant of certain limited partnership units, such as PSUs, that may be granted exchangeability to cover the withholding taxes owed by the unit holder, rather than issuing the gross amount of shares to employees, subject to cashless withholding of shares to pay applicable withholding taxes;
•Charges related to the amortization of RSUs and REUs; and
•Allocations of net income to limited partnership units and FPUs, including the Preferred Distribution.
Intercompany balances and transactions within Newmark have been eliminated. Transactions between Cantor and Newmark pursuant to services agreements with Cantor (see Note 24 — “Related Party Transactions”), representing valid receivables and liabilities of Newmark which are periodically cash settled, have been included on the accompanying unaudited condensed consolidated financial statements as either receivables from or payables to related parties.
Newmark receives administrative services to support its operations, and in return, Cantor allocates certain of its expenses to Newmark. Such expenses represent costs related to, but not limited to, treasury, legal, accounting, information technology, payroll administration, human resources, incentive compensation plans and other services. These costs, together with an allocation of Cantor’s overhead costs, are included as expenses on the accompanying unaudited condensed consolidated statements of operations. Where it is possible to specifically attribute such expenses to activities of Newmark, these amounts have been expensed directly to Newmark. Allocation of all other such expenses is based on services agreements with Cantor which reflects the utilization of services provided or benefits received by Newmark during the periods presented on a consistent basis, such as headcount, square footage, revenue, etc. Management believes the assumptions underlying the stand-alone financial statements, including the assumptions regarding allocated expenses, reasonably reflect the utilization of services
19
provided to or the benefit received by Newmark during the periods presented. However, these shared expenses may not represent the amounts that would have been incurred had Newmark operated independently from Cantor. Actual costs that would have been incurred if Newmark had performed the services itself would depend on multiple factors, including organizational structure and strategic decisions in various areas, including information technology and infrastructure (see Note 24 — “Related Party Transactions” for an additional discussion of expense allocations).
Transfers of cash, except as related to the Cantor Credit Agreement, both to and from Cantor, as well as any amounts due to Newmark from BGC, are included in “Receivables from related parties” or “Payables to related parties” on the accompanying unaudited condensed consolidated balance sheets and in the operating section on the accompanying unaudited condensed consolidated statements of cash flows.
The income tax provision on the accompanying unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of comprehensive income has been calculated as if Newmark had been operating on a stand-alone basis and filed separate tax returns in the jurisdictions in which it operates. Prior to the Spin-Off, Newmark’s operations had been included in the BGC U.S. OpCo federal and state tax returns or separate non-U.S. jurisdictions tax returns. As Newmark operations in many jurisdictions were unincorporated commercial units of BGC and its subsidiaries, stand-alone tax returns were not filed for the operations in these jurisdictions.
The accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal and recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of the accompanying unaudited condensed consolidated balance sheets, unaudited condensed consolidated statements of operations, unaudited condensed consolidated statements of comprehensive income, unaudited condensed consolidated statements of cash flows and unaudited condensed consolidated statements of changes in equity of Newmark for the periods presented.
(b)Recently Adopted Accounting Pronouncements
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The standard improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability, as well as payment terms and their effect on subsequent revenue recognized by the acquirer. The ASU requires companies to apply guidance in ASC 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination, and, thus, creates an exception to the general recognition and measurement principle in ASC 805, Business Combinations. Newmark adopted the standard on the required effective date beginning January 1, 2023 using a prospective transition method for business combinations occurring on or after the effective date. The adoption of this guidance did not have a material impact on the accompanying unaudited condensed consolidated financial statements.
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The guidance is intended to improve the decision usefulness of information provided to investors about certain loan refinancings, restructurings, and write-offs. The standard eliminates the recognition and measurement guidance on TDRs for creditors that have adopted ASC 326, Financial Instruments — Credit Losses and requires them to make enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. The new guidance also requires public business entities to present current-period gross write-offs (on a current year-to-date basis for interim-period disclosures) by year of origination in their vintage disclosures. Newmark adopted the new standard on the required effective date beginning January 1, 2023. The guidance for recognition and measurement of TDRs was applied using a prospective transition method, and the amendments related to disclosures will be applied prospectively. The adoption of this guidance did not have a material impact on the accompanying unaudited condensed consolidated financial statements.
(c)New Accounting Pronouncements
In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting provided optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The ASU was effective upon issuance and generally could be applied through December 31, 2022. Because the current relief in ASC 848, Reference Rate Reform may not cover a period of time during which a significant number of modifications may take place, the amendments in ASU No. 2022-06 defer the sunset date from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in ASC 848. The ASU is effective upon issuance. Management is currently evaluating the impact of the new standard on the accompanying unaudited condensed consolidated financial statements.
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In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements—Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. The standard is expected to clarify or improvedisclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. The effective date for the guidance will be the date on which the SEC’s removal of the related disclosure from Regulation S-X or Regulation S-K becomes effective. If by June 30, 2027 the SEC has not removed the applicable requirements from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. Management is currently evaluating the impact of the new standard on the accompanying unaudited condensed consolidated financial statements.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The guidance was issued in response to requests from investors for companies to disclose more information about their financial performance at the segment level. The ASU does not change how a public entity identifies its operating segments, aggregates them or applies the quantitative thresholds to determine its reportable segments. The standard will require a public entity to disclose significant segment expenses and other segment items on an annual and interim basis, and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable segment will be required to provide the new disclosures and all the disclosures currently required under ASC 280. The new guidance will become effective for Newmark’s financial statements issued for annual reporting periods beginning on January 1, 2024 and for the interim periods beginning on January 1, 2025, will require retrospective presentation, and early adoption is permitted. Management is continuing its implementation effort of the new guidance, including drafting new financial statement disclosures required by the standard and developing appropriate internal controls.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The standard improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The ASU also includes certain other amendments to improve the effectiveness of income tax disclosures. The new guidance will become effective for Newmark’s financial statements issued for annual reporting periods beginning on January 1, 2025, will require prospective presentation with an option for entities to apply it retrospectively for each period presented, and early adoption is permitted. Management is currently evaluating the impact of the new standard on the accompanying unaudited condensed consolidated financial statements.
In March 2024, the FASB issued ASU No. 2024-01, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. The standard is intended to reduce the complexity in determining whether profits interests and similar awards are in the scope of ASC 718 and to reduce diversity in practice. The new guidance applies to all reporting entities that grant profits interest awards or similar awards to employees or nonemployees in exchange for goods or services. The ASU adds an example to ASC 718 that illustrates how to apply the scope guidance to determine whether a profits interest award should be accounted for as a share-based payment arrangement under ASC 718 or another accounting standard. The new guidance will become effective for Newmark beginning on January 1, 2025, can be applied either retrospectively to all periods presented or prospectively to profits interest awards granted or modified on or after the adoption date, and early adoption is permitted. Management is currently evaluating the impact of the new standard on the accompanying unaudited condensed consolidated financial statements.
In March 2024, the FASB issued ASU No. 2024-02, Codification Improvements—Amendments to Remove References to the Concepts Statements. The Conceptual Framework establishes concepts that the Board considers in developing standards. The ASU was issued to remove references to the Conceptual Framework in the Codification. The FASB noted that references to the Concepts Statements in the Codification could have implied that the Concepts Statements are authoritative. Also, some of the references removed were to Concepts Statements that are superseded. The new guidance will become effective for Newmark beginning on January 1, 2025, can be applied either retrospectively to all periods presented or prospectively to all new transactions recognized on or after the adoption date, and early adoption is permitted. Management is currently evaluating the impact of the new standard on the accompanying unaudited condensed consolidated financial statements.
SEC Rule on Climate-Related Disclosures
On March 6, 2024 the SEC adopted the final rules, The Enhancement and Standardization of Climate-Related Disclosures for Investors, that will require registrants to provide climate-related disclosures in a note to the audited financial statements. The disclosures will include certain effects of severe weather events and other natural conditions, including the aggregate amounts and where in the financial statements they are presented. If carbon offsets or renewable energy credits or certificates (RECs) are deemed a material component of the registrant’s plans to achieve its disclosed climate-related targets,
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registrants will be required to disclose information about the offsets and RECs. Registrants will also be required to disclose whether and how (1) exposures to risks and uncertainties associated with, or known impacts from, severe weather events and other natural conditions and (2) any disclosed climate-related targets or transition plans materially impacted the estimates and assumptions used in preparing the financial statements. Finally, registrants will be required to disclose additional contextual information about the above disclosures, including how each financial statement effect was derived and the accounting policy decisions made to calculate the effects, for the most recently completed fiscal year and, if previously disclosed or required to be disclosed, for the historical fiscal year for which audited consolidated financial statements are included in the filing. Subsequent to the issuance, the SEC has released an order staying the final rules pending judicial review of all of the petitions challenging the rules. Absent the stay, the rules would have been effective for Newmark on May 28, 2024 and phased in starting in 2025. Management is currently monitoring the developments pertaining to the final rules and any resulting potential impacts on the accompanying unaudited condensed consolidated financial statements.
(2) Limited Partnership Interests in Newmark Holdings and BGC Holdings
Newmark is a holding company with no direct operations and conducts substantially all of its operations through its operating subsidiaries. Virtually all of Newmark’s consolidated net assets and net income are those of consolidated variable interest entities. Newmark Holdings is a consolidated subsidiary of Newmark for which Newmark is the general partner. Newmark and Newmark Holdings jointly own Newmark OpCo, the operating partnership. In connection with the Separation and BGC Holdings Distribution, holders of BGC Holdings partnership interests received partnership interests in Newmark Holdings, described below (see Note 24 — “Related Party Transactions”). These collectively represented all of the limited partnership interests in BGC Holdings and Newmark Holdings at the time.
As a result of the Separation, the limited partnership interests in Newmark Holdings were distributed to the holders of limited partnership interests in BGC Holdings, whereby each holder of BGC Holdings limited partnership interests at that time received a corresponding Newmark Holdings limited partnership interest, determined by the Contribution Ratio, which was equal to a BGC Holdings limited partnership interest multiplied by one divided by 2.2, divided by the Exchange Ratio. Initially, the Exchange Ratio equaled one, so that each Newmark Holdings limited partnership interest was exchangeable for one share of Newmark Class A common stock; however, such Exchange Ratio is subject to adjustment. For reinvestment, acquisition or other purposes, Newmark may determine on a quarterly basis to distribute to its stockholders a smaller percentage of its income than Newmark Holdings distributes to its equity holders (excluding tax distributions from Newmark Holdings) of the cash that it received from Newmark OpCo. In such circumstances, the Separation and Distribution Agreement provides that the Exchange Ratio will be reduced to reflect the amount of additional cash retained by Newmark as a result of the distribution of such smaller percentage, after the payment of taxes. As of September 30, 2024, the Exchange Ratio equaled 0.9257.
On November 15, 2022, BGC Group, BGC Partners, and BGC Holdings, and other affiliated entities, entered into a corporate conversion agreement, which was amended as of March 29, 2023, in order to reorganize and simplify the organizational structure of the BGC entities by converting BGC Partners from an “Up-C” to a “Full C-Corporation” through the Corporate Conversion. On July 1, 2023, the Corporate Conversion was completed. As a result of the Corporate Conversion, BGC Group became the public holding company for, and successor to, BGC Partners, and its Class A common stock began trading on Nasdaq, in place of BGC Partners’ Class A common stock, under the ticker symbol “BGC.” Upon completion of the Corporate Conversion, the former stockholders of BGC Partners, Inc. and the former limited partners of BGC Holdings, L.P. now participate in the economics of the BGC businesses through BGC Group, Inc. There are no longer any BGC Holdings units outstanding.
As a result of a series of transactions prior to and in anticipation of the Corporate Conversion, all BGC Holdings units held by Newmark employees were redeemed or exchanged, in each case, for shares of BGC Class A common stock.
Redeemable Partnership Interests
Founding/Working Partners have limited partnership interests in Newmark Holdings. Newmark accounts for FPUs outside of permanent capital as “Redeemable partnership interests” on the accompanying unaudited condensed consolidated balance sheets. This classification is applicable to FPUs because these units are redeemable upon termination of a partner, including a termination of employment, which can be at the option of the partner and not within the control of the issuer. On June 30, 2023, in connection with the Corporate Conversion, all FPUs of BGC Holdings were redeemed or exchanged. The Corporate Conversion had no impact on FPUs held by partners of Newmark Holdings.
FPUs generally receive quarterly allocations of net income. Upon termination of employment or otherwise ceasing to provide substantive services, the FPUs are generally redeemed, and the unit holders are no longer entitled to participate in the quarterly allocations of net income. These quarterly allocations of net income are contingent upon services being provided by the unit holder and are reflected as a component of compensation expense under “Equity-based compensation and allocations of net income to limited partnership units and FPUs” on the accompanying unaudited condensed consolidated statements of
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operations to the extent they relate to FPUs held by Newmark employees. There is no compensation expense related to FPUs held by BGC employees.
Limited Partnership Units
Certain employees of Newmark hold limited partnership interests in Newmark Holdings (e.g., REUs, RPUs, PSUs, PSIs, HDUs, and LPUs, collectively the limited partnership units). Prior to the Corporate Conversion, any active employees of Newmark who held limited partnership interests in BGC Holdings had those units redeemed or exchanged for cash or restricted or unrestricted shares of BGC Class A common stock. The Corporate Conversion had no impact on LPUs in Newmark Holdings held by BGC employees.
Prior to the Separation, certain employees of both BGC and Newmark generally received limited partnership units in BGC Holdings. As a result of the Separation, these employees were distributed limited partnership units in Newmark Holdings equal to a BGC Holdings limited partnership unit multiplied by the Contribution Ratio. In addition, in the BGC Holdings Distribution, these employees also received additional limited partnership units in Newmark Holdings. Subsequent to the Separation, Newmark employees generally have been granted limited partnership units in Newmark Holdings.
Generally, such limited partnership units receive quarterly allocations of net income and generally are contingent upon services being provided by the unit holders. As prescribed in U.S. GAAP guidance the quarterly allocations of net income on BGC Holdings and Newmark Holdings limited partnership units held by Newmark employees are reflected as a component of compensation expense under “Equity-based compensation and allocations of net income to limited partnership units and FPUs” on the accompanying unaudited condensed consolidated statements of operations, and the quarterly allocations of net income on Newmark Holdings limited partnership units held by BGC employees are reflected as a component of “Net income (loss) attributable to noncontrolling interests” on the accompanying unaudited condensed consolidated statements of operations. From time to time, Newmark issues limited partnership units as part of the consideration for acquisitions.
Certain of these limited partnership units held by Newmark employees entitle the holders to receive post-termination payments equal to the notional amount of the units in four equal yearly installments after the holder’s termination. These limited partnership units are accounted for as post-termination liability awards and are included on the accompanying unaudited condensed consolidated balance sheets as part of “Accrued compensation,” and in accordance with U.S. GAAP guidance, Newmark records compensation expense for the awards based on the change in value at each reporting date on the accompanying unaudited condensed consolidated statements of operations as part of “Equity-based compensation and allocations of net income to limited partnership units and FPUs.”
Certain Newmark employees hold Preferred Units. Each quarter, the net profits of Newmark Holdings are allocated to such units at a rate of either 0.6875% (which is 2.75% per calendar year) or such other amount as set forth in the award documentation. These allocations are deducted before the calculation and distribution of the quarterly partnership distribution for the remaining partnership units and are generally contingent upon services being provided by the unit holder. The Preferred Units are not entitled to participate in partnership distributions other than with respect to the Preferred Distribution. Preferred Units may not be made exchangeable into Newmark’s Class A common stock and are only entitled to the Preferred Distribution, and accordingly are not included in Newmark’s fully diluted share count. The quarterly allocations of net income on Preferred Units are reflected in compensation expense under “Equity-based compensation and allocations of net income to limited partnership units and FPUs” on the accompanying unaudited condensed consolidated statements of operations. After deduction of the Preferred Distribution, the remaining partnership units generally receive quarterly allocation of net income based on their weighted-average pro rata share of economic ownership of the operating subsidiaries. In addition, Preferred Units are granted in connection with the grant of certain limited partnership units, such as PSUs, that may be granted exchangeability to cover the withholding taxes owed by the unit holder, rather than issuing the gross amount of shares to employees, subject to cashless withholding of shares to pay applicable withholding taxes.
Certain Newmark employees hold “N Units” that do not participate in quarterly partnership distributions and are not allocated any items of profit or loss. N Units become distribution earning limited partnership units, ratably over a vesting term, if certain revenue thresholds are met at the end of each vesting term.
Cantor Units
Cantor holds limited partnership interests in Newmark Holdings. Cantor Units are reflected as a component of “Noncontrolling interests” on the accompanying unaudited condensed consolidated balance sheets. Cantor receives quarterly allocations of net income (loss) which are reflected as a component of “Net income (loss) attributable to noncontrolling interests” on the accompanying unaudited condensed consolidated statements of operations.
General
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Certain of the limited partnership interests, described above, have been granted exchangeability into BGC Class A common stock, prior to the Corporate Conversion, or shares of Newmark Class A common stock, and additional limited partnership interests may become exchangeable for Newmark Class A common stock. At the time exchangeability is granted, Newmark recognizes an expense based on the fair value of the award on that date, which is included in “Equity-based compensation and allocations of net income to limited partnership units and FPUs” on the accompanying unaudited condensed consolidated statements of operations. In addition, certain limited partnership interests have been granted the right to exchange into a Newmark partnership unit with a capital account, such as HDUs. HDUs have a stated capital account which is initially based on the closing trading price of Newmark Class A common stock at the time the HDU is granted and are included in “Accrued Compensation” on the accompanying unaudited condensed consolidated balance sheets. HDUs participate in quarterly partnership distributions and are not exchangeable into shares of Class A common stock. Limited partnership interests held by Cantor in Newmark Holdings as of September 30, 2024 are exchangeable for up to 24.9 million shares of Newmark Class B common stock, which are convertible into Class A common stock. Limited partnership interests in Newmark Holdings held by a partner or Cantor may become exchangeable for a number of shares of Newmark Class A or Class B common stock equal to the number of limited partnership interests multiplied by the Exchange Ratio at that time. As of September 30, 2024, the Exchange Ratio equaled 0.9257.
Each quarter, net income (loss) is allocated between the limited partnership interests and the common stockholders. In quarterly periods in which Newmark has a net loss, the loss is allocated to Cantor and reflected as a component of “Net income (loss) attributable to noncontrolling interests” on the accompanying unaudited condensed consolidated statements of operations. In subsequent quarters in which Newmark has net income, the initial allocation of income to the limited partnership interests is allocated to Cantor, and reflected in, “Net income (loss) attributable to noncontrolling interests,” to recover any losses taken in earlier quarters, with the remaining income allocated to the limited partnership interests. This loss allocation process between limited partners and Cantor has no material impact on the net income (loss) allocated to common stockholders.
(3) Summary of Significant Accounting Policies
For a detailed discussion about Newmark’s significant accounting policies, see Note 3 — “Summary of Significant Accounting Policies” in Newmark’s consolidated financial statements included in Part II, Item 8 of Newmark’s Annual Report on Form 10-K for the year ended December 31, 2023. There were no significant changes made to Newmark’s significant accounting policies during the three and nine months ended September 30, 2024.
Revenue Recognition:
Management Services, Servicing Fees and Other:
Management services revenues include property management, facilities management, project management and valuation and appraisal. Management fees are recognized at the time the related services have been performed, unless future contingencies exist. This also includes revenue from the licensing of flexible workspaces to its customers by Knotel and Deskeo. In addition, in regard to management and facility service contracts, the owner of the property will typically reimburse Newmark for certain expenses that are incurred on behalf of the owner, which comprise primarily on-site employee salaries and related benefit costs. The amounts which are to be reimbursed per the terms of the services contract are recognized as revenue in the same period as the related expenses are incurred. In certain instances, Newmark subcontracts property management services to independent property managers, in which case Newmark passes a portion of its property management fee on to the subcontractor, and Newmark retains the balance. Accordingly, Newmark records these fees gross of the amounts paid to subcontractors, and the amounts paid to subcontractors are recognized as expenses in the same period.
Newmark also uses third party service providers in the provision of its services to customers. In instances where a third-party service provider is used, Newmark performs an analysis to determine whether it is acting as a principal or an agent with respect to the services provided. To the extent that Newmark determines that it is acting as a principal, the revenue and the expenses incurred are recorded on a gross basis. In instances where Newmark has determined that it is acting as an agent, the revenue and expenses are presented on a net basis within the revenue line item.
In some instances, Newmark performs services for customers and incurs out-of-pocket expenses as part of delivering those services. Newmark’s customers agree to reimburse Newmark for those expenses, and those reimbursements are part of the contract’s transaction price. Consequently, these expenses and the reimbursements of such expenses from the customer are presented on a gross basis because the services giving rise to the out-of-pocket expenses do not transfer a good or service. The reimbursements are included in the transaction price when the costs are incurred, and the reimbursements are due from the
customer.
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Servicing fees are earned for servicing mortgage loans and are recognized on an accrual basis over the lives of the related mortgage loans. Also included in servicing fees are the fees earned on prepayments, interest and placement fees on borrowers’ escrow accounts and other ancillary fees. Other revenues include interest income on warehouse notes receivable.
Leasing and Other Commissions:
Commissions from real estate lease brokerage transactions are typically recognized at a point in time on the date the lease is signed, if deemed not subject to significant reversal. The date the lease is signed represents the transfer of control and satisfaction of the performance obligation as the tenant has been secured. Commission payments may be due entirely upon lease execution or may be paid in installments upon the resolution of a future contingency (e.g. tenant move-in or payment of first month’s rent).
Newmark also uses third party service providers in the provision of its services to customers. In instances where a third-party service provider is used, Newmark performs an analysis to determine whether it is acting as a principal or an agent with respect to the services provided. To the extent that Newmark determines that it is acting as a principal, the revenue and the expenses incurred are recorded on a gross basis. In instances where Newmark has determined that it is acting as an agent, the revenue and expenses are presented on a net basis within the revenue line item.
Capital Markets:
Capital markets consists of investment sales and commercial mortgage brokerage. Investment sales revenue from real estate sales brokerage and equity placement transactions are recognized at the time the service has been provided and the commission becomes legally due, except when future contingencies exist. In most cases, close of escrow or transfer of title is a future contingency, and revenue recognition is deferred until all contingencies are satisfied. Commercial mortgage origination revenue is generated from loan origination fees, sales premiums, mortgage brokerage, debt placement, loan sales, and the estimated fair value of the expected net servicing cash flows. The fair value of expected net future cash flows from servicing and loan originations and related fees and sales premiums, net, is recognized when a derivative asset or liability is recorded upon the commitment to originate a loan with a borrower and sell the loan to an investor. The derivative is recorded at fair value and includes loan origination fees, sales premiums, and the estimated fair value of the expected net servicing cash flows. The revenue is recognized net of related fees and commissions to third-party brokers. Mortgage brokerage and debt placement revenue is earned and recognized when the sale of a property closes, and title passes from seller to buyer.
Goodwill and Other Intangible Assets, net:
Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. As prescribed in U.S. GAAP guidance on Intangibles—Goodwill and Other, goodwill and other indefinite-lived intangible assets are not amortized, but instead are periodically tested for impairment. The Company reviews goodwill and other indefinite-lived intangible assets for impairment on an annual basis during the fourth quarter of each fiscal year or whenever an event occurs or circumstances change that could reduce the fair value of a reporting unit below its carrying amount. When reviewing goodwill for impairment, Newmark first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.
Intangible assets with definite lives are amortized on a straight-line basis over their estimated useful lives. Definite-lived intangible assets arising from business combinations include trademarks and trade names, non-contractual customers, license agreements, non-compete agreements, and contractual customers.
Current Expected Credit Losses:
The accounting policy changes described below were updated pursuant to the adoption of ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326)—Measurement of Credit Losses on Financial Instruments and related amendments on January 1, 2020. In accordance with the guidance in ASC 326, Newmark presents its financial assets that are measured at amortized cost, net of an allowance for credit losses, which represents the amount expected to be collected over their estimated life. Expected credit losses for newly recognized financial assets carried at amortized cost and credit exposures on off-balance sheet financial guarantees, as well as changes to expected lifetime credit losses during the period, are recognized in earnings. The CECL methodology represents a significant change from prior U.S. GAAP and replaced the prior multiple impairment methods, which generally required that a loss be incurred before it was recognized. Within the life cycle of a loan or other financial asset in scope, the CECL methodology generally results in the earlier recognition of the provision for credit losses and the related allowance for credit losses than under prior U.S. GAAP. The CECL methodology’s impact on expected credit losses, among other things, reflects Newmark’s view of the current state of the economy, forecasted macroeconomic conditions and Newmark’s portfolios.
Financial guarantee liability:
Newmark has adopted ASC 326 which impacted the expected credit loss reserving methodology for the financial guarantee liability provided under the Fannie Mae DUS and Freddie Mac TAH. The expected credit loss is modeled based on Newmark’s historical loss experience adjusted to reflect current economic conditions. A significant amount of judgment is
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required in the determination of the appropriate reasonable and supportable period, the methodology used to incorporate current and future macroeconomic conditions, determination of the probability of and exposure at default or non-payment, current delinquency status, loan size, terms, amortization types, and the forward-looking view of the primary risk drivers (debt-service coverage ratio and loan-to-value), all of which are ultimately used in measuring the quantitative components of the reserve. Beyond the reasonable and supportable period, Newmark estimates expected credit losses using its historical loss rates. In addition, Newmark reviews the reserves periodically and makes adjustments for certain external and internal qualitative factors, which may increase or decrease the reserves for credit losses. In order to estimate credit losses, assumptions about current and future economic conditions are incorporated into the model using multiple economic scenarios that are weighted to reflect the conditions at each measurement date. During the three and nine months ended September 30, 2024, there was a decrease in the CECL related provision of $3.0 million and $1.7 million, respectively. During the three and nine months ended September 30, 2023, there was an increase in the CECL related provision of $0.8 million and $1.6 million, respectively. The balance of the financial guarantee liabilities was $26.9 million and $28.6 million as of September 30, 2024 and December 31, 2023, respectively, and is included in “Other long-term liabilities” on the accompanying unaudited condensed consolidated balance sheets.
Receivables, net:
Newmark has accrued commissions receivable from real estate brokerage transactions, management services and other receivables from contractual management assignments. Receivables are presented net of the CECL allowance as discussed above and are included in “Receivables, net” on the accompanying unaudited condensed consolidated balance sheets. For its CECL reserve, Newmark segregated its receivables into certain pools based on similar risk characteristics and further defined a range of potential loss rates for each pool based on aging. Newmark designed its methodology to allow for a range of loss rates in each pool such that changes in forward-looking conditions can be incorporated into the estimate. Each pool is assigned a loss rate that incorporates management’s view of current conditions and forward-looking conditions that inform the level of expected credit losses in each pool. The credit loss estimate includes specifically identified amounts for which payment has become unlikely. During the three and nine months ended September 30, 2024, there was an increase (decrease) in the CECL related provision of $19 thousand and $(1.8) million, respectively. During the three and nine months ended September 30, 2023, there was an increase (decrease) in the CECL related provision of $(0.5) million and $0.6 million, respectively. The balance of the reserve was $17.7 million and $19.5 million, respectively, as of September 30, 2024 and December 31, 2023 and is included in “Receivables, net” on the accompanying unaudited condensed consolidated balance sheets.
Loans, Forgivable Loans and Other Receivables from Employees and Partners, net:
Newmark has entered into various agreements with certain of its employees and partners, whereby these individuals receive loans which may be either wholly or in part repaid from the distribution earnings that the individual receives on some or all of their limited partnership units and from proceeds of the sales of the employees’ shares of our Class A common stock or may be forgiven over a period of time. The forgivable portion of these loans is not included in Newmark’s estimate of expected credit losses when employees meet the conditions for forgiveness through their continued employment over the specified time period and is recognized as compensation expense over the life of the loan. The amounts due from terminated employees that Newmark does not expect to collect are included in the allowance for credit losses. As of both September 30, 2024 and December 31, 2023, the balance of this reserve was $9.4 million and is included in “Loans, forgivable loans and other receivables from employees and partners, net” on the accompanying unaudited condensed consolidated balance sheets.
From time to time, Newmark may also enter into agreements with employees and partners to grant bonus and salary advances or other types of loans. These advances and loans are repayable in the time frame outlined in the underlying agreements. Newmark reviews loan balances each reporting period for collectability. If Newmark determines that the collectability of a portion of the loan balances is not expected, Newmark recognizes a reserve against the loan balances as compensation expense.
Reclassifications:
The Company has made reclassifications to prior period amounts to conform to current period presentation. These reclassifications had no effect on the reported results of operations. “Commercial mortgage origination, net” and “Investment sales” have been combined into one line, “Capital markets.” For the three and nine months ended September 30, 2023, $94.7 million and $244.3 million, respectively, of Investment sales, and $64.6 million and $171.7 million, respectively, of
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Commercial mortgage origination, net, was combined into $159.3 million and $416.0 million, respectively, of Capital markets.
Segment and geographic information:
Segment Information
Newmark has a single operating segment. Newmark is a real estate services firm offering services to commercial real estate tenants, investors, owners, occupiers, and developers. Newmark’s services include leasing and corporate advisory, investment sales and real estate finance, consulting, origination and servicing of commercial mortgage loans, valuation, project and development management and property and facility management. The chief operating decision-maker evaluates the operating results of Newmark regardless of geographic location as total real estate services and allocates resources accordingly.Newmark recognized revenues as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Management services, servicing fees and other
$
282,623
$
253,749
$
802,335
$
706,701
Leasing and other commissions
214,581
203,268
581,937
600,185
Capital markets
188,708
159,266
481,514
416,040
Revenues
$
685,912
$
616,283
$
1,865,786
$
1,722,926
Geographic Information
The Company offers products and services in the U.S., U.K., Asia, Other Europe, and Other Americas. Information regarding revenues is as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
U.S.
$
594,139
$
531,814
$
1,607,862
$
1,502,610
U.K.
51,006
45,816
147,283
111,829
Other (1)
40,767
38,653
110,641
108,487
Revenues
$
685,912
616,283
$
1,865,786
1,722,926
(1) Other includes Asia, Other Europe and Other Americas.
(4) Acquisitions
On March 10, 2023, Newmark completed the acquisition of Gerald Eve, a U.K.-based real estate advisory firm.
The following table summarizes the components of the purchase consideration transferred, and the preliminary allocation of the assets acquired, and liabilities assumed, for the acquisition which occurred in 2023:
As of the Acquisition Date
Purchase Price
Cash
$
101,152
Contingent consideration
11,863
Total
$
113,015
Allocations
Cash
$
18,616
Goodwill
75,638
Other intangible assets, net
23,472
Receivables, net
30,995
Fixed assets, net
6,279
Other assets
1,829
Right-of-use assets
19,472
Right-of-use liabilities
(20,925)
Accrued compensation
(22,075)
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Accounts payable, accrued expenses and other liabilities
(20,286)
Total
$
113,015
The total consideration for the acquisition during the year ended December 31, 2023, was $113.0 million in total fair value comprising cash of $101.2 million and contingent consideration of $11.9 million. The excess of the consideration over the fair value of the net assets acquired was recorded as goodwill of $75.6 million, of which approximately $54.8 million is deductible by Newmark for tax purposes.
This acquisition was accounted for using the purchase method of accounting. The results of operations of the acquisition have been included on the accompanying unaudited condensed consolidated financial statements subsequent to the date of acquisition, which in aggregate contributed $91.6 million to Newmark’s revenues for the year ended December 31, 2023.
(5) Earnings Per Share and Weighted-Average Shares Outstanding
U.S. GAAP guidance — Earnings (Loss) Per Share provides guidance on the computation and presentation of earnings (loss) per share. Basic EPS excludes dilution and is computed by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding and contingent shares for which all necessary conditions have been satisfied except for the passage of time. Net income (loss) is allocated to Newmark’s outstanding common stock, FPUs, limited partnership units and Cantor Units (see Note 2 — “Limited Partnership Interests in Newmark Holdingsand BGC Holdings”).
The following is the calculation of Newmark’s basic EPS (in thousands, except per share data):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Basic earnings per share:
Net income (loss) available to common stockholders
$
17,794
$
9,947
$
15,820
$
6,027
Basic weighted-average shares of common stock outstanding
170,088
174,129
172,767
173,549
Basic earnings per share
$
0.10
$
0.06
$
0.09
$
0.03
Fully diluted EPS is calculated utilizing net income (loss) available to common stockholders plus net income allocations to the limited partnership interests in Newmark Holdings as the numerator. The denominator comprises Newmark’s weighted-average number of outstanding shares of Newmark Common Stock and, if dilutive, the weighted-average number of limited partnership interests and other contracts to issue shares of common stock, stock options and RSUs. The limited partnership interests generally are potentially exchangeable into shares of Newmark Class A common stock and are entitled to remaining earnings after the deduction for the Preferred Distribution; as a result, they are included in the fully diluted EPS computation to the extent that the effect would be dilutive.
The following is the calculation of Newmark’s fully diluted EPS (in thousands, except per share data):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Fully diluted earnings per share:
Net income (loss) available to common stockholders
$
17,794
$
9,947
$
15,820
$
6,027
Allocations of net income to limited partnership interests in Newmark Holdings, net of tax
8,357
4,128
7,148
2,266
Net income (loss) for fully diluted shares
$
26,151
$
14,075
$
22,968
$
8,293
Weighted-average shares:
Common stock outstanding
170,088
174,129
172,767
173,549
Partnership units(1)
79,371
71,125
77,792
68,658
RSUs (Treasury stock method)
5,138
1,463
4,398
1,193
Newmark exchange shares
373
523
419
482
Fully diluted weighted-average shares of common stock outstanding
254,970
247,240
255,376
243,882
Fully diluted earnings per share
$
0.10
$
0.06
$
0.09
$
0.03
(1)Partnership units collectively include FPUs, limited partnership units, and Cantor Units (see Note 2 — “Limited Partnership Interests in Newmark Holdings and BGC Holdings” for more information).
28
For the three and nine months ended September 30, 2024, 0.1 million and 0.3 million potentially dilutive securities, respectively, were excluded from the computation of fully diluted EPS because their effect would have been anti-dilutive. For the three and nine months ended September 30, 2023, 3.5 million and 4.8 million potentially dilutive securities, respectively, were excluded from the computation of fully diluted EPS because their effect would have been anti-dilutive.
(6) Stock Transactions and Unit Purchases
As of September 30, 2024, Newmark has two classes of authorized common stock: Class A common stock and Class B common stock.
Class A Common Stock
Each share of Class A common stock is entitled to one vote. Newmark has 1.0 billion authorized shares of Class A common stock at $0.01 par value per share.
Changes in shares of Newmark’s Class A common stock outstanding were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Shares outstanding at beginning of period
150,384,929
152,234,598
152,639,359
150,384,605
Share issuances:
LPU redemption/exchange
2,969,977
1,633,627
8,137,918
4,719,878
Issuance of Class A common stock for Newmark RSUs
414,611
380,755
1,856,950
1,652,903
Other
(26,879)
—
74,513
(154,189)
Treasury stock repurchases
(6,779,828)
(2,787,291)
(15,745,930)
(5,141,508)
Shares outstanding at end of period
146,962,810
151,461,689
146,962,810
151,461,689
Class B Common Stock
Each share of Class B common stock is entitled to 10 votes and is convertible at any time into one share of Class A common stock.
As of both September 30, 2024 and December 31, 2023, there were 21.3 million shares of Newmark Class B common stock outstanding.
Share Repurchases and Unit Purchases
On November 4, 2022, the Board and Audit Committee reauthorized the $400.0 million Newmark share repurchase and unit purchase authorization, which has no expiration date and which may include purchases from Cantor, its partners or employees or other affiliated persons or entities.
From time to time, Newmark may actively continue to repurchase shares and/or purchase units. During the three and nine months ended September 30, 2024, Newmark repurchased 6.8 million and 15.7 million shares of Class A common stock at an average price of $13.21 per share and $11.56 per share, respectively. On September 23, 2024, the Company purchased 795,376 of Barry Gosin’s previously awarded LPUs (consisting of 123,336 APSUs, 611,167 PSUs, and 60,873 SPUs) at a price per unit of $14.19 (which was $15.34, the closing price of a share of the Company’s Class A common stock on September 23, 2024, multiplied by the then-current exchange ratio of 0.9248). There were no additional unit purchases for the three and nine months ended September 30, 2024, and no units purchased during the three and nine months ended September 30, 2023. The transaction was approved by the Compensation Committee. As of September 30, 2024, Newmark had $161.3 million remaining from its share repurchase and unit purchase authorization. During the three and nine months ended September 30, 2023, Newmark repurchased 2.8 million and 5.1 million shares of Class A common stock at an average price of $6.78 and $6.28 per share, respectively.
The following table details Newmark’s share repurchases and unit purchases for cash under the current program. The gross unit purchases and share repurchases of Newmark’s Class A common stock during the nine months ended September 30, 2024 were as follows (in thousands, except shares and units and per unit or share amounts):
29
Total
Number of
Shares/Units
Repurchased/Purchased
Average
Price Paid
per Share/Unit
Approximate Dollar Value of Units and Shares That May Yet Be Repurchased/ Purchased Under the Program
Unit Purchases
January 1, 2024 - March 31, 2024
—
$
—
April 1, 2024 - June 30, 2024
—
$
—
July 2024
—
$
—
August 2024
—
$
—
September 2024
795,376
$
14.19
Total Unit Purchases
795,376
$
14.19
Share Repurchases
January 1, 2024 - March 31, 2024
3,463,399
$
10.73
April 1, 2024 - June 30, 2024
5,502,703
$
10.09
July 2024
—
$
—
August 2024
4,512,930
$
12.58
September 2024
2,266,898
$
14.46
Total Share Repurchases
15,745,930
$
11.56
$
161,300
Redeemable Partnership Interests
The changes in the carrying amount of FPUs follow (in thousands):
September 30, 2024
December 31, 2023
Balance at beginning of period:
$
16,244
$
16,550
Income allocation
422
1,451
Distributions of income
(1,158)
(380)
Issuance and other
(2,143)
(1,377)
Balance at end of period
$
13,365
$
16,244
(7) Investments
Newmark had a 27% ownership in Real Estate LP, a joint venture with Cantor in which Newmark had the ability to exert significant influence over the operating and financial policies. Accordingly, Newmark accounted for this investment under the equity method of accounting. Newmark recognized equity income of $5.7 million and $14.2 million for the three and nine months ended September 30, 2023, respectively. Equity income (loss) is included in “Other income (loss), net” on the accompanying unaudited condensed consolidated statements of operations. On July 20, 2022, Newmark exercised its redemption option. In December 2022, the Audit Committee authorized a subsidiary of Newmark to rescind its July 20, 2022 written notice exercising the optional redemption of its 27% ownership interest in Real Estate LP and amended the joint venture agreement between Newmark and Real Estate LP to provide for a redemption option for this investment after July 1, 2023, with proceeds to be received within 20 days of the redemption notice. A payment of a $44.0 thousand administrative fee was made to Newmark in connection with such amendment. Newmark exercised its redemption option and received payment of $105.5 million from Cantor during the year ended December 31, 2023, terminating Newmark’s interest in Real Estate LP. There was no additional gain recognized on the exercise and receipt of payment.
Investments Carried Under Measurement Alternatives
Newmark has acquired investments in entities for which it does not have the ability to exert significant influence over operating and financial policies.
Newmark did not recognize any realized gains (losses) related to these investments for both the three and nine months ended September 30, 2024 and 2023. Newmark did not recognize any unrealized gains (losses) related to these investments for both the three and nine months ended September 30, 2024. Newmark recognized unrealized gains (losses) of nil and $1.0 million related to these investments for the three and nine months ended September 30, 2023, respectively. The changes in value are included as a part of “Other income (loss), net” on the accompanying unaudited condensed consolidated statements of operations. Additionally, the Company invested nil and $0.3 million during the three and nine months ended September 30,
30
2024, respectively and Company did not make any new investments during the three and nine months ended September 30, 2023. The carrying values of these investments were $5.2 million and $4.9 million as of September 30, 2024 and December 31, 2023, respectively, and are included in “Other assets” on the accompanying unaudited condensed consolidated balance sheets.
(8) Capital and Liquidity Requirements
Newmark is subject to various capital requirements in connection with seller/servicer agreements that Newmark has entered into with the various GSEs. Failure to maintain minimum capital requirements could result in Newmark’s inability to originate and service loans for the respective GSEs and could have a direct material adverse effect on the accompanying unaudited condensed consolidated financial statements. Management believes that, as of September 30, 2024 and December 31, 2023, Newmark had met all capital requirements. As of September 30, 2024 and December 31, 2023, the most restrictive capital requirement was the net worth requirement of Fannie Mae. Newmark exceeded the minimum requirement by $385.2 million and $409.2 million, respectively, as of September 30, 2024 and December 31, 2023.
Certain of Newmark’s agreements with Fannie Mae allow Newmark to originate and service loans under the Fannie Mae DUS program. These agreements require Newmark to maintain sufficient collateral to meet Fannie Mae’s restricted and operational liquidity requirements based on a pre-established formula. Certain of Newmark’s agreements with Freddie Mac allow Newmark to service loans under the Freddie Mac TAH. These agreements require Newmark to pledge sufficient collateral to meet Freddie Mac’s liquidity requirement of 8% of the outstanding principal of Freddie Mac TAH loans serviced by Newmark. Management believes that, as of September 30, 2024 and December 31, 2023, Newmark had met all liquidity requirements.
In addition, as a servicer for Fannie Mae, Ginnie Mae and FHA, Newmark is required to advance to investors any uncollected principal and interest due from borrowers. Outstanding borrower advances were $0.3 million and $1.6 million as of September 30, 2024 and December 31, 2023, respectively, and are included in “Other assets” on the accompanying unaudited condensed consolidated balance sheets.
(9) Loans Held for Sale, at Fair Value
Loans held for sale, at fair value represent originated loans that are typically financed by short-term warehouse facilities (see Note 18 — “Warehouse Facilities Collateralized by U.S. Government Sponsored Enterprises”) and sold within 45 days from the date the mortgage loan is funded. Newmark initially and subsequently measures all loans held for sale at fair value on the accompanying unaudited condensed consolidated balance sheets. The fair value measurement falls within the definition of a Level 2 measurement (significant other observable inputs) within the fair value hierarchy. Electing to use fair value allows a better offset of the change in the fair value of the loans and the change in fair value of the derivative instruments used as economic hedges. Loans held for sale had a cost basis and fair value as follows (in thousands):
September 30, 2024
December 31, 2023
Cost Basis
$
997,844
$
502,282
Fair Value
1,027,781
528,944
As of September 30, 2024 and December 31, 2023, all of the loans held for sale were either under commitment to be purchased by Freddie Mac or had confirmed forward trade commitments for the issuance and purchase of Fannie Mae or Ginnie Mae mortgage-backed securities that will be secured by the underlying loans. As of both September 30, 2024 and December 31, 2023, there were no loans held for sale that were 90 days or more past due or in nonaccrual status.
Newmark records interest income on loans held for sale, in accordance with the terms of the individual loans, during the period prior to sale. Interest income on loans held for sale is included in “Management services, servicing fees and other” on the accompanying unaudited condensed consolidated statements of operations. Gains (losses) for fair value adjustments on loans held for sale is included in “Capital markets” on the accompanying unaudited condensed consolidated statements of operations. Interest income and gains (losses) for fair value adjustments on loans held for sale were as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Interest income on loans held for sale
$
9,941
$
7,409
$
22,756
$
19,682
Gains (losses) recognized on change in fair value on loans held for sale
13,881
3,937
29,937
(550)
(10) Derivatives
31
Newmark accounts for its derivatives at fair value and recognizes all derivatives as either assets or liabilities on the accompanying unaudited condensed consolidated balance sheets. In its normal course of business, Newmark enters into commitments to extend credit for mortgage loans at a specific rate (rate lock commitments) and commitments to deliver these loans to third-party investors at a fixed price (Forward Sales Contracts).
The fair value of derivative contracts, computed in accordance with Newmark’s netting policy, is set forth below (in thousands):
September 30, 2024
December 31, 2023
Derivative contract
Assets
Liabilities
Notional
Amounts(1)
Assets
Liabilities
Notional
Amounts(1)
Rate lock commitments
$
6,900
$
2,888
$
302,710
$
9,604
$
1,023
$
290,380
Forward Sales Contracts
3,963
17,792
1,300,554
1,259
20,304
792,662
Total
$
10,863
$
20,680
$
1,603,264
$
10,863
$
21,327
$
1,083,042
(1)Notional amounts represent the sum of gross long and short derivative contracts, an indication of the volume of Newmark’s derivative activity, and do not represent anticipated losses.
The changes in fair value of rate lock commitments and Forward Sales Contracts related to mortgage loans are reported as part of “Capital markets” on the accompanying unaudited condensed consolidated statements of operations. The changes in fair value of rate lock commitments are disclosed net of $0.2 million and $0.3 million of expenses for the three months ended September 30, 2024 and 2023, respectively, and $1.0 million and $0.9 million of expenses for the nine months ended September 30, 2024 and 2023, respectively. The changes in fair value of rate lock commitments are reported as part of “Compensation and employee benefits” on the accompanying unaudited condensed consolidated statements of operations.
Gains and losses on derivative contracts, which are included on the accompanying unaudited condensed consolidated statements of operations were as follows (in thousands):
Location of gains (losses) recognized in income for derivatives
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Derivatives not designed as hedging instruments:
Rate lock commitments
Capital markets
1,870
4,176
5,006
4,076
Rate lock commitments
Compensation and employee benefits
(160)
(298)
(993)
(856)
Forward Sale Contracts
Capital markets
(11,653)
(10,407)
(13,830)
10,007
Total
$
(9,943)
$
(6,529)
$
(9,817)
$
13,227
Derivative assets and derivative liabilities are included in “Other current assets,” “Other assets” and the “Accounts payable, accrued expenses and other liabilities,” on the accompanying unaudited condensed consolidated balance sheets.
(11) Revenues from Contracts with Customers
The following table presents Newmark’s total revenues separately for its revenues from contracts with customers and other sources of revenues (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Revenues from contracts with customers:
Leasing and other commissions
$
214,581
$
203,268
$
581,937
$
600,185
Investment sales
99,223
94,707
261,777
244,304
Mortgage brokerage and debt placement
42,195
24,479
97,555
60,955
Management services
211,977
190,697
604,177
526,848
Total
567,976
513,151
$
1,545,446
$
1,432,292
Other sources of revenue(1):
Fair value of expected net future cash flows from servicing recognized at commitment, net
26,220
20,997
$
65,759
$
58,142
Loan originations related fees and sales premiums, net
21,070
19,083
56,423
52,639
Servicing fees and other (2)
70,646
63,052
198,158
179,853
Total
$
685,912
$
616,283
$
1,865,786
$
1,722,926
32
(1)Although these items have customers under contract, they were recorded as other sources of revenue as they were excluded from the scope of ASU No. 2014-9.
(2)Beginning in the first quarter of 2024, the portion of Spring11’s revenues associated with its servicing and asset management portfolio is no longer reported under “Management services” but is instead recorded as part of “Servicing fees” for all periods from the first quarter of 2023 onwards. For the three and nine months ended September 30, 2023, $2.2 million and $6.3 million, respectively, was reclassified from “Management services” to “Servicing fees.”
Disaggregation of Revenues
Newmark’s chief operating decision-maker, regardless of geographic location, evaluates the operating results, including revenues, of Newmark as total real estate services (see Note 3 — “Summary of Significant Accounting Policies” for further discussion).
Contract Balances
The timing of Newmark’s revenue recognition may differ from the timing of payment by its customers. Newmark records a receivable when revenue is recognized prior to payment and Newmark has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, Newmark records deferred revenue until the performance obligations are satisfied.
Newmark’s deferred revenue primarily relates to customers paying in advance or billed in advance where the performance obligation has not yet been satisfied. Deferred revenue is recorded as a contract liability. Deferred revenue at September 30, 2024 and December 31, 2023 was $1.5 million and $2.7 million, respectively. For the three and nine months ended September 30, 2024, Newmark recognized revenue of $0.04 million and $1.3 million, respectively, that was recorded as deferred revenue in a previous period. For the three and nine months ended September 30, 2023, Newmark recognized revenue of $0.2 million and $1.7 million, respectively, that was recorded as deferred revenue in a previous period.
For Knotel and Deskeo, the Company’s remaining performance obligations that represent contracted customer revenues, that have not yet been recognized as revenue as of September 30, 2024 and that will be recognized as revenue in future periods over the life of the customer contracts in accordance with ASC 606, are approximately $184.8 million. Over half of the remaining performance obligations as of September 30, 2024 is scheduled to be recognized as revenue within the next twelve months, with the remaining to be recognized over the remaining life of the customer contracts, which extends through 2030.
Approximate future cash flows to be received over the next five years as of September 30, 2024 are as follows (in thousands):
2024
$
30,329
2025
92,171
2026
45,242
2027
12,529
2028
4,247
Thereafter
252
Total
$
184,770
(12) Capital markets
Capital markets consists of the following activity (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Investment sales
$
99,223
$
94,707
$
261,777
$
244,304
Fair value of expected net future cash flows from servicing recognized at commitment, net
26,220
20,997
65,759
58,142
Loan originations related fees and sales premiums, net
21,070
19,083
56,423
52,639
Mortgage brokerage and debt placement
42,195
24,479
97,555
60,955
Total
$
188,708
$
159,266
$
481,514
$
416,040
(13) Mortgage Servicing Rights,Net
The changes in the carrying amount of MSRs were as follows (in thousands):
33
Three Months Ended September 30,
Nine Months Ended September 30,
Mortgage Servicing Rights
2024
2023
2024
2023
Beginning Balance
$
516,805
$
550,563
$
534,390
$
576,428
Additions
23,948
23,170
63,798
54,789
Amortization
(29,863)
(29,830)
(87,298)
(87,314)
Ending Balance
$
510,890
$
543,903
$
510,890
$
543,903
Valuation Allowance
Beginning Balance
$
(2,602)
$
(6,032)
$
(3,187)
$
(7,876)
Decrease (increase)
(1,326)
2,333
(741)
4,177
Ending Balance
$
(3,928)
$
(3,699)
$
(3,928)
$
(3,699)
Net Balance
$
506,962
$
540,204
$
506,962
$
540,204
Servicing fees are included in “Management services, servicing fees and other” on the accompanying unaudited condensed consolidated statements of operations and were as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Servicing fees (1)
$
43,489
$
40,215
$
127,620
$
118,946
Escrow interest and placement fees
16,104
15,004
45,850
37,752
Ancillary fees
1,110
201
1,932
2,961
Total
$
60,703
$
55,420
$
175,402
$
159,659
(1) Beginning in the first quarter of 2024, the portion of Spring11’s revenues associated with its servicing and asset management portfolio is no longer reported under “Management services” but is instead recorded as part of “Servicing fees” for all periods from the first quarter of 2023 onwards. For the three and nine months ended September 30, 2023, $2.2 million and $6.3 million, respectively, was reclassified from “Management services” to “Servicing fees.”
Newmark’s primary servicing portfolio as of September 30, 2024 and December 31, 2023 was $64.6 billion and $62.2 billion, respectively. Newmark’s limited servicing portfolio with recorded MSRs as of September 30, 2024 and December 31, 2023 was $7.5 billion and $10.1 billion, respectively. As of September 30, 2024 and December 31, 2023, Newmark’s limited servicing portfolio also included $104.5 billion and $101.0 billion, respectively, of loans, which did not have recorded MSRs. Also, Newmark is the named special servicer for a number of commercial mortgage-backed securitizations. Upon certain specified events (such as, but not limited to, loan defaults and loan assumptions), the administration of the loan is transferred to Newmark. Newmark’s special servicing portfolio was $2.5 billion and $2.6 billion at September 30, 2024 and December 31, 2023, respectively.
The estimated fair value of the MSRs as of September 30, 2024 and December 31, 2023 was $637.8 million and $680.6 million, respectively.
Fair values are estimated using a valuation model that calculates the present value of the future net servicing cash flows. The cash flows assumptions used are based on assumptions Newmark believes market participants would use to value the portfolio. Significant assumptions include estimates of the cost of servicing per loan, discount rate, earnings rate on escrow deposits and prepayment speeds.
The discount rates used in measuring fair value for the nine months ended September 30, 2024 and year ended December 31, 2023 were between 6.1% and 13.5% and varied based on investor type. An increase in discount rate of 100 basis points or 200 basis points would result in a decrease in fair value by $16.0 million and $31.4 million, respectively, as of September 30, 2024, and by $18.1 million and $35.4 million, respectively, as of December 31, 2023.
(14) Goodwill and Other Intangible Assets, Net
The changes in the carrying amount of goodwill were as follows (in thousands):
34
Balance, January 1, 2023
$
705,894
Acquisitions
75,638
Divestiture
(9,222)
Measurement period and currency translation adjustments
4,237
Balance, December 31, 2023
$
776,547
Acquisitions
—
Divestiture
—
Measurement period and currency translation adjustments
6,626
Balance, September 30, 2024
$
783,173
Goodwill is not amortized and is reviewed annually for impairment or more frequently if impairment indicators arise, in accordance with U.S. GAAP guidance on Goodwill and Other Intangible Assets. Newmark completed its annual goodwill impairment testing for the year ended December 31, 2023, which did not result in a goodwill impairment (see Note 4 — “Acquisitions” for more information).
Other intangible assets consisted of the following (in thousands, except weighted-average life):
September 30, 2024
Gross Amount
Accumulated Amortization
Net Carrying Amount
Weighted- Average Remaining Life (Years)
Indefinite life:
Trademark and trade names
$
12,850
$
—
$
12,850
N/A
License agreements (GSE)
5,390
—
5,390
N/A
Definite life:
Trademark and trade names
16,488
(12,799)
3,689
1.4
Non-contractual customers
30,131
(18,744)
11,387
7.2
Non-compete agreements
12,781
(7,921)
4,860
3.7
Contractual customers
62,380
(28,965)
33,415
2.9
Other
4,596
(3,184)
1,412
8.9
Total
$
144,616
$
(71,613)
$
73,003
3.8
December 31, 2023
Gross Amount
Accumulated Amortization
Net Carrying Amount
Weighted- Average Remaining Life (Years)
Indefinite life:
Trademark and trade names
$
11,350
$
—
$
11,350
N/A
License agreements (GSE)
5,390
—
5,390
N/A
Definite life:
Trademark and trade names
16,275
(10,557)
5,718
2.0
Non-contractual customers
30,131
(17,137)
12,994
8.0
Non-compete agreements
12,514
(6,827)
5,687
4.3
Contractual customers
60,802
(20,078)
40,724
3.5
Other
4,551
(2,788)
1,763
10.4
Total
$
141,013
$
(57,387)
$
83,626
4.3
Intangible amortization expense for the three months ended September 30, 2024 and 2023 was $4.5 million and $4.6 million, respectively, and $13.4 million and $12.6 million for the nine months ended September 30, 2024 and 2023, respectively. Intangible amortization is included as a part of “Depreciation and amortization” on the accompanying unaudited condensed consolidated statements of operations. Impairment charges are included in intangible amortization expense.
The estimated future amortization of definite life intangible assets as of September 30, 2024 was as follows (in thousands):
35
2024
$
4,570
2025
16,848
2026
13,194
2027
9,100
2028
4,819
Thereafter
6,232
Total
$
54,763
(15) Fixed Assets, Net
Fixed assets, net consisted of the following (in thousands):
September 30, 2024
December 31, 2023
Leasehold improvements, furniture and fixtures, and other fixed assets
$
258,089
$
245,262
Software, including software development costs
62,673
56,883
Computer and communications equipment
40,122
37,693
Total, cost
360,884
339,838
Accumulated depreciation and amortization
(187,611)
(161,803)
Total, net
$
173,273
$
178,035
Depreciation expense for the three months ended September 30, 2024 and 2023 was $9.6 million and $10.2 million, respectively, and $30.3 million and $28.9 million for the nine months ended September 30, 2024 and 2023, respectively. Newmark recorded impairment charges of $1.1 million and $1.0 million for the three months ended September 30, 2024 and 2023, respectively, and $3.1 million and $2.4 million for the nine months ended September 30, 2024 and 2023, respectively. Impairment charges are included as a part of “Depreciation and amortization” on the accompanying unaudited condensed consolidated statements of operations.
Capitalized software development costs for the three months ended September 30, 2024 and 2023 were $2.1 million and $3.4 million, respectively, and $5.2 million and $9.7 million for the nine months ended September 30, 2024 and 2023, respectively. Amortization of software development costs totaled $0.9 million and $0.7 million for the three months ended September 30, 2024 and 2023, respectively, and $2.7 million and $2.0 million for the nine months ended September 30, 2024 and 2023, respectively. Amortization of software development costs is included as part of “Depreciation and amortization” on the accompanying unaudited condensed consolidated statements of operations.
(16) Leases
Newmark has operating leases for real estate and equipment. These leases have remaining lease terms ranging from one to eleven years, some of which include options to extend the leases in one- to ten-year increments. Renewal periods are included in the lease term only when renewal is reasonably certain, which is a high threshold and requires management to apply judgment to determine the appropriate lease term. Certain leases also include periods covered by an option to terminate the lease if Newmark is reasonably certain not to exercise the termination option. The Company measures its lease payments by including fixed rental payments and, where relevant, variable rental payments tied to an index, such as the Consumer Price Index. Payments for leases in place before the date of adoption of ASC 842, Leases were determined based on previous leases guidance. The Company recognizes lease expense for its operating leases on a straight-line basis over the lease term and variable lease expense not included in the lease payment measurement is recognized as incurred. All leases were classified as operating leases as of September 30, 2024.
Pursuant to the accounting policy election, leases with an initial term of twelve months or less are not recognized on the balance sheet. The short-term lease expense over the period reasonably reflects the Company’s short-term lease commitments.
ASC 842, Leases requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease, determining the term of a lease when the contract has renewal or cancellation provisions, and determining the discount rate.
The Company determines whether an arrangement is a lease or includes a lease at the contract inception by evaluating whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for
36
consideration. If the Company has the right to obtain substantially all of the economic benefits from, and can direct the use of, the identified asset for a period of time, the Company accounts for the identified asset as a lease. The Company has elected the practical expedient to not separate lease and non-lease components for all leases other than real estate leases. The primary non-lease component that is combined with a lease component represents operating expenses such as utilities, maintenance or management fees.
As the rate implicit in the lease is not usually available, the Company used an incremental borrowing rate based on the information available at the adoption date of the new ASC 842, Leases standard in determining the present value of lease payments for existing leases. The Company has elected to use a portfolio approach for the incremental borrowing rate, applying corporate bond rates to the leases. The Company calculated the appropriate rates with reference to the lease term and lease currency. The Company uses information available at the lease commencement date to determine the discount rate for any new leases.
Total lease liability as of September 30, 2024 was $640.8 million. Of the total amount, $157.0 million of lease liability was within our flexible workspace business whereby the liability was in consolidated SPVs with only $36.6 million of guarantees and/or letters of credit with exposure to Newmark. In addition, Newmark has contracted future customer revenues and sub-lease income as of September 30, 2024 amounting to approximately $197.9 million.
Total lease liability as of December 31, 2023 was $705.1 million. Of the total amount, $172.7 million of lease liability was within our flexible workspace business whereby the liability was in consolidated SPVs with only $36.6 million of guarantees and/or letters of credit with exposure to Newmark. In addition, Newmark has contracted future customer revenues and sub-lease income as of December 31, 2023 amounting to approximately $179.3 million.
Operating lease costs were $33.5 million and $31.8 million for the three months ended September 30, 2024 and 2023, respectively, and $99.0 million and $100.2 million for the nine months ended September 30, 2024 and 2023, respectively, and are included in “Operating, administrative and other” on the accompanying unaudited condensed consolidated statements of operations. Operating cash flows for the nine months ended September 30, 2024 and 2023 included payments of $98.3 million and $91.1 million for operating lease liabilities, respectively. As of both September 30, 2024 and December 31, 2023, Newmark did not have any leases that have not yet commenced but that create significant rights and obligations. For the three months ended September 30, 2024 and 2023, Newmark had short-term lease expense of $0.1 million and $0.3 million, respectively. For the nine months ended September 30, 2024 and 2023, Newmark had short-term lease expense of $0.4 millionand $0.6 million, respectively. For the three months ended September 30, 2024 and 2023, Newmark had sublease income of $0.7 million and $0.8 million, respectively. For the nine months ended September 30, 2024 and 2023, Newmark had sublease income of $2.2 million and $2.3 million, respectively.For the three and nine months ended September 30, 2024, respectively, Newmark did not record lease impairment charges. Newmark recorded a lease impairment charge of $3.5 million for both the three and nine months ended September 30, 2023.
The weighted-average discount rate as of September 30, 2024 and December 31, 2023 was 4.95% and 4.87%, respectively, and the remaining weighted-average lease term was 5.8 years and 6.5 years, respectively.
As of September 30, 2024 and December 31, 2023, Newmark had operating lease Right-of-use assets of $540.1 million and $596.4 million, respectively, and operating lease Right-of-use liabilities of $113.5 million and $107.1 million, respectively, recorded in “Accounts payable, and accrued expenses and other liabilities,” and $527.3 million and $598.0 million, respectively, recorded in “Right-of-use liabilities,” on the accompanying unaudited condensed consolidated balance sheets.
Rent expense, including the operating lease costs above, for the three months ended September 30, 2024 and 2023, was $44.6 million and $40.4 million, respectively, and $127.6 million and $120.9 million for the nine months ended September 30, 2024 and 2023, respectively. Rent expense is included in “Operating, administrative and other” on the accompanying unaudited condensed consolidated statements of operations.
Newmark is obligated for minimum rental payments under various non-cancelable operating leases, principally for office space, expiring at various dates through 2035. Certain of these leases contain escalation clauses that require payment of additional rent to the extent of increases in certain operating or other costs.
Minimum lease payments under these arrangements, net of payments to be received under a sublease, were as follows (in thousands):
37
September 30, 2024
December 31, 2023
2024
$
36,832
$
135,208
2025
138,280
135,289
2026
130,320
129,261
2027
119,345
119,092
2028
105,342
105,869
Thereafter
210,153
205,270
Total lease payments
$
740,272
$
829,989
Less: Interest
112,639
135,073
Present value of lease liability
$
627,633
$
694,916
(17) Other Current Assets and Other Assets
Other current assets consisted of the following (in thousands):
September 30, 2024
December 31, 2023
Derivative assets
$
10,863
$
10,863
Prepaid expenses
62,481
51,367
Other taxes
42,379
9,607
Rent and other deposits
21,960
22,572
Other
488
1,537
Total
$
138,171
$
95,946
Other assets consisted of the following (in thousands):
September 30, 2024
December 31, 2023
Deferred tax assets
$
100,452
$
100,229
Non-marketable investments
5,213
4,902
Other tax receivables
14,517
9,312
Advances on long-term contracts
—
12,000
Other
25,979
22,058
Total
$
146,161
$
148,501
(18) Warehouse Facilities Collateralized by U.S. Government Sponsored Enterprises
Newmark uses its warehouse facilities and repurchase agreements to fund mortgage loans originated under its various lending programs. Outstanding borrowings against these lines are collateralized by an assignment of the underlying mortgages and third-party purchase commitments and are recourse only to our wholly owned subsidiary, Berkeley Point Capital, LLC.
Newmark had the following lines available and borrowings outstanding (in thousands, except the stated spread to one-month SOFR):
Committed Lines
Uncommitted Lines
Balance at September 30, 2024
Balance at December 31, 2023
Stated Spread to One-Month SOFR
Rate Type
Warehouse facility due May 6, 2025 (1)(2)
$
450,000
$
300,000
$
151,072
$
—
130 bps
Variable
Warehouse facility due September 25, 2025
200,000
200,000
287,130
94,873
130 bps
Variable
Warehouse facility due October 5, 2024 (3)
800,000
600,000
528,357
403,758
130 bps
Variable
Fannie Mae repurchase agreement, open maturity
—
400,000
19,242
—
115 bps
Variable
Total
$
1,450,000
$
1,500,000
$
985,801
$
498,631
(1)The warehouse line established a $125.0 million sublimit line of credit to fund potential principal and interest servicing advances on the Company’s Fannie Mae portfolio during the forbearance period related to the CARES Act. Advances bore an interest rate of one-month SOFR plus 180 bps. There were nooutstanding draws under this sublimit line of credit as of December 31, 2023.
(2)On May 7, 2024, the warehouse line was renewed, extending the maturity date to May 6, 2025 and removing the $125.0 million sublimit line of credit.
(3)On October 5, 2024, the warehouse line was renewed, extending the maturity date to October 4, 2025.
Pursuant to the terms of the warehouse facilities, Newmark is required to meet several financial covenants. Newmark was in compliance with all covenants as of both September 30, 2024 and December 31, 2023.
38
The borrowing rates on the warehouse facilities are based on short-term SOFR plus applicable margins. Due to the short-term maturity of these instruments, the carrying amounts approximate fair value.
(19) Debt
Debt consisted of the following (in thousands):
September 30, 2024
December 31, 2023
7.500% Senior Notes
$
595,405
$
—
Credit Facility
175,000
—
Delayed Draw Term Loan
—
417,260
Cantor Credit Agreement
—
130,000
Long-term debt
770,405
547,260
Total corporate debt
$
770,405
$
547,260
6.125% Senior Notes
On November 6, 2018, Newmark closed its offering of $550.0 million aggregate principal amount of 6.125% Senior Notes due November 15, 2023. The 6.125% Senior Notes were priced on November 1, 2018 at 98.94% to yield 6.375%. The 6.125% Senior Notes were offered and sold by Newmark in a private offering exempt from the registration requirements under the Securities Act. The 6.125% Senior Notes were subsequently exchanged for notes with substantially similar terms that were registered under the Securities Act. The 6.125% Senior Notes bore an interest rate of 6.125% per annum, payable on each May 15 and November 15, beginning on May 15, 2019, and matured on November 15, 2023, and were repaid prior to December 31, 2023.
On August 10, 2023, Newmark entered into a Delayed Draw Term Loan Credit Agreement to repay a portion of the principal and interest related to the Company’s $550.0 million aggregate principal amount of 6.125% Senior Notes. On November 15, 2023, Newmark repaid $566.8 million, including interest of $16.8 million, of 6.125% Senior Notes using $420.0 million of proceeds from the Delayed Draw Term Loan and $130.0 million of proceeds from the Credit Facility. See further discussion in the “Delayed Draw Term Loan” section below.
Newmark uses the effective interest rate method to amortize debt discounts and uses the straight-line method to amortize debt issue costs over the life of the notes. Interest expense, amortization of debt issue costs and amortization of the debt discount of the 6.125% Senior Notes, included in “Interest expense, net” on the accompanying unaudited condensed consolidated statements of operations, were as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Interest expense
$
—
$
8,422
$
—
25,266
Debt issue cost amortization
—
321
—
963
Debt discount amortization
—
339
—
1,000
Total
$
—
$
9,082
$
—
$
27,229
7.500% Senior Notes
On January 12, 2024, Newmark closed its offering of $600.0 million aggregate principal amount of 7.500% Senior Notes. The notes are general senior unsecured obligations of Newmark. The 7.500% Senior Notes were offered and sold in a private offering exempt from the registration requirements under the Securities Act. Customary registration rights were provided to purchasers of the 7.500% Senior Notes. Newmark subsequently held an exchange offer pursuant to which eligible holders of the 7.500% Senior Notes were able to exchange their 7.500% Senior Notes for notes with substantially identical terms that were registered under the Securities Act. The notes bear interest at a rate of 7.500% per year, payable in cash on January 12 and July 12 of each year, commencing July 12, 2024. The 7.500% Senior Notes will mature on January 12, 2029. The Company received net proceeds from the initial offering of the 7.500% Senior Notes of approximately $594.7 million after deducting the initial purchasers’ discounts and estimated offering expenses. The Company used the net proceeds to repay all of the $420.0 million then-outstanding under its Delayed Draw Term Loan Credit Agreement. Additional net proceeds were used to repay all $130.0 million of then outstanding revolving debt under the Cantor Credit Agreement. In connection with this issuance of 7.500% Senior Notes, the Company recorded approximately $0.5 million in underwriting fees payable to CF&Co. These fees were recorded as a deduction from the carrying amount of the debt liability, which is amortized as interest expense over the term of the notes. Cantor, which was not eligible to participate in the exchange offer, purchased $125.0 million aggregate principal amount of such senior notes.
The carrying amount of the 7.500% Senior Notes was determined as follows (in thousands):
September 30, 2024
December 31, 2023
39
Principal balance
$
600,000
$
—
Less: debt issue cost
4,595
—
Total
$
595,405
$
—
Newmark uses the straight-line method to amortize debt issue costs over the life of the notes. Interest expense, amortization of debt issue costs of the 7.500% Senior Notes, included in “Interest expense, net” on the accompanying unaudited condensed consolidated statements of operations, were as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Interest expense
$
11,250
$
—
$
32,375
$
—
Debt issue cost amortization
271
—
772
—
Total
$
11,521
$
—
$
33,147
$
—
Delayed Draw Term Loan
On August 10, 2023, Newmark entered into a Delayed Draw Term Loan Credit Agreement, by and among the Company, the several financial institutions from time to time party thereto, as Lenders, and Bank of America, N.A., as Administrative Agent (as such terms are defined in the Delayed Draw Term Loan Credit Agreement), pursuant to which the Lenders committed to provide to the Company a senior unsecured Delayed Draw Term Loan in an aggregate principal amount of $420.0 million, which could be increased, subject to certain terms and conditions, to up to $550.0 million. The proceeds of the Delayed Draw Term Loan could only be used to repay the 6.125% Senior Notes at their maturity. The Delayed Draw Term Loan had a maturity date of November 14, 2026.
As set forth in the Delayed Draw Term Loan Credit Agreement, the Delayed Draw Term Loan could bear interest at a per annum rate equal to, at the Company’s option, either (a) Term SOFR for interest periods of one or three months (as selected by the Company) or upon the consent of all Lenders, such other period that is 12 months or less (in each case, subject to availability), as selected by the Company, plus an applicable margin or (b) a base rate equal to the greatest of (i) the federal funds rate plus 0.50%, (ii) the prime rate as established by the Administrative Agent, and (iii) Term SOFR plus 1.00%, in each case plus an applicable margin. Upon funding, the applicable margin was 2.625% with respect to Term SOFR borrowings in (a) above and 1.625% with respect to base rate borrowings in (b) above. Depending on the Company’s credit ratings, the applicable margin could range, with respect to Term SOFR borrowings, from 2.125% to 3.375% through and including August 10, 2024, and 2.5% to 3.875% thereafter; and base rate borrowings, from 1.125% to 2.375% through and including August 10, 2024, and 1.5% to 2.875% thereafter.
The Delayed Draw Term Loan Credit Agreement contained financial covenants with respect to minimum interest coverage and maximum leverage ratio. The Delayed Draw Term Loan Credit Agreement also contained certain other customary affirmative and negative covenants and events of default. The covenants in the Delayed Draw Term Loan Credit Agreement were consistent with those within the Company’s existing $600.0 million Credit Facility, which remains available to the Company.
On November 8, 2023, Newmark provided notice to Bank of America, N.A., as Administrative Agent, to borrow the $420.0 million available under the Delayed Draw Term Loan Credit Agreement with the funds made available on November 14, 2023. The Company used the $420.0 million of proceeds of the Delayed Draw Term Loan draw to pay a portion of the matured principal and interest of the Company’s $550.0 million 6.125% Senior Notes due November 15, 2023. As of December 31, 2023, there was an outstanding balance of $420.0 million on the Delayed Draw Term Loan. On January 12, 2024, the outstanding balance under the Delayed Draw Term Loan was repaid with the proceeds of the offering of the 7.500% Senior Notes. The Delayed Draw Term Loan was terminated and the remaining unamortized debt issuance costs of $2.7 million were expensed.
The carrying amount of the Delayed Draw Term Loan was determined as follows (in thousands):
September 30, 2024
December 31, 2023
Principal balance
$
—
$
420,000
Less: debt issue cost
—
2,740
Total
$
—
$
417,260
40
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Interest expense
$
—
$
—
$
1,038
$
—
Debt issue cost amortization
—
—
16
—
Acceleration of debt issuance costs
—
—
$
2,653
$
—
Total
$
—
$
—
$
3,707
$
—
Debt Repurchase Program
On June 16, 2020, the Board and Audit Committee authorized a debt repurchase program for the repurchase of up to $50.0 million of Company debt securities.
As of September 30, 2024, Newmark had $50.0 million remaining under its debt repurchase authorization.
Credit Facility
On November 28, 2018, Newmark entered into the Credit Agreement by and among Newmark, the several financial institutions from time to time party thereto, as lenders, and Bank of America N.A., as administrative agent. The Credit Agreement provided for a $250.0 million three-year unsecured senior revolving credit facility.
On February 26, 2020, Newmark entered into an amendment to the Credit Agreement, increasing the size of the Credit Facility to $425.0 million and extending the maturity date to February 26, 2023. The annual interest rate on the Credit Facility was reduced to LIBOR plus 1.75%, subject to a pricing grid linked to Newmark’s credit ratings from S&P Global Ratings and Fitch.
On March 16, 2020, Newmark entered into a second amendment to the Credit Agreement, increasing the size of the Credit Facility to $465.0 million. The annual interest rate on the Credit Facility was LIBOR plus 1.75%, subject to a pricing grid linked to Newmark’s credit ratings from S&P Global Ratings and Fitch. In July 2021, Newmark paid the $140.0 million outstanding on the Credit Facility.
On March 10, 2022, Newmark amended and restated the Credit Agreement, as amended. Pursuant to the amended and restated Credit Agreement, the lenders agreed to: (a) increase the amount available to the Company under the Credit Facility to $600.0 million, (b) extend the maturity date of the Credit Facility to March 10, 2025, and (c) improve pricing to 1.50% per annum with respect to Term SOFR (as defined in the amended and restated Credit Agreement) borrowings.
On April 26, 2024, Newmark amended and restated the Credit Agreement, which amendment and restatement, among other things, extends the maturity date of the Credit Facility to April 26, 2027. The borrowing rates and financial covenants under the Credit Agreement are substantially consistent with the Credit Agreement prior to such amendment and restatement.
Borrowings under the Credit Facility bear interest at a per annum rate equal to, at the Company’s option, either (a) Term SOFR for interest periods of one or three months, as selected by the Company, or upon the consent of all lenders, such other period that is 12 months or less (in each case, subject to availability), as selected by the Company, plus an applicable margin, or (b) a base rate equal to the greatest of (i) the federal funds rate plus 0.50%, (ii) the prime rate as established by the Administrative Agent (as such term is defined in the amended and restated Credit Agreement), and (iii) Term SOFR plus 1.00%, in each case plus an applicable margin. The applicable margin was initially 1.50% with respect to Term SOFR borrowings in (a) above and 0.50% with respect to base rate borrowings in (b) above. The applicable margin with respect to Term SOFR borrowings in (a) above could range from 1.00% to 2.125% depending upon the Company’s credit rating, and with respect to base rate borrowings in (b) above could range from 0.00% to 1.125% depending upon the Company’s credit rating. The Credit Agreement also provides for certain upfront and arrangement fees and for an unused facility fee.
As of September 30, 2024, there were $175.0 million of borrowings outstanding under the Credit Facility. As of September 30, 2024, borrowings under the Credit Facility carried an interest rate of 6.81%, with a weighted-average interest rate of 6.91% for the nine months ended September 30, 2024. As of December 31, 2023, there were no borrowings under the Credit Facility. During the nine months ended September 30, 2024, there were $235.0 million of borrowings and $60.0 million of repayments. Newmark uses the straight-line method to amortize debt issue costs over the life of the Credit Facility. Interest expense and amortization of debt issue costs of the Credit Facility, included in “Interest expense, net” on the accompanying unaudited condensed consolidated statements of operations, were as follows (in thousands):
41
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Interest expense
$
2,725
$
2,260
$
5,369
$
7,536
Debt issue cost amortization
354
264
972
975
Unused facility fee
236
247
792
697
Total
$
3,315
$
2,771
$
7,133
$
9,208
Cantor Credit Agreement
On November 30, 2018, Newmark entered into an unsecured credit agreement with Cantor. The Cantor Credit Agreement provides for each party to issue loans to the other party in the lender’s discretion. Pursuant to the Cantor Credit Agreement, the parties and their respective subsidiaries (with respect to Cantor, other than BGC and its subsidiaries) may borrow up to an aggregate principal amount of $250.0 million from each other from time to time at an interest rate which is the higher of Cantor or Newmark’s short-term borrowing rate then in effect, plus 1.0%.
On December 20, 2023, Newmark entered into a first amendment to the Cantor Credit Agreement. Pursuant to the First Cantor Credit Agreement Amendment, Cantor agreed to make certain loans to Newmark from time to time in an aggregate outstanding principal amount of up to $150.0 million under the Cantor Credit Agreement. The Newmark Revolving Loans have substantially the same terms as other loans under the Cantor Credit Agreement, except that until April 15, 2024, the Newmark Revolving Loans would bear interest at a rate equal to 25 basis points less than the interest rate borne by the revolving loans made pursuant to the Credit Facility. Unlike other loans made under the Cantor Credit Agreement, Cantor may demand repayment of the Newmark Revolving Loans prior to the final maturity date of the Cantor Credit Agreement upon three business days’ prior written notice. Also on December 20, 2023, Newmark drew $130.0 million of Newmark Revolving Loans, and used the proceeds to repay the $130.0 million balance then outstanding under the Credit Facility. As of December 31, 2023, there were $130.0 million of borrowings outstanding under the Cantor Credit Agreement. On January 12, 2024, the outstanding balance under the Cantor Credit Agreement was repaid with the proceeds of the offering of the 7.500% Senior Notes. As of September 30, 2024, there was no outstanding balance under the Cantor Credit Agreement.
Pursuant to the terms of the agreements described above, Newmark is required to meet several financial covenants. Newmark was in compliance with all such covenants as of both September 30, 2024 and December 31, 2023.
(20) Financial Guarantee Liability
Newmark shares risk of loss for loans originated under the Fannie Mae DUS and Freddie Mac TAH programs and could incur losses in the event of defaults under or foreclosure of these loans. Under the loss-share guarantee, Newmark’s maximum contingent liability to the extent of actual losses incurred is approximately 33% of the outstanding principal balance on Fannie Mae DUS or Freddie Mac TAH loans. Risk-sharing percentages are established on a loan-by-loan basis when originated, with most loans at 33% and “modified” loans at lower percentages. Under certain circumstances, risk-sharing percentages can be revised subsequent to origination or Newmark could be required to repurchase the loan. In the event of a loss resulting from a catastrophic event that is not required to be covered by borrowers’ insurance policies, Newmark can recover the loss under its mortgage impairment insurance policy. Any potential recovery is subject to the policy’s deductibles and limits.
At September 30, 2024, the credit risk loans being serviced by Newmark on behalf of Fannie Mae and Freddie Mac had outstanding principal balances of $31.0 billion with a maximum potential loss of approximately $9.6 billion. At December 31, 2023, the credit risk loans being serviced by Newmark on behalf of Fannie Mae and Freddie Mac had outstanding principal balances of approximately $29.1 billion with a maximum potential loss of approximately $9.0 billion.
Newmark’s current estimate of expected credit losses considers various factors, including, without being limited to, historical default and losses, current delinquency status, loan size, terms, amortization types, the forward-looking view of the primary risk drivers (debt-service coverage ratio and loan-to-value) based on forecasts of economic conditions and local market performance. During the three and nine months ended September 30, 2024, there were decreases in the provision for expected credit losses of $2.7 million and $1.3 million, respectively. During the three and nine months ended September 30, 2023, there were increases in the provision for expected credit losses of $0.8 million and $3.4 million, respectively. A loan is considered to be delinquent once it is 60 days past due.
As of September 30, 2024, there was one loan in foreclosure that had an outstanding principal balance of $5.1 million, with a maximum loss exposure of $1.7 million. Advances for principal, interest and maintenance costs to be used for the loss calculation are $1.8 million. Proceeds from the liquidation of the asset is estimated to be approximately $6.1 million based on current estimate of fair value. Newmark’s share of the loss was estimated at $0.1 million. During the nine months ended
42
September 30, 2024, Newmark settled its share of the loss on one credit risk loan for $0.3 million that was in foreclosure as of December 31, 2023.
As of December 31, 2023, there was one loan in foreclosure that had an outstanding principal balance of $7.3 million, with a maximum loss exposure of $2.4 million. Proceeds from the liquidation of the asset is estimated to be approximately $7.5 million based on current estimate of fair value at December 31, 2023. Newmark’s share of the loss would approximate $0.5 million. During the year ended December 31, 2023, Newmark settled the loss on one credit risk loan for $1.2 million that was in foreclosure as of December 31, 2022 and wrote off $0.6 million of servicing advances.
The provisions for risk-sharing were included in “Operating, administrative and other” on the accompanying unaudited condensed consolidated statements of operations as follows (in thousands):
Balance, January 1, 2023
$
27,729
Provision for expected credit losses
2,634
Credit loss settlement
(1,812)
Balance, December 31, 2023
$
28,551
Provision for expected credit losses
(1,317)
Credit loss settlement
(345)
Balance, September 30, 2024
$
26,889
(21) Concentrations of Credit Risk
The lending activities of Newmark create credit risk in the event that counterparties do not fulfill their contractual payment obligations. In particular, Newmark is exposed to credit risk related to the Fannie Mae DUS and Freddie Mac TAH loans (see Note 20 — “Financial Guarantee Liability”). As of September 30, 2024, 19% and 13% of $9.6 billion of the maximum loss was for properties located in California and Texas, respectively. As of December 31, 2023, 20% and 12% of $9.0 billion of the maximum loss was for properties located in California and Texas, respectively.
(22) Escrow and Custodial Funds
In conjunction with the servicing of multifamily and commercial loans, Newmark holds escrow and other custodial funds. Escrow funds are held at unaffiliated financial institutions generally in the form of cash and cash equivalents. These funds amounted to $1.3 billion and $1.1 billion, as of September 30, 2024 and December 31, 2023, respectively. These funds are held for the benefit of Newmark’s borrowers and are segregated in custodial bank accounts. These amounts are excluded from the assets and liabilities of Newmark.
(23) Fair Value of Financial Assets and Liabilities
U.S. GAAP guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
•Level 1 measurements—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
•Level 2 measurements—Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.
•Level 3 measurements—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
As required by U.S. GAAP guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth by level within the fair value hierarchy financial assets and liabilities accounted for at fair value under U.S. GAAP guidance (in thousands):
43
As of September 30, 2024
Level 1
Level 2
Level 3
Total
Assets:
Marketable securities
$
136
$
—
$
—
$
136
Loans held for sale, at fair value
—
1,027,781
—
1,027,781
Rate lock commitments
—
—
6,900
6,900
Forward Sales Contracts
—
—
3,963
3,963
Total
$
136
$
1,027,781
$
10,863
$
1,038,780
Liabilities:
Contingent consideration
—
—
23,122
23,122
Rate lock commitments
—
—
2,888
2,888
Forward Sales Contracts
—
—
17,792
17,792
Total
$
—
$
—
$
43,802
$
43,802
As of December 31, 2023
Level 1
Level 2
Level 3
Total
Assets:
Marketable securities
$
99
$
—
$
—
$
99
Loans held for sale, at fair value
—
528,944
—
528,944
Rate lock commitments
—
—
9,604
9,604
Forward Sales Contracts
—
—
1,259
1,259
Total
$
99
$
528,944
$
10,863
$
539,906
Liabilities:
Contingent consideration
$
—
$
—
$
25,740
$
25,740
Rate lock commitments
—
—
1,023
1,023
Forwards Sales Contracts
—
—
20,304
20,304
Total
$
—
$
—
$
47,067
$
47,067
There were no transfers among Level 1, Level 2 and Level 3 for the three and nine months ended September 30, 2024 and 2023, respectively.
Level 3 Financial Assets and Liabilities: Changes in Level 3 rate lock commitments, Forward Sales Contracts and contingent consideration measured at fair value on recurring basis were as follows (in thousands):
As of September 30, 2024
Opening Balance
Total realized and unrealized gains (losses) included in Net income
Additions
Settlements
Closing Balance
Unrealized gains (losses) outstanding
Assets:
Rate lock commitments
$
9,604
$
6,900
$
—
$
(9,604)
$
6,900
$
6,900
Forward Sales Contracts
1,259
3,963
—
(1,259)
3,963
3,963
Total
$
10,863
$
10,863
$
—
$
(10,863)
$
10,863
$
10,863
Opening Balance
Total realized and unrealized gains (losses) included in Net income
Additions
Settlements
Closing Balance
Unrealized gains (losses) outstanding
Liabilities:
Contingent consideration
$
25,740
$
(2,618)
$
—
$
—
$
23,122
$
(2,618)
Rate lock commitments
1,023
2,888
—
(1,023)
2,888
2,888
Forward Sales Contracts
20,304
17,792
—
(20,304)
17,792
17,792
Total
$
47,067
$
18,062
$
—
$
(21,327)
$
43,802
$
18,062
44
As of December 31, 2023
Opening Balance
Total realized and unrealized gains (losses) included in Net income
Additions
Settlements
Closing Balance
Unrealized gains (losses) outstanding
Assets:
Rate lock commitments
$
3,181
$
9,604
$
—
$
(3,181)
$
9,604
$
9,604
Forward Sales Contracts
11,139
1,259
—
(11,139)
1,259
$
1,259
Total
$
14,320
$
10,863
$
—
$
(14,320)
$
10,863
$
10,863
Opening Balance
Total realized and unrealized gains (losses) included in Net income
Additions
Settlements
Closing Balance
Unrealized gains (losses) outstanding
Liabilities:
Contingent consideration
$
8,343
$
6,192
$
12,189
$
(984)
$
25,740
$
6,192
Rate lock commitments
8,754
1,023
—
(8,754)
1,023
1,023
Forward Sales Contracts
624
20,304
—
(624)
20,304
20,304
Total
$
17,721
$
27,519
$
12,189
$
(10,362)
$
47,067
$
27,519
Quantitative Information About Level 3 Fair Value Measurements
The following tables present quantitative information about the significant unobservable inputs utilized by Newmark in the fair value measurement of Level 3 assets and liabilities measured at fair value on a recurring basis:
September 30, 2024
Level 3 assets and liabilities
Assets
Liabilities
Significant Unobservable Inputs
Range
Weighted Average
Accounts payable, accrued expenses and other liabilities:
Contingent consideration
$
—
$
23,122
Discount rate
0.0% - 8.0%
(1)
3.3%
Probability of meeting earnout and contingencies
99.0% - 100.0%
(1)
99.6%
Derivative assets and liabilities:
Forward Sales Contracts
$
3,963
$
17,792
Counterparty credit risk
N/A
N/A
Rate lock commitments
$
6,900
$
2,888
Counterparty credit risk
N/A
N/A
December 31, 2023
Level 3 assets and liabilities
Assets
Liabilities
Significant Unobservable Inputs
Range
Weighted Average
Accounts payable, accrued expenses and other liabilities:
Contingent consideration
$
—
$
25,740
Discount rate
0.0% - 8.0%
(1)
2.6%
Probability of meeting earnout and contingencies
99.0% - 100.0%
(1)
99.7%
Derivative assets and liabilities:
Forward Sales Contracts
$
1,259
$
20,304
Counterparty credit risk
N/A
N/A
Rate lock commitments
$
9,604
$
1,023
Counterparty credit risk
N/A
N/A
(1)Newmark’s estimate of contingent consideration as of September 30, 2024 and December 31, 2023 was based on the acquired business’ projected future financial performance, including revenues.
Valuation Processes – Level 3 Measurements
Both the rate lock commitments to borrowers and the Forward Sales Contracts to investors are derivatives and, accordingly, are marked to fair value on the accompanying unaudited condensed consolidated statements of operations. The fair value of Newmark’s rate lock commitments to borrowers and loans held for sale and the related input levels includes, as applicable:
•The assumed gain or loss of the expected loan sale to the investor, net of employee benefits;
•The expected net future cash flows associated with servicing the loan;
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•The effects of interest rate movements between the date of the rate lock and the balance sheet date; and
•The nonperformance risk of both the counterparty and Newmark.
The fair value of Newmark’s Forward Sales Contracts to investors considers effects of interest rate movements between the trade date and the balance sheet date. The market price changes are multiplied by the notional amount of the Forward Sales Contracts to measure the fair value.
The fair value of Newmark’s rate lock commitments and Forward Sales Contracts is adjusted to reflect the risk that the agreement will not be fulfilled. Newmark’s exposure to nonperformance in rate lock and Forward Sales Contracts is represented by the contractual amount of those instruments. Given the credit quality of Newmark’s counterparties, the short duration of rate lock commitments and Forward Sales Contracts, and Newmark’s historical experience with the agreements, management does not believe the risk of nonperformance by Newmark’s counterparties to be significant.
The fair value of Newmark’s contingent consideration is based on the discount rate of the Company’s calculated-average cost of capital, as well as the probability of acquirees meeting earnout targets.
Information About Uncertainty of Level 3 Fair Value Measurements
The significant unobservable inputs used in the fair value of Newmark’s contingent consideration are the discount rate and probability of meeting earnout and contingencies. Significant increases (decreases) in the discount rate would have resulted in a significantly lower (higher) fair value measurement. Significant increases (decreases) in the probability of meeting earnout and contingencies would have resulted in a significantly higher (lower) fair value measurement. As of September 30, 2024 and December 31, 2023, the present value of expected payments related to Newmark’s contingent consideration was $23.1 million and $25.7 million, respectively (see Note 28 — “Commitments and Contingencies”). As of September 30, 2024 and December 31, 2023, the undiscounted value of the payments, assuming that all contingencies are met, would be $32.9 million and $35.9 million, respectively.
Fair Value Measurements on a Non-Recurring Basis
Equity investments carried under the measurement alternative are remeasured at fair value on a non-recurring basis to reflect observable transactions which occurred during the period. Newmark applied the measurement alternative to equity securities with the fair value of $5.2 million and $4.9 million as of September 30, 2024 and December 31, 2023, respectively, which was included in “Other assets” on the accompanying unaudited condensed consolidated balance sheets. These investments are classified within Level 2 in the fair value hierarchy, because their estimated fair value is based on valuation methods using the observable transaction price at the transaction date.
(24) Related Party Transactions
(a)Services Agreements
Newmark receives administrative services, including but not limited to, treasury, legal, accounting, information technology, payroll administration, human resources, incentive compensation plans and other support, provided by Cantor and its subsidiaries. Allocated expenses were $7.6 million and $6.2 million for the three months ended September 30, 2024 and 2023, respectively, and $21.8 million and $20.9 million for the nine months ended September 30, 2024 and 2023, respectively. These expenses are included as part of “Fees to related parties” on the accompanying unaudited condensed consolidated statements of operations.
(b)Loans, Forgivable Loans and Other Receivables from Employees and Partners
Newmark has entered into various agreements with certain employees and partners whereby these individuals receive loans which may be either wholly or in part repaid from the distribution of earnings that the individuals receive on some or all of their limited partnership interests or from the proceeds of the sale of the employees’ shares of Newmark Class A common stock, or may be forgiven over a period of time. The forgivable portion of these loans is recognized as compensation expense over the life of the loans. From time to time, Newmark may also enter into agreements with employees and partners to grant bonus and salary advances or other types of loans. These advances and loans are repayable in the timeframes outlined in the underlying agreements.
As of September 30, 2024 and December 31, 2023, the aggregate balance of employee loans was $788.2 million and $651.2 million, respectively, and is included as “Loans, forgivable loans and other receivables from employees and partners, net” on the accompanying unaudited condensed consolidated balance sheets. Compensation expense for the above-mentioned employee loans for the three months ended September 30, 2024 and 2023 was $23.5 million and $28.3 million, respectively,
46
and $72.7 million and $78.7 million for the nine months ended September 30, 2024 and 2023, respectively. The compensation expense related to these employee loans is included as part of “Compensation and employee benefits” on the accompanying unaudited condensed consolidated statements of operations.
(c)Transactions with Cantor Commercial Real Estate, L.P.
Newmark services loans for CCRE on a “fee for service” basis, generally prior to a loan’s sale or securitization, and for which no MSR is recognized. Newmark recognized servicing revenues (excluding interest and placement fees) from servicing rights purchased from CCRE on a “fee for service” basis of $0.5 million and $0.6 million for the three months ended September 30, 2024 and 2023, respectively, and $1.7 million and $2.1 million for the nine months ended September 30, 2024 and 2023, respectively, which were included as part of “Management services, servicing fees and other” on the accompanying unaudited condensed consolidated statements of operations.
On July 22, 2019, CCRE Lending made a $146.6 million commercial real estate loan to a single-purpose company in which Mr. Gosin, Newmark’s Chief Executive Officer, owns a 19% interest. This loan is secured by the single-purpose company’s interest in property in Pennsylvania that is subject to a ground lease. While CCRE Lending initially provided the full loan amount, on August 16, 2019, a third-party bank purchased approximately 80% of the loan value from CCRE Lending, with CCRE Lending retaining approximately 20%. This loan matures on August 6, 2029, and is payable monthly at a fixed interest rate of 4.38% per annum.
(d) Transactions with Executive Officers and Directors
Howard W. Lutnick, Executive Chairman
On January 2, 2024, pursuant to the Standing Policy for Mr. Lutnick, and in connection with grants of exchangeability made to Mr. Gosin pursuant to the terms of the employment agreement that Mr. Gosin executed on February 10, 2023, the Company granted exchange rights and/or monetization rights with respect to rights available to Mr. Lutnick, and Mr. Lutnick (i) elected to accept 617,262 exchange rights with respect to 617,262 previously awarded PSUs that were previously non-exchangeable; and (ii) received the right to monetize, and accepted such monetization right of 81,275 previously awarded nonexchangeable PPSUs for a future cash payment of $1,250,000. Mr. Lutnick waived all remaining rights, which shall be cumulative. The aggregate number of Mr. Lutnick’s units for which he waived exchange rights or other monetization rights is 617,262 non-exchangeable Newmark Holdings PSUs/NPSUs and 81,274 non-exchangeable Newmark Holdings PPSUs with an aggregate determination amount of $1,250,000 at that time.
In connection with the Corporate Conversion, on May 18, 2023, Mr. Lutnick’s 1,474,930 BGC Holdings HDUs were redeemed for a cash capital account payment of $9.1 million, $7.0 million of which was paid by Newmark, with the remainder paid by BGC.
On December 27, 2021, the Compensation Committee approved a one-time bonus award to Mr. Lutnick, which was evidenced by the execution and delivery of a Retention Bonus Agreement, dated December 28, 2021, in consideration of his success in managing certain aspects of the Company’s performance as its principal executive officer and Chairman. The bonus award rewarded Mr. Lutnick for his efforts in delivering superior financial results for the Company and its stockholders, including in particular his success in creating substantial value for the Company and its stockholders in connection with creating, structuring, hedging and monetizing the forward share contract to receive over time shares of common stock of Nasdaqheld by the Company and the strong balance sheet and significant amount of income created from this. A principal reason for structuring the bonus award with a substantial portion to be paid out over three years was also to further incentivize Mr. Lutnick to continue to serve as both the Company’s principal executive officer and its Chairman for the benefit of the Company’s stockholders.
The Retention Bonus Agreement provides for an aggregate cash payment of $50 million, payable as follows: $20 million within three days of the date of the Retention Bonus Agreement (which payment was made on December 31, 2021), and $10 million within thirty days following vesting on each of the first, second and third anniversaries of the date of the Retention Bonus Agreement. Any entitlement to future amounts not vested will be forfeited immediately if, prior to the applicable anniversary date, Mr. Lutnick ceases to serve as both the Company’s Chairman and its principal executive officer, unless Mr. Lutnick ceasing to serve in either such capacity occurs pursuant to a “Vesting Termination,” as that term is defined in the Retention Bonus Agreement. Mr. Lutnick has purchased Newmark Class A common stock with the after-tax proceeds of the initial tranche of the bonus award. The Retention Bonus Agreement describes a “Vesting Termination” as (i) a termination of Mr. Lutnick’s employment by the Company without “Cause” (as that term is defined in the Retention Bonus Agreement) or (ii) an involuntary removal of Mr. Lutnick from the position of Chairman of the Board on or after the occurrence of a Change in Control (as that term is defined in the Change of Control Agreement, dated as of December 13, 2017, by and between Mr. Lutnick and the Company). In the event that Mr. Lutnick ceases to serve as both the Company’s Chairman and its principal executive officer pursuant to a Vesting Termination, any amounts not vested will immediately become fully vested. The
47
Retention Bonus Agreement provides that Mr. Lutnick ceasing to serve as the Company’s Chairman and principal executive officer pursuant to his death or disability does not constitute a Vesting Termination. The provisions of Mr. Lutnick’s Change of Control Agreement do not apply to the bonus award. A copy of the Retention Bonus Agreement was attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 30, 2021 and is described in detail under the heading “2021 Lutnick Award” in our definitive proxy statement for our 2024 annual meeting of stockholders, filed with the SEC on September 6, 2024.
In connection with the 2018 year-end compensation cycle, the Compensation Committee previously approved the issuance of 500,000 Newmark Holdings NPSUs and 500,000 Newmark Holdings NPPSUs with a determination price of $10.05 per unit to Mr. Lutnick, effective April 1, 2019. The terms of those awards provided that on or about each April 1 of 2020, 2021, 2022, and 2023, Newmark Holdings shall grant an aggregate award of 125,000 non-exchangeable Newmark Holdings PSUs and 125,000 non-exchangeable PPSUs in replacement of 125,000 Newmark Holdings NPSUs and 125,000 Newmark Holdings NPPSUs (which, upon replacement, shall be cancelled and no longer exist), provided that (i) Newmark, inclusive of its affiliates thereof, earns, in aggregate, at least $5 million in gross revenues in the calendar quarter in which the applicable award of Newmark Holdings PSUs or PPSUs is to be granted and (ii) except in the event of death prior to the applicable grant date, Mr. Lutnick remains an employee of Newmark or an affiliate thereof and has at all times remained in compliance with the Newmark Holdings partnership agreement. Mr. Lutnick exercised his rights on December 21, 2021, pursuant to the Standing Policy to redeem his remaining 250,000 Newmark Holdings NPPSUs issued effective April 1, 2019. Pursuant to this grant, on April 1, 2023, the Company granted Mr. Lutnick an aggregate award of 125,000 non-exchangeable PSUs in replacement of the remaining 125,000 NPSUs.
Barry M. Gosin, Chief Executive Officer
On September 23, 2024, the Company purchased 795,376 of Barry Gosin’s previously awarded LPUs (consisting of 123,336 APSUs, 611,167 PSUs, and 60,873 SPUs) at a price per unit of $14.19 (which was $15.34, the closing price of a share of the Company’s Class A common stock on September 23, 2024, multiplied by the then-current exchange ratio of 0.9248). The transaction was approved by the Compensation Committee, was exempt under Rule 16b-3 of the Exchange Act, and was made pursuant to the Company’s unit purchase authorization.
On August 7, 2024, Mr. Gosin entered into the 2024 Gosin Employment Agreement with Newmark OpCo and Newmark Holdings, which superseded and replaced the 2023 Gosin Employment Agreement. The 2024 Gosin Employment Agreement extends the initial term of Mr. Gosin’s employment under the 2023 Gosin Employment Agreement to run through December 31, 2026, and removes provisions in the 2023 Gosin Employment Agreement that related to Mr. Gosin’s right to terminate the agreement on December 31, 2024, by providing at least six months’ prior notice. In connection with the execution of the 2024 Gosin Employment Agreement and as consideration for his continued service, in addition to the awards previously provided for by the 2023 Gosin Employment Agreement, the Compensation Committee approved the grant to Mr. Gosin of (i) a one-time cash payment of $5,000,000; (ii) an award of 1,694,915 NPSUs, calculated by dividing the total NPSU award by the closing stock price on August 7, 2024, of which $5,000,000 of NPSUs are attributable to calendar year 2025 and $15,000,000 of NPSUs are attributable to calendar year 2026; and (iii) a cash bonus in the gross amount of $1,500,000 with respect to calendar year 2026, payable in calendar year 2027 at such time as bonuses with respect to calendar year 2026 are generally distributed to other similarly situated employees of Newmark OpCo in connection with the year-end compensation review process. Mr. Gosin’s annual total contractual compensation would be $17,500,000 for each of calendar years 2024, 2025, and 2026 (comprised of $1,000,000 salary and $16,500,000 in combined NPSUs and cash awards attributed by the Company) and consistent with his total compensation for calendar year 2023 pursuant to the 2023 Gosin Employment Agreement.
Subject to the terms of the 2024 Gosin Employment Agreement and the grant documents under which the grant of NPSUs to Mr. Gosin was awarded, 25% of such NPSUs grant shall convert into non-exchangeable PSUs on December 31, 2025, and 75% of such NPSUs grant shall convert into non-exchangeable PSUs on December 31, 2026, in each case as adjusted by the then current exchange ratio, subject to the requirement that, as of each applicable conversion date (i) the Company (including its affiliates) earns, in the aggregate, at least $10,000,000 in gross revenues in the calendar quarter in which the applicable conversion is to occur, and (ii) except as otherwise provided in the 2024 Gosin Employment Agreement, Mr. Gosin continues to perform substantial services exclusively for Newmark OpCo or any of its affiliates, remains a partner in Newmark Holdings, and complies with the terms of the 2024 Gosin Employment Agreement and any of his obligations to Newmark Holdings, Newmark OpCo or any affiliate. 25% of each of the 2025 and 2026 tranches in non-exchangeable PSUs received upon conversion of such NPSUs will receive exchange rights on December 31 of each year after such conversion, consistent with the schedule for the grant of exchange rights provided for the NPSUs Mr. Gosin received in connection with the 2023 Gosin Employment Agreement, which remains unchanged other than that 1,145,476 of Mr. Gosin’s NPSUs previously awarded under the 2023 Gosin Employment Agreement were adjusted by the exchange ratio and converted into 1,238,620 non-exchangeable PSUs in connection with the signing of the 2024 Gosin Employment Agreement, rather than on their previously scheduled conversion date of December 31, 2024. 25% of such PSUs will continue to receive exchange rights on December 31 of each year starting December 31, 2026, as previously contemplated in the 2023 Gosin Employment Agreement.
48
A copy of the 2024 Gosin Employment Agreement was attached as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 12, 2024 and is described in detail therein.
On December 31, 2023, 1,145,494 of Mr. Gosin’s Newmark Holdings NPSUs were converted into 1,240,901 Newmark Holdings PSUs as adjusted by the then applicable exchange ratio of 0.9231 pursuant to the 2023 Gosin Employment Agreement.
Pursuant to the 2023 Gosin Employment Agreement, on April 1, 2023, 1,145,494 of Mr. Gosin’s Newmark Holdings NPSUs were converted into 1,237,644 Newmark Holdings PSUs as adjusted by the then applicable exchange ratio of 0.9252. On December 31, 2023, Mr. Gosin received exchange rights on 1/7th of the 1,237,644 Newmark Holdings PSUs converted on April 1, 2023, resulting in 176,804 exchangeable Newmark Holdings PSUs.
Pursuant to the 2023 Gosin Employment Agreement, on March 30, 2023, (a) 203,186 of Mr. Gosin’s non-exchangeable Newmark Holdings PSUs were redeemed and an aggregate of 189,024 shares of Class A common stock of Newmark were issued, as adjusted by the then applicable exchange ratio of 0.9303, and (b) $3,125,001 associated with Mr. Gosin’s non-exchangeable Newmark Holdings PPSUs was redeemed and used for tax purposes.
On February 10, 2023, Mr. Gosin entered into the 2023 Gosin Employment Agreement with Newmark OpCo and Newmark Holdings. In connection with the 2023 Gosin Employment Agreement, the Compensation Committee approved (i) for a term through at least 2024, with the term running through 2025, an annual cash bonus of $1,500,000; (ii) an upfront advance award of four tranches of 1,145,475 Newmark NPSUs each (calculated by dividing $10,000,000 by the Company’s stock price of $8.73 on February 10, 2023) attributable to each year of the term and (iii) the continued ability to receive discretionary bonuses, if any, subject to approval of the Compensation Committee. In accordance with the 2023 Gosin Employment Agreement, Mr. Gosin’s non-exchangeable NPSUs award has the following features: (i) 25% of such non-exchangeable NPSUs shall convert into non-exchangeable PSUs, with the first 25% installment effective as of April 1, 2023 and the remaining three25% installments effective as of December 31 of 2023 through 2025, as adjusted upwards by dividing such number of NPSUs by the then-current exchange ratio upon the applicable December 31, provided that, as of each applicable December 31: (x) Newmark, inclusive of its affiliates, earns, in the aggregate, at least $10,000,000 in gross revenues in the calendar quarter in which the applicable award of PSUs is to be granted and (y) Mr. Gosin is still performing substantial services exclusively for Newmark OpCo or an affiliate, has not given notice of termination of his services except for circumstances set forth in the 2023 Gosin Employment Agreement, and has not breached his obligations under the Newmark Holdings limited partnership agreement; and (ii) such PSUs as converted from NPSUs shall become exchangeable in ratable portions beginning December 31, 2023 and ending December 31, 2029, in accordance with the terms and conditions as set forth in the 2023 Gosin Employment Agreement. A copy of the 2023 Gosin Employment Agreement was attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 14, 2023 and is described in detail therein.
Michael J. Rispoli, Chief Financial Officer
On October 1, 2023, Mr. Rispoli received exchangeability on 6,563 PSUs and 2,194 PPSUs, in accordance with the previously approved monetization schedule in connection with the signing of his employment agreement, as described below, and 14,290 of Mr. Rispoli’s RSUs vested pursuant to the vesting schedule of the RSUs granted under his employment agreement.
On September 29, 2022, Mr. Rispoli entered into an employment agreement with Newmark OpCo and Newmark Holdings. In connection with the employment agreement, the Compensation Committee approved the following for Mr. Rispoli: (i) an award of 500,000 Newmark RSUs, divided into tranches of 100,000 RSUs each that vest on a seven-year schedule; and (ii) an award of 250,000 Newmark RSUs, divided into tranches of 50,000 RSUs each that vest on a seven-year schedule. A copy of the employment agreement was attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 3, 2022 and is described in detail therein.
In connection with signing the employment agreement on September 29, 2022, Mr. Rispoli received immediate exchangeability on 25% of his then currently held 88,079 non-exchangeable PSUs and 87,049 non-exchangeable PPSUs (such 25% totaled 23,560 PPSUs with a value of $283,527 and 20,221 PSUs), and will receive monetization rights on another 25% of such units held as of September 29, 2022, split pro rata into one-fifth (1/5) increments, on or as soon as practicable after October 1 of each of 2023-2027, to the extent such units had not previously been given monetization rights, with each monetization contingent upon Mr. Rispoli performing substantial services exclusively for us or any affiliate, remaining a partner in Newmark Holdings, and complying with the terms of his employment agreement and any of his obligations to Newmark Holdings, us or any affiliate through such dates.
Stephen M. Merkel, Chief Legal Officer
49
On January 2, 2024, Mr. Merkel sold 35,006 shares of Class A common stock to the Company in an exempt transaction made pursuant to Rule 16b-3 under the Exchange Act. The sale price per share of $10.85 was the closing price of a share of Class A common stock on January 2, 2024. The transaction was approved by the Audit and Compensation Committees of the Board and was made pursuant to the Company’s stock buyback authorization.
Transactions Related to Ordinary Course Real Estate Services
On November 4, 2020, the Audit Committee authorized entities in which executive officers have a non-controlling interest to engage Newmark to provide ordinary course real estate services to them as long as Newmark’s fees are consistent with the fees that Newmark ordinarily charges for these services.
(e) Investment in CF Real Estate Finance Holdings, L.P.
Contemporaneously with the acquisition of Berkeley Point, on September 8, 2017, Newmark invested $100.0 million in a newly formed commercial real estate-related financial and investment business, Real Estate LP, which is controlled and managed by Cantor. Real Estate LP may conduct activities in any real estate related business or asset backed securities related business or any extensions thereof and ancillary activities thereto. Newmark held a redemption option in which Real Estate LP would redeem in full Newmark’s investment in Real Estate LP in exchange for Newmark’s capital account balance in Real Estate LP as of such time. On July 20, 2022, this redemption option was exercised.
In December 2022, the Audit Committee authorized a subsidiary of Newmark to rescind its July 20, 2022 written notice exercising the optional redemption of its 27.2% ownership interest in Real Estate LP and amend the joint venture agreement between Newmark and Real Estate LP to provide for a redemption option for this investment after July 1, 2023, with proceeds to be received within 20 days of the redemption notice. A payment of a $44.0 thousand administrative fee was made to Newmark in connection with such amendment. On July 1, 2023, Newmark exercised its redemption option and received payment of $105.5 million from Cantor during the year ended December 31, 2023, terminating Newmark’s interest in Real Estate LP.
(f) Other Related Party Transactions
Payables to related parties were $6.0 million and $6.6 million as of September 30, 2024 and December 31, 2023, respectively.
For a detailed discussion about Newmark’s Payables to related parties, see Note 1 — “Organization and Basis of Presentation,” Note 2 — “Limited Partnership Interests in Newmark and BGC Holdings” and Note 19 — “Debt.”
In February 2019, the Audit Committee authorized Newmark and its subsidiaries to originate and service GSE loans for Cantor and its affiliates (other than BGC) and service loans originated by Cantor and its affiliates (other than BGC) on prices, rates and terms no less favorable to Newmark and its subsidiaries than those charged by third parties. The authorization is subject to certain terms and conditions, including but not limited to: (i) a maximum amount up to $100.0 million per loan, (ii) a $250.0 million limit on loans that have not yet been acquired or sold to a GSE at any given time, and (iii) a separate $250.0 million limit on originated Fannie Mae loans outstanding to Cantor at any given time.
On November 30, 2018, Newmark entered into the Cantor Credit Agreement. The Cantor Credit Agreement provides for each party to issue loans to the other party at the lender’s discretion. Pursuant to the Cantor Credit Agreement, the parties and their respective subsidiaries (with respect to Cantor, other than BGC and its subsidiaries) may borrow up to an aggregate principal amount of $250.0 million from each other from time to time at an interest rate which is the higher of Cantor’s or Newmark’s short-term borrowing rate then in effect, plus 1%.
On December 20, 2023, Newmark entered into a first amendment to the Cantor Credit Agreement and drew $130.0 million of Newmark Revolving Loans available under the Cantor Credit Agreement. The Company used the proceeds from such borrowing, along with cash on hand, to repay the principal and interest related to all of the remaining balance under the Credit Facility. On January 12, 2024, the outstanding balance under the Cantor Credit Agreement was repaid with the proceeds of the offering of the 7.500% Senior Notes. As of September 30, 2024, there was no outstanding balance under the Cantor Credit Agreement.
As part of the Knotel acquisition in March 2021, Newmark assigned the rights to acquire certain Knotel assets to a subsidiary of Cantor, on the terms that if the subsidiary monetized the sale of these assets, Newmark would receive 10% of the proceeds of the sale after the subsidiary recoups its investment in the assets.
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On June 28, 2021, Newmark hired a son of our Executive Chairman as a full-time employee, providing for salary, bonus, reimbursement of ordinary course expenses and travel, and a potential profit participation consistent with other entrepreneurial arrangements in the event of certain liquidity events related to businesses developed by him. This employment arrangement was approved by the Audit Committee. For 2023, total compensation under the arrangement was approximately $400,000.
In January 2022, Cantor entered into an arrangement to sublease excess space from RKF Retail Holdings LLC, a subsidiary of Newmark. The deal was a six-month sublease of approximately 21,000 rentable square feet in New York City. Under the terms of the sublease, Cantor paid all operating and tax expenses attributable to the lease. The sublease was amended to provide for a rate of $81,600 per month based on the size of utilized space, in addition to terms extending on a month-to-month basis. In June 2023, the sublease was extended three months to September 30, 2023. As of December 31, 2023 the sublease had been terminated. Newmark received $0.2 million and $0.7 million from Cantor for the three and nine months ended September 30, 2023, respectively.
Pre-IPO Intercompany Agreements
In December 2017, prior to the Separation and Newmark IPO, all intercompany arrangements and agreements that were previously approved by the Audit Committee of BGC Partners with respect to BGC Partners and its subsidiaries and Cantor and its subsidiaries were also approved by our Board with respect to the relationships between us and our subsidiaries and Cantor and its subsidiaries following our IPO on the terms and conditions approved by the Audit Committee of BGC Partners during such time that our business was owned by BGC Partners. These arrangements include, but are not limited to, the following: (i) an authorization to provide Cantor real estate and related services, including real estate advice, brokerage, property or facilities management, valuation and advisory and other services; (ii) an authorization to enter into brokerage and similar agreements with respect to the provision of ordinary course brokerage services in circumstances in which such entities customarily provide brokerage services to third-party customers; (iii) an authorization to enter into agreements with Cantor and/or its affiliates, to provide services, including finding and reviewing suitable acquisition or partner candidates, structuring transactions and negotiating and due diligence services in connection with acquisitions and other business strategies in commercial real estate and other businesses from time to time; and (iv) an arrangement to jointly manage exposure to changes in foreign exchange rates.
Services Agreement with Cantor Fitzgerald Europe (DIFC Branch)
In May 2020, the Audit Committee authorized Newmark & Co., a subsidiary of Newmark, to enter into an agreement with Cantor Fitzgerald Europe (DIFC Branch) pursuant to which Cantor Fitzgerald Europe (DIFC Branch) will employ and support an individual who is a resident of Dubai in order to enhance Newmark’s capital markets platform, in exchange for a fee. Cantor Fitzgerald Europe (DIFC Branch) and Newmark & Co. negotiated a services agreement memorializing the arrangement between the parties. The services agreement provides that Newmark & Co. will reimburse Cantor Fitzgerald Europe (DIFC Branch) for the individual’s fully allocated costs, plus a mark-up of 7%. In addition, the Audit Committee of the Company authorized the Company and its subsidiaries to enter into similar arrangements in respect of any jurisdiction, in the future, with Cantor and its subsidiaries, provided that the applicable agreements contain customary terms for arrangements of this type and that the mark-up charged by the party employing one or more individuals for the benefit of the other is between 3% and 7.5%, depending on the level of support required for the employed individual(s).
Transactions with CF&Co
On March 28, 2019, Newmark filed a registration statement on Form S-3 with the SEC pursuant to which CF&Co could make offers and sales of Newmark’s 6.125% Senior Notes in connection with ongoing market-making transactions which could have occurred from time to time. Such market-making transactions in these securities could occur in the open market or be privately negotiated at prevailing market prices at a time of resale or at related or negotiated prices. Neither CF&Co, nor any of our affiliates, had any obligation to make a market in Newmark’s securities, and CF&Co or any such other affiliate could discontinue market-making activities at any time without notice. Newmark did not receive any proceeds from market-making activities in these securities by CF&Co (or any of its affiliates). This registration statement expired in March 2022. On March 25, 2022, Newmark filed a new registration statement on Form S-3 with the SEC, which was effective upon filing, to replace the one that was expiring. The 6.125% Senior Notes to which this registration statement on Form S-3 related matured on November 15, 2023.
On August 8, 2024, Newmark filed a registration statement on Form S-3 with the SEC, which was effective upon filing, pursuant to which CF&Co may make offers and sales of Newmark’s 7.500% Senior Notes in connection with ongoing market-making transactions which may occur from time to time. Such market-making transactions in these securities may occur in the open market or be privately negotiated at prevailing market prices at a time of resale or at related or negotiated prices. Neither CF&Co, nor any of our affiliates, has any obligation to make a market in Newmark’s securities, and CF&Co or any
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such other affiliate may discontinue market-making activities at any time without notice. Newmark does not receive any proceeds from market-making activities in these securities by CF&Co (or any of its affiliates).
Placement Agent Authorization with CF&Co
On August 8, 2023, the Audit Committee authorized Newmark to engage CF&Co as a non-exclusive placement agent on behalf of Newmark or its subsidiaries in connection with certain capital markets transactions (with the ability to also mandate certain third-party banks as additional advisors and co-placement agents alongside CF&Co), pursuant to customary terms and conditions, including percentage of proceeds, and provided the terms are no less favorable to Newmark than terms that an unaffiliated third-party investment bank would provide to Newmark in similar transactions.
Cantor Rights to Purchase Cantor Units from Newmark Holdings
Cantor has a right to purchase from Newmark Holdings exchangeable limited partnership interests in the event that any Newmark Holdings Founding Partner interests that have not become exchangeable are redeemed by Newmark Holdings upon termination or bankruptcy of a Founding Partner or upon mutual consent of the general partner of Newmark Holdings and Cantor. Cantor has the right to purchase such Newmark Holdings exchangeable limited partnership interests at a price equal to the lesser of (1) the amount that Newmark Holdings would be required to pay to redeem and purchase such Newmark Holdings Founding Partner interests and (2) the amount equal to (a) the number of units underlying such Founding Partner interests, multiplied by (b) the Exchange Ratio as of the date of such purchase, multiplied by (c) the then-current market price of our Class A common stock. Cantor may pay such price using cash, publicly traded shares or other property, or a combination of the foregoing. If Cantor (or the other member of the Cantor group acquiring such limited partnership interests, as the case may be) so purchases such limited partnership interests at a price equal to clause (2) above, neither Cantor nor any member of the Cantor group nor Newmark Holdings nor any other person is obligated to pay Newmark Holdings or the holder of such Founding Partner interests any amount in excess of the amount set forth in clause (2) above.
In addition, the Newmark Holdings limited partnership agreement provides that (1) where either current, terminating or terminated partners are permitted by us to exchange any portion of their Founding Partner units and Cantor consents to such exchangeability, we will offer to Cantor the opportunity for Cantor to purchase the same number of new exchangeable limited partnership interests in Newmark Holdings at the price that Cantor would have paid for exchangeable limited partnership interests in the event we had redeemed the Founding Partner units; and (2) the exchangeable limited partnership interests to be offered to Cantor pursuant to clause (1) above would be subject to, and granted in accordance with, applicable laws, rules and regulations then in effect.
If Cantor acquires any units as a result of the purchase or redemption by Newmark Holdings of any Founding Partner interests, Cantor will be entitled to the benefits (including distributions) of the units it acquires from the date of termination or bankruptcy of the applicable Founding Partner. In addition, any such units will be exchangeable by Cantor for a number of shares of our Class B common stock or, at Cantor’s election, shares of our Class A common stock, in each case, equal to the then-current Exchange Ratio, on the same basis as the limited partnership interests held by Cantor, and will be designated as Newmark Holdings exchangeable limited partnership interests when acquired by Cantor. The Exchange Ratio was initially one, but is subject to adjustment as set forth in the Separation and Distribution Agreement and was 0.9257 as of September 30, 2024. This may permit Cantor to receive a larger share of income generated by our business at a less expensive price than through purchasing shares of our Class A common stock, which is a result of the price payable by Cantor to Newmark.
On April 16, 2023, Cantor purchased from Newmark Holdings an aggregate of (i) 309,631 exchangeable limited partnership interests for aggregate consideration of $1,282,265 as a result of the redemption of 309,631 Founding Partner interests, and (ii) 38,989 exchangeable limited partnership interests for aggregate consideration of $166,364 as a result of the exchange of 38,989 Founding Partner interests.
On June 30, 2023, Cantor purchased from Newmark Holdings an aggregate of 74,026 exchangeable limited partnership interests for aggregate consideration of $310,976 as a result of the redemption of 74,026 Founding Partner interests.
As of September 30, 2024, there were 662,703 Founding Partner interests in Newmark Holdings remaining in which the partnership had the right to redeem or exchange and with respect to which Cantor had the right to purchase an equivalent number of Cantor Units following such redemption or exchange.
First Amendment to Amended and Restated Agreement of Limited Partnership of Newmark Holdings
On March 10, 2023, Newmark Holdings entered into the LPA Amendment to the Newmark Holdings limited partnership agreement. The LPA Amendment revises certain restrictive covenants pertaining to the “Partner Obligations” and
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“Competitive Activity” provisions in the Newmark Holdings limited partnership agreement. Specifically, the LPA Amendment (i) reduces the length of the post-termination period during which a partner must refrain from soliciting or doing business with customers, soliciting employees, engaging in a “Competing Business” (as defined therein), or otherwise refraining from harming the partnership; and (ii) revises the scope of the non-compete provisions under the “Partner Obligations” and “Competitive Activity” provisions in the Newmark Holdings limited partnership agreement to cover “Competing Businesses” for which a partner performs the same or similar services as provided to a “Protected Affiliate” (as defined therein) and (a) involving a product, product line or type, or service of a “Protected Affiliate” within a specific geographic area, (b) involving a “Client” or a “Client Representative” (each as defined therein) of a Protected Affiliate, or (c) for which the disclosure of confidential information is likely to be inevitable. The LPA Amendment was approved by the Board of Directors and Audit and Compensation Committees.
Referral Fees to Cantor
In September 2021, the Audit Committee authorized Newmark and its subsidiaries to pay referral fees to Cantor and its subsidiaries (other than Newmark and its subsidiaries) in respect of referred business, pursuant to ordinary course arrangements in circumstances where Newmark would customarily pay referral fees to unrelated third parties and where Newmark is paying a referral fee to Cantor in an amount that is no more than the applicable percentage rate set forth in Newmark’s intra-company referral policies, as then in effect, with such fees to be at referral rates no less favorable to Newmark than would be paid to unrelated third parties.
Acquisition of Spring11 Ownership Interest from Cantor
In February 2023, Newmark’s subsidiary, Newmark S11, entered into an equity purchase agreement with CFS11, a subsidiary of Cantor, pursuant to which Newmark acquired CFS11’s 33.78% ownership interest in Newmark S11 LP, LLC, the joint venture that owns a controlling interest in Spring11, for a total purchase price of $11,530,598. CFS11’s 33.78% ownership in Newmark S11 LP, LLC was 25.62% of Spring11’s economic interest. The transaction, which also included Newmark S11 buying the remaining noncontrolling interests from other third-party owners on substantially the same terms, resulted in Newmark S11 owning 100% of Spring11. The CFS11 transaction was approved by the Audit Committee.
7.500% Senior Notes
On January 12, 2024, the Company issued an aggregate of $600.0 million principal amount of 7.500% Senior Notes due 2029. In connection with this issuance of 7.500% Senior Notes, the Company recorded approximately $0.5 million in underwriting fees payable to CF&Co. These fees were recorded as a deduction from the carrying amount of the debt liability, which is amortized as interest expense over the term of the notes. Cantor purchased $125.0 million aggregate principal amount of such senior notes. On August 8, 2024, the Company filed a registration statement on Form S-3 with the SEC, which was effective upon filing, pursuant to which Cantor, or its successors, assigns, and direct and indirect transferees, may resell their 7.500% Senior Notes from time to time. The Company will not receive any of the proceeds from the resale of the 7.500% Senior Notes, and the selling security holders will pay any underwriting discounts and commissions, brokerage commissions, and transfer taxes, if any, applicable to the notes sold by them.
Services Agreement with Cantor Fitzgerald Europe for the Provision of Real Estate Investment Banking Services
On February 21, 2024, the Audit Committee of the Company authorized NHL, a subsidiary of Newmark, to enter into an agreement with CFE pursuant to which CFE will employ and support an individual to enhance Newmark’s capital markets platform by providing real estate investment banking services for the benefit of Newmark’s client. Under this agreement, NHL will reimburse CFE for the individual’s fully allocated costs, plus a mark-up of 7% and CFE will be entitled to 10% of revenues generated by such individual on behalf of Newmark. In addition, the Audit Committee of the Company authorized NHL to include additional individuals to perform such services on substantially the same terms; provided that, in any case, the mark-up charged for such additional individuals is between 3.0% and 7.5%, depending on the level of support required for such individuals.
(25) Income Taxes
The accompanying unaudited condensed consolidated financial statements include U.S. federal, state and local income taxes on Newmark’s allocable share of its U.S. results of operations, as well as taxes payable to jurisdictions outside the U.S. In addition, certain of Newmark’s entities are taxed as U.S. partnerships and are subject to the UBT in New York City. Therefore, the tax liability or benefit related to the partnership income or loss, except for the UBT, rests with the partners (see Note 2 — “Limited Partnership Interests in Newmark Holdings and BGC Holdings” for discussion of partnership interests), rather than the partnership entity. Income taxes are accounted for using the asset and liability method, as prescribed in U.S. GAAP guidance for Income Taxes.
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Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the accompanying unaudited condensed consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against deferred tax assets if it is deemed more likely than not that those assets will not be realized.
Pursuant to U.S. GAAP guidance on Accounting for Uncertainty in Income Taxes, Newmark provides for uncertain tax positions based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. As of both September 30, 2024 and December 31, 2023, Newmark did not have any unrecognized tax benefits which, if recognized, would affect the effective tax rate. Newmark recognized interest and penalties related to income tax matters in “Provision for income taxes” on the accompanying unaudited condensed consolidated statements of operations. As of September 30, 2024, Newmark has not accrued any tax-related interest and penalties.
(26) Accounts Payable, Accrued Expenses and Other Liabilities
The accounts payable, accrued expenses and other liabilities consisted of the following (in thousands):
September 30, 2024
December 31, 2023
Accounts payable and accrued expenses
$
288,505
$
266,486
Outside broker payable
70,397
70,569
Payroll taxes payable
124,204
106,247
Corporate taxes payable
9,775
11,851
Derivative liability
20,680
21,327
Right-of-use liabilities
113,497
107,084
Total
$
627,058
$
583,564
Other long-term liabilities consisted of the following (in thousands):
September 30, 2024
December 31, 2023
Accrued compensation
$
117,995
$
112,528
Payroll and other taxes payable
64,251
59,277
Financial guarantee liability
26,889
28,551
Deferred rent
7,171
6,381
Contingent consideration
23,122
25,740
Other
12,554
9,264
Total
$
251,982
$
241,741
(27) Compensation
Newmark’s Compensation Committee may grant various equity-based awards to employees of Newmark, including RSUs, restricted stock, limited partnership units and shares of Newmark Class A common stock upon exchange or redemption of Newmark Holdings limited partnership units (see Note 2 — “Limited Partnership Interests in Newmark Holdings and BGC Holdings”). On December 13, 2017, as part of the Separation, the Equity Plan was approved by Newmark’s then sole stockholder, BGC, for Newmark to issue up to 400.0 million shares of Newmark Class A common stock, of which 400.0 million shares were registered on Forms S-8 as of September 30, 2024. As of September 30, 2024, awards with respect to 105.1 million shares had been granted and 294.9 million shares were available for future awardsunder the Equity Plan. Upon vesting of RSUs, issuance of restricted stock and exchange or redemption of limited partnership units, Newmark generally issues new shares of its Class A common stock.
Prior to the Separation, BGC’s Compensation Committee granted various equity-based awards to employees of Newmark, including RSUs, restricted stock, limited partnership units and exchange rights for shares of BGC Class A common stock upon exchange of BGC Holdings limited partnership units (see Note 2 — “Limited Partnership Interests in Newmark Holdingsand BGC Holdings”).
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As a result of the Separation, limited partnership interests in Newmark Holdings were distributed to the holders of limited partnership interests in BGC Holdings. Each holder of BGC Holdings limited partnership interests at that time held a BGC Holdings limited partnership interest and 0.4545 of a corresponding Newmark Holdings limited partnership interest.
The Exchange Ratio is the number of shares of Newmark Common Stock that a holder will receive upon exchange of one Newmark Holdings exchangeable unit. The Exchange Ratio was initially one, but is subject to adjustment as set forth in the Separation and Distribution Agreement and was 0.9257 as of September 30, 2024.
As a result of a series of transactions prior to and in anticipation of the Corporate Conversion, all BGC Holdings units held by Newmark employees were redeemed or exchanged, in each case, for shares of BGC Class A common stock.
Newmark incurred compensation expense related to Class A common stock, limited partnership units and RSUs held by Newmark employees as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Issuance of common stock and exchangeability expenses
30,059
15,056
78,017
42,762
Limited partnership units amortization
8,470
5,597
22,986
20,601
RSU amortization
4,994
5,819
18,672
18,003
Total compensation expense
43,523
26,472
119,675
81,366
Allocations of net income to limited partnership units and FPUs (1)
5,226
3,076
6,003
3,439
Equity-based compensation and allocations of net income to limited partnership units and FPUs
$
48,749
$
29,548
$
125,678
$
84,805
(1)Certain limited partnership units receive quarterly allocations of net income and are generally contingent upon services being provided by the unit holders, including the Preferred Distribution.
(a) Limited Partnership Units
A summary of the activity associated with limited partnership units held by Newmark employees is as follows:
Newmark Holdings Units
BGC Holdings Units
Balance, January 1, 2023
30,687,954
5,459,388
Issued
16,092,841
1,506
Redeemed/exchanged units
(3,676,057)
(5,459,895)
Forfeited units/other
(727,772)
(999)
Balance, December 31, 2023(1)
42,376,966
—
Issued
13,265,040
—
Redeemed/exchanged units
(4,721,510)
—
Forfeited units/other
(642,429)
—
September 30, 2024(2)
50,278,067
—
Total exchangeable units outstanding(1):
December 31, 2023
12,189,148
—
September 30, 2024
13,211,955
—
(1)The Limited Partnership Units table above also includes partnership units issued as consideration for acquisitions. As of September 30, 2024, there were 2.7 million such partnership units in Newmark Holdings outstanding, of which 1.8 million units were exchangeable. There were no partnership units in BGC Holdings outstanding. As of December 31, 2023, there were 3.1 million such partnership units in Newmark Holdings outstanding, of which 1.5 million units were exchangeable.
(2)As of September 30, 2024, the total Limited Partnership Units included 2.2 million Newmark Preferred Units.
The Limited Partnership Units table above includes both regular and Preferred Units. The Preferred Units are not entitled to participate in partnership distributions other than with respect to the Preferred Distribution (see Note 2 — “Limited Partnership Interests in Newmark Holdings and BGC Holdings” for further information on Preferred Units). Subsequent to the Spin-Off, there are remaining partners who hold limited partnership interests in Newmark Holdings who are BGC employees. Subsequent to the Spin-Off but prior to the closing of the Corporate Conversion, there were remaining partners who held limited partnership interests in BGC Holdings who are Newmark employees. These limited partnership interests represented interests that were held prior to the Newmark IPO or were distributed in connection with the Separation. Following the
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Newmark IPO, employees of Newmark and BGC received limited partnership interests in Newmark Holdings and BGC Holdings, respectively. As a result of the Spin-Off, as the existing limited partnership interests in Newmark Holdings held by BGC employees and the existing limited partnership interests in BGC Holdings held by Newmark employees were exchanged/redeemed, the related capital could be contributed to and from Cantor, respectively. The compensation expenses under GAAP related to the limited partnership interests are based on the company where the partner is employed. Therefore, compensation expenses related to the limited partnership interests of both Newmark and BGC but held by a Newmark employee are recognized by Newmark. The Newmark Holdings limited partnership interests held by BGC employees are included in the Newmark share count. The BGC Holdings limited partnership interests held by Newmark employees were included in the BGC share count until the Corporate Conversion.
A summary of units held by Newmark employees redeemed in connection with the issuance of Newmark or BGC Class A common stock (at the current Exchange Ratio) or granted exchangeability for Newmark or BGC Class A common stock is as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
BGC Holdings Units
—
11,404
—
127,960
Newmark Holdings Units
2,350,268
3,156,676
7,333,712
6,857,293
Total
2,350,268
3,168,080
7,333,712
6,985,253
Compensation expense related to the issuance of Newmark or BGC Class A common stock and grants of exchangeability on Newmark Holdings and BGC Holdings (prior to the Corporate Conversion) limited partnership units to Newmark employees is as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Issuance of common stock and exchangeability expenses
$
30,059
$
15,056
$
78,017
$
42,762
Limited partnership units with a post-termination payout held by Newmark employees are as follows (dollars in thousands):
September 30, 2024
December 31, 2023
Notional Value
$
162,619
$
158,594
Estimated fair value of the post-termination payout(1)
$
62,314
$
54,950
Outstanding limited partnership units in Newmark Holdings
17,231,737
16,704,405
Outstanding limited partnership units in Newmark Holdings - unvested
335,808
4,856,908
(1)Included in “Other long-term liabilities” on the accompanying unaudited condensed consolidated balance sheets.
Compensation expense related to limited partnership units held by Newmark employees with a post-termination pay-out amount is recognized over the service period. These units can vest for periods up to seven years from the grant date.
There are also certain limited partnership units in Newmark Holdings with a stated vesting schedule that vest over approximately seven years from the grant date. The compensation expense related to these limited partnership units is recognized over the required service period. These limited partnership units with a stated vesting schedule consisted of 4.4 million distribution earning limited partnership units and 1.1 million N Units as of September 30, 2024. The aggregate estimated grant date fair value of these awards was $46.0 million as of September 30, 2024. These limited partnership units with a stated vesting schedule consisted of 2.1 million distribution earning limited partnership units and 3.4 million N Units as of December 31, 2023. The aggregate estimated grant date fair value of these awards was $47.4 million as of December 31, 2023. As of September 30, 2024, there was $38.9 million of unrecognized compensation expense related to these unvested limited partnership units that is expected to be recognized over 2.3 years.
Newmark recognized compensation expense related to these limited partnership units that were not redeemed as follows (in thousands):
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Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Post-termination payout
$
3,026
$
1,532
$
9,412
$
9,762
Stated vesting schedule
5,444
$
4,065
13,574
$
10,839
Limited partnership units amortization
$
8,470
$
5,597
$
22,986
$
20,601
The grants of exchange rights to HDUs of Newmark employees are as follows (in thousands):
September 30, 2024
December 31, 2023
Notional Value
$
1,254
$
1,254
Estimated fair value of limited partnership units (1)
$
1,135
$
1,135
(1)Included in “Other long-term liabilities” on the accompanying unaudited condensed consolidated balance sheets.
During the three and nine months ended September 30, 2024 and 2023, there was no compensation expense (benefit), related to these limited partnership units held by Newmark employees.
During the three months ended September 30, 2024 and 2023, Newmark employees were granted 2.6 million and 5.2 million N Units, respectively. During the nine months ended September 30, 2024 and 2023, Newmark employees were granted 8.6 million and 19.8 million N Units, respectively. These units are not considered share-equivalent limited partnership units and are not included in the fully diluted share count. The N Units do not receive quarterly allocations of net income while they remain unvested. Upon vesting, which occurs if certain thresholds are met, the N Units are subsequently converted to equivalent limited partnership units that receive quarterly certain income distributions and can be granted exchange rights or redeemed at a later date, at which time these N Units would be reflected as a share-equivalent grant. During the three months ended September 30, 2024 and 2023, 2.7 million and 2.6 million N Units, respectively, were converted into distribution earning limited partnership units. During the nine months ended September 30, 2024 and 2023, 7.8 million and 8.9 million N Units, respectively, were converted into distribution earning limited partnership units.
(b) Restricted Stock Units
A summary of the activity associated with Newmark and BGC RSUs held by Newmark employees is as follows (fair value amount in thousands):
Newmark RSUs(1)
BGC RSUs(2)
Restricted Stock Units
Weighted- Average Grant Date Fair Value Per Share
Fair Value Amount
Weighted- Average Remaining Contractual Term (Years)
Restricted Stock Units
Weighted- Average Grant Date Fair Value Per Share
Fair Value Amount
Weighted- Average Remaining Contractual Term (Years)
Balance, January 1, 2023
11,263,862
$
9.39
$
105,735
4.75
6,928
$
4.17
$
29
1.62
Granted
4,192,685
6.82
28,594
—
—
—
Settled units (delivered shares)
(2,708,902)
9.03
(24,461)
(2,045)
4.05
(8)
Forfeited units
(614,540)
9.14
(5,617)
—
—
—
Balance, December 31, 2023
12,133,105
$
8.59
$
104,251
4.01
4,883
$
4.22
$
21
0.87
Granted
2,475,299
9.53
23,592
19,425
6.87
133
Settled units (delivered shares)
(2,494,176)
8.50
(21,207)
(1,243)
4.28
(5)
Forfeited units
(380,691)
8.69
(3,306)
(19,479)
6.88
(134)
Balance, September 30, 2024
11,733,537
$
8.81
$
103,330
3.90
3,586
$
4.08
$
15
4.32
(1)Newmark issues RSUs to Newmark employees with the awards vesting ratably over the two- to nine-year vesting period into shares of Newmark Class A common stock.
(2) BGC RSUs historically vested over a two to three year period.
The fair value of Newmark and BGC RSUs held by Newmark employees is determined on the date of grant based on the market value (adjusted if appropriate based upon the award’s eligibility to receive dividends), and is recognized, net of the effect of estimated forfeitures, ratably over the vesting period. Newmark uses historical data, including historical forfeitures and turnover rates, to estimate expected forfeiture rates for RSUs. Each RSU is settled for one share of BGC or Newmark Class A common stock, as applicable, upon completion of the vesting period. The compensation expenses under GAAP related to the RSUs are based on the company where the employee is employed. Therefore, compensation expenses related to RSUs of both Newmark and BGC but held by a Newmark employee are recognized by Newmark.
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Compensation expense related to Newmark and BGC RSUs are as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
RSU amortization
$
4,994
$
5,819
$
18,672
$
18,003
As of September 30, 2024, there was $70.2 million of total unrecognized compensation expense related to unvested Newmark RSUs.
(28) Commitments and Contingencies
(a)Contractual Obligations and Commitments
As of September 30, 2024 and December 31, 2023, Newmark was committed to fund approximately $0.3 billion and $0.4 billion, respectively, which is the total remaining draws on construction loans originated by Newmark under the HUD 221(d) 4, 220 and 232 programs, rate locked loans that have not been funded, forward commitments, as well as the funding for Fannie Mae structured transactions. Newmark also has corresponding commitments to sell these loans to various investors as they are funded.
(b) Contingent Payments Related to Acquisitions
Newmark completed acquisitions from 2022 through the third quarter of 2024 with contingent consideration of $23.1 million. The contingent equity instruments and cash liability is recorded at fair value in “Accounts payable, accrued expenses and other liabilities” on Newmark’s unaudited condensed consolidated balance sheets.
(c) Contingencies
In the ordinary course of business, various legal actions are brought and are pending against Newmark and its subsidiaries in the U.S. and internationally. In some of these actions, substantial amounts are claimed. Newmark is also involved, from time to time, in reviews, examinations, investigations and proceedings by governmental and self-regulatory agencies (both formal and informal) regarding Newmark’s businesses, which may result in regulatory, civil and criminal judgments, settlements, fines, penalties, injunctions or other relief. The following generally does not include matters that Newmark has pending against other parties which, if successful, would result in awards in favor of Newmark or its subsidiaries.
Employment, Competitor-Related and Other Litigation
From time to time, Newmark and its subsidiaries are involved in litigation, claims and arbitration in the U.S. and internationally relating to various employment matters, including with respect to termination of employment, hiring of employees currently or previously employed by competitors, terms and conditions of employment and other matters. In light of the competitive nature of the real estate services industry, litigation, claims and arbitration between competitors regarding employee hiring are not uncommon.
Legal reserves are established in accordance with U.S. GAAP guidance on Accounting for Contingencies, when a material legal liability is both probable and reasonably estimable. Once established, reserves are adjusted when there is more information available or when an event occurs requiring a change. The outcome of such items cannot be determined with certainty. Newmark is unable to estimate a possible loss or range of loss in connection with specific matters beyond its current accrual and any other amounts disclosed. Management believes that, based on currently available information, the final outcome of these current pending matters will not have a material adverse effect on Newmark’s unaudited condensed consolidated financial statements and disclosures taken as a whole.
Risks and Uncertainties
Newmark generates revenues by providing financial intermediary and brokerage activities and commercial real estate services to institutional customers. Revenues for these services are transaction-based. As a result, revenues could vary based on the transaction volume of global financial and real estate markets. Additionally, financing is sensitive to interest rate fluctuations, which could have an impact on Newmark’s overall profitability.
(29) Subsequent Events
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On November 4, 2024, Newmark declared a qualified quarterly dividend of $0.03 per share payable on December 5, 2024, to Class A and Class B common stockholders of record as of November 21, 2024, which is the same as the ex-dividend date.
On November 4, 2024, Newmark’s Board increased Newmark’s share repurchase and unit purchase authorization to $400.0 million.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of Newmark’s financial condition and results of operations should be read together with Newmark’s accompanying unaudited condensed consolidated financial statements and related notes, as well as the “Special Note Regarding Forward-Looking Information” relating to forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, included elsewhere in this Quarterly Report on Form 10-Q.
This discussion summarizes the significant factors affecting our results of operations and financial condition during the three and nine months ended September 30, 2024 and 2023. We operate in one reportable segment, real estate services. This discussion is provided to increase the understanding of, and should be read in conjunction with, our accompanying unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
Overview
Newmark is a leading commercial real estate advisor and service provider to large institutional investors, global corporations, and other owners and occupiers. We offer a diverse array of integrated services and products designed to meet the full needs of our clients.
Our investor/owner services and products include:
•capital markets, which consists of investment sales and commercial mortgage brokerage (including the placement of debt, equity raising, structured finance, and loan sales on behalf of third parties);
•landlord (or agency) leasing;
•valuation and advisory;
•property management;
•our leading commercial real estate technology platform and capabilities for owners;
•business rates for U.K. property owners;
•due diligence consulting and other advisory services;
•GSEs and FHA multifamily lending and loan servicing;
•limited and special loan servicing and asset management; and
•flexible workspace solutions for owners.
Our corporate or occupier services and products include:
•tenant representation leasing;
•GCS, which provides integrated client solutions typically under long-term agreements, including project management, transaction management, lease administration, and facilities management, as well as corporate consulting services with respect to clients’ needs across real estate and supply chain optimization, site selection, workplace strategy, and occupancy;
•our leading commercial real estate technology platform and capabilities for occupiers;
•business rates for U.K. occupiers; and
•flexible workspace solutions for occupiers.
Our goal is to lead with extraordinary talent, data, and analytics, which together allow us to provide strategic and specialized advice. This combination enables our revenue-generating employees, including brokers, originators, and other customer-facing professionals, to be highly productive and to help clients increase their efficiency and profits while optimizing their real estate portfolios. Our goal is also to continue recruiting and retaining the greatest talent in the industry and to be recognized as the leading advisor in commercial real estate services.
With respect to our overall business, our near-term goals include becoming number one in capital markets in the United States and growing significantly larger in key international markets. This is partly because our investment sales and debt businesses have historically had a multiplier effect that drives outsized growth across many of our other service lines. When overall capital markets activity rebounds and our recently hired producers reach full productivity, we believe that our market share, revenues, and earnings can outperform the industry across our suite of services. We are also focused on increasing the percentage of our total revenues from our recurring and/or contractual businesses, such as servicing, V&A, GCS, agency leasing, and property management. Our goals also include increasing cross-selling opportunities with and between many of these service lines and our capital markets and overall leasing businesses. We expect this to create a virtuous circle that will continue to bolster our long-term market share gains over time.
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Newmark was founded in New York City in 1929, with an emphasis on local investor/owner and occupier services and products and became known for having dedicated, knowledgeable, and client-focused advisors/intermediaries. Our acquisition by Cantor Fitzgerald’s subsidiary BGC in 2011 and its subsequent investments in our business contributed to Newmark’s strong growth. This growth continued following our 2017 IPO. Between 2011 and 2023, we increased our total revenues by a CAGR of 22%. Based on reported results, we believe that this improvement was greater than any of our publicly traded commercial real estate services peers listed in the U.S. or U.K. that have reported revenues over this period (based on actual results reported by our peers).
We have relationships with many of the world’s largest commercial property owners, real estate developers and investors, as well as Fortune 500 and Forbes Global 2000 companies. For the nine months ended September 30, 2024, we generated revenues of approximately $1.9 billion, primarily from commissions on leasing and capital markets transactions, consulting and technology user fees, property and facility management fees, and mortgage origination and loan servicing fees.
Business Environment
As discussed in greater detail in “— Economic Growth and Outlook in the United States and the United Kingdom” and “— Market Statistics,” origination and investment volumes in the commercial real estate industry declined year-on-year each quarter from the second half of 2022 to the fourth quarter of 2023, and were generally lower in the first half of 2024, due to the rise in global interest rates. Industry investment sales volumes stabilized in the third quarter of 2024, while commercial and multifamily origination activity accelerated its year-on-year improvement in the U.S. We gained market share in the U.S. capital markets in 2023, particularly in the third and fourth quarters, as our corresponding transaction volumes either improved or decreased at rates less than those for the industry as a whole. Our share gains continued in the first through third quarters of 2024. Most major central banks have stopped increasing short-term target interest rates or have begun lowering them. This, coupled with the significant amount of commercial and multifamily debt maturities due over the next three years, leads us to expect industry volumes to continue rebounding, although there remains uncertainty with respect to the exact timing of sustained recovery.
We believe that during stressed or challenging times, our clients value having a trusted advisor like Newmark. We believe our partnership and collaboration with our clients during the recent uncertainty has helped us develop long-lasting relationships and gain market share over time. During the recent slowdown in industry transactional activity levels, we continued to see strong client dialogue and engagement as owners and occupiers sought our advice with respect to executing on their strategic and real estate-focused objectives.
Institutional investors have accumulated significant amounts of undeployed real estate-focused capital, with Preqin estimating that there was approximately $373 billion of investible funds held by closed-end funds at real estate focused institutions as of October 23, 2024, of which $245 billion was held by North America focused funds and $65 billion by funds focused on Europe. This is in addition to the significant amount of real estate assets held by other types of investors and owners such as publicly traded REITs, non-traded REITs, and open-ended core property funds. According to the most recent data from MSCI, the overall size of the professionally managed global real estate investment market was $13.2 trillion in 2023, while the size of the overall investible market was $19.5 trillion in 2022 (the last year for which this information was released).
Furthermore, there was approximately $4.7 trillion in U.S. commercial and multifamily mortgage debt outstanding as of June 30, 2024, per the MBA (excluding loans for acquisitions, development, and construction, as well as loans collateralized by owner-occupied commercial properties). Of this amount, approximately $2.6 trillion is expected to mature between 2024 and 2028, with approximately $2.0 trillion of this debt expected to mature by 2026. With the increase in interest rates since early 2022, and generally rising capitalization rates, as well as the pullback in commercial real estate lending by banks and other traditional lenders, we believe a large and growing percentage of investors and owners will need to find alternative solutions, including via the growing share of loans we expect to be originated by alternative lenders such as private credit funds and insurance companies. We anticipate a significant portion of debt maturities to be resolved not only through refinancing, which should help our mortgage brokerage and GSE/FHA origination businesses, but also through the kinds of more complex and sophisticated financing solutions in which Newmark specializes, including restructurings, loan sales, equity joint ventures, and recapitalizations. Our capital markets clients have sought, and we believe will continue to seek, our counsel with respect to addressing their related investing and financing needs. In addition, we anticipate better office market leasing fundamentals as the recapitalization of properties at lower values leads to a more attractive market.
We believe factors such as those discussed above will drive strong levels of leasing and capital markets activity over the intermediate and long-term time horizons, even as volumes for certain property types and in certain geographies remain muted in the near-term. We expect our professionals to not only provide our clients with innovative capital markets solutions, but to offer integrated services from our experts across leasing, V&A, property management, and other Newmark service lines.
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By using a collaborative and multidisciplinary approach, we can provide our clients with extensive industry and product expertise along regional, national, and increasingly global reach across a wide variety of property types.
Key Business Drivers
We continue to invest in our businesses by adding high profile and talented producers and other revenue-generating professionals. Historically, newly hired commercial real estate producers tend to generate dramatically higher revenues in their second and third years with the Company, although we incur related expenses immediately. As newly hired producers ramp up and increase their productivity, our commission revenues and earnings growth accelerate, all else equal, due to our strong operating leverage.
We operate a leading capital markets business in the United States with a growing international presence. We have access to many of the world’s largest owners of commercial real estate, and we believe this will drive growth throughout the life cycle of each real estate asset by allowing us to provide best-in-class agency leasing and property management during the ownership period. We also supply investment sales and arrange debt and equity financing to assist owners in maximizing the return on investment in each of their real estate assets. With respect to multifamily assets, we are a leading GSE/FHA lender by loan origination volume and loan servicing portfolio size. In addition to our traditional servicing business, we acquired the remainder of Spring11, an entity in which we had otherwise held a controlling stake since 2017, in the first quarter of 2023. Spring11’s recently launched asset management and servicing business focuses on bank, fund, and commercial mortgage-backed securities clients. As of September 30, 2024, our overall loan servicing and asset management portfolio was $179.1 billion (of which 62.5% was limited servicing and asset management, 36.0% was higher margin primary servicing, and 1.4% was special servicing).
We believe that for the industry, commercial and multifamily servicing and asset management companies earn 40 to 50 basis points on their Fannie Mae servicing book, eight to 10 basis points on Freddie Mac loans, approximately 15 basis points for FHA loans, and one to three basis points for limited servicing. The fees for special servicing and asset management can vary depending on a variety of factors. Spring11’s portfolio currently earns closer to the low end of the latter range but is targeting higher fees over time as it expands its offerings across special servicing and asset management. Limited servicing, special servicing, and asset management together generally produce higher profit margins than Newmark as a whole, but lower profit margins versus GSE/FHA primary servicing. We expect our overall portfolio to continue providing a steady stream of income and cash flow over the life of the serviced loans.
In addition, there are various trends that we expect to continue benefiting our various service lines with respect to industrial real estate. According to Newmark Research, several factors, including disruptions in global supply chains, tensions between the U.S. and China, and U.S. government spending on infrastructure and subsidies for industries associated with electrification, green energy, and strategically important technologies—notably the federal spending provided by the CHIPS and Science Act, Inflation Reduction Act, and Infrastructure and Investment and Jobs Act—could increase the size of the U.S. manufacturing base by 6% to 10% over the next ten years. According to Newmark Research, CoStar, and the U.S. Census Bureau, during the third quarter of 2024, annualized manufacturing construction spending in the U.S. was approximately 277% higher than the annual average for the ten years ended 2019 in nominal terms, or more than 130% higher based on chain linked 2007 dollars. The impact of reshoring manufacturing would likely have far-reaching effects in terms of industrial real estate, local and national tax revenues, increases in jobs, and growth in regional and national economies. Most of the new manufacturing construction will be build-to-suit or owner-built, but demand will also exist for speculative manufacturing space.
The expansion of domestic manufacturing is also expected to generate demand for logistics space and other types of commercial real estate in the communities surrounding new plants. The amount of additional demand generated by this construction will vary depending on a project’s sector, existing supply chains, and local market dynamics. Several of the trends driving onshoring in the U.S. are also contributing to nearshoring of manufacturing to Mexico and Canada, with Mexico attracting the most nearshoring investment. This investment is generating demand for logistics and complementary manufacturing facilities along the U.S. border with Mexico, pushing down vacancy rates and spurring new construction near key border crossings such as Laredo, Texas.
Furthermore, Newmark Research estimates that annualized data center construction spending has surged by approximately 265% in the U.S. since 2019, fueled by expanding needs of hyperscalers, artificial intelligence, and other high-performance computing users, as well as large enterprises. The increased demand has spurred a surge in new development and land banking for future development, with data center construction pipelines hitting new all-time highs in 2024. The increase in data center usage has also led to increased demand for electricity generation and transmission.
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Newmark has advised and provided services for a number of industrial clients with respect to reshoring of manufacturing, logistics, data center, and power generation, and expects to benefit across several of its service lines as these trends continue for the foreseeable future.
Commercial real estate leasing activity has historically been positively correlated with job creation, particularly with respect to office-based employment, and GDP growth. While the solid U.S. economic improvement over the past several quarters has provided a tailwind to leasing activity across industrial, retail and office properties, this has been offset by the negative impact of the post-pandemic rise in remote working. In the U.S., and to a lesser extent in Europe, this has reduced demand for all but premium Class A office properties generally, as well as for retail space in many business districts.
Commercial real estate capital markets transactions involving financing generally utilize medium- or long-term debt, and the interest rates for such debt tend to correlate with movements in benchmark rates with similar tenors, including U.S. Treasuries. Such benchmark rates can be meaningfully impacted by movements in key short-term rates, such as the Fed Funds Target rate. Sudden increases in short term interest rates can therefore have pronounced effects on commercial mortgage origination and investment sales volumes. In 2022, global benchmark interest rates rose at the fastest pace since at least the early 1990s, according to Fitch. U.S. and U.K. ten-year government yields continued to rise through October of 2023, fell over the remainder of that year, but gradually rose over the first nine months of 2024. This led to challenging market conditions across commercial real estate capital markets for Newmark and the industry. Real estate capital market transactions were also lower due to the pullback in commercial and multifamily real estate lending activity as a response to recent bank failures and higher interest rates, as well as the gap between buyer and seller expectations. Most major central banks recently began lowering their short term rates. Partly as a result of this, industry capital markets volumes generally declined by less or grew year-over-year in the third quarter of 2024, as discussed below.
Economic Growth and Outlook in the United States and the United Kingdom
U.S. GDP expanded by 2.5% and 2.9%, in 2022 and 2023, respectively, according to the U.S. Department of Commerce (with all GDP figures herein inflation adjusted, unless otherwise stated). According to the same source, U.S. GDP expanded at an annualized rate of 1.6%, 3.0%, and 2.8%, respectively, in the first through third quarters of 2024. Economists generally expect U.S. GDP to grow in 2024 and 2025 at levels somewhat below pre-pandemic levels. For example, based on the October 25, 2024, Bloomberg consensus of economists, U.S. real GDP should expand at respective rates of 2.6%, 1.9%, and 2.0% in 2024, 2025, and 2026. For context, over the ten years ended December 31, 2019, real U.S. GDP grew at a CAGR of 2.4%, measured in chain linked 2017 dollars. Actual and projected growth has been and is expected be lower in the U.K., which is now our second largest market. According to the most recent data from The Office for National Statistics, U.K. GDP increased by 0.4% in 2023 and by 0.3% and 0.7% year-on-year in the first and second quarters of 2024, respectively. The October 15, 2024, Bloomberg consensus was for U.K. GDP to grow by 1.0%, 1.3%, and 1.5% in full years 2024, 2025, and 2026, respectively. In comparison, real U.K. GDP grew at an annual CAGR of 2.0% over the ten years ended December 31, 2019, measured in chain linked 2019 pounds, also per Bloomberg.
According to the U.S. Bureau of Labor Statistics data from November 1, 2024, the seasonally adjusted monthly average of non-farm payroll employment increased by approximately 377,000 and approximately 251,000 in 2022 and 2023, respectively. Their estimate as of the same date was that an average of approximately 267,000, 147,000, and 148,000 jobs, respectively, were created per month in the first through third quarters of 2024. For context, this seasonally adjusted monthly figure averaged approximately 183,000 over the ten years ended December 31, 2019. The October 2024 U.S. unemployment rate (based on U-3) was 4.1% compared with 3.8% a year earlier, while the initial estimate for the number of jobs created in October was 12,000. The October figures were in line with the Bloomberg consensus of 4.1% and below the consensus of 100,000, respectively. The Bureau of Labor Statistics said two hurricanes that hit the Southeast U.S. likely affected hiring in some industries, but it was not possible to quantify the net effect on the change in employment, hours or earnings in October 2024. Their report also showed manufacturing jobs were negatively impacted by strike activity in October. The most recent Bloomberg consensus also showed U-3 remaining at or below 4.4% through the end of 2026. According to recent figures and/or the forward consensus from Bloomberg, the U.K. unemployment rate was 3.9% and 3.8% at the end of 2022 and 2023, respectively, rose to 4.0% in August 2024 (the most recent month available), and is expected to be at or below 4.5% through the end of 2026.
The ten-year U.S. Treasury yield decreased by approximately 62 basis points quarter on quarter and by 79 basis points year-on-year to 3.8% as of September 30, 2024, but increased by 60 basis points to 4.4% as of November 1, 2024. The recent rise was due largely to uncertainty with respect to the pace at which inflation will subside and at which the FOMC will lower short term rates. For context, on September 21, 2022 and November 2, 2022, the FOMC announced two separate increases to the upper bound of its target range for the federal funds rate of 75 basis points each, in order to curb inflation. The FOMC increased the upper bound by another 50 basis points in December of 2022, and then by 25 basis points each in February 2023, March 2023, May 2023, and July 2023. The FOMC kept the rate unchanged at 5.5% between July 2023 and September 2024.
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Citing progress on inflation, it lowered the upper bound to 5.0% on September 18, 2024. Fed Chairman Jerome Powell emphasized that inflation was “much closer” to its 2% target and the U.S. labor market is “less tight” than pre-pandemic in 2019. On November 7, 2024, the FOMC again lowered the upper bound of its target range to 4.75%, noting that “inflation has made progress toward the committee’s 2% objective but remains somewhat elevated.”
In addition, the FOMC stated that it plans to continue reducing the $7.0 trillion portfolio of securities it holds (as of October 30, 2024), including long-term agency mortgage-backed securities and U.S. Treasuries. These securities were purchased as part of the Federal Reserve’s quantitative easing program designed to hold down long-term interest rates, with the total amount of securities having increased from less than $900 billion in the second quarter of 2008 to a peak of approximately $8.9 trillion in the first quarter of 2022. The FOMC previously indicated that a monthly maximum of $60 billion in U.S. Treasury purchases and $35 billion in mortgage-backed securities purchases (or a total of up to $95 billion) would be allowed to roll off, phased in over three months starting June 1, 2022. As quantitative easing is reversed in this manner through so-called quantitative tightening, long-term rates should rise, all else equal. In its annual report issued April 17, 2024, the New York Federal Reserve Bank predicted that the central bank’s holdings will fall to $6.0 trillion by the middle of 2025. It then expects holdings to again grow to in-line with the growth of the economy as reserves reach 8.0% of nominal U.S. GDP. After its May 1, 2024 meeting, the FOMC said that it will reduce the monthly redemption cap on Treasury securities from $60 billion to $25 billion. It will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion per month and will reinvest any principal payments in excess of this cap into Treasury securities.
Similar to what has happened in the U.S., the MPC has both raised short term U.K. rates to combat post-pandemic inflation and begun quantitative tightening. With respect to short term rates, the MPC raised the Official Bank Rate several times recently, or from 0.1% in November 2021 to 5.25% in August 2023. On August 1, 2024, the MPC delivered its first interest rate cut in more than four years, lowering the Official Bank Rate to 5.0%. On November 7, 2024, the MPC again lowered its target rate to 4.75%. However, it updated its forecasts after taking government budget measures into account, saying that it expected inflation would now peak at 2.75% by the middle of next year and then remain above the 2% target in 2026, until falling back in 2027. This is a year longer than it had expected in its previous forecasts, published in August.
With respect to quantitative tightening, the MPC stopped buying bonds at the end of 2021, stopped reinvesting the proceeds from maturing bonds in February 2022, and began actively selling bonds in November of 2022. As a result, the amount of bonds the Bank of England holds has started to fall. From the end of 2021 through October 30, 2024, their notional value has declined from approximately £895 billion to £655 billion.
U.S. inflation measures have gradually declined since 2022. The consumer-price index for 2024 rose by 2.4% year-over-year in September 2024, which was lower than the 3.0% year-over-year rate for June 2024 and 3.7% rate for September 2023, and a significant improvement versus the recent peak of 9.1% observed in June of 2022. Other U.S. inflation measures, such as Core CPI and the Core Personal Consumption Expenditure Price Index, which exclude more volatile food and energy prices, have also come down meaningfully since their 2022 peak. As a result, economists generally expect long-term U.S. interest rates to stabilize or decline slightly, and to remain below the long-term historical averages for the foreseeable future. For example, the most recent Bloomberg consensus was for the ten-year U.S. Treasury yield to be approximately 3.9%, 3.7% and 3.7%, respectively, as of year-ends 2024, 2025, and 2026. In comparison, this 10-year yield was approximately 4.4% as of November 1, 2024, and reached a five year closing high of 5.0% on October 19, 2023, also according to Bloomberg. For context, ten-year U.S. Treasury yields still remain below their 50-year average (through November 1, 2024) of 5.9%.
Inflation in the U.K. has also gradually fallen, albeit from much higher recent levels compared with the U.S. According to Bloomberg, the retail price index was 2.7% for September 2024 versus 2.9% and 8.9% three months and a year earlier, respectively. This inflation measure reached a post-pandemic high of 14.2% for October of 2023. According to the OECD, the U.K. has had a higher inflation rate compared with the G-7 average since 2016, and this trend is expected to continue through 2025. Conversely, the U.K. had lower than average GDP growth among G-7 nations in 2023 and the first half of 2024, according to Bloomberg. As a result, the Bank of England has had a more challenging time than certain other central banks with respect to balancing inflation and growth rates. U.K. benchmark long-term rates have therefore been somewhat below those of the U.S. According to Bloomberg, the yield on 10-year U.K. government bonds was approximately 4.4% as of November 1, 2024, compared with 4.0% and 4.4%, respectively, as of the end of the third quarters of 2024 and 2023. The most recent Bloomberg consensus was for this 10-year yield to be approximately 3.9%, 3.7%, and 3.7%, respectively as of year-ends of 2024, 2025 and 2026. For context, the monthly closing yield for ten-year Gilts has averaged approximately 6.8% over the 50 years ended September 30, 2024.
While short-term yields are expected to be higher compared with most of the period from the end of 2008 through early 2022, they are expected to stabilize and gradually fall from more recent levels. For context, the upper bound of the Fed Funds Target rate averaged 0.64% from December 31, 2008 through February 28, 2022, and averaged approximately 4.9% and
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3.1% over the 50 years and 25 years ended December 31, 2022, respectively, according to Bloomberg. The most recent Bloomberg consensus was for this target rate to be 4.5%, 3.3%, and 3.1%, respectively, by the ends of 2024, 2025, and 2026. The CME’s Fed Funds futures market indicated that, as of November 1, 2024, traders expected broadly similar declines in this FOMC rate.
The most recent Bloomberg consensus was for the Bank of England’s short-term target rate to be 4.7%, 3.6%, and 3.2%, respectively, by the ends of 2024, 2025, and 2026. As of November 1, 2024, the U.K. futures market implies that short term rates (as measured by overnight index swaps) will fall in a manner largely consistent with this consensus. For context, the Official Bank Rate averaged approximately 6.2% over the 50 years ended September 30, 2024, according to Bloomberg.
Market Statistics
While industrial and retail have increased as a percentage of leasing revenues since 2019, office remains the majority of activity for Newmark and the industry. Newmark Research estimates that third quarter 2024 U.S. office leasing activity was approximately 9% higher compared with a year earlier, an improvement versus having been up 5% and down 3%, respectively, in the second and first quarters of 2024. CoStar estimates that third quarter 2024 U.K. office leasing office take-up reached its highest level since the fourth quarter of 2021, but that office leasing activity is still running comfortably below historic norms. Based on data from Newmark Research and CoStar, the scarcity of available U.S. retail space cannot satisfy strong demand, which has dampened leasing activity for this property type but kept vacancies near all-time lows and rents near their historical highs. Newmark Research estimates that the U.S. industrial market is nearing peak vacancy amid steady net positive demand and falling deliveries, while vacancy has increased as a result of an increased supply, as a higher-than-normal pipeline of available space is being constructed. Against this backdrop, our revenues from Leasing and other commissions increased by 5.6% for the quarter ended September 30, 2024.
We expect demand for office space to be driven by the reset in values due to near-term debt maturities. We also continue to see increased need for office space in certain markets, led by ongoing return-to-work plans, as well as new demand driven by companies in technology including artificial intelligence as well as financial services. According to the Freespace Index, the proportion of those attending work in person rose to 81% of 2019 levels in the Americas in September of 2024 compared with 67% a year earlier. The Freespace Index also reports that attendance increased to 73% of 2019 levels from 65% over the same timeframe across locations they track in Europe, the Middle East, and Africa, and to 77% from 69% in the Asia-Pacific region. Other measures with different methodologies also show in-person attendance increasing. For example, the Kastle Barometer, which measures daily occupancy in ten large U.S. cities versus pre-pandemic levels, increased to 52% as of October 11, 2024, versus 47% a year earlier. Placer.ai data comparing September 2024 versus a year earlier indicates that in-person attendance in the U.S. increased to 69% versus 64%. Our management services, leasing, origination, and capital markets professionals continue to actively collaborate with clients to repurpose underutilized spaces and assets, including with respect to conversion of obsolete office or retail properties.
According to estimates from Green Street, prices for U.S. commercial real estate were flat month-over-month in September 2024, declined by approximately 3% over the twelve months ended September 30, 2024, and were down 19% from their March 2022 peak. With respect to specific property types differing the most from the mean, mall prices were up 5% year-on-year, while strip retail and apartment prices increased by less. Self-storage, traditional industrial, and office prices decreased by more than average over the same period. Since notional volumes are based on both prices and transaction count, lower prices have contributed to tepid industry-wide capital markets volumes. MSCI’s preliminary investment sales figures indicate that industry volumes across all property types were roughly flat in U.S. year-over-year in the third quarter of 2024 and were down by approximately 2% in Europe. MSCI volumes are generally revised upwards at later dates. However, even before any revisions, these recent figures are an improvement from the double-digit percentage declines reported over most of the prior eight quarters. In comparison, Newmark’s third quarter 2024 investment sales revenues and volumes were up by 4.8% and down 9.7%, respectively. In the third quarter of 2023, Newmark served as the Co-Lead Advisor to Blackstone Real Estate Income Trust, Inc. on its sale of Simply Self Storage to Public Storage for $2.2 billion, and this amount was included in our volumes for that period. We have gained considerable market share over the past several years. For example, our U.S. investment sales volumes were approximately 8.7% of overall U.S. MSCI volumes over the twelve months ended September 30, 2024, versus 3.4% in 2015.
We have also gained market share in our commercial mortgage origination businesses. According to the MBA, overall U.S. commercial and multifamily originations increased by 59% in the third quarter of 2024 versus a year earlier. Industry-wide GSE placement activity declined by 5% over the same period, according to Fannie Mae and Freddie Mac. In comparison, we increased our mortgage brokerage and debt placement volumes by 76.8% and our GSE/FHA origination volumes by 27.5%. The Company also improved its third quarter 2024 revenues from Commercial mortgage origination, net, by 45.2% year-on-year. Certain GSE multifamily statistics for the industry are based on when loans are sold and/or securitized, and typically lag those reported by the MBA or by Newmark and its competitors by 30 to 45 days. Based on their analysis of MBA data and
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preliminary MSCI lending data, we believe that we have meaningfully outperformed the industry in total debt over the last several years. According to data or estimates from MSCI, the MBA, and/or Newmark Research, our total debt volumes were approximately 6.2% of U.S. commercial and multifamily mortgage originations over the twelve months ended September 30, 2024, compared with 1.5% in 2015.
Over 90% of Newmark’s 2023 investment sales volumes (which included the equity portion of the Signature transactions) were generated in the U.S., while approximately 93% were from the U.S. in first nine months of 2024. Most of Newmark’s international volume was from the Company’s U.K. operations. Essentially all of Newmark’s total debt volumes were generated in the U.S. in both periods. Given our continued investments, we believe we can continue gaining market share over time in the U.S. and globally, and we anticipate non-U.S. transactions to make up a greater percentage of our revenues and volumes over time.
We expect the record amounts of commercial and multifamily mortgage maturities and interest rate stabilization to lead to continued improvement in industry debt volumes, followed by increased investment sales activity. We anticipate better office market leasing fundamentals as more companies mandate returns to the workplace, less new inventory is constructed, and the recapitalization of properties at lower values leads to a more attractive market. We also continue to expect solid fundamentals for industrial and retail properties. We believe that these factors, along with our leading presence in capital markets, will drive growth across nearly all of Newmark’s service lines.
We also think that the current market conditions have created an opportunity for us to solidify what we believe is our position as the platform of choice for many of the real estate industry’s top professionals. During the nine months of 2024, we hired one of the top multifamily GSE/FHA originators in the U.S., who will work closely with the preeminent U.S. affordable housing investment sales team that we added earlier in the year. We also hired some of the most prolific and experienced debt and structured finance professionals in the U.S. and U.K., as well as some of the most innovative and active U.S. leasing teams. Newmark also opened a flagship office in France, continental Europe’s second largest transaction market, where we attracted some of the most talented leasing and capital markets professionals. In October of this year, our European expansion continued with the launch of our capital markets and leasing businesses in Germany. We believe that these additions further demonstrate the strength of our global brand, and that our substantial investments in data, analytics, and talent position Newmark to capitalize on ongoing macroeconomic trends. Furthermore, our revenue-generating headcount was relatively flat year-on-year as of the end of the third quarter of 2024. Therefore, productivity gains drove the large majority of our total revenue growth, as well as our increased fees across capital markets, leasing, and V&A. As more of our recently hired revenue-generating professionals ramp up, we expect further productivity gains over time.
Financial Overview
Revenues
We generally derive revenues from the following three sources:
•Management Services, Servicing Fees and Other. We provide commercial services to tenants and landlords. In this business, we provide property and facilities management services along with project management, V&A services, and other consulting services, as well as technology services, to customers who may also utilize our commercial real estate brokerage services, and flexible workspace solutions. Servicing fees are derived from the servicing of loans originated by us as well as loans originated by third parties.
•Leasing and Other Commissions. We offer a diverse range of commercial real estate brokerage and advisory services, including tenant and landlord (or agency) representation, which includes comprehensive lease negotiations, strategic planning, site selection, lease auditing, and other financial and market analysis.
•Capital Markets. This consists of investment sales and commercial mortgage origination, net. Our investment sales business specializes in the arrangement of acquisitions and dispositions of commercial properties, as well as equity placement and other related services. Our commercial mortgage origination, net business offers services and products to facilitate debt financing for our clients and customers. Commercial mortgage origination revenue is comprised of commissions generated from mortgage brokerage and debt placement services, as well as the origination fees and premiums derived from the origination of GSE/FHA loans with borrowers. Our commercial mortgage origination revenue also includes the revenue recognized for the fair value of expected net future cash flows from servicing recognized at commitment.
Fees are generally earned when a lease is signed. In many cases, landlords are responsible for paying the fees. In capital markets, fees are earned and recognized when the sale of a property closes, and title passes from seller to buyer for investment sales and when debt or equity is funded to a vehicle for debt and equity transactions. Loan originations related fees and sales premiums, net, are recognized when a derivative asset is recorded upon the commitment to originate a loan with a
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borrower and sell the loan to an investor. The derivative is recorded at fair value and includes loan origination fees, sales premiums and the estimated fair value of the expected net servicing cash flows. Loan originations related fees and sales premiums, net, are recognized net of related fees and commissions to affiliates or third-party brokers. For loans we broker, revenues are recognized when the loan is closed.
Servicing fees are recognized on an accrual basis over the lives of the related mortgage loans. We typically receive monthly management fees based upon a percentage of monthly rental income generated from the property under management, or in some cases, the greater of such percentage or a minimum agreed upon fee. We are often reimbursed for our administrative and payroll costs, as well as certain out-of-pocket expenses, directly attributable to properties under management. We follow U.S. GAAP, which provides guidance when accounting for reimbursements from clients and when accounting for certain contingent events for leasing and capital markets transactions. See Note 3 – “Summary of Significant Accounting Policies” to our accompanying unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a more detailed discussion.
Expenses
(i) Compensation and Employee Benefits
The majority of our operating costs consist of cash and non-cash compensation expenses, which include base salaries, producer commissions based on production, forgivable loans for term contracts, discretionary and other bonuses and all related employee benefits and taxes. Our employees consist of commissioned producers, executives and other administrative support. Our producers are largely compensated based on the revenue they generate for the firm, keeping these costs variable in nature.
As part of our compensation plans, certain employees have been granted limited partnership units in Newmark Holdings and, prior to the Newmark IPO, BGC Holdings, which generally receive quarterly allocations of net income and are generally contingent upon services being provided by the unit holders. As a result of the Corporate Conversion, there are no longer any limited partnership units in BGC Holdings outstanding. Certain Newmark employees also hold N Units that do not participate in quarterly partnership distributions and are not allocated any items of profit or loss. These N Units vest into distribution earnings units over a three- to ten-year period. As prescribed in U.S. GAAP guidance, the quarterly allocations of net income on such limited partnership units are reflected as a component of compensation expense under “Equity-based compensation and allocations of net income to limited partnership units and FPUs” in our accompanying unaudited condensed consolidated statements of operations.
Newmark has granted certain conversion rights on limited partnership units in Newmark Holdings and, prior to the Corporate Conversion, then-outstanding limited partnership units in BGC Holdings, to Newmark employees to convert the limited partnership units to a capital balance within Newmark Holdings or BGC Holdings. Generally, such units are not considered share-equivalent limited partnership units and are not in the fully diluted share count.
Certain of these limited partnership units entitle the holders to receive post-termination payments. These limited partnership units are accounted for as post-termination liability awards under U.S. GAAP guidance, which requires that we record an expense for such awards based on the change in value at each reporting period and include the expense in our accompanying unaudited condensed consolidated statements of operations as part of “Equity-based compensation and allocations of net income to limited partnership units and FPUs.” The liability for limited partnership units with a post-termination payout amount is included in “Other long-term liabilities” on our accompanying unaudited condensed consolidated balance sheets.
Certain limited partnership units are granted exchangeability into Class A common stock or may be redeemed in connection with the grant of shares of Class A common stock. At the time exchangeability is granted, or the shares are issued, Newmark recognizes an expense based on the fair value of the award on that date, which is included in “Equity-based compensation and allocations of net income to limited partnership units and FPUs” in our accompanying unaudited condensed consolidated statements of operations.
Certain of our employees have been awarded Preferred Units in Newmark Holdings and, prior to the Corporate Conversion, BGC Holdings. Each quarter, the net profits of Newmark Holdings and BGC Holdings are or were allocated to such units at a rate of either 0.6875% (which is 2.75% per calendar year) or such other amount as set forth in the award documentation, which is deducted before the calculation and distribution of the quarterly partnership distribution for the remaining partnership units in Newmark Holdings. The Preferred Units are not entitled to participate in partnership distributions other than with respect to the Preferred Distribution. Preferred Units may not be made exchangeable into our Class A common stock and are only entitled to the Preferred Distribution, and accordingly they are not included in our fully diluted share count. The quarterly allocations of net income on Preferred Units are also reflected in compensation expense under “Equity-based compensation and allocations of net income to limited partnership units and FPUs” in our accompanying unaudited condensed consolidated statements of operations. After deduction of the Preferred Distribution, the remaining
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partnership units generally receive quarterly allocation of net income based on their weighted-average pro rata share of economic ownership of the operating subsidiaries. In addition, Preferred Units are granted in connection with the grant of certain limited partnership units, such as PSUs, that may be granted exchangeability to cover the withholding taxes owed by the unit holder upon such exchange. This is an acceptable alternative to the common practice among public companies of issuing the gross number of shares to employees, subject to cashless withholding of shares to pay applicable withholding taxes.
We have also entered into various agreements with certain of our employees and partners whereby these individuals receive loans, which may be either wholly or in part repaid from the distribution earnings that the individual receives on their limited partnership interests or from the proceeds of the sales of the employees’ shares of our Class A common stock. The forgivable portion of these loans is recognized as compensation expense over the service period.
From time to time, we may also enter into agreements with employees and partners to grant bonus and salary advances or other types of loans. These advances and loans are repayable in the timeframes outlined in the underlying agreements. In addition, we also enter into deferred compensation agreements with employees providing services to us. The costs associated with such plans are generally amortized over the period in which they vest. (See Note 27 — “Compensation” and Note 28 — “Commitments and Contingencies” to our accompanying unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q).
(ii) Other Operating Expenses
We have various other operating expenses. We incur leasing, equipment and maintenance expenses. We also incur selling and promotion expenses, which include entertainment, marketing and travel-related expenses. We incur communication expenses, professional and consulting fees for legal, audit and other special projects, and interest expense related to short-term operational funding needs, and notes payable and collateralized borrowings.
We pay fees to Cantor for performing certain administrative and other support, including charges for occupancy of office space, utilization of fixed assets and accounting, operations, human resources, legal services and technology infrastructure support. Management believes that these charges are a reasonable reflection of the utilization of services rendered. However, the expenses for these services are not necessarily indicative of the expenses that would have been incurred if we had not obtained these services from Cantor. In addition, these charges may not reflect the costs of services we may receive from Cantor in the future.
(iii) Other Income (loss), Net
Other income (loss), net is comprised of gains (losses) on equity method investments which represent our pro rata share of the net gains (losses) on investments over which we have significant influence but which we do not control, and the mark-to-market gains or losses on marketable and non-marketable investments.
(iv) Provision for Income Taxes
We incur income tax expenses based on the location, legal structure, and jurisdictional taxing authorities of each of our subsidiaries. Certain of the Company’s entities are taxed as U.S. partnerships and are subject to the UBT in New York City. U.S. federal and state income tax liability or benefit related to the partnership income or loss, with the exception of the UBT, rests with the partners (see Note 2 — “Limited Partnership Interests in Newmark Holdings and BGC Holdings” to our accompanying unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q) rather than the partnership entity. Our accompanying unaudited condensed consolidated financial statements include U.S. federal, state and local income taxes on Newmark’s allocable share of the U.S. results of operations. Outside of the U.S., we operate principally through subsidiary corporations subject to local income taxes.
Newmark is subject to the tax laws and regulations of the U.S. and various non-U.S. jurisdictions. The OECD Pillar Two Framework provides for a minimum global effective tax rate of 15%. The EU Member States formally adopted the EU’s Pillar Two Directive with a subset of rules that became effective January 1, 2024. Other countries are also expected to implement similar legislation. We do not believe this will have a material impact on our tax rate.
Business Mix and Seasonality
Our pre-tax margins are affected by the mix of revenues generated. For example, servicing revenues tend to have higher pre-tax margins than Newmark as a whole, and margins from originating GSE/FHA loans, which are included in “Capital markets” in our unaudited condensed consolidated statement of operations, tend to be lower, as we retain rights to service loans over time, and because this item includes non-cash GAAP gains attributable to OMSRs, which represent the fair value of expected net future cash flows from servicing recognized at commitment, net. Capital markets transactions tend to have higher pre-tax margins than leasing transactions. Pre-tax earnings margins on our property management and parts of our other GCS businesses are at the lower end of margins for the Company as a whole because they include some revenues that
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equal their related expenses. These revenues represent fully reimbursable compensation and non-compensation costs and may be referred to as “pass through revenues.”
Due to the strong desire of many market participants to close real estate transactions prior to the end of a calendar year, our business exhibits certain seasonality, with our revenue tending to be lowest in the first quarter and strongest in the fourth quarter. For the five years from 2019 through 2023, we generated an average of approximately 22% of our revenues in the first quarter and 29% of our revenues in the fourth quarter. Because approximately 30% of our expenses are fixed in a typical year, this seasonality generally leads to higher profitability in the fourth quarter and lower margins in the first quarter, all else equal.
Independent Business Partners
In certain smaller U.S. and international markets where we do not maintain Newmark-owned offices, we have agreements in place to operate on a collaborative and cross-referral basis with select independently owned offices in return for contractual and referral fees paid to us and/or certain mutually beneficial co-branding and other business arrangements. These independent offices are referred to as “business partners.” These business partners may use some variation of our branding in their names and marketing materials. These agreements typically take the form of multi-year contracts, and provide for mutual referrals in their respective markets, generating additional contract and brokerage fees. While we do not derive a significant portion of our revenue from these relationships, they do enable us to seamlessly provide service to our mutual clients. These business partners give our clients access to local brokerage professionals, research, and commercial real estate services in locations where the Company does not have a physical presence. The discussion of our financial results and other metrics reflects only the business owned by us and does not include the results for business partners.
Results of Operations
The following table sets forth our unaudited condensed consolidated statements of operations data expressed as a percentage of total revenues for the periods indicated (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Actual Results
Percentage of Total Revenues
Actual Results
Percentage of Total Revenues
Actual Results
Percentage of Total Revenues
Actual Results
Percentage of Total Revenues
Revenues:
Management services, servicing fees and other
$
282,623
41.2
%
$
253,749
41.2
%
$
802,335
43.0
%
$
706,701
41.0
%
Leasing and other commissions
214,581
31.3
203,268
33.0
581,937
31.2
600,185
34.8
Capital markets
188,708
27.5
159,266
25.8
481,514
25.8
416,040
24.2
Total revenues
685,912
100.0
616,283
100.0
1,865,786
100.0
1,722,926
100.0
Expenses:
Compensation and employee benefits
392,277
57.2
371,250
60.2
1,097,994
58.9
1,046,531
60.7
Equity-based compensation and allocations of net income to limited partnership units and FPUs (1)
48,749
7.1
29,548
4.8
125,678
6.7
84,805
4.9
Total compensation and employee benefits
441,026
64.3
400,798
65.0
1,223,672
65.6
1,131,336
65.6
Operating, administrative and other
151,942
22.2
140,930
22.9
437,622
23.4
406,738
23.6
Fees to related parties
7,638
1.1
6,244
1.0
21,847
1.2
20,863
1.2
Depreciation and amortization
44,576
6.5
41,463
6.7
129,430
6.9
122,327
7.1
Total operating expenses
645,182
94.1
589,435
95.6
1,812,571
97.1
1,681,264
97.5
Other income, net
321
—
3,203
0.5
5,944
0.3
4,118
0.2
Income from operations
41,051
5.9
30,051
4.9
59,159
3.2
45,780
2.7
Interest expense, net
(7,863)
(1.1)
(7,542)
(1.2)
(23,341)
(1.3)
(24,727)
(1.4)
Income before income taxes and noncontrolling interests
33,188
4.8
22,509
3.7
35,818
1.9
21,053
1.3
Provision for income taxes
8,847
1.3
8,356
1.4
14,378
0.8
12,019
0.7
Consolidated net income
24,341
3.5
14,153
2.3
21,440
1.1
9,034
0.6
Less: Net income attributable to noncontrolling interests
6,547
1.0
4,206
0.7
5,620
0.3
3,007
0.2
Net income available to common stockholders
$
17,794
2.5
%
$
9,947
1.6
%
$
15,820
0.8
%
$
6,027
0.4
%
(1)The components of Equity-based compensation and allocations of net income to limited partnership units and FPUs are as follows (in thousands):
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Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Actual Results
Percentage of Total Revenues
Actual Results
Percentage of Total Revenues
Actual Results
Percentage of Total Revenues
Actual Results
Percentage of Total Revenues
Issuance of common stock and exchangeability expenses
$
30,059
4.4
%
$
15,056
2.4
%
$
78,017
4.2
%
$
42,761
2.5
%
Limited partnership units amortization
8,470
1.2
5,597
0.9
22,986
1.2
20,602
1.2
RSU amortization
4,994
0.7
5,819
0.9
18,672
1.0
18,003
1.0
Total equity compensation
43,523
6.3
26,472
4.2
%
119,675
6.4
81,366
4.7
%
Allocations of net income to limited partnership units and FPUs
5,226
0.8
3,076
0.5
6,003
0.3
3,439
0.2
Equity-based compensation and allocations of net income to limited partnership units and FPUs
$
48,749
7.1
%
$
29,548
4.7
%
$
125,678
6.7
%
$
84,805
4.9
%
Three months ended September 30, 2024 compared to the three months ended September 30, 2023
Revenues
Management Services, Servicing Fees and Other
Management services, servicing fees and other revenue increased by $28.9 million, or 11.4%, to $282.6 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This increase reflects growth from our GCS, servicing, and property management businesses, as well as higher V&A fees.
Leasing and Other Commissions
Leasing and other commissions revenues increased by $11.3 million, or 5.6%, to $214.6 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was led by growth in retail and industrial volumes.
Capital Markets
Capital markets increased by $29.4 million, or 18.5%, to $188.7 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Investment sales fees rose by 4.8%, which reflected higher retail and office volumes. Loan originations and fees, net, expanded by 45.2%, led by volume growth of 76.8% from mortgage brokerage and debt placement compared to a 25% increase in U.S. commercial and multifamily mortgages, and volume growth of 27.5% from GSE/FHA origination compared to a 5% industry-wide decline in GSE activity.
Expenses
Compensation and Employee Benefits
Compensation and employee benefits expense increased by $21.0 million to $392.3 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase reflects improved commission-based revenue.
Equity-based compensation and allocations of net income to limited partnership units and FPUs
Equity-based compensation and allocations of net income to limited partnership units and FPUs increased by $19.2 million, or 65.0%, to $48.7 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This increase is directly attributable to the approximately 87% year-on-year improvement in Newmark’s average stock price as compensation expense related to the grant of exchangeability for limited partnership units is related to the stock price of Newmark Class A common stock.
Operating, Administrative and Other
Operating, administrative and other expenses increased by $11.0 million, or 7.8%, to $151.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily related to costs associated with higher revenues from management services, servicing fees, and other.
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Fees to Related Parties
Fees to related parties increased by $1.4 million, or 22.3%, to $7.6 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.
Depreciation and Amortization
Depreciation and amortization increased by $3.1 million, or 7.5%, to $44.6 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to an increase in MSR valuation allowance of $3.7 million.
Other Income (loss), Net
Other income (loss), net of $0.3 million in the three months ended September 30, 2024 primarily consisted of recoveries from forfeited restricted Newmark Class A common stock.
Other income (loss), net of $3.2 million in the three months ended September 30, 2023 was primarily due to net realized gains on equity method investments offset by a loss from the disposition of certain assets.
Interest Expense, Net
Interest expense, net increased by $0.3 million, or 4.3%, to $7.9 million during the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to higher interest expense on our corporate debt, partially offset by higher interest income, which primarily relates to interest income on employee loans.
Provision for Income Taxes
The provision for income taxes increased by $0.5 million, or 5.9%, to $8.8 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. In general, our consolidated effective tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings.
Net income (loss) attributable to noncontrolling interests
Net income attributable to noncontrolling interests increased by $2.3 million, or 55.6%, to $6.5 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This increase was primarily driven by a higher pre-tax income.
Nine months ended September 30, 2024 compared to nine months ended September 30, 2023
Revenues
Management Services, Servicing Fees and Other
Management services, servicing fees and other revenue increased by $95.6 million, or 13.5%, to $802.3 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. This increase reflects growth from servicing fees and other, our GCS, and property management businesses, as well as higher V&A fees.
Leasing and Other Commissions
Leasing and other commission revenues decreased by $18.2 million, or 3.0%, to $581.9 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 which is largely due to Newmark’s strong performance in 2023.
Capital Markets
Capital markets increased by $65.5 million, or 15.7%, to $481.5 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase reflects a 28.0% increase in commercial mortgage origination, net and a 7.2% improvement in investment sales fees.
Expenses
Compensation and Employee Benefits
Compensation and employee benefits expense increased by $51.5 million, or 4.9%, to $1,098.0 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase reflects improved commission-based revenues, an increase in pass through items, acquisitions, and expenses related to hiring revenue-generating professionals under long term contracts. These were partially offset by the impact of Newmark’s cost saving initiatives.
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Equity-based compensation and allocations of net income to limited partnership units and FPUs
Equity-based compensation and allocations of net income to limited partnership units and FPUs increased by $40.9 million, or 48.2%, to $125.7 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. This increase is directly attributable to the year-on-year improvement in Newmark’s average stock price as compensation expense related to the grant of exchangeability for limited partnership units is related to the stock price of Newmark Class A common stock.
Operating, Administrative and Other
Operating, administrative and other expenses increased by $30.9 million, or 7.6%, to $437.6 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily related to costs associated with higher revenues from management services, servicing fees, and other.
Fees to Related Parties
Fees to related parties increased by $1.0 million, or 4.7%, to $21.8 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.
Depreciation and Amortization
Depreciation and amortization for the nine months ended September 30, 2024 increased by $7.1 million, or 5.8%, to $129.4 million compared to the nine months ended September 30, 2023 due to an increase in intangible asset amortization of $1.5 million and a $5.0 million change in MSR valuation allowance.
Other Income (loss), Net
Other income (loss), net of $5.9 million in the nine months ended September 30, 2024 consisted primarily of recoveries from forfeited restricted Newmark Class A common stock.
Other income (loss), net of $4.1 million in the nine months ended September 30, 2023 was primarily due to net realized gains on equity method investments offset by a loss from the disposition of certain assets.
Interest Expense, Net
Interest expense, net decreased by $1.4 million, or 5.6%, to $23.3 million during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due to higher interest income, which primarily relates to interest income on employee loans. partially offset by higher interest expense on our corporate debt.
Provision for Income Taxes
Provision for income taxes increased by $2.4 million, or 19.6%, to $14.4 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. In general, our consolidated effective tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings.
Net loss attributable to noncontrolling interests
Net loss attributable to noncontrolling interests increased by $2.6 million, or 86.9% to $5.6 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.
Financial Position, Liquidity and Capital Resources
Overview
The primary sources of liquidity for our business are the cash on our balance sheet, cash flow provided by operations, and the $600.0 million revolving Credit Facility.
Our future capital requirements will depend on many factors, including our growth, the expansion of our sales and marketing activities, our expansion into other markets, our acquisitions of other companies and hiring of teams of producers, and our results of operations. To the extent that existing cash, cash from operations and credit facilities are insufficient to fund our future activities, we may need to raise additional funds through public equity or debt financing. As of September 30, 2024, our debt consisted of $600.0 million aggregate principal amount of 7.500% Senior Notes with a carrying amount of $595.2 million and $175.0 million outstanding under the Credit Facility with a carrying amount of $175.0 million, in each case exclusive of our warehouse facilities described under “—Warehouse Facilities Collateralized by U.S. Government Sponsored Enterprises.”
Financial Position
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Total assets were $5.0 billion at September 30, 2024 and $4.5 billion at December 31, 2023.
Total liabilities were $3.5 billion at September 30, 2024 and $2.9 billion at December 31, 2023.
Liquidity
At September 30, 2024, we had cash and cash equivalents of $178.6 million. Additionally, we had $425.0 million available under our committed senior unsecured revolving Credit Facility. We expect to generate cash flows from operations to fund our business and use those funds, and our Credit Facility, to meet our short-term liquidity requirements, which we define as those arising within the next twelve months, and our long-term liquidity requirements, which we define as those beyond the next twelve months.
Debt
Debt, excluding our warehouse facilities, consisted of the following as of September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024
December 31, 2023
7.500% Senior Notes
$
595,405
$
—
Credit Facility
175,000
—
Delayed Draw Term Loan
—
417,260
Cantor Credit Agreement
—
130,000
Total corporate debt
$
770,405
$
547,260
Delayed Draw Term Loan Credit Agreement
On August 10, 2023, Newmark entered into a Delayed Draw Term Loan Credit Agreement, by and among the Company, the several financial institutions from time to time party thereto, as Lenders, and Bank of America, N.A., as Administrative Agent (as such terms are defined in the Delayed Draw Term Loan Credit Agreement), pursuant to which the Lenders committed to provide to the Company a senior unsecured Delayed Draw Term Loan in an aggregate principal amount of $420.0 million, which could be increased, subject to certain terms and conditions, to up to $550.0 million. The proceeds of the Delayed Draw Term Loan could only be used to repay the 6.125% Senior Notes at their maturity. The Delayed Draw Term Loan had a maturity date of November 14, 2026.
As set forth in the Delayed Draw Term Loan Credit Agreement, the Delayed Draw Term Loan could bear interest at a per annum rate equal to, at the Company’s option, either (a) Term SOFR for interest periods of one or three months (as selected by the Company) or upon the consent of all Lenders, such other period that is 12 months or less (in each case, subject to availability), as selected by the Company, plus an applicable margin or (b) a base rate equal to the greatest of (i) the federal funds rate plus 0.50%, (ii) the prime rate as established by the Administrative Agent, and (iii) Term SOFR plus 1.00%, in each case plus an applicable margin. Upon funding, the applicable margin was 2.625% with respect to Term SOFR borrowings in (a) above and 1.625% with respect to base rate borrowings in (b) above. Depending on the Company’s credit ratings, the applicable margin could range, with respect to Term SOFR borrowings, from 2.125% to 3.375% through and including August 10, 2024, and 2.5% to 3.875% thereafter; and base rate borrowings, from 1.125% to 2.375% through and including August 10, 2024, and 1.5% to 2.875% thereafter.
The Delayed Draw Term Loan Credit Agreement contained financial covenants with respect to minimum interest coverage and maximum leverage ratio. The Delayed Draw Term Loan Credit Agreement also contained certain other customary affirmative and negative covenants and events of default. The covenants in the Delayed Draw Term Loan Credit Agreement were consistent with those within the Company’s existing $600.0 million Credit Facility, which matures on April 26, 2027 and remains available to the Company.
On November 8, 2023, Newmark provided notice to Bank of America, N.A., as Administrative Agent, to borrow the $420.0 million available under the Delayed Draw Term Loan Credit Agreement with the funds made available on November 14, 2023. The Company used the $420.0 million of proceeds of the Delayed Draw Term Loan draw to pay a portion of the matured principal and interest of the Company’s $550.0 million 6.125% Senior Notes due November 15, 2023. On January 12, 2024, the outstanding balance under the Delayed Draw Term Loan was repaid with the proceeds of the offering of the 7.500% Senior Notes. The Delayed Draw Term Loan was terminated and the remaining unamortized debt issuance costs of $2.7 million were expensed.
Credit Facility
On November 28, 2018, Newmark entered into the Credit Agreement by and among Newmark, the several financial institutions from time to time party thereto, as lenders, and Bank of America N.A., as administrative agent. The Credit Agreement provided for a $250.0 million Credit Facility.
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On February 26, 2020, Newmark entered into an amendment to the Credit Agreement, increasing the size of the Credit Facility to $425.0 million and extending the maturity date to February 26, 2023. The interest rate on the Credit Facility was reduced to LIBOR plus 1.75% per annum, subject to a pricing grid linked to Newmark’s credit ratings from S&P Global Ratings and Fitch.
On March 16, 2020, Newmark entered into a second amendment to the Credit Agreement, increasing the size of the Credit Facility to $465.0 million. The interest rate on the Credit Facility was LIBOR plus 1.75% per annum, subject to a pricing grid linked to Newmark’s credit ratings from S&P Global Ratings and Fitch.
On March 10, 2022, Newmark amended and restated the Credit Agreement, as amended. Pursuant to the amended and restated Credit Agreement, the lenders agreed to: (a) increase the amount available to the Company under the Credit Facility to $600.0 million, (b) extend the maturity date of the Credit Facility to March 10, 2025, and (c) improve pricing to 1.50% per annum with respect to Term SOFR (as defined in the amended and restated Credit Agreement) borrowings.
Borrowings under the Credit Facility bear interest at a per annum rate equal to, at the Company’s option, either (a) Term SOFR for interest periods of one or three months, as selected by the Company, or upon the consent of all lenders, such other period that is 12 months or less (in each case, subject to availability), as selected by the Company, plus an applicable margin, or (b) a base rate equal to the greatest of (i) the federal funds rate plus 0.50%, (ii) the prime rate as established by the Administrative Agent (as such term is defined in the amended and restated Credit Agreement), and (iii) Term SOFR plus 1.00%, in each case plus an applicable margin. The applicable margin was initially 1.50% with respect to Term SOFR borrowings in (a) above and 0.50% with respect to base rate borrowings in (b) above. The applicable margin with respect to Term SOFR borrowings in (a) above could range from 1.00% to 2.125% depending upon the Company’s credit rating, and with respect to base rate borrowings in (b) above could range from 0.00% to 1.125% depending upon the Company’s credit rating. The Credit Agreement also provides for certain upfront and arrangement fees and for an unused facility fee.
On November 8, 2023, Newmark provided notice to Bank of America, N.A., as Administrative Agent, to borrow $130.0 million under the Credit Facility with the funds made available on November 14, 2023. The Company used the proceeds of the Credit Facility draw to pay the remaining maturing principal and interest of the Company’s $550.0 million 6.125% Senior Notes due November 15, 2023 that was not paid for with the proceeds of the Delayed Draw Term Loan.
On December 20, 2023, Newmark drew $130.0 million of Newmark Revolving Loans under the Cantor Credit Agreement to repay the $130.0 million balance then outstanding under the Credit Facility.
On April 26, 2024, Newmark amended and restated the Credit Agreement, which amendment and restatement, among other things, extends the maturity date of the Credit Facility to April 26, 2027. The borrowing rates and financial covenants under the Credit Agreement are substantially consistent with the Credit Agreement prior to such amendment and restatement.
During the nine months ended September 30, 2024, there were $235.0 million of borrowings and $60.0 million of repayments under the Credit Facility. As of September 30, 2024, there were $175.0 million of borrowings outstanding under the Credit Facility. As of September 30, 2024, borrowings under the Credit Facility carried an interest rate of 6.81%, with a weighted-average interest rate of 6.91% for the nine months ended September 30, 2024. As of December 31, 2023, there were no borrowings under the Credit Facility.
7.500% Senior Notes
On January 12, 2024, Newmark closed its offering of $600.0 million aggregate principal amount of the 7.500% Senior Notes. The notes are general senior unsecured obligations of Newmark. Cantor purchased $125.0 million aggregate principal amount of 7.500% Senior Notes in the offering, and still holds such notes as of November 8, 2024. The Company received net proceeds from the offering of the 7.500% Senior Notes of approximately $594.7 million after deducting the initial purchasers’ discounts and estimated offering expenses. The notes bear interest at a rate of 7.500% per year, payable in cash on January 12 and July 12 of each year, commencing July 12, 2024. The 7.500% Senior Notes will mature on January 12, 2029. The Company used the net proceeds of the offering of the 7.500% Senior Notes to repay all of the $420.0 million outstanding under its Delayed Draw Term Loan Credit Agreement. Additional net proceeds were used to repay all $130.0 million of then outstanding revolving debt, including with respect to borrowings under the Cantor Credit Agreement.
The 7.500% Senior Notes were initially offered and sold in a private offering exempt from the registration requirements under the Securities Act. Customary registration rights were provided to purchasers of the 7.500% Senior Notes. On May 10, 2024, we filed a Registration Statement on Form S-4, which was declared effective by the SEC on June 6, 2024. On June 10, 2024, we launched an exchange offer in which holders of the 7.500% Senior Notes which were issued in the January 12, 2024 private placement could exchange such notes for new registered notes with substantially identical terms. The exchange offer expired on July 17, 2024, at which point the tendered 7.500% Senior Notes were exchanged for new registered notes with substantially identical terms.
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See “— Certain Related Party Transactions— 7.500% Senior Notes” below for further discussion.
Cantor Credit Agreement
On November 30, 2018, Newmark entered into an unsecured credit agreement with Cantor. The Cantor Credit Agreement provides for each party to issue loans to the other party in the lender’s discretion. Pursuant to the Cantor Credit Agreement, the parties and their respective subsidiaries (with respect to Cantor, other than BGC and its subsidiaries) may borrow up to an aggregate principal amount of $250.0 million from each other from time to time at an interest rate which is the higher of Cantor or Newmark’s short-term borrowing rate then in effect, plus 1.0%.
On December 20, 2023, Newmark entered into a first amendment to the Cantor Credit Agreement. Pursuant to the First Cantor Credit Agreement Amendment, Cantor agreed to make certain loans to Newmark from time to time in an aggregate outstanding principal amount of up to $150.0 million under the Cantor Credit Agreement. The Newmark Revolving Loans have substantially the same terms as other loans under the Cantor Credit Agreement, except that until April 15, 2024, the Newmark Revolving Loans would bear interest at a rate equal to 25 basis points less than the interest rate borne by the revolving loans made pursuant to the Credit Facility. Unlike other loans made under the Cantor Credit Agreement, Cantor may demand repayment of the Newmark Revolving Loans prior to the final maturity date of the Cantor Credit Agreement upon three business days’ prior written notice. Also on December 20, 2023, Newmark drew $130.0 million of Newmark Revolving Loans, and used the proceeds to repay the $130.0 million balance then outstanding under the Credit Facility.
On January 12, 2024, the outstanding balance under the Cantor Credit Agreement was repaid with the proceeds of the offering of the 7.500% Senior Notes. As of September 30, 2024, there were no borrowings outstanding under the Cantor Credit Agreement. As of December 31, 2023, there was $130.0 million outstanding under the Cantor Credit Agreement.
Warehouse Facilities Collateralized by U.S. Government Sponsored Enterprises
As of September 30, 2024, Newmark had $1.5 billion of committed loan funding, $1.1 billion of uncommitted loan funding available through three commercial banks, and an uncommitted $400.0 million Fannie Mae loan repurchase facility. Consistent with industry practice, these warehouse facilities are short-term, requiring annual renewal. These warehouse facilities are collateralized by an assignment of the underlying mortgage loans originated under various lending programs and third-party purchase commitments and are recourse only to our wholly owned subsidiary, Berkeley Point Capital, LLC. As of September 30, 2024 and December 31, 2023 we had $1.0 billion and $0.5 billion, respectively, outstanding under “Warehouse facilities collateralized by U.S. Government Sponsored Enterprises” on our accompanying unaudited condensed consolidated balance sheets.
On June 19, 2020, Newmark established a $125.0 million sublimit line of credit to fund potential principal and interest servicing advances on its Fannie Mae portfolio during the forbearance period related to the CARES Act. The sublimit was included within the Company’s then-existing $450 million warehouse facility. The advance line provided 100% of the principal and interest advance payment at a rate of SOFR plus 1.80% and was collateralized by Fannie Mae’s commitment to repay advances. There were no outstanding draws under this sublimit as of September 30, 2024 or December 31, 2023. Newmark did not have any Fannie Mae loans in forbearance as of September 30, 2024 or December 31, 2023. On May 7, 2024, the related warehouse line was renewed, removing the $125.0 million sublimit line of credit.
Leases
Total lease liability as of September 30, 2024 was $640.8 million. Of the total amount, $157.0 million of lease liability is within our flexible workspace business whereby the liability is ring-fenced in SPVs with only $36.6 million of guarantees and/or letters of credit with exposure to Newmark. In addition, Newmark had contracted future customer revenues and sub-lease income as of September 30, 2024 amounting to approximately $197.9 million.
Debt Repurchase Authorization
On June 16, 2020, the Board and the Audit Committee authorized a debt repurchase program for the repurchase by the Company in the amount of up to $50.0 million of Company debt securities. Repurchases of Company debt securities, if any, are expected to reduce future cash interest payments, as well as future amounts due at maturity or upon redemption.
Under the authorization, the Company may make repurchases of Company debt securities for cash from time to time in the open market or in privately negotiated transactions upon such terms and at such prices as management may determine. Additionally, the Company is authorized to make any such repurchases of Company debt securities through CF&Co (or its affiliates), in its capacity as agent or principal, or such other broker-dealers as management shall determine to utilize from time to time upon customary market terms or commissions.
As of September 30, 2024, the Company had $50.0 million remaining from its debt repurchase authorization.
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Cash Flows
Cash flows from operations excluding activity from loan originations and sales, net were as follows (in thousands):
Nine Months Ended September 30,
2024
2023
Net cash provided by (used in) operating activities
$
(412,513)
$
(485,938)
Add back:
Net activity from loan originations and sales
468,899
478,625
Net cash provided by (used in) operating activities excluding activity from loan originations and sales (1)
$
56,386
$
(7,313)
(1) Includes loans, forgivable loans and other receivables from employees and partners in the amount of $209.8 million and $209.6 million for the nine months ended September 30, 2024 and 2023, respectively. Excluding these loans, net cash provided by operating activities excluding loan originations and sales would be $266.2 million and $202.3 million for the nine months ended September 30, 2024 and 2023, respectively.
Cash Flows for the Nine Months Ended September 30, 2024
For the nine months ended September 30, 2024, we used $412.5 million of cash in operations. Excluding activity from loan originations and sales, cash used in operating activities for the nine months ended September 30, 2024 was $56.4 million. Cash used in operations included $209.8 million of loans, forgivable loan and other receivables from employees and partners primarily for the hiring of revenue generating professionals. Cash used in investing activities was $27.3 million, consisting primarily of cash paid for the purchases of fixed assets. Cash provided by financing activities of $465.4 million primarily related to net borrowings of $225.0 million of corporate debt and net proceeds from warehouse facilities of $487.2 million. This was offset by treasury stock repurchases and unit purchases of $193.5 million, payments to shareholders and partners for dividends and distributions of $47.9 million, and payments of deferred financing costs of $5.4 million.
Cash Flows for the Nine Months Ended September 30, 2023
For the nine months ended September 30, 2023, we used $485.9 million of cash from operations. Excluding activity from loan originations and sales, cash used from operating activities for the nine months ended September 30, 2023 was $7.3 million. Cash used in investing activities was $38.2 million, consisting of cash paid for acquisitions and purchases of fixed assets. Cash provided by financing activities of $444.5 million primarily related to $55.0 million of net Credit Facility borrowings, and net principal borrowings on warehouse facilities of $472.1 million.
Acquisitions
On March 10, 2023, Newmark completed the acquisition of Gerald Eve, a U.K. based real estate advisory firm.
In the first quarter of 2023, the Company acquired the approximately 49% of Spring11 that it did not own, having held a controlling stake since 2017. Spring11 provides asset management and servicing, commercial real estate due diligence, consulting, and advisory services to a variety of clients, including lenders, investment banks and investors, and has been recorded as part of “management services.” Beginning in the first quarter of 2024, the portion of Spring11’s revenues associated with its servicing and asset management portfolio is no longer reported as “management services” but is instead recorded as part of “servicing fees and other.”
On May 3, 2022, Newmark completed the acquisition of Open Realty, a retail real estate advisory firm.
On April 1, 2022, Newmark completed the acquisitions of two businesses: BH2, a London-based real estate advisory firm, and McCall & Almy, a multi-market tenant representation and real estate advisory firm.
On September 6, 2021, Newmark acquired Deskeo, France’s leader in flexible and serviced workspace for enterprise clients. Based in Paris, France, Deskeo added over 50 locations to Newmark’s international flexible workspace portfolio.
On March 24, 2021, Newmark acquired the business of Knotel, a global flexible workspace provider. Newmark agreed to provide approximately $19.8 million of debtor-in-possession financing as part of a $70 million credit bid to acquire the business through Knotel’s Chapter 11 sales process, subject to approval of the U.S. Bankruptcy Court. On March 18, 2021, the United States Bankruptcy Court approved the transaction under Section 363 of the United States Bankruptcy Code.
See Note 4 — “Acquisitions” to our accompanying unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.
Credit Ratings
As of September 30, 2024, our public long-term credit ratings and associated outlooks are as follows:
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Rating
Outlook
Fitch Ratings Inc.
BBB-
Stable
JCRA
BBB+
Stable
Kroll Bond Rating Agency
BBB-
Stable
S&P Global Ratings
BB+
Stable
Credit ratings and associated outlooks are influenced by several factors including, but not limited to: operating environment, earnings and profitability trends, the prudence of funding and liquidity management practices, balance sheet size composition and resulting leverage, cash flow coverage of interest, composition and size of the capital base, available liquidity, outstanding borrowing levels and the firm’s competitive position in the industry. A credit rating and/or the associated outlook can be revised upward or downward at any time by a rating agency if such rating agency decides that circumstances warrant such a change. Any reduction in our credit ratings and/or the associated outlook could adversely affect the availability of debt financing on terms acceptable to us, as well as the cost and other terms upon which we are able to obtain any such financing. In addition, credit ratings and associated outlooks may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions. The interest rate on our 7.500% Senior Notes may increase by up to 2% in the event of credit ratings downgrades.
Certain Related Party Transactions
Transactions with Executive Officers and Directors
Howard W. Lutnick, Executive Chairman
On October 23, 2024, pursuant to the Standing Policy for Mr. Lutnick, and in connection with the grant of exchangeability made to Mr. Rispoli pursuant to the terms of Mr. Rispoli’s employment agreement, the Company granted exchange rights and/or monetization rights with respect to rights available to Mr. Lutnick, and Mr. Lutnick (i) elected to accept 712,347 exchange rights with respect to 712,347 previously awarded PSUs that were previously non-exchangeable; and (ii) received the right to monetize, and accepted such monetization right regarding, 81,274 previously awarded non-exchangeable PPSUs for a future cash payment of $1,250,000. As of November 8, 2024, Mr. Lutnick’s balance under the Standing Policy was zero.
On January 2, 2024, pursuant to the Standing Policy for Mr. Lutnick, and in connection with grants of exchangeability made to Mr. Gosin pursuant to the terms of the employment agreement that Mr. Gosin executed on February 10, 2023, the Company granted exchange rights and/or monetization rights with respect to rights available to Mr. Lutnick, and Mr. Lutnick (i) elected to accept 617,262 exchange rights with respect to 617,262 previously awarded PSUs that were previously non-exchangeable; and (ii) received the right to monetize, and accepted such monetization right of 81,275 previously awarded nonexchangeable PPSUs for a future cash payment of $1,250,000. Mr. Lutnick waived all remaining rights, which shall be cumulative. The aggregate number of Mr. Lutnick’s units for which he waived exchange rights or other monetization rights was 617,262 non-exchangeable Newmark Holdings PSUs/NPSUs and 81,274 non-exchangeable Newmark Holdings PPSUs with an aggregate determination amount of $1,250,000 at that time.
In connection with the Corporate Conversion, on May 18, 2023, Mr. Lutnick’s 1,474,930 BGC Holdings HDUs were redeemed for a cash capital account payment of $9.1 million, $7.0 million of which was paid by Newmark, with the remainder paid by BGC.
On December 27, 2021, the Compensation Committee approved a one-time bonus award to Mr. Lutnick, which was evidenced by the execution and delivery of a Retention Bonus Agreement, dated December 28, 2021, and described below, in consideration of his success in managing certain aspects of the Company’s performance as its principal executive officer and Chairman. The bonus award rewarded Mr. Lutnick for his efforts in delivering superior financial results for the Company and its stockholders, including in particular his success in creating substantial value for the Company and its stockholders in connection with creating, structuring, hedging and monetizing the forward share contract to receive over time shares of common stock of Nasdaq held by the Company and the strong balance sheet and significant amount of income created from this. A principal reason for structuring the bonus award with a substantial portion to be paid out over three years was also to further incentivize Mr. Lutnick to continue to serve as both the Company’s principal executive officer and its Chairman for the benefit of the Company’s stockholders. The bonus award is the subject of legal challenge. See the heading “Legal Proceedings” below.
The Retention Bonus Agreement provides for an aggregate cash payment of $50 million, payable as follows: $20 million within three days of the date of the Retention Bonus Agreement (which payment was made on December 31, 2021), and $10 million within thirty days following vesting on each of the first, second and third anniversaries of the date of the Retention Bonus Agreement. Any entitlement to future amounts not vested will be forfeited immediately if, prior to the applicable anniversary date, Mr. Lutnick ceases to serve as both the Company’s Chairman and its principal executive officer, unless Mr. Lutnick ceasing to serve in either such capacity occurs pursuant to a “Vesting Termination,” as that term is defined in the
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Retention Bonus Agreement. Mr. Lutnick has purchased Newmark Class A common stock with the after-tax proceeds of the initial tranche of the bonus award. The Retention Bonus Agreement describes a “Vesting Termination” as (i) a termination of Mr. Lutnick’s employment by the Company without “Cause” (as that term is defined in the Retention Bonus Agreement) or (ii) an involuntary removal of Mr. Lutnick from the position of Chairman of the Board on or after the occurrence of a Change in Control (as that term is defined in the Change of Control Agreement, dated as of December 13, 2017, by and between Mr. Lutnick and the Company). In the event that Mr. Lutnick ceases to serve as both the Company’s Chairman and its principal executive officer pursuant to a Vesting Termination, any amounts not vested will immediately become fully vested. The Retention Bonus Agreement provides that Mr. Lutnick ceasing to serve as the Company’s Chairman and principal executive officer pursuant to his death or disability does not constitute a Vesting Termination. The provisions of Mr. Lutnick’s Change of Control Agreement do not apply to the bonus award. A copy of the Retention Bonus Agreement was attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 30, 2021 and is described in detail under the heading “2021 Lutnick Award” in our definitive proxy statement for our 2024 annual meeting of stockholders, filed with the SEC on September 6, 2024.
In connection with the 2018 year-end compensation cycle, the Compensation Committee previously approved the issuance of 500,000 Newmark Holdings NPSUs and 500,000 Newmark Holdings NPPSUs with a determination price of $10.05 per unit to Mr. Lutnick, effective April 1, 2019. The terms of those awards provided that on or about each April 1 of 2020, 2021, 2022, and 2023, Newmark Holdings shall grant an aggregate award of 125,000 non-exchangeable Newmark Holdings PSUs and 125,000 non-exchangeable PPSUs in replacement of 125,000 Newmark Holdings NPSUs and 125,000 Newmark Holdings NPPSUs (which, upon replacement, shall be cancelled and no longer exist), provided that (i) Newmark, inclusive of its affiliates thereof, earns, in aggregate, at least $5 million in gross revenues in the calendar quarter in which the applicable award of Newmark Holdings PSUs or PPSUs is to be granted and (ii) except in the event of death prior to the applicable grant date, Mr. Lutnick remains an employee of Newmark or an affiliate thereof and has at all times remained in compliance with the Newmark Holdings partnership agreement. Mr. Lutnick exercised his rights on December 21, 2021, pursuant to the Standing Policy for Mr. Lutnick to redeem his remaining 250,000 Newmark Holdings NPPSUs issued effective April 1, 2019. Pursuant to this grant, on April 1, 2023, the Company granted Mr. Lutnick an aggregate award of 125,000 non-exchangeable PSUs in replacement of the remaining 125,000 NPSUs.
Barry M. Gosin, Chief Executive Officer
On September 23, 2024, the Company purchased 795,376 of Barry Gosin’s previously awarded LPUs (consisting of 123,336 APSUs, 611,167 PSUs, and 60,873 SPUs) at a price per unit of $14.19 (which was $15.34, the closing price of a share of the Company’s Class A common stock on September 23, 2024, multiplied by the then-current exchange ratio of 0.9248). The transaction was approved by the Compensation Committee, was exempt under Rule 16b-3 of the Exchange Act, and was made pursuant to the Company’s unit purchase authorization.
On August 7, 2024, Mr. Gosin entered into the 2024 Gosin Employment Agreement with Newmark OpCo and Newmark Holdings, which superseded and replaced the 2023 Gosin Employment Agreement. The 2024 Gosin Employment Agreement extends the initial term of Mr. Gosin’s employment under the 2023 Gosin Employment Agreement to run through December 31, 2026, and removes provisions in the 2023 Gosin Employment Agreement that related to Mr. Gosin’s right to terminate the agreement on December 31, 2024. In connection with the execution of the 2024 Gosin Employment Agreement and as consideration for his continued service, in addition to the awards previously provided for by the 2023 Gosin Employment Agreement, the Compensation Committee approved the grant to Mr. Gosin of (i) a one-time cash payment of $5,000,000; (ii) an award of 1,694,915 NPSUs, calculated by dividing the total NPSU award by the closing stock price on August 7, 2024, of which $5,000,000 of NPSUs are attributable to calendar year 2025 and $15,000,000 of NPSUs are attributable to calendar year 2026; and (iii) a cash bonus in the gross amount of $1,500,000 with respect to calendar year 2026, payable in calendar year 2027 at such time as bonuses with respect to calendar year 2026 are generally distributed to other similarly situated employees of Newmark OpCo in connection with the year-end compensation review process. Mr. Gosin’s annual total contractual compensation would be $17,500,000 for each of calendar years 2024, 2025, and 2026 (comprised of $1,000,000 salary and $16,500,000 in combined NPSUs and cash awards attributed by the Company) and consistent with his total compensation for calendar year 2023 pursuant to the 2023 Gosin Employment Agreement.
Subject to the terms of the 2024 Gosin Employment Agreement and the grant documents under which the grant of NPSUs to Mr. Gosin was awarded, 25% of such NPSUs shall convert into non-exchangeable PSUs on December 31, 2025, and 75% of such NPSUs shall convert into non-exchangeable PSUs on December 31, 2026, in each case as adjusted by the then current exchange ratio, subject to the requirement that, as of each applicable conversion date (i) the Company (including its affiliates) earns, in the aggregate, at least $10,000,000 in gross revenues in the calendar quarter in which the applicable conversion is to occur, and (ii) except as otherwise provided in the 2024 Gosin Employment Agreement, Mr. Gosin continues to perform substantial services exclusively for Newmark OpCo or any of its affiliates, remains a partner in Newmark Holdings, and complies with the terms of the 2024 Gosin Employment Agreement and any of his obligations to Newmark Holdings, Newmark OpCo or any affiliate. 25% of each of the 2025 and 2026 tranches in non-exchangeable PSUs received upon conversion of the 2024 NPSU grant will receive exchange rights on December 31 of each year after such conversion, consistent with the schedule for the grant of exchange rights provided for the NPSUs Mr. Gosin received in connection with the 2023
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Gosin Employment Agreement, which remains unchanged other than that 1,145,476 of Mr. Gosin’s NPSUs previously awarded under the 2023 Gosin Employment Agreement were adjusted by the exchange ratio and converted into 1,238,620 non-exchangeable PSUs in connection with the signing of the 2024 Gosin Employment Agreement, rather than on their previously scheduled conversion date of December 31, 2024. 25% of such PSUs will continue to receive exchange rights on December 31 of each year starting December 31, 2026, as previously contemplated in the 2023 Gosin Employment Agreement.
A copy of the 2024 Gosin Employment Agreement was attached as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 12, 2024 and is described in detail therein.
On December 31, 2023, 1,145,494 of Mr. Gosin’s Newmark Holdings NPSUs were converted into 1,240,901 Newmark Holdings PSUs as adjusted by the then applicable exchange ratio of 0.9231 pursuant to the 2023 Gosin Employment Agreement.
Pursuant to the 2023 Gosin Employment Agreement, on April 1, 2023, 1,145,494 of Mr. Gosin’s Newmark Holdings NPSUs were converted into 1,237,644 Newmark Holdings PSUs as adjusted by the then applicable exchange ratio of 0.9252. On December 31, 2023, Mr. Gosin received exchange rights on 1/7th of the 1,237,644 Newmark Holdings PSUs converted on April 1, 2023, resulting in 176,804 exchangeable Newmark Holdings PSUs.
Pursuant to the 2023 Gosin Employment Agreement, on March 30, 2023, (a) 203,186 of Mr. Gosin’s non-exchangeable Newmark Holdings PSUs were redeemed and an aggregate of 189,024 shares of Class A common stock of Newmark were issued, as adjusted by the then applicable exchange ratio of 0.9303, and (b) $3,125,001 associated with Mr. Gosin’s non-exchangeable Newmark Holdings PPSUs was redeemed and used for tax purposes.
On February 10, 2023, Mr. Gosin, the Company’s Chief Executive Officer, entered into the 2023 Gosin Employment Agreement with Newmark OpCo and Newmark Holdings. In connection with the 2023 Gosin Employment Agreement, the Compensation Committee approved (i) for a term through at least 2024, with the term running through 2025, an annual cash bonus of $1,500,000; (ii) an upfront advance award of four tranches of 1,145,475 Newmark NPSUs each (calculated by dividing $10,000,000 by the Company’s stock price of $8.73 on February 10, 2023) attributable to each year of the term and (iii) the continued ability to receive discretionary bonuses, if any, subject to approval of the Compensation Committee. In accordance with the 2023 Gosin Employment Agreement, Mr. Gosin’s non-exchangeable NPSUs award has the following features: (i) 25% of such non-exchangeable NPSUs shall convert into non-exchangeable PSUs, with the first 25% installment effective as of April 1, 2023 and the remaining three 25% installments effective as of December 31 of 2023 through 2025, as adjusted upwards by dividing such number of NPSUs by the then-current exchange ratio upon the applicable December 31, provided that, as of each applicable December 31: (x) Newmark, inclusive of its affiliates, earns, in the aggregate, at least $10,000,000 in gross revenues in the calendar quarter in which the applicable award of PSUs is to be granted and (y) Mr. Gosin is still performing substantial services exclusively for Newmark OpCo or an affiliate, has not given notice of termination of his services except for circumstances set forth in the 2023 Gosin Employment Agreement, and has not breached his obligations under the Newmark Holdings limited partnership agreement; and (ii) such PSUs as converted from NPSUs shall become exchangeable in ratable portions beginning December 31, 2023 and ending December 31, 2029, in accordance with the terms and conditions as set forth in the 2023 Gosin Employment Agreement. A copy of the 2023 Gosin Employment Agreement was attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 14, 2023 and is described in detail therein.
Michael J. Rispoli, Chief Financial Officer
On October 1, 2024, Mr. Rispoli received exchangeability on 4,378 PSUs and 4,378 PPSUs, in accordance with the previously approved monetization schedule in connection with the signing of his employment agreement, and 14,285 of Mr. Rispoli’s RSUs vested pursuant to the vesting schedule of the RSUs granted under his employment agreement.
On October 1, 2023, Mr. Rispoli received exchangeability on 6,563 PSUs and 2,194 PPSUs, in accordance with the previously approved monetization schedule in connection with the signing of his employment agreement, and 14,290 of Mr. Rispoli’s RSUs vested pursuant to the vesting schedule of the RSUs granted under his employment agreement.
On September 29, 2022, Mr. Rispoli entered into an employment agreement with Newmark OpCo and Newmark Holdings. In connection with the employment agreement, the Compensation Committee approved the following for Mr. Rispoli: (i) an award of 500,000 Newmark RSUs, divided into tranches of 100,000 RSUs each that vest on a seven-year schedule; and (ii) an award of 250,000 Newmark RSUs, divided into tranches of 50,000 RSUs each that vest on a seven-year schedule. A copy of the employment agreement was attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 3, 2022 and is described in detail therein.
In connection with signing the employment agreement on September 29, 2022, Mr. Rispoli received immediate exchangeability on 25% of his then currently held 88,079 non-exchangeable PSUs and 87,049 non-exchangeable PPSUs (such 25% totaled 23,560 PPSUs with a value of $283,527 and 20,221 PSUs), and will receive monetization rights on another 25% of such units held as of September 29, 2022, split pro rata into one-fifth (1/5) increments, on or as soon as practicable after
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October 1 of each of 2023-2027, to the extent such units had not previously been given monetization rights, with each monetization contingent upon Mr. Rispoli performing substantial services exclusively for the Company or any affiliate, remaining a partner in Newmark Holdings, and complying with the terms of his employment agreement and any of his obligations to Newmark Holdings, us or any affiliate through such dates.
Stephen M. Merkel, Chief Legal Officer
On January 2, 2024, Mr. Merkel sold 35,006 shares of Class A common stock to the Company in an exempt transaction made pursuant to Rule 16b-3 under the Exchange Act. The sale price per share of $10.85 was the closing price of a share of Class A common stock on January 2, 2024. The transaction was approved by the Audit and Compensation Committees of the Board and was made pursuant to the Company’s stock buyback authorization.
Investment in CF Real Estate Finance Holdings, L.P.
Contemporaneously with the acquisition of Berkeley Point, on September 8, 2017, Newmark invested $100.0 million in a newly formed commercial real estate-related financial and investment business, Real Estate LP, which is controlled and managed by Cantor. Real Estate LP may conduct activities in any real estate related business or asset backed securities related business or any extensions thereof and ancillary activities thereto. Newmark held a redemption option through which Real Estate LP would redeem in full Newmark’s investment in Real Estate LP in exchange for Newmark’s capital account balance in Real Estate LP as of such redemption time. On July 20, 2022, this redemption option was exercised.
In December 2022, the Audit Committee authorized a subsidiary of Newmark to rescind its July 20, 2022 written notice exercising the optional redemption of its 27.2% ownership interest in Real Estate LP and amend the joint venture agreement between Newmark and Real Estate LP to provide for a redemption option for this investment after July 1, 2023, with proceeds to be received within 20 days of the redemption notice. A payment of a $44.0 thousand administrative fee was made to Newmark in connection with such amendment. On July 1, 2023, Newmark exercised its redemption option and received payment of $105.5 million from Cantor during the year ended December 31, 2023, terminating Newmark’s interest in Real Estate LP.
Pre-IPO Intercompany Agreements
In December 2017, prior to the Separation and Newmark IPO, all intercompany arrangements and agreements that were previously approved by the Audit Committee of BGC Partners with respect to BGC Partners and its subsidiaries and Cantor and its subsidiaries were also approved by our Board with respect to the relationships between us and our subsidiaries and Cantor and its subsidiaries following our IPO on the terms and conditions approved by the Audit Committee of BGC Partners during such time that our business was owned by BGC Partners. These arrangements include, but are not limited to, the following: (i) an authorization to provide Cantor real estate and related services, including real estate advice, brokerage, property or facilities management, valuation and advisory and other services; (ii) an authorization to enter into brokerage and similar agreements with respect to the provision of ordinary course brokerage services in circumstances in which such entities customarily provide brokerage services to third-party customers; (iii) an authorization to enter into agreements with Cantor and/or its affiliates, to provide services, including finding and reviewing suitable acquisition or partner candidates, structuring transactions and negotiating and due diligence services in connection with acquisitions and other business strategies in commercial real estate and other businesses from time to time; and (iv) an arrangement to jointly manage exposure to changes in foreign exchange rates.
Services Agreement with Cantor Fitzgerald Europe (DIFC Branch)
In May 2020, the Audit Committee authorized Newmark & Co., a subsidiary of Newmark, to enter into an agreement with Cantor Fitzgerald Europe (DIFC Branch) pursuant to which Cantor Fitzgerald Europe (DIFC Branch) will employ and support an individual who is a resident of Dubai in order to enhance Newmark’s capital markets platform, in exchange for a fee. Cantor Fitzgerald Europe (DIFC Branch) and Newmark & Co. negotiated a services agreement memorializing the arrangement between the parties. The services agreement provides that Newmark & Co. will reimburse Cantor Fitzgerald Europe (DIFC Branch) for the individual’s fully allocated costs, plus a mark-up of 7%. In addition, the Audit Committee of the Company authorized the Company and its subsidiaries to enter into similar arrangements in respect of any jurisdiction, in the future, with Cantor and its subsidiaries, provided that the applicable agreements contain customary terms for arrangements of this type and that the mark-up charged by the party employing one or more individuals for the benefit of the other is between 3% and 7.5%, depending on the level of support required for the employed individual(s).
Sublease to Cantor Fitzgerald, L.P.
In January 2022, Cantor entered into an agreement to sublease excess space from RKF Retail Holdings LLC, a subsidiary of Newmark, for a period of six months until June 30, 2022 at a rate of $0.1 million per month. In July 2022, the sublease was extended one year to June 30, 2023. In June 2023, the sublease was extended three months to September 30, 2023.
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As of December 31, 2023 the sublease had been terminated. Newmark received $0.2 million and $0.7 million from Cantor for the three and nine months ended September 30, 2023, respectively.
GSE Loans and Related Party Limits
In February 2019, the Audit Committee authorized Newmark and its subsidiaries to originate and service GSE loans to Cantor and its affiliates (other than BGC) and service loans originated by Cantor and its affiliates (other than BGC) on prices, rates and terms no less favorable to Newmark and its subsidiaries than those charged by third parties. The authorization is subject to certain terms and conditions, including but not limited to: (i) a maximum amount up to $100.0 million per loan, (ii) a $250.0 million limit on loans that have not yet been acquired or sold to a GSE at any given time, and (iii) a separate $250.0 million limit on originated Fannie Mae loans outstanding to Cantor at any given time.
Transactions with CCRE Lending
Newmark services loans for CCRE on a “fee for service” basis, generally prior to a loan’s sale or securitization, and for which no MSR is recognized. Newmark recognized servicing revenues (excluding interest and placement fees) from servicing rights purchased from CCRE on a “fee for service” basis of $0.5 million and $0.6 million for the three months ended September 30, 2024 and 2023, respectively, and $1.7 million and $2.1 million for the nine months ended September 30, 2024 and 2023, respectively, which were included as part of “Management services, servicing fees and other” on the accompanying unaudited condensed consolidated statements of operations.
On July 22, 2019, CCRE Lending made a $146.6 million commercial real estate loan to a single-purpose company in which Mr. Gosin, Newmark’s Chief Executive Officer, owns a 19% interest. This loan is secured by the single-purpose company’s interest in property in Pennsylvania that is subject to a ground lease. While CCRE Lending initially provided the full loan amount, on August 16, 2019, a third-party bank purchased approximately 80% of the loan value from CCRE Lending, with CCRE Lending retaining approximately 20%. This loan matures on August 6, 2029, and is payable monthly at a fixed interest rate of 4.38% per annum.
Transactions Related to Ordinary Course Real Estate Services
On November 4, 2020, the Audit Committee authorized entities in which executive officers have a non-controlling interest to engage Newmark to provide ordinary course real estate services to them as long as Newmark’s fees are consistent with the fees that Newmark ordinarily charges for these services.
Cantor Rights to Purchase Cantor Units from Newmark Holdings
Cantor has a right to purchase from Newmark Holdings exchangeable limited partnership interests in the event that any Newmark Holdings Founding Partner interests that have not become exchangeable are redeemed by Newmark Holdings upon termination or bankruptcy of a Founding Partner or upon mutual consent of the general partner of Newmark Holdings and Cantor. Cantor has the right to purchase such Newmark Holdings exchangeable limited partnership interests at a price equal to the lesser of (1) the amount that Newmark Holdings would be required to pay to redeem and purchase such Newmark Holdings Founding Partner interests and (2) the amount equal to (a) the number of units underlying such Founding Partner interests, multiplied by (b) the Exchange Ratio as of the date of such purchase, multiplied by (c) the then-current market price of our Class A common stock. Cantor may pay such price using cash, publicly traded shares or other property, or a combination of the foregoing. If Cantor (or the other member of the Cantor group acquiring such limited partnership interests, as the case may be) so purchases such limited partnership interests at a price equal to clause (2) above, neither Cantor nor any member of the Cantor group nor Newmark Holdings nor any other person is obligated to pay Newmark Holdings or the holder of such Founding Partner interests any amount in excess of the amount set forth in clause (2) above.
In addition, the Newmark Holdings limited partnership agreement provides that (1) where either current, terminating or terminated partners are permitted by us to exchange any portion of their Founding Partner units and Cantor consents to such exchangeability, we will offer to Cantor the opportunity for Cantor to purchase the same number of new exchangeable limited partnership interests in Newmark Holdings at the price that Cantor would have paid for exchangeable limited partnership interests in the event we had redeemed the Founding Partner units; and (2) the exchangeable limited partnership interests to be offered to Cantor pursuant to clause (1) above would be subject to, and granted in accordance with, applicable laws, rules and regulations then in effect.
If Cantor acquires any units as a result of the purchase or redemption by Newmark Holdings of any Founding Partner interests, Cantor will be entitled to the benefits (including distributions) of the units it acquires from the date of termination or bankruptcy of the applicable Founding Partner. In addition, any such units will be exchangeable by Cantor for a number of
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shares of our Class B common stock or, at Cantor’s election, shares of our Class A common stock, in each case, equal to the then-current Exchange Ratio, on the same basis as the limited partnership interests held by Cantor, and will be designated as Newmark Holdings exchangeable limited partnership interests when acquired by Cantor. The Exchange Ratio was initially one, but is subject to adjustment as set forth in the Separation and Distribution Agreement and was 0.9257 as of September 30, 2024. This may permit Cantor to receive a larger share of income generated by our business at a less expensive price than through purchasing shares of our Class A common stock, which is a result of the price payable by Cantor to Newmark.
On April 16, 2023, Cantor purchased from Newmark Holdings an aggregate of (i) 309,631 exchangeable limited partnership interests for aggregate consideration of $1,282,265 as a result of the redemption of 309,631 Founding Partner interests, and (ii) 38,989 exchangeable limited partnership interests for aggregate consideration of $166,364 as a result of the exchange of 38,989 Founding Partner interests.
On June 30, 2023, Cantor purchased from Newmark Holdings an aggregate of 74,026 exchangeable limited partnership interests for aggregate consideration of $310,976 as a result of the redemption of 74,026 Founding Partner interests.
On October 23, 2024, Cantor purchased from Newmark Holdings an aggregate of (i) 500,617 exchangeable limited partnership interests for aggregate consideration of $1,824,045 as a result of the redemption of 500,617 Founding Partner interests, and (ii) 162,086 exchangeable limited partnership interests for aggregate consideration of $506,022 as a result of the exchange of 162,086 Founding Partner interests. Following such purchase, there were no Founding Partner interests in Newmark Holdings remaining in which the partnership had the right to redeem or exchange and with respect to which Cantor had the right to purchase an equivalent number of Cantor Units following such redemption or exchange.
First Amendment to Amended and Restated Agreement of Limited Partnership of Newmark Holdings
On March 10, 2023, Newmark Holdings entered into the LPA Amendment to the Newmark Holdings limited partnership agreement. The LPA Amendment revises certain restrictive covenants pertaining to the “Partner Obligations” and “Competitive Activity” provisions in the Newmark Holdings limited partnership agreement. Specifically, the LPA Amendment (i) reduces the length of the post-termination period during which a partner must refrain from soliciting or doing business with customers, soliciting employees, engaging in a “Competing Business” (as defined therein), or otherwise refraining from harming the partnership; and (ii) revises the scope of the non-compete provisions under the “Partner Obligations” and “Competitive Activity” provisions in the Newmark Holdings limited partnership agreement to cover “Competing Businesses” for which a partner performs the same or similar services as provided to a “Protected Affiliate” (as defined therein) and (a) involving a product, product line or type, or service of a “Protected Affiliate” within a specific geographic area, (b) involving a “Client” or a “Client Representative” (each as defined therein) of a Protected Affiliate, or (c) for which the disclosure of confidential information is likely to be inevitable. The LPA Amendment was approved by the Board of Directors and Audit and Compensation Committees.
Knotel Assets
As part of the Knotel acquisition in March 2021, Newmark assigned the rights to acquire certain Knotel assets to a subsidiary of Cantor, on the terms that if the subsidiary monetized the sale of these assets, Newmark would receive 10% of the proceeds of the sale after the subsidiary recoups its investment in the assets.
Employment Matters
On June 28, 2021, Newmark hired a son of our Executive Chairman as a full-time employee, providing for salary, bonus, reimbursement of ordinary course expenses and travel, and a potential profit participation consistent with other entrepreneurial arrangements in the event of certain liquidity events related to businesses developed by him. This employment arrangement was approved by the Audit Committee. For 2023, total compensation under the arrangement was approximately $400,000.
Referral Fees to Cantor
In September 2021, the Audit Committee authorized Newmark and its subsidiaries to pay referral fees to Cantor and its subsidiaries (other than Newmark and its subsidiaries) in respect of referred business, pursuant to ordinary course arrangements in circumstances where Newmark would customarily pay referral fees to unrelated third parties and where Newmark is paying a referral fee to Cantor in an amount that is no more than the applicable percentage rate set forth in Newmark’s intra-company referral policies, as then in effect, with such fees to be at referral rates no less favorable to Newmark than would be paid to unrelated third parties.
Acquisition of Spring11 Ownership Interest from Cantor
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In February 2023, Newmark’s subsidiary, Newmark S11 entered into an equity purchase agreement with CFS11, a subsidiary of Cantor, pursuant to which Newmark acquired CFS11’s 33.78% ownership interest in Newmark S11 LP, LLC, the joint venture that owns a controlling interest in Spring11, for a total purchase price of $11,530,598. CFS11’s 33.78% ownership in Newmark S11 LP, LLC was 25.62% of Spring11’s economic interest. The transaction, which also included Newmark S11 buying the remaining minority interests from other third-party owners on substantially the same terms, resulted in Newmark S11 owning 100% of Spring11. The CFS11 transaction was approved by our Audit Committee.
Placement Agent Authorization with CF&Co
On August 8, 2023, our Audit Committee authorized us to engage CF&Co as a non-exclusive placement agent on behalf of us or our subsidiaries in connection with certain capital markets transactions (with the ability to also mandate certain third-party banks as additional advisors and co-placement agents alongside CF&Co), pursuant to customary terms and conditions, including percentage of proceeds, and provided the terms are no less favorable to us than terms that an unaffiliated third-party investment bank would provide to us in similar transactions.
7.500% Senior Notes
On January 12, 2024, the Company issued an aggregate of $600.0 million principal amount of 7.500% Senior Notes due 2029. In connection with this issuance of 7.500% Senior Notes, the Company recorded approximately $0.5 million in underwriting fees payable to CF&Co. These fees were recorded as a deduction from the carrying amount of the debt liability, which is amortized as interest expense over the term of the notes. Cantor purchased $125.0 million aggregate principal amount of such senior notes. On August 8, 2024, the Company filed a registration statement on Form S-3 with the SEC, which was effective upon filing, pursuant to which Cantor, or its successors, assigns, and direct and indirect transferees, may resell their 7.500% Senior Notes from time to time. The Company will not receive any of the proceeds from the resale of the 7.500% Senior Notes, and the selling securityholders will pay any underwriting discounts and commissions, brokerage commissions, and transfer taxes, if any, applicable to the notes sold by them. Cantor still holds such notes as of November 8, 2024.
Services Agreement with Cantor Fitzgerald Europe for the Provision of Real Estate Investment Banking Services
On February 21, 2024, the Audit Committee of the Company authorized NHL, a subsidiary of Newmark, to enter into an agreement with CFE pursuant to which CFE will employ and support an individual to enhance Newmark’s capital markets platform by providing real estate investment banking services for the benefit of Newmark’s client. Under this agreement, NHL will reimburse CFE for the individual’s fully allocated costs, plus a mark-up of 7% and CFE will be entitled to 10% of revenues generated by such individual on behalf of Newmark. In addition, the Audit Committee of the Company authorized NHL to include additional individuals to perform such services on substantially the same terms; provided that, in any case, the mark-up charged for such additional individuals is between 3.0% and 7.5%, depending on the level of support required for such individuals.
Regulatory Requirements
Newmark is subject to various capital requirements in connection with seller/servicer agreements that Newmark has entered into with the various GSEs. Failure to maintain minimum capital requirements could result in Newmark’s inability to originate and service loans for the respective GSEs and could have a direct material adverse effect on our accompanying unaudited condensed consolidated financial statements. As of September 30, 2024, Newmark had met all capital requirements. As of September 30, 2024, the most restrictive capital requirement was Fannie Mae’s net worth requirement. Newmark exceeded the minimum requirement by $385.2 million.
Certain of Newmark’s agreements with Fannie Mae allow Newmark to originate and service loans under the Fannie Mae DUS program. These agreements require Newmark to maintain sufficient collateral to meet Fannie Mae’s restricted and operational liquidity requirements based on a pre-established formula. Certain of Newmark’s agreements with Freddie Mac allow Newmark to service loans under the Freddie Mac TAH. These agreements require Newmark to pledge sufficient collateral to meet Freddie Mac’s liquidity requirement of 8% of the outstanding principal of Freddie Mac TAH loans serviced by Newmark. As of September 30, 2024 and December 31, 2023, Newmark had met all liquidity requirements.
In addition, as a servicer for Fannie Mae, Ginnie Mae, and FHA, Newmark is required to advance to investors any uncollected principal and interest due from borrowers. As of September 30, 2024 and December 31, 2023, outstanding borrower advances were $0.3 million and $1.6 million, respectively, and are included in “Other assets” in our accompanying unaudited condensed consolidated balance sheets.
Regulatory Environment
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See “—Regulation” in Part I, Item 1, Business, of the Annual Report on Form 10-K for the year ended December 31, 2023, for information related to our regulatory environment.
Equity
Share Repurchase Program
See Note 6 — “Stock Transactions and Unit Purchases” to our accompanying unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
On November 4, 2024, Newmark’s Board increased Newmark’s share repurchase and unit purchase authorization, which has no expiration date, to $400.0 million.
Fully Diluted Share Count
Our fully diluted weighted-average share counts for the nine months ended September 30, 2024 and 2023 were as follows (in thousands):
September 30,
2024
2023
Common stock outstanding(1)
172,767
173,549
Partnership units(2)
77,791
68,658
RSUs (Treasury stock method)
4,399
1,193
Newmark exchange shares
419
482
Total(3)
255,376
243,882
(1)Common stock consisted of Class A shares and Class B shares. For the nine months ended September 30, 2024, the weighted-average number of Class A shares was 151.5 million shares and Class B shares was 21.3 million that were included in our fully diluted EPS computation.
(2)Partnership units collectively include FPUs, limited partnership units, and Cantor Units (see Note 2 — “Limited Partnership Interests in Newmark Holdings and BGC Holdings” to our accompanying unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information). In general, these partnership units are potentially exchangeable into shares of Newmark Class A common stock. In addition, the partnership units held by Cantor as of September 30, 2024 are generally exchangeable into up to 24.9 million shares of Newmark Class A common stock and/or Newmark Class B common stock. These partnership units also generally receive quarterly allocations of net income, after the deduction of the Preferred Distribution, based on their weighted-average pro rata share of economic ownership of the operating subsidiaries. As a result, these partnership units are included in the fully diluted share count calculation shown above.
(3)For the nine months ended September 30, 2024, the weighted-average share count included 0.3 million anti-dilutive securities, which were excluded in the computation of fully diluted earnings per share. For the nine months ended September 30, 2023, the weighted-average share count included 4.8 million anti-dilutive securities, which were excluded in the computation of fully diluted earnings per share.
Our fully diluted period-end (spot) common stock, limited partnership unit, RSU and Newmark exchange share count as of each of September 30, 2024 and 2023 was as follows (in thousands):
September 30,
2024
2023
Common stock outstanding
168,248
172,747
Partnership units
77,063
70,796
RSUs (Treasury stock method)
5,138
1,463
Newmark exchange shares
372
498
Total
250,821
245,504
Registration Statements
We have an effective registration statement on Form S-4 with respect to the offer and sale of up to 20.0 million shares and rights to acquire shares of our Class A common stock from time to time in connection with business combination transactions, including acquisitions of other businesses, assets, properties or securities. As of September 30, 2024, we have issued 2.5 million shares of our Class A common stock under this registration statement.
Construction Loans
As of September 30, 2024 and December 31, 2023, Newmark was committed to fund approximately $0.3 billion and $0.4 billion, respectively, which is the total remaining draws on construction loans originated by Newmark under the HUD 221(d)4, 220 and 232 programs, rate locked loans that have not been funded, and forward commitments, as well as the funding
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for Fannie Mae structured transactions. Newmark also has corresponding commitments to sell these loans to various purchasers as they are funded.
Contingent Payments Related to Acquisitions
Newmark completed acquisitions from 2019 through the third quarter of 2024 with contingent consideration of $23.1 million. The contingent equity instruments and cash liability is recorded at fair value in “Accounts payable, accrued expenses and other liabilities” on Newmark’s accompanying unaudited condensed consolidated balance sheets.
Legal Proceedings
On August 5, 2022, Robert Garfield filed a complaint in the Delaware Court of Chancery, captioned Robert Garfield v. Howard W. Lutnick, et al. (Case No. 2022-0687) (the “Garfield action”), against the members of the Board and Mr. Lutnick in his capacity as Chairman of the Board and controlling stockholder. This derivative complaint alleges that in connection with the December 2021 bonus award, payable over a three-year period, granted to Mr. Lutnick: (i) the Board breached its fiduciary duty, (ii) neither the award nor the approval process employed by the Compensation Committee were entirely fair to the Company and its stockholders, and (iii) the members of the Compensation Committee did not exercise independent judgment. The complaint alleges that Mr. Lutnick breached his fiduciary duty as Chairman and controlling shareholder by forcing the Company to grant the award and by accepting it. The complaint seeks rescission of the award and other compensation, as well as damages and other relief.
On October 7, 2022, Cardinal Capital Management, LLC filed a complaint in the Delaware Court of Chancery, captioned Cardinal Capital Management, LLC v. Howard W. Lutnick, et al. (Case No. 2022-0909-SG) (the “Cardinal action”), against Mr. Lutnick, the members of the Compensation Committee in 2021, who were Virginia S. Bauer, Kenneth A. McIntyre and Michael Snow as members of the Compensation Committee, and Barry Gosin, Michael Rispoli and Stephen Merkel, as Newmark’s executive officers. The derivative complaint alleges that in connection with the Company’s June 2021 partnership units exchange for Mr. Lutnick and Officers (as such term is defined in the Cardinal action) and the December 2021 bonus award, payable over a three-year period, granted to Mr. Lutnick: (i) the Compensation Committee and Officers breached their fiduciary duties and wasted corporate assets; and (ii) Mr. Lutnick and the Officers were unjustly enriched. The complaint also alleges that Mr. Lutnick breached his fiduciary duty as Chairman and controlling shareholder, and wasted corporate assets, by forcing the Company to grant the award and by accepting it. The complaint seeks recoupment of the partnership units exchange and the bonus award, as well as damages and other relief.
On December 13, 2022, the Delaware Court of Chancery entered an order consolidating the Garfield and Cardinal actions into a single, consolidated action (Consolidated C.A. No. 2022-0687) deemed to have commenced on August 5, 2022, when the Garfield action was filed. On January 10, 2023, plaintiffs filed a consolidated amended complaint, whose claims, as well as requested relief, mirror the claims and relief sought in the Cardinal action in all material respects. The Company’s position is that the partnership units exchange was appropriate and in the best interests of the Company, and that the bonus award was properly approved by the Compensation Committee comprised of independent directors (which does not include Mr. Lutnick) after careful consideration of his contributions to the Company, including the Company’s superior financial results, and following an extensive process that included advice from independent legal counsel and an independent compensation. The Company believes the lawsuit has no merit. However, as with any litigation, the outcome cannot be determined with certainty. The case is in the discovery phase. Trial is scheduled for July 2025.
On March 9, 2023, a purported class action complaint was filed against Cantor, BGC Holdings, and Newmark Holdings in the U.S. District Court for the District of Delaware (Civil Action No. 1:23-cv-00265). The collective action, which was filed by seven former limited partners on their own behalf and on behalf of other similarly situated limited partners, alleges a claim for breach of contract against all defendants on the basis that the defendants failed to make payments due under the relevant partnership agreements. Specifically, the plaintiffs allege that the non-compete and economic forfeiture provisions upon which the defendants relied to deny payment are unenforceable under Delaware law. The plaintiffs allege a second claim against Cantor and BGC Holdings for antitrust violations under the Sherman Antitrust Act of 1890, as amended, on the basis that the Cantor and BGC Holdings partnership agreements constitute unreasonable restraints of trade. In that regard, the plaintiffs allege that the non-compete and economic forfeiture provisions of the Cantor and BGC Holdings partnership agreements, as well as restrictive covenants included in partner separation agreements, cause anticompetitive effects in the labor market, insulate Cantor and BGC Holdings from competition, and limit innovation. The plaintiffs seek a determination that the case may be maintained as a class action, an injunction prohibiting the allegedly anticompetitive conduct, and monetary damages of at least $5,000,000. The Company believes the lawsuit has no merit. However, as with any litigation, the outcome cannot be determined with certainty. Defendants filed a motion to dismiss and in response, on May 31, 2023, plaintiffs filed an Amended Class Action Complaint alleging similar allegations as a basis for claims for breach of contract and violation of the Sherman Act. Defendants moved to dismiss the Amended Complaint. On February 23, 2024, plaintiffs filed a Second Amended Complaint, repleading claims for violation of federal antitrust laws and challenging economic forfeiture and non-compete
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obligations as violative of federal competition law. Defendants have filed a motion to dismiss the Second Amended Complaint.The motion is fully briefed as of May 2024 and a decision is forthcoming.
Critical Accounting Policies and Estimates
The preparation of our accompanying unaudited condensed consolidated financial statements in conformity with U.S. GAAP guidance requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in our accompanying unaudited condensed consolidated financial statements. These accounting estimates require the use of assumptions about matters, some which are highly uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, our accompanying unaudited condensed consolidated balance sheets, unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of cash flows could be materially affected. We believe that of our significant accounting policies, the following policies involve a higher degree of judgment and complexity.
Revenue Recognition
We derive our revenues primarily through commissions from brokerage services, commercial mortgage origination, net, revenues from real estate management services, servicing fees and other revenues. Revenue from contracts with customers is recognized when, or as, we satisfy our performance obligations by transferring the promised goods or services to the customers as determined by when, or as, the customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring our progress in satisfying the performance obligation as evidenced by the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time when the customer obtains control over the promised good or service.
The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for those promised goods or services (i.e., the “transaction price”). In determining the transaction price, we consider consideration promised in a contract that includes a variable amount, referred to as variable consideration, and estimate the amount of consideration due to us. Additionally, variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. In determining when to include variable consideration in the transaction price, we consider all information (historical, current and forecast) that is available, including the range of possible outcomes, the predictive value of past experiences, the time period of when uncertainties are expected to be resolved and the amount of consideration that is susceptible to factors outside of our influence.
We also use third-party service providers in the provision of services to our customers. In instances where a third-party service provider is used, we perform an analysis to determine whether we are acting as a principal or an agent with respect to the services provided. To the extent that we are acting as a principal, the revenue and the expenses incurred are recorded on a gross basis. In instances where we are acting as an agent, the revenue and expenses are presented on a net basis within the revenue line item.
In some instances, we perform services for customers and incur out-of-pocket expenses as part of delivering those services. Our customers agree to reimburse us for those expenses, and those reimbursements are part of the contract’s transaction price. Consequently, these expenses and the reimbursements of such expenses from the customer are presented on a gross basis because the services giving rise to the out-of-pocket expenses do not transfer a good or service. The reimbursements are included in the transaction price when the costs are incurred, and the reimbursements are due from the customer.
MSRs, Net
We initially recognize and measure the rights to service mortgage loans at fair value and subsequently measure them using the amortization method. We recognize rights to service mortgage loans as separate assets at the time the underlying originated mortgage loan is sold, and the value of those rights is included in the determination of the gains on loans held for sale. Purchased MSRs, including MSRs purchased from CCRE, are initially recorded at fair value, and subsequently measured using the amortization method.
We receive up to a three-basis point servicing fee and/or up to a one-basis point surveillance fee on certain Freddie Mac loans after the loan is securitized in a Freddie Mac pool. The Freddie Mac Strip is also recognized at fair value and subsequently measured using the amortization method, but is recognized as a MSR at the securitization date.
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MSRs are assessed for impairment, at least on an annual basis, based upon the fair value of those rights as compared to the amortized cost. Fair values are estimated using a valuation model that calculates the present value of the future net servicing cash flows. In using this valuation method, we incorporate assumptions that management believes market participants would use in estimating future net servicing income. The fair value estimates are sensitive to significant assumptions used in the valuation model such as prepayment rates, cost of servicing, escrow earnings rates, discount rates and servicing multiples, which are affected by expectations about future market or economic conditions derived, in part, from historical data. It is reasonably possible that such estimates may change. We amortize the MSRs in proportion to, and over the period of, the projected net servicing income. For purposes of impairment evaluation and measurement, we stratify MSRs based on predominant risk characteristics of the underlying loans, primarily by investor type (Fannie Mae/Freddie Mac, FHA/Ginnie Mae, commercial mortgage-backed securities and other). To the extent that the carrying value exceeds the fair value of a specific MSR strata, a valuation allowance is established, which is adjusted in the future as the fair value of MSRs increases or decreases. Reversals of valuation allowances cannot exceed the previously recognized impairment up to the amortized cost.
Equity-Based and Other Compensation
Discretionary Bonus: A portion of our compensation and employee benefits expense comprises discretionary bonuses, which may be paid in cash, equity, partnership awards or a combination thereof. We accrue expense in a period based on revenues in that period and on the expected combination of cash, equity and partnership units. Given the assumptions used in estimating discretionary bonuses, actual results may differ.
RSUs: We account for equity-based compensation under the fair value recognition provisions of U.S. GAAP guidance. RSUs provided to certain employees are accounted for as equity awards, and in accordance with U.S. GAAP guidance, we are required to record an expense for the portion of the RSUs that is ultimately expected to vest. Further, U.S. GAAP guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Because significant assumptions are used in estimating employee turnover and associated forfeiture rates, actual results may differ from our estimates under different assumptions or conditions.
The fair value of RSU awards to employees is determined on the date of grant, based on the fair value of our Class A common stock. Generally, RSUs granted by us as employee compensation do not receive dividend equivalents; as such, we adjust the fair value of the RSUs for the present value of expected forgone dividends, which requires us to include an estimate of expected dividends as a valuation input. This grant-date fair value is amortized to expense ratably over the awards’ vesting periods. For RSUs with graded vesting features, we have made an accounting policy election to recognize compensation cost on a straight-line basis. The amortization is reflected as non-cash equity-based compensation expense in our accompanying unaudited condensed consolidated statements of operations.
Restricted Stock: Restricted stock provided to certain employees is accounted for as an equity award, and as per U.S. GAAP guidance, we are required to record an expense for the portion of the restricted stock that is ultimately expected to vest. We have granted restricted stock that is not subject to continued employment or service; however, transferability is subject to compliance with our and our affiliates’ customary non-compete obligations. Such shares of restricted stock are generally saleable by partners in five to 10 years. Because the restricted stock is not subject to continued employment or service, the grant-date fair value of the restricted stock is expensed on the date of grant. The expense is reflected as non-cash equity-based compensation expense in our accompanying unaudited condensed consolidated statements of operations.
Limited Partnership Units: Limited partnership units in Newmark Holdings are held by Newmark employees and receive quarterly allocations of net income and are generally contingent upon services being provided by the unit holders. As discussed above, Preferred Units in Newmark Holdings are not entitled to participate in partnership distributions other than with respect to a distribution at a rate of either 0.6875% (which is 2.75% per calendar year) or such other amount as set forth in the award documentation. The quarterly allocations of net income to such limited partnership units are reflected as a component of compensation expense under “Equity-based compensation and allocations of net income to limited partnership units and FPUs” in our accompanying unaudited condensed consolidated statements of operations. Prior to the Corporate Conversion, certain Newmark employees held BGC Holdings limited partnership units with similar entitlements.
Certain of these limited partnership units entitle the holders to receive post-termination payments equal to the notional amount in four equal yearly installments after the holder’s termination. These limited partnership units are accounted for as post-termination liability awards under U.S. GAAP guidance, which requires that Newmark record an expense for such awards based on the change in value at each reporting period and include the expense in our accompanying unaudited condensed consolidated statements of operations as part of “Equity-based compensation and allocations of net income to limited partnership units and FPUs.” The liability for limited partnership units with a post-termination payout is included in “Other long-term liabilities” on our accompanying unaudited condensed consolidated balance sheets.
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Certain limited partnership units held by Newmark employees are granted exchangeability into Class A common stock or may be redeemed in connection with the grant of shares of Class A common stock. At the time exchangeability is granted, or the shares are issued, Newmark recognizes an expense based on the fair value of the award on that date, which is included in “Equity-based compensation and allocations of net income to limited partnership units and FPUs” in our accompanying unaudited condensed consolidated statements of operations.
Employee Loans: We have entered into various agreements with certain of our employees and partners whereby these individuals receive loans that may be either wholly or in part repaid from distributions that the individuals receive on some or all of their limited partnership interests and from proceeds of the sale of the employees’ shares of our Class A common stock or may be forgiven over a period of time. Cash advance distribution loans are documented in formal agreements and are repayable in timeframes outlined in the underlying agreements. We intend for these advances to be repaid in full from the future distributions on existing and future awards granted or the proceeds of the sales of the employees’ shares. The allocations of net income to the awards are treated as compensation expense and the proceeds from distributions are used to repay the loan. The forgivable portion of any loans is recognized as compensation expense in our accompanying unaudited condensed consolidated statements of operations over the life of the loan. We review the loan balances each reporting period for collectability. If we determine that the collectability of a portion of the loan balances is not expected, we recognize a reserve against the loan balances. Actual collectability of loan balances may differ from our estimates. As of September 30, 2024 and December 31, 2023, the aggregate balance of employee loans, net of reserve, was $788.2 million and $651.2 million, respectively, and is included as “Loans, forgivable loans and other receivables from employees and partners, net” in our accompanying unaudited condensed consolidated balance sheets. Compensation expense for the above-mentioned employee loans for the three months ended September 30, 2024 and 2023 was $23.5 million and $28.3 million, respectively, and $72.7 million and $78.7 million for the nine months ended September 30, 2024 and 2023, respectively. The compensation expense related to these loans was included as part of “Compensation and employee benefits” in our accompanying unaudited condensed consolidated statements of operations.
Goodwill
Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. As prescribed in U.S. GAAP guidance, Intangibles – Goodwill and Other Intangible Assets, goodwill is not amortized, but instead is periodically tested for impairment. We review goodwill for impairment on an annual basis during the fourth quarter of each fiscal year or whenever an event occurs, or circumstances change that could reduce the fair value of a reporting unit below its carrying amount.
When reviewing goodwill for impairment, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If the results of the qualitative assessment indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we choose to bypass the qualitative assessment, we perform a quantitative goodwill impairment analysis as follows.
The quantitative goodwill impairment test, used to identify both the existence of impairment and the amount of impairment loss, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss should be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is deemed not to be impaired. To estimate the fair value of the reporting unit, we use a discounted cash flow model and data regarding market comparables. The valuation process requires significant judgment and involves the use of significant estimates and assumptions. These assumptions include cash flow projections, estimated cost of capital and the selection of peer companies and relevant multiples. Because significant assumptions and estimates are used in projecting future cash flows, choosing peer companies and selecting relevant multiples, actual results may differ from our estimates under different assumptions or conditions.
Credit Losses
The CECL methodology, which became effective on January 1, 2020, requires us to estimate lifetime expected credit losses by incorporating historical loss experience, as well as current and future economic conditions over a reasonable and supportable period beyond the balance sheet date. The adoption of CECL resulted in the recognition of reserves relating to our loss sharing guarantee provided to Fannie Mae under the Fannie Mae DUS program and to Freddie Mac under the Freddie Mac TAH program which was previously accounted for under the incurred loss model. The incurred loss model generally required that a loss be incurred before it was recognized. Additional reserves were recognized for our receivables from customers including certain employee receivables carried at amortized cost.
The expected credit loss is modeled based on our historical loss experience adjusted to reflect current conditions. A significant amount of judgment is required in the determination of the appropriate reasonable and supportable period, the methodology used to incorporate current and future macroeconomic conditions, determination of the probability of and
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exposure at default, all of which are ultimately used in measuring the quantitative components of our reserves. Beyond the reasonable and supportable period, we estimate expected credit losses using our historical loss rates. We also consider whether to adjust the quantitative reserves for certain external and internal qualitative factors, which consequentially may increase or decrease the reserves for credit losses and receivables. In order to estimate credit losses, assumptions about current and future economic conditions are incorporated into the model using multiple economic scenarios that are weighted to reflect the conditions at each measurement date.
During the nine months ended September 30, 2024, there was a decrease of $3.4 million in our reserves. These reserves were based on macroeconomic forecasts which are critical inputs into our model and material movements in variables such as the U.S. unemployment rate and U.S. GDP growth rate which could significantly affect our estimated expected credit losses. These macroeconomic forecasts, under different conditions or using different assumptions or estimates, could result in significantly different changes in reserves for credit losses. It is difficult to estimate how potential changes in specific factors might affect the overall reserves for credit losses and current results may not reflect the potential future impact of macroeconomic forecast changes.
Income Taxes
Newmark accounts for income taxes using the asset and liability method as prescribed in U.S. GAAP guidance, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to basis differences between our accompanying unaudited condensed consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Certain of Newmark’s entities are taxed as U.S. partnerships and are subject to the UBT in New York City. Therefore, the tax liability or benefit related to the partnership income or loss except for the UBT rests with the partners, rather than the partnership entity. As such, the partners’ tax liability or benefit is not reflected in our accompanying unaudited condensed consolidated financial statements. The tax-related assets, liabilities, provisions or benefits included in our accompanying unaudited condensed consolidated financial statements also reflect the results of the entities that are taxed as corporations, either in the U.S. or in foreign jurisdictions.
Newmark provides for uncertain tax positions based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. Management is required to determine whether a tax position is more likely than not to be sustained upon examination by tax authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Because significant assumptions are used in determining whether a tax benefit is more likely than not to be sustained upon examination by tax authorities, actual results may differ from Newmark’s estimates under different assumptions or conditions. Newmark recognizes interest and penalties related to uncertain tax positions in “Provision for income taxes” in our accompanying unaudited condensed consolidated statements of operations.
A valuation allowance is recorded against deferred tax assets if it is deemed more likely than not that those assets will not be realized. In assessing the need for a valuation allowance, Newmark considers all available evidence, including past operating results, the existence of cumulative losses in the most recent fiscal years, estimates of future taxable income and the feasibility of tax planning strategies.
The measurement of current and deferred income tax assets and liabilities is based on provisions of enacted tax laws and involves uncertainties in the application of tax regulations in the U.S. and other tax jurisdictions. Because Newmark’s interpretation of complex tax law may impact the measurement of current and deferred income taxes, actual results may differ from these estimates under different assumptions regarding the application of tax law.
Derivative Financial Instruments
We have loan commitments to extend credit to third parties. The commitments to extend credit are for mortgage loans at a specific rate (rate lock commitments). These commitments generally have fixed expiration dates or other termination clauses and may require a fee. We are committed to extend credit to the counterparty as long as there is no violation of any condition established in the commitment contracts. Whenever we commit to extend credit, we simultaneously enter into a Forward Sales Contract.
Both the commitment to extend credit and the forward sale commitment qualify as derivative financial instruments. We recognize all derivatives on our accompanying unaudited condensed consolidated balance sheets as assets or liabilities measured at fair value. The change in the derivatives fair value is recognized in current period earnings.
Recent Accounting Pronouncements
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See Note 1 — “Organization and Basis of Presentation” to our accompanying unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, for information regarding recent accounting pronouncements.
Capital Deployment Priorities, Dividend Policy and Repurchase and Redemption Program
During the nine months ended September 30, 2024, we have returned $193.5 million dollars to shareholders through share repurchases and unit purchases. In addition, we paid dividends and distributions. We expect to continue returning capital to shareholders.
Since 2022, the Board has declared a quarterly dividend of $0.03 per share. In addition, Newmark has paid an after-tax distribution to its partners. The Exchange Ratio is adjusted in accordance with the terms of the Separation and Distribution Agreement in the event of any difference between our dividend policy and the distribution policy of Newmark Holdings.
Any dividends, if and when declared by our Board, will be paid on a quarterly basis. No assurance can be made, however, that a dividend will be paid each quarter. The declaration, payment, timing, and amount of any future dividends payable by us will be at the sole discretion of our Board. With respect to any distributions which are declared, amounts paid to or on behalf of partners will at least cover their related tax payments. Whether any given post-tax amount is equivalent to the amount received by a stockholder also on an after-tax basis depends upon stockholders’ and partners’ domiciles and tax status.
We are a holding company, with no direct operations, and therefore we are able to pay dividends only from our available cash on hand and funds received from distributions from Newmark OpCo. Our ability to pay dividends may also be limited by regulatory considerations as well as by covenants contained in financing or other agreements. In addition, under Delaware law, dividends may be payable only out of surplus, which is our net assets minus our capital (as defined under Delaware law), or, if we have no surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Accordingly, any unanticipated accounting, tax, regulatory or other charges against net income may adversely affect our ability to declare and pay dividends. While we intend to declare and pay dividends quarterly, there can be no assurance that our Board will declare dividends at all or on a regular basis or that the amount of our dividends will not change.
Our Organizational Structure
Current Organizational Structure
As of September 30, 2024, there were 219,910,910 shares of Newmark Class A common stock issued and 146,962,810 outstanding. Cantor and CFGM held no shares of Newmark Class A common stock. Each share of Newmark Class A common stock is generally entitled to one vote on matters submitted to a vote of our stockholders. As of September 30, 2024, Cantor and CFGM held 21,285,533 shares of Newmark Class B common stock representing all of the outstanding shares of Newmark Class B common stock. The shares of Newmark Class B common stock held by Cantor and CFGM, as of September 30, 2024, represented approximately 59.2% of our total voting power. Each share of Newmark Class B common stock is generally entitled to the same rights as a share of Newmark Class A common stock, except that, on matters submitted to a vote of our stockholders, each share of Newmark Class B common stock is entitled to 10 votes. The Newmark Class B common stock generally votes together with the Newmark Class A common stock on all matters submitted to a vote of our stockholders.
Shares of Newmark Class B common stock are convertible into shares of Newmark Class A common stock at any time in the discretion of the holder on a one-for-one basis. Accordingly, if Cantor and CFGM converted all of their shares of Newmark Class B common stock into shares of Newmark Class A common stock, Cantor and CFGM would hold 12.7% of the voting power in Newmark and the stockholders of Newmark other than Cantor and CFGM would hold 87.3% of the voting power in Newmark (and the indirect economic interests in Newmark OpCo would remain unchanged). In addition, if Cantor and CFGM continued to hold shares of Newmark Class B common stock and if Cantor exchanged all of the exchangeable limited partnership units held by Cantor for shares of Newmark Class B common stock, Cantor and CFGM would hold 76.6% of the voting power in Newmark, and the stockholders of Newmark other than Cantor and CFGM would hold 23.4% of the voting power in Newmark(and the indirect economic interests in Newmark OpCo would remain unchanged).
We expect to retain our dual class structure, and there are no circumstances under which the holders of Newmark Class B common stock would be required to convert their shares of Newmark Class B common stock into shares of Newmark Class A common stock. Our Certificate of Incorporation does not provide for automatic conversion of shares of Newmark Class B common stock into shares of Newmark Class A common stock upon the occurrence of any event.
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We hold the Newmark Holdings general partnership interest and the Newmark Holdings special voting limited partnership interest, which entitle us to remove and appoint the general partner of Newmark Holdings and serve as the general partner of Newmark Holdings, which entitles us to control Newmark Holdings. Newmark Holdings, in turn, holds the Newmark OpCo general partnership interest and the Newmark OpCo special voting limited partnership interest, which entitle Newmark Holdings to remove and appoint the general partner of Newmark OpCo, and serve as the general partner of Newmark OpCo, which entitles Newmark Holdings (and thereby us) to control Newmark OpCo. In addition, as of September 30, 2024, we directly held Newmark OpCo limited partnership interests consisting of approximately 170,552,249 units representing approximately 68.4% of the outstanding Newmark OpCo limited partnership interests. We are a holding company that holds these interests, serves as the general partner of Newmark Holdings and, through Newmark Holdings, acts as the general partner of Newmark OpCo. As a result of our ownership of the general partnership interest in Newmark Holdings and Newmark Holdings’ general partnership interest in Newmark OpCo, we consolidate Newmark OpCo’s results for financial reporting purposes.
Cantor, Founding Partners, Working Partners and Limited Partnership Unit Holders directly hold Newmark Holdings limited partnership interests. Newmark Holdings, in turn, holds Newmark OpCo limited partnership interests and, as a result, Cantor, Founding Partners, Working Partners and Limited Partnership Unit Holders indirectly have interests in Newmark OpCo limited partnership interests.
The Newmark Holdings limited partnership interests held by Cantor and CFGM are designated as Newmark Holdings exchangeable limited partnership interests. The Newmark Holdings limited partnership interests held by the Founding Partners are designated as Newmark Holdings Founding Partner interests. The Newmark Holdings limited partnership interests held by the Working Partners are designated as Newmark Holdings Working Partner interests. The Newmark Holdings limited partnership interests held by the Limited Partnership Unit Holders are designated as limited partnership units.
Each unit of Newmark Holdings limited partnership interests held by Cantor and CFGM is generally exchangeable with us for a number of shares of Class B common stock (or, at Cantor’s option or if there are no additional authorized but unissued shares of Class B common stock, a number of shares of Class A common stock) equal to the Exchange Ratio.
As of September 30, 2024, 2,622,079 Founding/Working Partner interests were outstanding. These Founding/Working Partner interests were issued in the Separationto holders of BGC Holdings Founding/Working Partner interests, who received such Founding/Working Partner interests in connection with BGC Partners’ acquisition of the BGC Partners business from Cantor in 2008. The Newmark Holdings limited partnership interests held by Founding/Working Partners are not exchangeable with us unless (1) Cantor acquires Cantor Units from Newmark Holdings upon termination or bankruptcy of the Founding/Working Partners or redemption of their units by Newmark Holdings (which it has the right to do under certain circumstances), in which case such interests will be exchangeable with us for shares of Newmark Class A common stock or Newmark Class B common stock as described above, or (2) Cantor determines that such interests can be exchanged by such Founding/Working Partners with us for Newmark Class A common stock, with each Newmark Holdings unit exchangeable for a number of shares of Newmark Class A common stock equal to the Exchange Ratio (which was initially one, but is subject to adjustment as set forth in the Separation and Distribution Agreement), on terms and conditions to be determined by Cantor (which exchange of certain interests Cantor permits from time to time). Once a Newmark Holdings Founding/Working Partner interest becomes exchangeable, such Founding/Working Partner interest is automatically exchanged upon a termination or bankruptcy with us for Newmark Class A common stock.
Further, we provide exchangeability for partnership units under other circumstances in connection with (1) our partnership redemption, compensation and restructuring programs, (2) other incentive compensation arrangements and (3) business combination transactions.
As of September 30, 2024 78,759,443 limited partnership units were outstanding (including Founding/Working Partner interests and Working Partner interests, and units held by Cantor). Limited partnership units will be only exchangeable with us in accordance with the terms and conditions of the grant of such units, which terms and conditions are determined in our sole discretion, as the Newmark Holdings general partner, with the consent of the Newmark Holdings exchangeable limited partnership interest majority in interest, in accordance with the terms of the Newmark Holdings limited partnership agreement.
The Exchange Ratio between Newmark Holdings limited partnership interests and our common stock was initially one. However, this Exchange Ratio will be adjusted in accordance with the terms of the Separation and Distribution Agreement if our dividend policy and the distribution policy of Newmark Holdings are different. As of September 30, 2024, the Exchange Ratio was 0.9257.
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With each exchange, our direct and indirect interest in Newmark OpCo will proportionately increase because, immediately following an exchange, Newmark Holdings will redeem the Newmark Holdings unit so acquired for the Newmark OpCo limited partnership interest underlying such Newmark Holdings unit.
The profit and loss of Newmark OpCo and Newmark Holdings, as the case may be, are allocated based on the total number of Newmark OpCo units and Newmark Holdings units, as the case may be, outstanding.
The following diagram illustrates the ownership structure of Newmark as of September 30, 2024. The diagram does not reflect the various subsidiaries of Newmark, Newmark OpCo or Cantor (including certain operating subsidiaries that are organized as corporations whose equity is either wholly owned by Newmark or whose equity is majority-owned by Newmark with the remainder owned by Newmark OpCo) or the results of any exchange of Newmark Holdings exchangeable limited partnership interests or, to the extent applicable, Newmark Holdings Founding Partner interests, Newmark Holdings Working Partner interests or Newmark Holdings limited partnership units.
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STRUCTURE OF NEWMARK AS OF SEPTEMBER 30, 2024
(1) Excludes unrestricted Class A common stock owned by employees.
(2) Cantor includes Cantor Fitzgerald, L.P. and CFGM. Cantor Fitzgerald, L.P. has 12.4% of the economics and 58.2% of the voting power in Newmark Group, Inc. CFGM has 0.2% of the economics and 1.0% of the voting power in Newmark Group, Inc.
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The diagram reflects Newmark Class A common stock and Newmark Holdings partnership unit activity from January 1, 2024 through September 30, 2024 as follows: (a) an aggregate of 12,853,718 limited partnership units granted by Newmark Holdings; (b) 15,745,930 shares of Newmark Class A common stock repurchased by us; (c) 212,220 shares of restricted Newmark Class A common stock forfeited; (d) 1,856,950 shares of Newmark Class A common stock issued for RSUs; (e) 344,459 shares of Class A common stock issued by us under our acquisition shelf registration statement on Form S-4 (Registration No. 333-231616), but not the 17,461,432 of such shares and rights to acquire such shares remaining available for issuance by us under such registration statement; and (f) 512,840 terminated limited partnership units.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Credit Risk
Our multifamily origination business under the Fannie Mae DUS program originates and services multifamily loans for Fannie Mae without having to obtain Fannie Mae’s prior approval for certain loans, as long as the loans meet the underwriting guidelines set forth by Fannie Mae. In return for the delegated authority to make loans and the commitment to purchase loans by Fannie Mae, we must maintain minimum collateral and generally are required to share risk of loss on loans sold through Fannie Mae. With respect to most loans, we are generally required to absorb approximately one-third of any losses on the unpaid principal balance of a loan at the time of loss settlement. Some of the loans that we originate under the Fannie Mae DUS program are subject to reduced levels or no risk-sharing. However, we generally receive lower servicing fees with respect to such loans. Although our Berkeley Point business’s average annual losses from such risk-sharing programs have been a minimal percentage of the aggregate principal amount of such loans, if loan defaults increase, actual risk-sharing obligation payments under the Fannie Mae DUS program could increase, and such defaults could have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, a material failure to pay its share of losses under the Fannie Mae DUS program could result in the revocation of Berkeley Point’s license from Fannie Mae and the exercise of various remedies available to Fannie Mae under the Fannie Mae DUS program.
Interest Rate Risk
On January 12, 2024, Newmark closed its offering of $600.0 million aggregate principal amount of 7.500% Senior Notes. These debt obligations are not currently subject to fluctuations in interest rates, although in the event of refinancing or issuance of new debt, such debt could be subject to changes in interest rates. Newmark had an outstanding principal balance of $600.0 million of 7.500% Senior Notes and $175.0 million outstanding on the Credit Facility as of September 30, 2024. The interest rate on the Credit Facility is currently based upon SOFR.
Berkeley Point is an intermediary that originates loans which are generally pre-sold prior to loan closing. Therefore, for loans held for sale to the GSEs and HUD, we are not currently exposed to unhedged interest rate risk. Prior to closing on loans with borrowers, we enter into agreements to sell the loans to investors, and originated loans are typically sold within 45 days of funding. The coupon rate for each loan is set concurrently with the establishment of the interest rate with the investor.
Some of our assets and liabilities are subject to changes in interest rates. Earnings from escrows are generally based on SOFR. 30-day SOFR as of September 30, 2024 was 516 basis points and 532 basis points at September 30, 2023. A 100-basis point increase in the 30-day SOFR would increase our annual earnings by $12.7 million based on our escrow balances as of September 30, 2024 and by $10.9 million based on our escrow balances as of September 30, 2023. A 100-basis point decrease in the 30-day SOFR would decrease our annual earnings by $12.7 million based on our escrow balances as of September 30, 2024 and by $10.9 million based on the escrow balances as of September 30, 2023.
We use warehouse facilities and repurchase agreements to fund loans we originate under our various lending programs. The borrowing costs of our warehouse facilities and the repurchase agreement is based on SOFR. A 100-basis point increase in 30-day SOFR would decrease our annual earnings by $9.9 million based on our outstanding balances as of September 30, 2024 and by $6.1 million based on our outstanding balances as of September 30, 2023. A 100 basis-point decrease in 30-day SOFR would increase our annual earnings by approximately $9.9 million based on our outstanding warehouse balance as of September 30, 2024 and by approximately $6.1 million based on our outstanding warehouse balance as of September 30, 2023. During 2024, the borrowing costs we incurred on our warehouse facilities exceeded the amount of interest income we earned from loans held for sale due to the inverted yield curve. Our borrowing costs are based on a short term SOFR rate, while the interest rate we earn on loans held for sale are based on US Treasury rates plus a credit spread.
Foreign Currency Risk
We are exposed to risks associated with changes in foreign exchange rates. Changes in foreign exchange rates create volatility in the U.S. dollar equivalent of our revenues and expenses. While our international results of operations, as measured in U.S. dollars, are subject to foreign exchange fluctuations, we do not consider the related risk to be material to our results of
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operations. While our exposure to foreign exchange risk is not currently material to us, we expect to grow our international revenues in the future, and any future potential exposure to foreign exchange fluctuations may present a material risk to our business.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Newmark Group, Inc. maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by Newmark Group, Inc. is recorded, processed, accumulated, summarized and communicated to its management, including its Executive Chairman and its Chief Financial Officer, to allow timely decisions regarding required disclosures, and reported within the time periods specified in the SEC’s rules and forms. The Executive Chairman and the Chief Financial Officer have performed an evaluation of the effectiveness of the design and operation of Newmark Group, Inc.’s disclosure controls and procedures as of September 30, 2024. Based on that evaluation, the Executive Chairman and the Chief Financial Officer concluded that Newmark Group, Inc.’s disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2024, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
ITEM 1. LEGAL PROCEEDINGS
See Note 28 — “Commitments and Contingencies” to the Company’s unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the information under the heading “Legal Proceedings” included in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Quarterly Report on Form 10-Q, for a description of our legal proceedings which is incorporated by reference herein.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors previously disclosed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The information required by this Item is set forth in Note 6 — “Stock Transactions and Unit Purchases” and Note 27 — “Compensation” to our accompanying unaudited condensed consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q, and under the heading “Certain Related Party Transactions — Cantor Rights to Purchase Cantor Units from Newmark Holdings” included in Part I, Item 2, of this Quarterly Report on Form 10-Q, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and is incorporated by reference herein.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Arrangements
During the quarter ended September 30, 2024, none of the Company’s directors or executive officers informed the Company of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.
ITEM 6. EXHIBITS
The Exhibit Index set forth below is incorporated by reference in response to this Item 6.
The following materials from Newmark Group, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2024 are formatted in inline eXtensible Business Reporting Language (iXBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Changes in Equity, (v) the Condensed Consolidated Statements of Cash Flows and (vi) Notes to the Consolidated Financial Statement. The XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
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The cover page from this Quarterly Report on Form 10-Q, formatted in InlineXBRL (included in Exhibit 101).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 to be signed on its behalf by the undersigned, thereunto duly authorized.
