Newmark Knight Frank brokers are being asked to contribute as much as ten percent of their commissions into stock in BGC Partners, the publically owned financial company that in recent weeks acquired the real estate services firm.
The move is hardly unique. Several major real estate brokerage firms in recent years have sought to incentivize their professionals to invest as a way to soothe internal competition and promote collaboration, not to mention to better keep talented dealmakers in place.
Yet, Newmark’s decision to make the stock buy-in mandatory, rather than an option, for most senior and mid-level brokers has raised some eyebrows around the brokerage community and left some rivals circling to see if brokers will defect.
When the rival brokerage firm Cushman & Wakefield, for instance, issued a private offering of company stock to employees in 2006, the opportunity was voluntary.
“That’s effectively changing the commission split,” one real estate executive, whose firm doesn’t compete directly with Newmark, said over drinks with a Newmark broker as that person explained the stock deal with BGC.
In the brokerage business, the amount that a broker must share with the firm that he or she works for often follows longheld industry-wide commission templates that are treated as sacrosanct in the business.
“No broker wants to be told what he has to do with his share of the money,” said another broker, who was from a rival firm of Newmark’s.
The stock buy-in offers a clear advantage to Newmark. Among them is that once brokers purchase shares, depending on the structure of the deal, it may make it more difficult or inconvenient for brokers to leave the firm, helping its efforts at retaining talent.
But as some outsiders have painted the situation as a somewhat heavy handed approach to keep brokers in place, insiders at the firm have largely hailed the deal.
“BGC has produced 94 percent returns on equity and ten percent dividends,” said Barry Gosin, Newmark’s chief executive and one of the architects in the company’s merger with BGC. “This creates an opportunity for people here to build equity and their wealth.”
Mark Weiss, a top producing broker at Newmark, shared Gosin’s sentiments about the commission conversion.
“My personal view is that it’s a wonderful deal and I’m genuinely excited about it,” Mr. Weiss said. “My personal interests are completely tied into my firm’s. It’s enormously gratifying to know that both myself and my colleagues are going to be rolling in the same direction as my firm. And that cuts both ways. The firms now has even more of a vested interest in my success.”
In October, BGC Partners, completed a transaction to acquire Newmark for $63 million in cash and 339,000 shares of BGC stock. The company, which used to be a part of Cantor Fitzgerald before being spun off in the early 2000s into a separate firm, also agreed to compensate Newmark’s partners with an additional 4.83 million shares if the company hits certain performance targets over a period of five years.
The commission-conversion program will make more Newmark brokers into BGC equity holders, a structure that some firms have used to enhance internal harmony. In Manhattan’s ultra competitive brokerage business, broker teams even at the same company can splinter into competitive factions. Cushman & Wakefield, for one, offered stock in part to combat this.
“It’s impossible for me to comment on Newmark in particular because each firm has its own culture but generally speaking, having your people vested is a much better way to drive a business forward,” said Bruce Mosler, a top broker at C&W who was the company’s CEO at the time of its stock offering. “When your people are owners in the firm, suddenly they’re not just worried about their own performance but everyone else’s too and that’s a big step to creating a truly collaborative environment among your people. And you need to be collaborative in order to compete in this market.”
Gosin, who bristled that the stock conversion was even being treated as news, insisted that Newmark’s brokers already worked well together. He said that the stock offering is simply a way to allow the firm’s brokers to cash in on the growth he expects now that the firm is partnered with BGC.
“Newmark is a great place to work and this offering is a way to reward employees,” Gosin said, noting that the firm in the past three weeks had picked up half a million square feet in leasing assignments based on its alliance with BGC, which many real estate experts have speculated could offer Newmark an entry point to its long list of financial clients.
Though most Newmark brokers interviewed for this article were favorably disposed to the equity offering, a number of them also seemed foggy on the specifics of the deal. One thing that remains unclear, at least to some, is how much they will will be expected to invest in BGC stock and just when they’ll be free to cash out of their holdings.
One Newmark broker who had been given a contract to buy BGC stock ceded that “if you go through a rough patch, you might be inclined to want to cash the stock and spend it.” He didn’t know when exactly he would be allowed to liquidate his stock if he faced such a scenario but said he wasn’t bothered by the uncertainty.
“It’s not like I’m drinking the Kool-Aid, I just know that management wouldn’t put us in a bad position,” he said.
So far, executives at Newmark have pointed to the fact that there have been no defections as proof that the deal is a great one for employees. But rivals have been paying close attention to reactions.
When asked if any brokers would depart as a result of Newmark’s stock conversion, one rival brokerage manager said, “I can tell you that for a fact.”–Dgeiger@Observer.com