Newmark Group, Inc. (NMRK) Earnings Call Transcript & Summary

Thank you. Good morning. I am Jason McGruder, Head of Investor Relations Newmark. I will kick things off as one of our always exciting disclaimers. For today's event, we'll be referring to results only on a non-GAAP basis, unless otherwise stated. These non-GAAP items include adjusted earnings and adjusted EBITDA. Please see the sections of our most recent quarterly financial results press release for complete updated definitions of any non-GAAP terms, reconciliations of these items to the corresponding GAAP results and how, when and why management uses them. Additional information with respect to our GAAP and non-GAAP results mentioned today are available on our website in supplemental excel tables. Unless otherwise stated, any cash flow figures discussed on today's call refer to net cash provided by operating activities, excluding loan origination and sales and the impact of the 2021 Equity Event. Any future targets for cash flow refer to net cash provided by operating activities, excluding loan origination sales as well as cash used with respect to employee loans for new hires and producers. Any outlook for 2021 discussed on today's call assumes no material acquisitions, share repurchases or meaningful changes in the company's stock price. These expectations are subject to change based on various macroeconomic, social, political and other factors, including the COVID-19 pandemic. While our 2025 financial and operational targets do assume acquisitions, they are also subject to change for these same reasons. None of our targets or goals for years 2022 to 2025 should be considered formal guidance. I also remind you that information on this call regarding our business that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Such statements involve risks and uncertainties. These include statements about the effect of the COVID-19 pandemic on the company's business results, financial position, liquidity outlook, which may constitute forward-looking statements and are subject to the risk of [indiscernible] and that the actual impact may differ possibly materially from what is currently expected. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in forward-looking statements, see our Securities and Exchange Commission filings, including, but not limited to, the risk factors set forth in our most recent 10-K, 10-Q or 8-K filings. Turning to our agenda. Today, we plan to have a brief overview of the company from Barry Gosin, Chief Executive Officer of Newmark Group. Next, our financial -- Chief Financial Officer, Michael Rispoli will go over some key highlights of our 2025 targets. Then our Chief Strategy Officer, Jeff Day, will give an update on our multifamily capital markets business, why we chose to bet big on multifamily and how that big bet has paid off. After Jeff, we have the new Head of our Global Corporate Services business, Rick Bertasi who took over as key part of our Management Services business as we think it's an important growth driver. After our management team presents, we will open up for a question-and-answer session. This session will include some questions from those listening live on the Internet, who will be able to ask questions verbally using the Zoom instructions enclosed in their e-mail event invitation. For those of you joining us via the web portal, you can see questions in the "Ask A Question" box, which will be live throughout the call. So do not hesitate to submit your questions as they come and we will do our best respond in the Q&A portion of the call. With that, I'm happy to turn the call over to Barry Gosin.

Thank you, Jason, and thank you all for joining us today. I've been CEO of Newmark since 1979. And what makes us great is our people. They drive our performance. I'm really proud of the platform that we have built over the past 10 years. We are a full service provider, one of the top 4 in the Americas and one of the fastest-growing commercial real estate platforms worldwide. We have diversified our revenues in virtually all major CRE business lines. To be clear, everything we do is designed to deliver significant value to our clients and stakeholders. We are 6,200 professionals strong. We are in 160 client service locations. We have done $112 billion in capital markets in the last 12 months. And we have acquired over 50 companies since 2011. This slide depicts the evolution of the company over the past 10 years. In 2011, we were a New York-based leasing company with $230 million of revenue. We are now $2.5 billion of revenue over the past 12 months. We've hired 1,500 additional client-facing professionals and expanded geographically across the Americas. We also plan significant growth across the rest of the world. New markets consistently recognized as an industry leader. We have built a capital markets business that is a powerhouse in the U.S., ranked at or near the top nationally in most categories of capital markets, including office sales, senior housing, multifamily investment sales, self-storage, life science, medical office buildings, manufactured housing. We've also been recognized as a top 10 outsourcing leader for the past 11 years, and we continue to improve every line, in every facet of our business while continuing to hire the best talent in the marketplace. Newmark is a compelling investment opportunity. The conditions for real estate are highly favorable. Relatively low interest rates globally. There's $14 trillion of negative yield debt across the world. And there's $385 billion of dry powder held by institutions. We focused on diversifying our revenues over the past several years and have increased recurring revenues from 23% in 2015 to approximately 1/3 over the trailing 12 months, with $567 million of liquidity and no net debt. Generally, we have significant -- we have significant cash from our business, and we have enormous runway for new opportunities, new locations, new geographies and new business lines. Less than 5% of our businesses from outside the U.S., our full-service peers are between 30% and 50%, leaving significant room to expand internationally. What differentiates us most is our people, our culture and our talent. Almost all of our revenue generated on equity. We appreciate the innovative and entrepreneurial nature of professionals. We also encourage them, enable them and empower them by providing infrastructure, technology and aggregated data to make them better at what they do. Our people and our platform drive our performance. Just 1 example of how we've been able to use technology to improve our business is our V&A business. We built our own technology system from scratch. It's called Engage. With Engage, we improved the efficiency and effectiveness of our appraisers, 55% increase in assignments, 47% increase in our revenue per capita, $600 billion in valuations annually. We are now #3 in the U.S. and continue to be more efficient using the technology to advance that business. We expect to grow our V&A throughout the rest of the world. The technology will be applicable to many of our other business lines. This slide shows where we are in the world today, with an enormous amount of white space that we expect to build in the coming years. At this time, I'd like to -- I'd like Mike to talk about our growth plans through 2025.

Thank you, Barry. Today, I will cover our financial targets for 2025 and how we plan to achieve them. I've been the CFO of Newmark for nearly 10 years, and I'm just as excited today about Newmark's future prospects as I was when I joined the company. Before I get into the 2025 goals, I will briefly recap the strong growth we generated since Newmark's IPO in December of 2017. These performance metrics are based on the midpoint of our 2021 outlook. Our revenues have grown 14% per year and our adjusted EBITDA margins have expanded 330 basis points, which has resulted in our adjusted EBITDA, more than doubling to $547 million. Moving on to our financial goals for 2025. We expect 13% annual CAGR in both revenues and adjusted EBITDA. This growth is expected across all business lines. In particular, we anticipate our management services businesses to grow faster than the overall company as we continue to drive towards more recurring revenues. By 2025, we expect our recurring revenues to be more than 40% of the total as compared with about 1/3 today. With more recurring revenues, we also expect more non-fee revenues. These primarily represent the employment and procurement pass-through component of the management services businesses. We expect non-fee revenues to increase from 21.5% for the trailing 12 months to between 25% and 30% by 2025. Given the continued growth of non-fee revenues, we will discuss our margin goals on a fee revenue basis [indiscernible]. On that basis, we expect to expand our industry-leading adjusted EBITDA margins, which were 24.3% for the trailing 12 months. We will continue to execute and accelerate the proven strategy we've deployed since we started growing the company back in 2012, but from a stronger financial position and with an elevated brand. We will continue to hire best-in-class talent, acquire companies and give them the ability to outperform on our platform. Historically, our acquisitions have grown the top line by more than 50%. On average, we believe we can hire and acquire between 6 and 8x adjusted EBITDA multiple. This allows us to target mid-teens returns on our invested capital. Additionally, we will use our data and technology to serve our clients' demand for information and analytics and to cross-sell products and services. This will allow for pure annual organic growth in the 4% to 6% range. We will expand beyond the Americas with a focus on 8 to 10 key markets and the goal of achieving more than 10% non-U.S. revenues by 2025. Even at 10%, our global revenues will still be far below those of our full-service peers, which will provide further growth beyond 2025. We expect to have approximately $3 billion of capital to invest between now and 2025. This slide demonstrates our current liquidity, cash flows generated by the business and takes into account some additional leverage to arrive at the $3 billion figure. The $2 billion to $2.5 billion of cash flow from the business represents 70% to 80% of our targeted adjusted EBITDA. Historically, we've averaged over 80% conversion of our adjusted EBITDA to cash and have included a slide in the appendix that demonstrates this historical metric. Our stated goal has always been to maintain our net leverage below 1.5x. The additional leverage shown on this slide would result in a 0.6 to 1x net leverage metric at the end of 2025, which is well within our stated target and provide additional capital up to the 1.5x net leverage. Now that we've established our $3 billion base case scenario for available capital, I'd like to discuss our anticipated uses over the next several years. We assume that 50% to 60% will be invested in growing the business through hiring and acquisitions, 30% to 40% will be returned to shareholders through dividends and stock repurchases, and 10% to 20% will be used for maintenance and CapEx. The outer dotted line represents additional capital that may be available as we increase our net leverage up to 1.5x or use equity for a portion of our investments. Therefore, $3 billion could prove to be a conservative target. In all cases, we plan to maintain annual net share count growth of around 2%, which is consistent with our net issuance since the IPO. On my last slide, I will provide additional clarity around the company's equity-based compensation market. As Barry discussed, our strong ownership culture is a compelling differentiator between Newmark and our peers, which we believe encourages cross-selling and collaboration, helps us to recruit and retain top talent. For the past 4 calendar years, our equity-based compensation expense has averaged 11.2% of our commission-based revenues. We are using commission-based revenues instead of total revenues for this metric since many of our producers are compensated on a variable model and receive approximately 10% on average of their compensation and equity. We anticipate that equity-based compensation will be below the historical average through 2025 based on our current approximately 18% targeted tax rate. Next, Jeff Day will discuss our multifamily platform. Jeff will be followed by Rick Bertasi, who will discuss our Global Corporate Services business. We decided to highlight these 2 businesses because multifamily is an example of the business that we began investing into back in 2015 and has contributed meaningfully to our performance since the IPO and still has further room to grow. GCS is a business that is just starting its growth trajectory and represents a significant market opportunity. I will now hand things over to Jeff.

Thank you, Mike, and welcome, everyone. I'm Jeff Day, Chief Strategy Officer. I have more than 30 years of experience in the capital markets, investment banking and real estate lending. Today, I'll be speaking about our multifamily business, which I have been running since 2017 and was previously the CEO of its main predecessor since 2006. Turning to my first slide. This chart reflects total debt and investment sales volumes for our multifamily business since 2015. As you can see, Newmark's CAGR of over 23% was more than double the growth of the overall market. Breaking it down, our investment sales CAGR was approximately 22% versus 10% for the industry as a whole, at our net CAGR of approximately 25% materially outpaced the industry figure of 13% over the same period. Year-to-date, we are #2 in U.S. multifamily investment sales, up 136% through September, far outpacing industry growth of 96% over the same period. Much of our gain in market share is due to organic growth, driven by recruiting best-in-class talent and our success in financing our investment sales transactions. In 2017, prior to the IPO, we financed approximately 13% of eligible multifamily investment sales transactions. Year-to-date through September, we have tripled our conversion ratio to 39%, and we anticipate that number to continue to improve over time. We remain bullish showing the multifamily space as a whole. A lack of new multifamily construction increases in the cost of materials and labor and increases in single-family home prices will combine to drive demand for existing rental housing well into the future. The Mortgage Bankers Association in Newmark Research estimate that overall percentage growth in multifamily originations will remain in the mid- to high single digits over the next several years. As we have over the past, we expect to continue to outperform the industry going forward. We will achieve this through organic growth, targeted hiring and M&A. In addition to our core business, we are focused on continuing to build out our affordable housing, single-family rental, build-to-rent, and seniors and health care businesses. As illustrated on the next slide, one of the most compelling components of Newmark's multifamily capital markets business is the high margin recurring revenue generated by our servicing book. While much attention is rightfully paid to our $60 billion plus in transaction volume, one of [indiscernible] is our $70 billion servicing portfolio. As many of you know, we are paying to service the loans that we originate, creating long-term sustainable revenue, which is paid on an ongoing basis over the term of each loan. The most valuable of these revenue streams is our primary servicing book which consists of our GSE and FHA loans. This servicing provides the highest gross fees and margins of our servicing portfolio. Our primary servicing book has grown at a 10% CAGR since 2015, increasing from 61% to 76% of our total servicing portfolio. A few other data points on our primary servicing. As of September, the weighted average maturity for our primary servicing portfolio is 7.6 years. Approximately 6% of our loans will mature before 2024 and approximately 77% will mature in 2027 or later, creating a long-term sustainable revenue stream. Industry-wide delinquencies have been well under 1%. Our credit performance is exceptional with our default rates well below the already low industry average. In fact, Newmark averaged just under 2 basis points of credit losses going back decades. As proven out by historical performance, the multifamily servicing business is safer, more stable and more profitable business compared to single-family or other forms of commercial services. As we continue to grow originations, we expect to further grow this high margin and predictable business, supplementing our GSE and FHA servicing with other profitable loan servicing from life companies, debt funds and other sources of capital. Turning to our forward-looking multifamily targets. As you can see, we have some ambitious yet attainable goals for our business for the next few years. By 2025, we expect to become a top 3 GSE multifamily originator, grow our overall servicing portfolio to over $100 billion and attain the #1 ranking in multifamily investment sales. In combination, our multifamily capital markets business, inclusive of investment sales, debt, equity placement and servicing is highly profitable and outpacing the market in terms of growth. We currently expect this business to generate approximately $215 million of adjusted EBITDA in 2021 compared with the $258 million [indiscernible] expects for one of our multifamily focused competitors. This competitor trades at approximately 17x 2021 enterprise value to EBITDA. At the same multiple, our multifamily capital markets platform has an implied value of $3.6 billion. While we don't expect to regularly break out the profits of this business, clearly this analysis demonstrates the enormous value we have created and will continue to create for our investors over time. And now Rick Bertasi will discuss our Global Corporate Services business.

Thank you, Jeff, and hello, everyone. I'm Rick Bertasi, CEO of the Global Corporate Services business. I joined Newmark 11 months ago after spending over 30 years in the industry, starting way back with [indiscernible] company for up to 6 years and as a partner [indiscernible] side of the business. I then spent the next 18 years in the service, software and flex workplace provider side and has spent 9 years as the [indiscernible] real estate on the [indiscernible] side. About 1/3 of my career spent overseas living and working outside of Americas with responsibilities spanning over 100 countries. And what is sort of an interesting anecdote, I might be the only person in this sort of role who themselves has actually been outsourced. And believe me, when you've been personally outsourced, it gives you additional perspective to share with clients and staff. So let me now tell you a little bit more about just what Global Corporate Services relates. In essence, the Global Corporate Services business acts as an extension of the in-house real estate team. We focused on helping those teams create value for the occupiers, while managing both the space, the services and the experiences that the people receive within those spaces. In particular, the experience is increasingly important, particularly in what is effectively a full employment environment at the moment. So we provide expert resources to clients through 2 types of activities. The first type is variable project activities. Good examples are some of the thought leadership work that we do on return to office, that's underweight currently for a large number of clients. Another example of the site selection work we're doing currently for electric vehicle manufacturing investments underway in a number of locations for clients. We do occupancy and portfolio scenario planning work, project-based activities and the like for various clients. Those are variable project-based activities. In addition, we provide continuous services, ongoing business for clients who deliver things like facility management, transaction management, data integration and analytics. Each of these types of services is underway for a wide range of clients. We have clients in the office, life sciences, industrial spaces using those services currently. They have portfolios that range from tens of sites to literally tens of thousands of sites. Our approach to the global corporate services business fits small medium enterprises, kind to require more holistic capabilities, but typically buy them incrementally, as well as large multinational corporations who typically segment the supply chain, either by function or geography or both. In doing that work, we also leverage Newmark's other capabilities for our clients and routinely collaborate across service areas or other parts of the business. One recent example, we collaborated with the valuation business for a client. We have active ongoing property management collaboration and most often, our work is with the broker colleagues where we combine services. Let me tell you a little bit about how we go about doing that. So there's essentially 3 engagement models we use for occupier services and for the GCS services. The first those resources, those on-demand engagements, we provide resources and expertise across strategy, design and operations. The hybrid work strategic plan design underway at the moment as an example of that. These services tend to be delivered with variable resources. The work tends to be time-bound, single-purpose engagements typically for clients in all different sizes. They address a defined specific area, usually a fixed price or scope of work and are most frequently delivered adjacent to broker relationships where we collaborate with the brokers on their existing relationships or as part of a collaborative pursuit working with the brokers and potential clients. The second type of engagement model as we have is recurring service contracts. These are a mix of variable and dedicated resources. Examples of these are things like the technology platforms we operate, data management work that we do, transaction, project management work that we do, et cetera. This work is delivered from medium to large clients typically, one of the contracts for a little longer duration for these contracts. And while they're typically delivered with a combination of variable and dedicated resources, they come with more KPIs and some structured governance. The third type of contract engagement model that we have is for multiple services. We refer to these as the integrated service models. These are multiple services, multiple sites and geographies the contracts are for extended durations. This work is delivered predominantly with dedicated resources, there will be some variable resources around the edges. It always includes substantial technology and data analytics. It's based on a combination usually of transactions, projects and facility management. Contracts are typically 5 years, occasionally 3, but most typically 5 years. The contracts always include comprehensive performance management and strong structured governance. These are paid for through a compilation of fees aggregated across the service components that are set to a certain amount per month today. And while the non pass-through, the non-fee revenue parts of this, the pass-through revenue can move around based on the supply chain work that the [indiscernible] time. The fee revenue portions of these are generally pretty consistent. So let me share with you now how we secure clients. We work to secure clients typically in 2 fashions, directly or by collaborating the Newmark platform. In the direct engagement, these are typically through a procurement activity, which is initiated by the client. And collaborating with the Newmark platform, we are adding services to existing relationships or jointly pursuing clients. When we look at the procurement-driven activities, the clients typically are larger. The procurement activity last 9 to 12 months, sometimes longer. They commonly hire an industry procurement specialists to act as an adviser. And on the existing clients, where we're working on increased scope, most often that's with the brokers. And a great example, a recent example, as a life sciences firm. The client started out as a local broker relationship. That relationship was expanded to include site selection work for their new U.S. manufacturing location. Then site selection work for the new European manufacturing location and now includes operating the COVID testing and compliance program. It's a good example of us taking an existing brokerage relationship, working with the broker to add more value to the client [indiscernible]. In addition, as Newmark expands our global platform, as Barry referenced and Mike discussed, we have the opportunity to reach a substantially greater number of corporations, both directly and through the expanded Newmark services platform. At this stage of our evolution, there's significant opportunity for growth for Global Corporate Services business, and we aim to outperform the growth rate of that sector. In order to do that, we pursued a differentiation strategy that aligns with the Newmark strategy. Barry referenced earlier that what makes us great is our people and the culture at GCS is our biggest differentiator in leveraging those people. We organize our people around our clients. Doing so reduces the fictional cost to decline and collaborating across organizations that leverages our agility so that we can best support the clients. We invest substantially in recruiting talent and then in the further training and development of our people. We've an expectation of relentless improvement in innovation, which is pretty fun. And somewhat unique thing, we've adopted a more broadly based version of what Bridgewater refers to as radical transparency. It's not the full [indiscernible] model. But a number of the GCS team previously worked at Bridgewater for up to 10 years. So we're pretty comfortable with that way of being. In each of these things, these 4 items that I mentioned have proven successful in my team's prior experiences, whether it was from creating and growing USI doubling the EMEA business for [indiscernible] working with large corporate clients all around the world. This is a new normal for Global Corporate Service business here at Newmark. We're innovating new tools. We've deployed one new management platform for clients this year, for example, already. This norm is way of being allows us to move more quickly, we put our clients' needs first. It enhances communication and accelerates the trust building with clients, and we believe it results in our agility being a competitive advantage for us. It's just easier for us to fit the client better with this culture. It give us the ability to power decision-making closer to the level -- the direct level of client engagement and allows clients to more easily partner with us. Doing this helps foster collaboration with Newmark's other professionals, too, because they're likewise looking for ways to increase the value that they can provide to their clients. It sort of creates a virtuous circle in the relationships. And as for our people, let me show you on the next slide, so as an example of the investment into the Global Corporate Services business. I joined 11 months ago. Over the last 11 months, over 2/3 of the GCS leaders shown here are new to GCS and Newmark. It's a group of diverse talent with significant multiple functional experiences in their careers spread out around the world increasingly. And while they're new to Newmark and the Newmark GCS business, they're not unknown. Nearly all of our new hires had significant prior work experience with one or more members of our leadership. Everyone arrives with the foreknowledge of the journey we're on, a commitment to building that journey together and knowing how to work together. And as we invested in those people, we did so with an eye to invest in new capabilities. These new hires have already created the GCS Center of Excellence for ESG for continuous improvement, for supply chain operations, for performance management and more. And as we build these platform abilities, we've improved the perception of GCS both internally and externally. We're now ready to go and grow the business, but let me show you some of our goals for growth. We have significant GAAP revenue upside. You can see on the slide that we talk about more than doubling the total revenues as our targeted goal for 2025. We believe the market has that potential. Each large multiservice site geography engagement itself adds noticeably to our top line. As we do so, which we believe our margin will be a low to mid-teens business, while we continue to invest in and develop our ability to secure and deliver excellence in that model. And as we've talked about, given the global white space, we think the opportunity for our integrated services recurring fee revenue to grow substantially with those engagements. And while our on-demand fee revenues will grow, those will grow more in line with the overall market activity levels, for example, continued work on return to office and such. Overall, we see the need for GCS services for portfolio and service delivery changes remain high for the near and medium term. And as our fee revenues grow, our margins should increase as we benefit from scale economies into the investments in the GCS platform that we've made this year. As you build a network overseas, additional channel reach and further distribution opportunities that provides for some of our portfolio and planning products, which, while small parts of the overall business, they're higher-margin components and they should help us increase the margins as we scale. So with that, let me hand it back to you, Jason. Thank you very much.

Thanks, Rick. That concludes our prepared remarks. Please give us a moment while we start the Q&A process. We will begin with some questions from preselected audio attendees, then open it up for written questions from the Internet. [Operator Instructions] I think some of the questions are going to be read out loud by our IR consultant FGI, And I think we are ready for some questions.

All right. Our first question comes from Jade Rahmani at KBW.

I was wondering if you believe that merging with a large competitor is appealing, notice the multifamily slide with one of your prominent competitors and a potential merger with them immediately came in my mind, considering your position as #2 investment sales broker in the multifamily space. We believe that such a merger, perhaps not with them, but with a large competitor would make sense.

Jade, I think we've been able to demonstrate a very high return on investment with working harder, accumulating talent, the best talent winners win. We're -- our objective is to increase shareholder value to do what's best for all of our stakeholders. So nothing is ever off the table, but the opportunity worldwide to hire talent, to buy companies that fit perfectly into the mix where there's not that much frictional damage and disruption might be a greater path for that. So we don't discount anything. But I think we've demonstrated a good return on investment, and we continue to do that.

One quick other question would be regarding the plans to grow the share count 2% per year, which I believe is consistent with what you've said in the past. Does that already contemplate some use of capital from cash flows to repurchase shares? Or is that prior to any ongoing recurring share repurchase program?

Sure, Jade. If you looked at our uses of capital, we expect to use about 30% to 40% to return capital to shareholders, and that will include both dividends and stock repurchases.

So the 2% is already net of that use of capital or it's prior to that?

Yes, it will be net of that use of capital.

Our next question comes from Alex Goldfarb at Piper Sandler.

Okay. Just following up from the stock share count. You mentioned, I believe, that you're going to reduce the amount of stock that you normally use through 2025 focusing more on cash. So is this -- I assume that this is in part, obviously, to limit share growth. But also, is this also a reflection that you're finding cash as a better compensator to win talent and that the prior format of the heavy stock incentive and the lockups may not be as competitive in the current environment?

Yes. We use a mix of cash and stock. We haven't -- the people that are talented and the way we like to hire, we haven't had really any issue with competition. People who want to be here want to be here because it's an entrepreneurial environment. They like being a partner in the company. Having partnership is like owning a piece of the company. I mean how many talented, successful people want to own a piece of their own business. I think that those are the people that we track and those are the people that stay.

And on the investment sales front, the amount of capital that is flooding in, I mean we all know where cap rates for multifamily and industrial gone. You're seeing retail now getting quite a bit. Is there -- how -- I guess, how long do you see this lasting as far as the institutions continue to accelerate and now inflation fears are fueling that? Or is there a sense that there was some maybe pent-up delay in investment activity because of the shutdown during COVID and therefore, 2022, 2023 should moderate from the torrid pace that we've seen recently and maybe even see cap rates come up a little bit.

As I said, there is $385 billion of dry powder in the world. Institutions are allocating more and more capital to real estate. It's been generally a pretty good return on investment. Certain categories come and go in terms of favor. If one goes down a bit, another one goes up. Retail may and hospitality may light up because of the discounted nature of their values over the last couple of years during COVID. So I think multifamily, we feel, as Jeff said, has a pretty good runway. And the single-family rental is a nascent business that seems to be growing. So there are other parts of the business that will also grow industrial. Because of the supply chain issues, manufacturing in the U.S. and logistics in the U.S. will play into industrial. We think that has a pretty good runway. And things -- land is more valuable because we need more industrial and more multifamily. And so there's always some aspect, but there is a significant amount of money and interest rates are at historic relative lows. And I believe despite there might be some widening of the spread, they're still incredibly low over the long -- as compared to the long term.

And then final question. As you guys look to overseas, Mike, I think you mentioned 8 to 10 markets targeting initially. Do you see the entire template of Newmark applicable in all markets? Or as you look at overseas markets, there's parts of the business model, which maybe that market isn't as developed and maybe it's mortgage or something. So I'm just curious, is the entire Newmark business model applicable in all expansion markets? Or we could see parts of Newmark working in certain markets and other parts of Newmark working in different markets.

We generally drive towards talent and opportunity and return on investment. So there are things in certain markets that are readily more available and more profitable. But the idea is to bring the entire platform across the globe. A lot of American businesses are driven by global corporate services. So that is by building out a regional hubs, it will help expand our global business in that respect. The capital markets business is probably a little more profitable than Europe, and there are certain countries where other parts of -- other business lines are more profitable. But we expect to be a fully integrated worldwide platform that is competitive with our peers.

Our next question is going to come from Patrick O'Shaughnessy at Raymond James.

Great. So speaking to the theme of global expansion, can you speak to the rationale behind severing your global alliance with Knight Frank and why it makes sense for you to do this kind of on your own?

So we had a very good long-term relationship with Knight Frank, but we were a $230 million revenue business in New York. They served a really good purpose for us in helping build global distribution and elevate our brand. We've grown at such an enormous rate. Having a restrictive relationship with Knight Frank, where we couldn't take advantage of opportunities that were being thrown at us around the globe as a result of restriction was just not -- just didn't work in conjunction with our manifest as [indiscernible] as a public company could grow. So it's an informal relationship. We still have a good relation with Knight Frank, but we're going our own route. We have no shortage of people that have reached out to us who want to be a part of Newmark and who are incredibly talented people. And we see no problem with building an incredibly good global business.

Got it. How would you guys evaluate your global corporate services capabilities relative to those of your larger peers? What are the areas where you're able to effectively compete? And maybe what services and areas do you not look to compete?

Sure. Thanks, Patrick. Our business is consider smaller than our large competitors in this space, and we think that gives us a competitive advantage in the way that we approach the market. We have the same basic parameters for service lines and service capabilities as they do, a number of the businesses that I've worked in the past and [indiscernible] of those competitors are pretty familiar with them. And we kind of look at it, we're going to play the same game on and a little bit smaller and more nimble cash.

I need to look at being smaller as an opportunity. I mean, there's enormous white space for us. We have a team that has worked with all the big players of all of our peers. So in terms of expertise and experience, we have all the experience of everyone of our peers. And what we have is we -- since we're late to the game, when you're very mature and large, it's hard to change with the times. Technology and information is far more available in the business today than it was 10 years ago. So we can take advantage of the availability of information that will allow us to build a much more impactful global corporate services business with a much less occupied footprint. We need less people to do more.

Got it. Appreciate that. Maybe a question for Jeff. What's the competitive landscape like right now in the multifamily origination and servicing business? Are the attractive risk-adjusted economics bringing new market entrants into that business?

That's a great question, Patrick. This year, we definitely have seen new entrants and also capital sources increased their allocations. And as a result, certainly, CMBS, particularly SASB executions have been more significant this year. Debt funds have grown and have taken a share of the pie. And we've also seen the banks pretty aggressive. And I think all of those are a function of the strength of the multifamily space and also the fact that a lot of those capital sources didn't put a lot of money out in 2021. And so they're really trying to make up for last year as well as this year's allocation.

But you should also note that our business is going through the roof in the non-GSE as well. So we have flexibility in that we've been able to provide debt coverage with debt funds, SASB execution, [indiscernible] community banks, and we do all that business. So for us, it's about the client, servicing the client, being a fully integrated platform. And we've actually had a tremendous amount of growth if you combine GSE with non-GSE multifamily debt. Our overall Patrick, overall multifamily debt is up over 70% year-over-year.

Got it. And then maybe one last one for me on stock-based compensation. I seem to recall maybe a year or 2 ago, you spoke about going forward, no longer granting partnership units and only granting RSUs. And I think that you're still doing both at this point. So can you talk about your philosophy in terms of where partnership units make sense versus where RSUs make sense?

So the senior brokers, the big producers that drive an enormous amount of our business are very interested in the benefits from partnership, it's tax advantage -- It's just -- it's a product that they like. And so we do a mix. We do restricted stock units for some in partnership for those where we deemed it appropriate, and we want some people to feel like they are part of a partnership. And we think that has some significant advantage.

[Operator Instructions] In the meantime, we have a question from the Internet. If there's a big strategic opportunity, would you be willing to go above 1.5x on leverage?

So I think we've always said that we're willing to go a little bit above 1.5x net leverage if it's going to create significant EBITDA that will allow us to bring it down over a relatively short period of time, and that thinking hasn't changed. So we've operated the company well below 1x. Today, we're at no net leverage. But again, if there's the right opportunity, we can go a little bit above 1.5, but for a relatively short period of time.

And another one from the Internet. Now that WeWork is public, what are your plans for Knotel? How are you thinking about that piece of the business?

Well, what's interesting about where the world is today, that the post-pandemic flexible work, hybrid work, co-working is a critical part of the continuum of real estate for large corporations on a global basis. Some amount of their space will be variable. And the flexible workplace will be part of that conversation. And so it has -- it's a business stand on its own, but it's also a business that provides a solution for our clients. So we think it -- we have, as we have in the rest of our company and enormous runway, and we will continue to play out that runway, play out the offering. Knotel has a little bit of a different flavor on co-working [indiscernible] certainly more flexible work in focus. It brings hospitality and flexibility together to make the environment and the workplace more interesting and more attractive for employees to come and it serves duplicate purpose in regards to being a solution for our clients and being a stand-alone business. So we're not fully baked on that. And Barry, I would add to that.

We were able to invest in the flexible workspace business at a very attractive cost basis, which gives us and our shareholders significant room for upside in terms of overall returns. So we're pretty happy with where we are in the business right now.

We have another question from Alex Goldfarb at Piper Sandler.

So just quick follow-ups. One, just tailing off on the Knotel. Given what's happened with the delay in return to office, obviously, leasing itself has been great, but return to office has been slow. The time line for profitability and positive contribution from Knotel, has that now been delayed or you see it along the same lines as before, which I think was negative in '21, breakeven in '22, and I think positive in '23.

Our thinking hasn't changed at this point. Our existing portfolio has really high occupancy, I think, up in the mid-80% range and growing. And the product that we're going to bring online in the next 12 months is really a great product. So we're really excited about the future of the business.

Okay. And then second, Mike, maybe I missed it, my train was late getting into the city. But I don't think you mentioned guidance. I think The Street is around $1.70 for next year. You have outlined a lot of positives. Certainly, across all business lines, everything seems to be very strong. Maybe just some general comments, at least as far as The Street estimates of $1.70 that's consensus for '22. Is that somewhere in the ballpark? What are factors that we should be thinking about on the upside, factors that we should be thinking that would be negatives on the downside on the earnings that would offset some of the positives you've spoken about.

Great. Great question, Alex. Again, a little bit ahead of us. We're certainly very comfortable with our guidance for 2021 and that hasn't changed. We'll likely talk a little bit more about 2022 as we get through the fourth quarter and see what the environment looks like early in 2022. So it's a little bit early for us to comment on that.

A couple of more questions from online around the competitive set. So Newmark reports it's increasing market share. Who are you taking market share from? And then maybe a part of that question, how are you thinking about how Newmark is trading relative to your peers and any commentary there?

Well, we're kind of agnostic as to who we take market share from. What matters is that we are taking market share. We continue to win higher talent. The talent seems to be percolating up to more business and doing better. So that part of it is the most important part of it. What was the other question? Sorry.

Relative discount, relative to peers?

Well, we obviously believe that we're -- I mean, the point that Jeff made on comparing to a multifamily competitor and their valuation on an enterprise value is as someone might say is the drop the mic moment if we're -- if we be valued at $3.6 billion. And right now, I think our market cap is about $3.4 billion, $3.5 billion or whatever the market is at the moment, means that undervalues the rest of our business. So I mean, when at some point, we expect to be fully recognized for what we've created and our growth story and we've delivered on the things that we promised over the years. And so we think we're undervalued by comparison.

And our last question as of now is again from Jade Rahmani at KBW.

You gave the percentage of equity compensation relative to commission-based revenue. What should that be relative to fee revenue? And then the second question would be what is that percentage relative to adjusted EBITDA. Is it about -- in my estimates, I get to something like about 40% of adjusted EBITDA.

Well, we think that providing as a percentage of commission-based revenues, Jade, makes the most sense. Because as that number continues to grow, you can grow your expectations for stock-based compensation in a similar fashion. We do believe that the percentage over the last 4 years going forward over the next several years will be a little bit lower because of some of the equity changes we made because some of the changes in the mix business. But you can do the math on whether it's what percent of EBITDA, but it's going down over time as a percentage of EBITDA.

Okay. And just calculating it relative to fee revenue, I'm getting something like about 9% as an average of fee revenue, so that's inclusive of the other businesses, not just commission, and around 40% of adjusted EBITDA.

Right. And remember, that will change as our mix of fee revenue changes over time to more recurring revenues because those businesses don't have as much stock-based compensation in them. So that's why we think it's important to look at it relative to the commission-based revenues because that's probably the most accurate metric to determine what it will be going forward.

Okay. Yes, I think it's interesting to make the comparison with that other multifamily competitor that you point out. They don't have the same magnitude of equity-based compensation running through earnings. So just curious what the multiple might look like if we adjust it for that, but really appreciate the commentary.

Yes, that's an interesting comment, Jade, and we actually have a metric on the slide where you can see that the competitors equity-based compensation in this particular business is actually higher than our equity-based compensation of the business. So if you wanted to look at the metrics with and without equity, you could do it, it doesn't change the answer.

There are also other nuances of our equity-based compensation that provide additional benefits to us that needs to be translated to the analysts. I mean, we have a significant amount of stock that people own. We think that [indiscernible] to the company longer. It helps reduce our compensation over the long term and provides us with a tax return asset that is incredibly useful. And it's complicated, but it's not just pure disregarded because it has real value for us in so many ways.

Right. That does produce a very high retention ratio and strong alignment of interest and a lot of agency costs and corporate governance are mitigated by having that strong alignment of interest. Well, thank you very much for the comments.

We have 1 more question from online, and then we'll wrap things up. For the bridge to the $900 million EBITDA target, roughly, how much of that growth is assumed organic? And how are you seeing organic versus inorganic growth?

Sure. I think what I said in my prepared comments is that when you think about organic growth, let's just base it on same-store, same headcount, we expect between 4% to 6% on annual growth there. And then we will reinvest the cash flows from the business plus the cash on our balance sheet, probably 50% to 60% of that through acquisitions and new head count that will drive the remainder of that growth.

That's all of our questions.

All right. I think we can wrap things up.

Thank you for doing this. We appreciate all of you who spent time to listen to us. We're excited about the prospects for Newmark. We think that the rest of the globe is available to us, which is an enormous opportunity, and we still have white space in the U.S. So we're incredibly excited. And in spite of this pandemic and the environment that we're in, we've come through this relatively unscaved. We're excited and we're looking forward.

All right. I'm going to disconnect. Thank you all for joining us.