NEWMARK KNIGHT FRANK

Expected IPOs for NKF, Cushman Could Boost CRE Sector's Cachet on Wall Street

Written By Randyl Drummer | CoStar

Plans announced last week by BGC Partners Inc. (NASDAQ: BGCP) to spin off Newmark Knight Frank (NKF) as a separate publicly traded company, along with market speculation that Cushman & Wakefield may also launch an initial public offering as early as the third quarter, would raise the value and visibility of commercial real estate companies on Wall Street, according to equity analysts who follow the CRE services sector.

As CoStar reported last week, BGC is planning to make NKF the first major full-service CRE firm to go public since Toronto-based FirstService Corp. spun off Colliers International Group Inc., which began trading on the Nasdaq Stock Market in June 2015.

Meanwhile Cushman & Wakefield and its parent, private-equity giant TPG, have been meeting informally with investment bankers about a potential IPO filing in the third quarter of this year or in early 2018, according to reports.

The possibility of any IPO moving forward seemed a remote possibility through last fall as geopolitical uncertainty and the prospect of higher interest rates resulted in rollercoaster swings in the stock market. However, the Dow Jones Industrial Average has jumped roughly 15% since Nov. 4 during the so-called "Trump bump," finally reaching the historic 20,000 mark a few days after President Donald Trump's inauguration.

The rising tide has lifted all real-estate boats. Shares of the two largest publicly traded CRE companies, CBRE Group, Inc. (NYSE: CBG) and Jones Lang LaSalle (NYSE: JLL), have jumped even more sharply than the broader market at 29% and 34.6%, respectively.

"It feels like the window for an offering is a lot more open than it was six months ago," said Brandon Dobell, an analyst with William Blair & Associates who tracks major CRE firms. "CBRE and JLL stocks are up, and the market is hitting all-time highs. (Interest) rates have moved up since the election, but they really haven't had a major impact. I think there's capital out there that still needs to get put to work."

Dobell noted that three years ago, the total combined market capitalization for the handful of publicly traded CRE brokerage and services companies was less than $10 billion, too small to attract much attention from buy-side institutions and equity analysts.

"Having one or two more publicly traded CRE services firms such as Cushman and Newmark actually ends up making it better for the other players," Dobell said. "In the past, these stocks have always suffered from being just a couple of companies" rather than a sector.

With CBRE and JLL now exceeding $16 billion market cap, "you add in Colliers and maybe HFF and Walker & Dunlop, and Marcus & Millichap, Cushman and Newmark and all of a sudden you've got a group of eight to 10 companies at $20 billion to $25 billion," Dobell said.

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