S-1 1 d298983ds1.htm FORM S-1 Form S-1
Table of Contents

As filed with the Securities and Exchange Commission on October 23, 2017.

Registration No. 333-                

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

NEWMARK GROUP, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   6531   81-4467492

(State or other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

125 Park Avenue

New York, New York 10017

(212) 610-2200

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

James R. Ficarro

Chief Operating Officer

Newmark Group, Inc.

125 Park Avenue

New York, New York 10017

(212) 610-2200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Stephen M. Merkel

Executive Vice President,

General Counsel and Secretary

BGC Partners, Inc.

499 Park Avenue

New York, New York 10022

(212) 610-2200

 

David K. Lam

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

(212) 403-1000

 

Christopher T. Jensen

George G. Yearsich

Morgan, Lewis & Bockius LLP

101 Park Avenue

New York, New York 10178

(212) 309-6000

 

Samir A. Gandhi

Robert A. Ryan

Sidley Austin LLP

787 Seventh Avenue

New York, New York 10019

(212) 839-5300

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 under the Securities Exchange Act of 1934:

 

Large accelerated filer        Accelerated filer  
Non-accelerated filer        Smaller reporting company  
       Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☒

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Proposed

Maximum

Aggregate

Offering Price(1)(2)

 

Amount of

Registration Fee

Class A common stock, par value $0.01 per share

  $100,000,000   $12,450

 

 

(1) Includes additional shares of Class A common stock that the underwriters have an option to purchase from the registrant.
(2) Estimated solely for the purpose of computing the registration fee in accordance with Rule 457(o) of the Securities Act of 1933, as amended.

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

 

 

 


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION. PRELIMINARY PROSPECTUS, DATED OCTOBER 23, 2017

Newmark Group, Inc.

            Shares

Class A Common Stock

 

 

This is the initial public offering of Class A common stock of Newmark Group, Inc. We are offering              shares of our Class A common stock.

We currently intend to contribute all of the net proceeds of this offering (including the underwriters’ option to purchase additional shares of Class A common stock described below) to Newmark Partners, L.P., our principal operating subsidiary, in exchange for a number of units representing Newmark Partners, L.P. limited partnership interests equal to the number of shares issued by us in this offering. Newmark Partners, L.P. intends to use these net proceeds to repay certain indebtedness that we or our subsidiaries will assume prior to the closing of this offering from our existing stockholder, BGC Partners, Inc., which we refer to as “BGC Partners” or “BGC,” or its subsidiaries, and to use any remaining net proceeds for various general partnership purposes, including the repayment of other indebtedness assumed prior to the closing of this offering, potential strategic alliances, acquisitions, joint ventures or hiring of personnel. See “Use of Proceeds.”

Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price of the Class A common stock is currently estimated to be between $             and $             per share. We have applied to list our Class A common stock on the NASDAQ Global Market under the symbol “NMRK.”

We have two classes of authorized common stock: the Class A common stock offered hereby and Class B common stock. The economic rights of the holders of Class A common stock and Class B common stock are identical, but they differ as to voting and conversion rights. Each share of Class A common stock is entitled to one vote. 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. All of our shares of Class A common stock and Class B common stock are currently held by BGC Partners. After the completion of this offering, BGC Partners will continue to hold all of our issued and outstanding shares of Class B common stock and will hold approximately     % of the total voting power of our common stock (or approximately     % of the total voting power of our common stock if the underwriters exercise in full their option to purchase additional shares of Class A common stock in this offering). As a result of its ownership, BGC Partners will be able to control any action requiring the general approval of our stockholders, including the election of our board of directors, the adoption of certain amendments to our certificate of incorporation and bylaws, the approval of any merger or sale of substantially all of our assets, and certain provisions that affect their rights and privileges as Class B common stockholders. See “Description of Capital Stock.”

BGC Partners has advised us that it currently expects to pursue a distribution to its stockholders of all of the shares of our common stock that it then owns in a manner that is intended to qualify as generally tax-free for U.S. federal income tax purposes. As currently contemplated, shares of our Class A common stock held by BGC Partners would be distributed to the holders of shares of Class A common stock of BGC Partners and shares of our Class B common stock held by BGC Partners would be distributed to the holders of shares of Class B common stock of BGC Partners (which are currently Cantor Fitzgerald, L.P. and another entity controlled by Howard W. Lutnick). The determination of whether, when and how to proceed with any such distribution is entirely within the discretion of BGC Partners. See “Certain Relationships and Related-Party Transactions—Separation and Distribution Agreement—The Distribution.” The shares of our common stock that BGC Partners will own upon the completion of this offering will be subject to the 180-day “lock-up” restriction contained in the underwriting agreement for this offering. See “Underwriting (Conflicts of Interest).”

Following this offering, BGC Partners will control more than a majority of the total voting power of our common stock, and we will be a “controlled company” within the meaning of the NASDAQ Stock Market rules. However, we do not currently expect to rely upon the “controlled company” exemption.

We are an “emerging growth company” as defined under the federal securities laws and, as such, have elected to comply with certain reduced disclosure requirements for this prospectus. We expect that our revenues for 2017 will exceed $1.07 billion. As a result, we expect that we will cease to qualify as an emerging growth company after the later of the completion of this offering and January 1, 2018 and thereafter will no longer be eligible for the exemptions from disclosure provided to an emerging growth company.

 

 

Investing in our Class A common stock involves risk. See “Risk Factors” beginning on page 25.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

     Per
Share
     Total  

Public offering price

   $                   $               

Underwriting discounts and commissions

   $      $  

Proceeds, before expenses, to us

   $      $  

The underwriters have an option to purchase, within 30 days of the date of this prospectus, a maximum of             additional shares of Class A common stock from us as described in “Underwriting (Conflicts of Interest)”.

The underwriters expect to deliver the shares against payment in New York, New York on                     , 2017.

 

 

 

Goldman Sachs & Co. LLC        BofA Merrill Lynch        Citigroup        Cantor Fitzgerald & Co.

The date of this prospectus is                 , 2017.


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TABLE OF CONTENTS

 

PROSPECTUS SUMMARY

     1  

RISK FACTORS

     25  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     60  

USE OF PROCEEDS

     62  

DIVIDEND POLICY

     63  

CAPITALIZATION

     66  

DILUTION

     67  

SELECTED COMBINED FINANCIAL DATA

     69  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

     72  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (EXCLUDING BERKELEY POINT)

     87  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE NEWMARK RECAST FINANCIAL STATEMENTS (INCLUDING BERKELEY POINT)

     106  

STRUCTURE OF NEWMARK

     126  

BUSINESS

     135  

MANAGEMENT

     155  

COMPENSATION DISCUSSION AND ANALYSIS

     159  

EXECUTIVE COMPENSATION

     173  

PRINCIPAL STOCKHOLDERS

     189  

CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS

     192  

DESCRIPTION OF CAPITAL STOCK

     223  

SHARES ELIGIBLE FOR FUTURE SALE

     227  

MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF CLASS A COMMON STOCK

     230  

UNDERWRITING (CONFLICTS OF INTEREST)

     233  

LEGAL MATTERS

     239  

EXPERTS

     240  

WHERE YOU CAN FIND MORE INFORMATION

     241  

INDEX TO COMBINED FINANCIAL STATEMENTS

     F-1  

 

 

You should rely only on the information contained in this prospectus or contained in any free writing prospectus prepared by or on behalf of us. Neither we nor the underwriters have authorized anyone to provide you with information different from, or in addition to, that contained in this prospectus or any related free writing prospectus. This prospectus is an offer to sell only the shares offered hereby and only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date, regardless of its delivery. Our business, financial condition, results of operations, liquidity and prospects may have changed since that date.

For investors outside the United States: neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

 

 

 

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Unless we otherwise indicate or unless the context requires otherwise, any reference in this prospectus to:

 

    the “ancillary agreements” refers collectively to the amended and restated limited partnership agreement of Newmark OpCo; the amended and restated limited partnership agreement of Newmark Holdings; the administrative services agreement between Newmark and Cantor; the transition services agreement between Newmark and BGC Partners; the tax matters agreement between Newmark, Newmark Holdings, Newmark OpCo, BGC Partners, BGC Holdings and BGC U.S.; the tax receivable agreement between Newmark and Cantor; the registration rights agreement between Newmark, BGC Partners and Cantor; and the exchange agreement;

 

    “Berkeley Point” refers to Berkeley Point Financial LLC and “Berkeley Point business” refers to the business conducted by Berkeley Point and its subsidiaries;

 

    “BGC Global” refers to BGC Global Holdings, L.P., which holds the non-U.S. business of the BGC group;

 

    “BGC group” refers to (1) prior to the separation, BGC Partners, BGC Holdings, BGC U.S. and BGC Global and each of their respective subsidiaries; and (2) after the separation, BGC Partners, BGC Holdings, BGC U.S. and BGC Global and each of their respective subsidiaries (other than any member of the Newmark group);

 

    “BGC Holdings” refers to BGC Holdings, L.P.;

 

    “BGC Partners” or “BGC” refers to BGC Partners, Inc.;

 

    “BGC U.S.” refers to BGC Partners, L.P., which holds the U.S. business of the BGC group;

 

    “Cantor” refers to Cantor Fitzgerald, L.P. and its managing general partner;

 

    “Cantor group” refers to Cantor and its subsidiaries (other than any member of the BGC group or the Newmark 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;

 

    the “Code” refers to the Internal Revenue Code of 1986, as amended;

 

    “distribution” refers to the pro rata distribution of our Class A common stock and our Class B common stock held by BGC Partners, pursuant to which shares of our Class A common stock held by BGC Partners would be distributed to the holders of shares of Class A common stock of BGC Partners and shares of our Class B common stock held by BGC Partners would be distributed to the holders of shares of Class B common stock of BGC Partners (which are currently Cantor and another entity controlled by Mr. Lutnick) (which distribution is intended to qualify as generally tax-free for U.S. federal income tax purposes); BGC Partners has advised us that it currently expects to pursue the distribution after the expiration of the 180-day “lock-up” restriction contained in the underwriting agreement for this offering. See “Underwriting (Conflicts of Interest)”;

 

    “eSpeed” refers to eSpeed, Inc.;

 

    the “exchange agreement” refers to the exchange agreement to be entered into prior to the completion of this offering by Newmark, BGC Partners and Cantor;

 

    “exchangeable limited partners” or “Newmark Holdings exchangeable limited partners” means (a) any member of the Cantor group that holds an exchangeable limited partnership interest in Newmark Holdings and that has not ceased to hold such exchangeable limited partnership interest (b) any person to whom a member of the Cantor group has transferred an exchangeable limited partnership interest in Newmark Holdings and, prior to or at the time of such transfer, whom Cantor has agreed will be designated as an exchangeable limited partner and (c) any person who received an exchangeable limited partnership interest in Newmark Holdings in respect of an existing exchangeable limited partnership interest in BGC Holdings pursuant to the separation and distribution agreement;

 

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    “Fannie Mae” refers to the Federal National Mortgage Association;

 

    “Fannie Mae DUS” refers to a Fannie Mae Delegated Underwriting and Servicing Program;

 

    “FHA” refers to the Federal Housing Administration;

 

    “founding partners” or “Newmark Holdings founding partners” refers to the individuals who became limited partners of Newmark Holdings in connection with the separation and who held BGC Holdings founding partner interests immediately prior to the separation (provided that members of the Cantor group, the BGC group and Howard W. Lutnick (including any entity directly or indirectly controlled by Mr. Lutnick or any trust of which he is a guarantor, trustee or beneficiary) are not founding partners); the holders of BGC Holdings founding partner interests received such founding partner interests in connection with the separation of BGC Partners from Cantor in 2008;

 

    “founding/working partners” refers to founding partners and/or working partners;

 

    “Freddie Mac” refers to the Federal Home Loan Mortgage Corporation;

 

    “Ginnie Mae” refers to the Government National Mortgage Association;

 

    “GSEs” or “GSE” refers to Fannie Mae and Freddie Mac;

 

    “HUD” refers to the U.S. Department of Housing and Urban Development;

 

    “HUD LEAN” refers to HUD’s mortgage insurance program for senior housing;

 

    “HUD MAP” refers to HUD Multifamily Accelerated Processing;

 

    “limited partnership unit holders” refers to 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 become limited partners of Newmark Holdings from time to time after the separation and who provide services to the Newmark group;

 

    “Nasdaq” refers to Nasdaq, Inc.;

 

    “Nasdaq shares” or “Nasdaq payment” refers to the shares of common stock of Nasdaq which remain payable by Nasdaq in connection with the Nasdaq Transaction, the right to which BGC Partners expects to transfer to Newmark in connection with the separation prior to the completion of this offering;

 

    “Nasdaq Transaction” refers to the sale on June 28, 2013 of eSpeed by BGC Partners to Nasdaq, in which the total consideration paid or payable by Nasdaq included an earn-out of up to 14,883,705 shares of common stock of Nasdaq to be paid ratably over 15 years after the closing of the Nasdaq Transaction, provided that Nasdaq produces at least $25 million in gross revenues for the applicable year;

 

    “Newmark” refers to Newmark Group, Inc.;

 

    “Newmark & Co.” refers to Newmark & Company Real Estate, Inc.;

 

    the “Newmark business” refers to the business held by members of the BGC group contributed to us pursuant to the separation and distribution agreement, which includes the commercial real estate services business historically operated by the BGC group and the Berkeley Point business. Members of the BGC group continue to hold the BGC group’s financial services business and its interests in us following the separation;

 

    “Newmark common stock” refers collectively to our Class A common stock and our Class B common stock;

 

    “Newmark group” refers to Newmark, Newmark Holdings, Newmark OpCo and their respective subsidiaries;

 

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    “Newmark Holdings” refers to Newmark Holdings, L.P.;

 

    “Newmark OpCo” refers to Newmark Partners, L.P.;

 

    “Newmark Recast Financial Statements” and “Newmark’s recast combined financial statements and related notes” refer to Newmark’s combined financial statements and related notes which have been recast to include Berkeley Point in our results;

 

    “Qualified Class B Holder” refers to any of (1) BGC Partners, (2) Cantor, (3) any entity controlled by BGC Partners, Cantor or Mr. Lutnick and (4) Mr. 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 “separation” refers to the separation by members of the BGC group of the Newmark business from the remainder of the businesses held by the members of the BGC group pursuant to the separation and distribution agreement;

 

    the “separation and distribution agreement” refers to the separation and distribution agreement to be entered into prior to the completion of this offering by Cantor, Newmark, Newmark Holdings, Newmark OpCo, BGC Partners, BGC Holdings and BGC U.S.; and

 

    “working partners” or “Newmark Holdings working partners” refers to 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 become limited partners of Newmark Holdings from time to time from and after the separation and who provide services to the Newmark group.

Unless otherwise indicated or unless the context requires otherwise, all references in this prospectus to the “Company,” “we,” “our,” “us,” or similar terms refer to Newmark and its consolidated subsidiaries (including Berkeley Point). Further, unless otherwise indicated or unless the context requires otherwise, all figures reflect the inclusion of the Berkeley Point business.

Industry and Market Data

In this prospectus, we rely on and refer to information and statistics regarding the commercial real estate services industry. We obtained this data from independent publications or other publicly available information. Independent publications generally indicate that the information contained therein was obtained from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. Although we believe these sources are reliable, neither we nor the underwriters have independently verified this information. Neither we nor the underwriters guarantee the accuracy and completeness of this information.

Non-GAAP Financial Measures

This prospectus contains “non-GAAP financial measures” that are financial measures that differ from the most directly comparable measures calculated and presented in accordance with Generally Accepted Accounting Principles in the United States, which we refer to as “GAAP.” Non-GAAP financial measures used by the Company include “Adjusted EBITDA,” “Adjusted EBITDA before allocation to units,” “pre-tax Adjusted Earnings” and “post-tax Adjusted Earnings.”

Adjusted EBITDA Defined

Newmark provides a non-GAAP financial performance measure, “Adjusted EBITDA,” which the Company defines as “Newmark’s net income (loss) available to its parent, BGC Partners” derived in accordance with GAAP and adjusted for the addition of the following items:

 

    Provision (benefit) for income taxes.

 

    Net income (loss) attributable to noncontrolling interest.

 

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    Employee loan amortization and reserves on employee loans.

 

    Interest expense.

 

    Fixed asset depreciation and intangible asset amortization.

 

    Non-cash charges relating to grants of exchangeability to limited partnership units.

 

    Other non-cash charges related to equity-based compensation.

 

    Other non-cash income (loss).

Adjusted EBITDA also excludes non-cash GAAP gains attributable to originated mortgage servicing rights, which we refer to as “OMSRs,” and non-cash GAAP amortization of mortgage servicing rights, which we refer to as “MSRs.” Under GAAP, the Company recognizes OMSRs gains equal to the fair value of servicing rights retained on mortgage loans originated and sold. Subsequent to the initial recognition at fair value, MSRs are carried at the lower of amortized cost or fair value and amortized in proportion to the net servicing revenue expected to be earned. However, it is expected that any cash received with respect to these servicing rights, net of associated expenses, will increase Adjusted EBITDA in future periods, as discussed below under “—Pre-Tax Adjusted Earnings and Post-Tax Adjusted Earnings.”

The Company also discloses “Adjusted EBITDA before allocations to units,” which is Adjusted EBITDA excluding GAAP charges with respect to allocations of net income to limited partnership units. Such allocations represent the pro-rata portion of pre-tax earnings available to such unit holders. These units are in the fully-diluted share count, and are exchangeable on a one-to-one basis, subject to certain adjustments, into shares of our Class A common stock. As these units are exchanged into shares of our Class A common stock, unit holders will become entitled to cash dividends paid on the shares of the Class A common stock rather than cash distributions in respect of the units. The Company views such allocations as economically equivalent to dividends on common shares. Because dividends paid to common shares are not an expense under GAAP, management believes similar allocations of income to unit holders should also be excluded by investors when analyzing Newmark’s results on a fully-diluted basis with respect to Adjusted EBITDA.

The Company’s management believes that these Adjusted EBITDA measures are useful in evaluating Newmark’s operating performance, because the calculations of these measures generally eliminate the effects of financing and income taxes and the accounting effects of capital spending and acquisitions, which would include impairment charges of goodwill and intangibles created from acquisitions. Such items may vary for different companies for reasons unrelated to overall operating performance. As a result, the Company’s management uses these measures to evaluate operating performance and for other discretionary purposes. Newmark believes that these Adjusted EBITDA measures are useful to investors to assist them in achieving a more complete picture of the Company’s financial condition and results of operations.

Because these Adjusted EBITDA measures are not recognized measurements under GAAP, investors should use these measures in addition to “Newmark’s net income (loss) available to its parent, BGC Partners” when analyzing Newmark’s operating performance. Because not all companies use identical Adjusted EBITDA calculations, the Company’s presentation of these Adjusted EBITDA measures may not be comparable to similarly-titled measures of other companies. Furthermore, these Adjusted EBITDA measures are not intended to be measures of free cash flow or GAAP cash flow from operations, because these Adjusted EBITDA measures do not consider certain cash requirements, such as tax and debt service payments.

See the reconciliation table for Adjusted EBITDA below in “Summary Historical and Pro Forma Combined Financial and Operating Data.”

Pre-Tax Adjusted Earnings and Post-Tax Adjusted Earnings

In addition to the use of Adjusted EBITDA measures, the Company intends to pay any future dividends and/or distributions and to measure its performance based off of other non-GAAP financial measures defined as “pre-tax Adjusted Earnings” and “post-tax Adjusted Earnings.” See “Dividend Policy” for definitions of “pre-tax Adjusted Earnings” and “post-tax Adjusted Earnings” and how they differ from GAAP “Newmark’s net income (loss) available to its parent, BGC Partners.”

 

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“Pre-tax Adjusted Earnings” can also be derived from “Adjusted EBITDA before allocation to units” by starting with the latter measure and deducting GAAP charges for fixed asset depreciation, interest expense, employee loan amortization and other non-cash equity-based compensation. “Post-tax Adjusted Earnings” is “pre-tax Adjusted Earnings” reduced by a non-GAAP provision for taxes which, over time, is generally a similar amount that is accrued under GAAP. The difference is primarily attributable to the timing of when certain deductions are taken for Non-GAAP tax purposes versus GAAP tax purposes.

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before investing in our Class A common stock. You should carefully read the entire prospectus, including the “Risk Factors,” the management discussion and analysis of financial condition and results of operations, the financial statements and the exhibits to the registration statement of which this prospectus is a part, before making an investment decision. Unless otherwise specified, references in this prospectus to “Newmark Knight Frank,” “NKF,” the “Company,” “we,” “us” and “our” refer to Newmark and its consolidated subsidiaries (including Berkeley Point).

Unless otherwise indicated, the information included in this prospectus assumes (1) the sale of our Class A common stock in this offering at an offering price of $             per share of Class A common stock, which is the mid-point of the pricing range set forth on the cover page of this prospectus and (2) that the underwriters have not exercised their option to purchase up to             additional shares of Class A common stock.

In this prospectus, we make certain forward-looking statements, including expectations relating to our future performance. These expectations reflect our management’s view of our prospects and are subject to the risks described under “Risk Factors” and “Special Note Regarding Forward-Looking Statements” in this prospectus. Our expectations of our future performance may change after the date of this prospectus and there is no guarantee that such expectations will prove to be accurate.

Our Business

Newmark is a rapidly growing, high margin, full-service commercial real estate services business that offers a full suite of services and products for both owners and occupiers across the entire commercial real estate industry. Since 2011, the year in which we were acquired by BGC Partners, Inc. (which we refer to as “BGC Partners” or “BGC,” a leading global brokerage company servicing the financial and real estate markets and listed on the NASDAQ Global Select Market), we have been the fastest growing U.S.-listed commercial real estate services firm, with a compound annual growth rate (which we refer to as “CAGR”) of revenue of 41%. Our investor/owner services and products include capital markets, which consists of investment sales, debt and structured finance and loan sales, agency leasing, property management, valuation and advisory, diligence and underwriting and government sponsored entity (“GSE”) lending and loan servicing. Our occupier services and products include tenant representation, real estate management technology systems, workplace and occupancy strategy, global corporate services consulting, project management, lease administration and facilities management. We enhance these services and products through innovative real estate technology solutions and data analytics that enable our clients to increase their efficiency and profits by optimizing their real estate portfolio. 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 12-month period ended June 30, 2017, we generated revenues of $1.5 billion.

We believe our high margins and leading revenue growth compared to the other publicly traded real estate services companies have resulted from execution of our unique integrated corporate strategies:

 

    we offer a full suite of best-in-class real estate services and professionals to both investors/owners and occupiers,

 

    we deploy deeply-embedded technology and use data-driven analytics to enable clients to better manage their real estate utilization and spend, enhancing the depth of our client relationships,

 

    we attract and retain market-leading professionals with the benefits of our unique partnership structure and high growth platform,

 



 

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    we actively encourage cross-selling among our diversified business lines, and

 

    we continuously build out additional products and capabilities to capitalize on our market knowledge and client relationships

Newmark was founded in 1929 with an emphasis on New York-based investor and owner services such as tenant and agency leasing, developing a reputation for talented, knowledgeable and motivated brokers. BGC acquired Newmark in 2011, and since the acquisition Newmark has embarked on a rapid expansion throughout the United States across all critical business lines in the real estate services and product sectors. We believe our rapid growth is due to our management’s vision and direction along with a proven track record of attracting high-producing talent through accretive acquisitions and profitable hiring.

Our growth to date has been focused in North America. We have more than 4,500 employees and independent contractors, including approximately 1,500 revenue-generating professionals in over 120 offices in 90 cities, with an additional 32 licensee locations in the U.S. Since 2011, we have completed over 35 complementary and accretive acquisitions, meaningfully expanding our product and services capabilities and geographic reach. We intend to continue to aggressively and opportunistically expand into markets, including outside of North America, and products where we believe we can profitably execute our full service and integrated business model.

Bolstered by our third quarter 2017 acquisition of Berkeley Point Capital LLC (which we refer to as “Berkeley Point” or “BPF,” a leading commercial real estate finance company focused on the origination, servicing and sale of multifamily loans through government-sponsored and government-funded loan programs), we believe we are poised for continued growth and value creation. We expect the combination of Berkeley Point and ARA, our top-three multifamily investment sales business, to create significant growth across our platform and serve as a powerful margin and earnings driver.

We generate revenues from commissions on leasing and capital markets transactions, technology user and consulting fees, property and facility management fees, and mortgage origination and loan servicing fees. Our revenues are widely diversified across service lines and clients, with our top 10 clients accounting for less than 7% of revenues. We have also achieved industry-leading growth, with our revenues increasing 550% for the 12-month period ended June 30, 2017 as compared to the year ended December 31, 2011, which represents a 41% CAGR. Over 40% of this growth was attributable to the organic growth of our business, with the remaining portion of this growth coming from accretive acquisitions.

We are an affiliate of Cantor Fitzgerald, L.P., which we refer to as “Cantor,” a diversified company primarily specializing in financial and real estate services for institutional customers operating in the global financial and commercial real estate markets. Cantor is the largest controlling shareholder of BGC.

Our Services and Products

Newmark offers a diverse array of integrated services and products designed to meet the full needs of both real estate investors/owners and occupiers. Our technology advantages, industry-leading talent, deep and diverse client relationships and suite of complementary services and products allow us to actively cross-sell our services and drive industry-leading margins.

Leading Commercial Real Estate Technology Platform and Capabilities

We offer innovative real estate technology solutions for both investors/owners and occupiers that enable our clients to increase efficiency and realize additional profits. Our differentiated, value-added and client-facing

 



 

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technology platforms have been utilized by clients that occupy over 3.5 billion square feet of commercial real estate space globally. For real estate investors and owners, our N360 platform is a powerful tool that provides instant access and comprehensive commercial real estate data in one place via mobile or desktop. This technology platform makes information, such as listings, historical leasing, tenant/owner information, investment sales, procurement, research, and debt on commercial real estate properties, accessible to investors and owners. N360 also integrates a Geographic Information Systems (“GIS”) platform with 3D mapping powered by Newmark’s Real Estate Data Warehouse. For our occupier clients, the Newmark VISION platform provides integrated business intelligence, reporting and analytics. Our clients use VISION to reduce cost, improve speed and supplement decision-making in applications such as real estate transactions and asset administration, project management, building operations and facilities management, environmental and energy management, and workplace management. Our deep and growing real estate database and commitment to providing innovative technological solutions empower us to provide our clients with value-adding technology products and data-driven advice and analytics.

Real Estate Investor/Owner Services and Products

Capital Markets. We offer a broad range of real estate capital markets services, including investment sales and facilitating access to providers of capital. We provide access to a wide range of services, including asset sales, sale leasebacks, mortgage and entity-level financing, equity-raising, underwriting and due diligence. Through our mortgage bankers and brokers, we are able to offer multiple debt and equity alternatives to fund capital markets transactions through third party banks, insurance companies and other capital providers, as well as through our government sponsored entity lending platform, Berkeley Point. Although commercial real estate sales volumes across the industry declined 7% year-over-year in the first half of 2017 and were down 9% in full year 2016 according to Real Capital Analytics (which we refer to as “RCA”), our capital markets revenues increased by 20% and 26% year-on-year in the first half of 2017 and full year 2016, respectively.

Agency Leasing. We execute marketing and leasing programs on behalf of owners of real estate to secure tenants and negotiate leases. We understand the value of a creditworthy tenant to landlords and work to maximize the financing value of any leasing opportunity. As of June 30, 2017, we represent buildings that total approximately 350 million square feet of commercial real estate on behalf of owners in the U.S.

Valuation and Advisory. We operate a national valuation and advisory business, which has grown expansively in 2017 by approximately 160 professionals. Our appraisal team executes projects of nearly every size and type, from single properties to large portfolios, existing and proposed facilities and mixed-use developments across the spectrum of asset values. Clients include banks, pension funds, insurance companies, developers, corporations, equity funds, REITs and institutional capital sources. These institutions utilize the advisory services we provide in their loan underwriting, construction financing, portfolio analytics, feasibility determination, acquisition structures, litigation support and financial reporting.

Property Management. We provide property management services on a contractual basis to owners and investors in office, industrial and retail properties. Property management services include building operations and maintenance, vendor and contract negotiation, project oversight and value engineering, labor relations, property inspection/quality control, property accounting and financial reporting, cash flow analysis, financial modeling, lease administration, due diligence and exit strategies. We have an opportunity to grow our property or facilities management contracts in connection with other high margin leasing or other contracts. These businesses also give us better insight into our clients’ overall real estate needs.

Government Sponsored Entity (“GSE”) Lending and Loan Servicing. On September 8, 2017, BGC Partners completed the acquisition of Berkeley Point, a leading commercial real estate finance company focused on the origination and sale of multifamily and other commercial real estate loans through government-sponsored

 



 

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and government-funded loan programs, as well as the servicing of loans that it and third parties, including our affiliates, originate. On this same date, BGC Partners, along with Cantor, also completed its investment in a commercial real estate related finance and investment business, which we refer to as “Real Estate Newco.” After these transactions were completed, Berkeley Point and BGC’s investment in Real Estate Newco became part of Newmark. See “Certain Relationships and Related-Party Transactions—BP Transaction Agreement and Real Estate Newco Limited Partnership Agreement” for more information on these transactions.

Through Berkeley Point, we are one of 25 approved lenders that participate in Fannie Mae’s Delegated Underwriting and Servicing (“DUS”) program and one of 22 lenders approved as a Freddie Mac seller/servicer. For the first six months of 2017, Berkeley Point’s loan originations increased 73% period-over-period as compared with a 29% increase in overall GSE originations. As a low-risk intermediary, Berkeley Point originates loans guaranteed by government agencies or entities and pre-sells such loans prior to transaction closing.

In conjunction with our origination services, we sell the loans that we originate under GSE programs and retain the servicing of those loans. The servicing portfolio provides a stable, predictable recurring stream of revenue to us over the life of each loan. As of June 30, 2017, Berkeley Point’s servicing portfolio was $58 billion and average remaining servicing term per loan was approximately eight years. The combination of Berkeley Point and ARA brings together, respectively, a leading multifamily debt origination platform with a top-three multifamily investment sales business, which we believe will provide substantial cross-selling opportunities. In particular, we expect revenues to increase as Berkeley Point begins to capture a greater portion of the financings on ARA’s investment sales transactions.

Due Diligence and Underwriting. We provide commercial real estate due diligence consulting and advisory services to a variety of clients, including lenders, investment banks and investors. Our core competencies include underwriting, modeling, structuring, due diligence and asset management. We also offer clients cost-effective and flexible staffing solutions through both on-site and off-site teams. We believe that this business line gives us another way to cross-sell services to our clients.

Real Estate Occupier Services and Products

Tenant Representation Leasing. We represent commercial tenants in all aspects of the leasing process, including space acquisition and disposition, strategic planning, site selection, financial and market analysis, economic incentives analysis, lease negotiations, lease auditing and project management. We use innovative technology and data to provide tenants with an advantage in negotiating leases, which has contributed to our market share gains. In 2016, we completed U.S. leasing transactions (including agency leasing) covering more than 140 million square feet.

Workplace and Occupancy Strategy. We provide services to help organizations understand their current workplace standards and develop plans and policies to optimize their real estate footprint. We offer a multi-faceted consulting service underpinned by robust data and technology.

Global Corporate Services (“GCS”) and Consulting. GCS is our consulting and services business that focuses on reducing occupancy expense and improving efficiency for corporate real estate occupiers, with large, often multi-national presence. We provide beginning-to-end corporate real estate solutions for clients. GCS makes its clients more profitable by optimizing real estate usage, reducing overall corporate footprint, and improving work flow and human capital efficiency through large scale data analysis and our industry-leading technology. We offer global enterprise optimization, asset strategy, transaction services, information management, an operational technology product and transactional and operational consulting. Our consultants provide expertise in financial integration, portfolio strategy, location strategy and optimization, workplace strategies, workflow and business process improvement, merger and acquisition integration, and industrial consulting.

 



 

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Project Management. We provide a variety of services to tenants and owners of self-occupied spaces. These include conversion management, move management, construction management and strategic occupancy planning services.

Real Estate and Lease Administration. We manage leases for our clients for a fee. We also perform lease audits and certain accounting functions related to the leases. For large occupier clients, our real estate technology enables them to access and manage their complete portfolio of real estate assets. We offer clients a fully integrated user-focused technology product designed to help them efficiently manage their real estate costs and assets.

Facilities Management. We manage a broad range of properties on behalf of users of commercial real estate, including headquarters, facilities and office space, for a broad cross section of companies, including Fortune 500 and Forbes Global 2000 companies. We manage the day-to-day operations and maintenance for urban and suburban commercial properties of most types, including office, industrial, data centers, healthcare, retail, call centers, urban towers, suburban campuses, and landmark buildings. Facilities management services may also include facility audits and reviews, energy management services, janitorial services, mechanical services, bill payment, maintenance, project management, and moving management.

Industry Trends and Opportunity

We expect the following industry and macroeconomic trends to impact our market opportunity:

Large and Highly Fragmented Market. The commercial real estate services industry is a more than $200 billion global revenue market of which we believe a significant portion currently resides with smaller and regional companies. Less than 15% of the revenue in the commercial real estate market is currently serviced by the top six global firms (by revenue), leaving a large opportunity for us to reach clients serviced by the large number of fragmented smaller and regional companies. We believe that clients increasingly value full service real estate service providers with comprehensive capabilities and multi-jurisdictional reach. We believe this will provide a competitive advantage for us as we have full service capabilities to service both real estate owners and occupiers.

Trend Toward Outsourcing of Commercial Real Estate Services. Outsourcing of real estate-related services has reduced both property owner and tenant costs, which has spurred additional demand for real estate. We believe that the global revenue opportunity includes a large percentage of companies and landlords that have not yet outsourced their commercial real estate functions, including many functions offered by our management services businesses. Large corporations are focused on consistency in service delivery and centralization of the real estate function and procurement to maximize cost savings and efficiencies in their real estate portfolios. This focus tends to lead them to choose full-service providers like Newmark, where customers can centralize service delivery and maximize cost reductions. Our GCS business was specifically designed to meet these objectives through the development of high value-add client-embedded technology, expert consultants and transaction execution. Additionally, we believe that approximately 80% of property owners and occupiers do not outsource and we consult with them and implement software to facilitate self-management more efficiently. This technology produces licensing and consulting revenues, allows us to engage further with these clients and positions us for opportunities to provide transaction and management services to fulfill their needs.

Increasing Institutional Investor Demand in Commercial Real Estate. Institutions investing in real estate often compare their returns on investments in real estate to the underlying interest rates in order to allocate their investments. The continued low interest rate environment around the world and appealing spreads have attracted significant additional investment by the portfolios of sovereign wealth funds, insurance companies, pension and mutual funds, and other institutional investors, leading to an increased percentage of direct and indirect

 



 

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ownership of real-estate related assets over time. The target allocation to real estate by all institutional investors globally has increased from 3.7% of their overall portfolios in 1990 to over 10% in 2017, according to figures from Preqin Real Estate Online, Cornell University’s Baker Program in Real Estate and Hodes Weill & Associates. We expect this positive allocation trend to continue to benefit our capital markets, services, and GSE lending businesses.

Significant Levels of Commercial Mortgage Debt Outstanding and Upcoming Maturities. With $3.1 trillion in U.S. mortgage debt outstanding, 61% of which is commercial mortgage debt according to our research, and a substantial volume of near-term maturities, we see opportunities in our commercial mortgage brokerage businesses and our GSE lending units. Sustained low interest rates typically stimulate our capital markets business, where demand is often dependent on attractive all-in borrowing rates versus asset yields. Demand also depends on credit accessibility and general macroeconomic trends. We expect interest rates to slowly and steadily rise over the next three to five years. We expect our capital markets and GSE lending businesses to continue to outperform the overall industry over the coming years, and because of our diversified mix of businesses, as well as our strong track record of adding industry-leading talent and improving revenue per producer, we expect to grow faster than the overall industry in any macroeconomic environment.

Favorable Multifamily Demographics Driving Growth in GSE Lending and Multifamily Sales. Delayed marriages, an aging population and immigration to the United States are among the factors increasing demand for new apartment living, which, according to a recent study commissioned by the National Multifamily Housing Council (which we refer to as the “NMHC”) and the National Apartment Association (which we refer to as the “NAA”), is expected to reach 4.6 million new apartments by 2030. The NMHC estimates that 325,000 new apartments must be built annually through 2030 to meet new demand. Additionally, according to the MBA, multifamily loan originations by all lenders increased to $260 billion in 2016, a CAGR of over 15% from 2014 to 2016, while GSE originations increased by a 29% CAGR. We expect these trends will support continued growth for our multifamily business platform, which provides integrated investment sales capabilities through ARA and GSE lending and servicing capabilities through Berkeley Point and our mortgage brokerage business.

Our Competitive Strengths

We believe the following competitive strengths differentiate us from competitors and will help us enhance our position as a leading commercial real estate services provider:

Full Service Capabilities. We provide a fully integrated real estate services platform to meet the needs of our clients and seek to provide beginning-to-end corporate services to each client. These services include leasing, investment sales, mortgage brokerage, property management, facility management, multifamily GSE lending, loan servicing, advisory and consulting, appraisal, property and development services and embedded technological solutions to support their activities and allow them to comprehensively manage their real estate assets. Through our investment in Real Estate Newco (see “Certain Relationships and Related-Party Transactions—BP Transaction Agreement and Real Estate Newco Limited Partnership Agreement”), we are able to provide clients access to nonagency lending investment management and other real-estate related offerings. Today’s clients are focused on consistency of service delivery, centralization of the real estate function and procurement, resulting in savings and efficiencies by allowing them to focus on their core competencies. Our target clients increasingly award business to full-service commercial real estate services firms, a trend which benefits our business over a number of our competitors. Additionally, our full service capabilities afford us an advantage when competing for business from clients who are outsourcing real estate services for the first time, as well as clients seeking best in class technology solutions. We believe that our comprehensive, top-down approach to commercial real estate services has allowed our revenue sources to become well-diversified across services and into key markets throughout North America.

 



 

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Proven Ability to Hire and Acquire. We believe we have an exceptional ability to identify, acquire or hire, and integrate high-performing companies and individuals. Since our acquisition by BGC in 2011, we have meaningfully expanded our capabilities, become a full-service commercial real estate services firm and increased our revenue-generating headcount from approximately 400 to approximately 1,500 and our number of offices from approximately 40 to approximately 120. This growth is underpinned by our ability to attract and retain top talent in the industry. Many high-performing professionals are attracted to our technology capabilities, entrepreneurial culture, emphasis on cross-selling and unique partnership structure. This unique partnership structure allows acquirees the ability to contribute the value of their business to, and receive earnings from, our partnership. We also have a successful track record of acquisitions, and have completed over 35 since 2011, including leading brokerage firms in such dynamic markets as San Francisco/Silicon Valley, Denver, Philadelphia, Houston, Dallas and Atlanta. Outside of the United States, we recently acquired a full-service real estate firm in Mexico City, a significant commercial real estate market. We expect our ability to make accretive acquisitions and hires to be significantly enhanced through the use of our standalone equity currency after the completion of this offering.

Deeply Embedded, Industry-Leading Technology. Our advanced technology differentiates us in the marketplace by harnessing the scale and scope of our data derived from billions of square feet of leased real estate. Our technology platform is led by our innovative VISION product. This software combines powerful business intelligence, reporting and analytics, allowing clients to more efficiently manage their real estate portfolios. Our N360 custom mobile tools provide our clients access to our research, demographics and notifications about various property related events. This allows us to facilitate more timely dissemination of critical real estate information to our clients and professionals spread throughout a diverse array of markets. In addition to generating revenue from software licenses and user agreements, we believe our technology solutions encourage customers to use Newmark to execute capital markets and leasing transactions, as well as other recurring services. To maintain our competitive advantage in the marketplace, we employ approximately 200 dedicated, in-house technology professionals and consultants who continue to improve existing software products as well as develop new innovations. We will continue to aggressively develop and invest in technology with innovations in this area, which we believe will drive the future of real estate corporate outsourcing.

Strong and Diversified Client Relationships. We have long-standing 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. We are able to provide beginning-to-end corporate services solutions for our clients through GCS. This allows us to generate more recurring and predictable revenues as we generally have multi-year contracts to provide services, including repeatable transaction work, lease administration, project management, facilities management and consulting. In capital markets, we provide real estate investors and owners with property management and agency leasing during their ownership and assist them with maximizing their return on real estate investments through investment sales, debt and equity financing, lending and valuation and appraisal services and real estate technology solutions. We believe that the many touch points we have with our clients gives us a competitive advantage in terms of client-specific and overall industry knowledge, while also giving us an opportunity to cross-sell our various offerings to provide maximum value to our customers.

Strong Financial Position to Support High Growth. We generate significant earnings and strong and consistent cash flow that we expect to fuel our future growth. For the 12-month period ended June 30, 2017, we generated revenues of $1.5 billion, representing year-over-year growth of approximately 21%. We intend to maintain a strong balance sheet and our separation from BGC Partners will provide us with a “pure play” and more effective acquisition currency through our listed equity securities that will allow us to continue to grow our market share as we accretively acquire companies, develop and invest in technology and add top talent across our platform. Further, we believe that our capital position will be strengthened by our expected receipt of up to 10.9 million Nasdaq shares to be paid ratably over approximately 11 years in connection with the eSpeed sale (see “Business—Nasdaq Transaction.”). We expect the Nasdaq payment to provide approximately $75 million of

 



 

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pre-tax earnings and cash flow annually during this period, based on the last reported sale price of one Nasdaq share on October 11, 2017. With our strong balance sheet and standalone equity currency, we will be well positioned to make future hires and acquisitions and to profitably grow our market share.

Partnership Structure Yields Multiple Benefits. We believe that our unique partnership structure provides us with numerous competitive advantages. Unlike our peers, a large percentage of our key executives and revenue-generating employees and contractors have sizable equity stakes. We believe this aligns our employees and management with shareholders and encourages a collaborative culture that drives cross-selling and improves revenue growth. Additionally, our partnership structure reduces recruitment costs by encouraging retention, as equity stakes are subject to redemption or forfeiture in the event that employees leave the firm to compete with Newmark. Additionally, our partnership structure is tax efficient for employees and our public shareholders. We believe that this structure, which will be enhanced by our standalone equity currency, promotes an entrepreneurial culture that, along with our strong platform, enables us to attract key producers in key markets and services.

Strong and Experienced Management Team. We have dozens of executives and senior managers who have significant experience with building and growing industry-leading businesses and creating significant value for stakeholders. Management is heavily invested in Newmark’s success, supporting strong alignment with shareholders. We believe our deep bench of talent will allow us to significantly increase the scale of Newmark as we continue to invest in our platforms. Our Chairman, Howard Lutnick, has more than 34 years of financial industry experience at BGC Partners and Cantor. He was instrumental in the founding of eSpeed in 1996, its IPO in 1999, and its merger with and into BGC Partners in 2008. In 2013, he negotiated the sale of eSpeed, which generated just under $100 million in annual revenues, to Nasdaq, Inc. (which we refer to as “Nasdaq”) for over $1.2 billion. See “Business—Nasdaq Transaction.” Barry Gosin has served as Chief Executive Officer of Newmark since 1979 and has successfully guided the Company’s significant expansion since 2011. Mr. Gosin spearheaded our merger with BGC Partners in 2011, and has received the Real Estate Board of New York’s “Most Ingenious Deal of the Year” award on three separate occasions. In addition, James Ficarro, our Chief Operating Officer, and Michael Rispoli, our Chief Financial Officer, along with our other senior management, collectively have decades of experience in the financial and real estate services industries.

Our Differentiated Business Growth Strategy

Set forth below are the key components of our differentiated business growth strategy:

Profitably Hire Top Talent and Accretively Acquire Complementary Businesses. Building on our management team’s proven track record, our unique partnership structure, our high-growth platform and our standalone equity currency, we intend to opportunistically hire additional producers and acquire other firms, services and products to strengthen and enhance our broad suite of offerings. We expect this growth to deepen our presence in our existing markets and expand our ability to service existing and new clients.

Incentivize and Retain Top Talent Using Our Partnership Structure. Unlike our peers, virtually all of our top producers and a majority of our employees have sizeable partnership or equity stakes in our company and receive deferred equity or BGC Holdings units as part of their compensation. Approximately one-third of BGC Partners’ fully diluted shares were owned by executives, partners and employees of BGC Partners as of June 30, 2017. We believe that following this offering, a similarly high percentage of Newmark’s fully diluted shares will be owned by our executives, partners and employees over time. Our unique partnership structure, and our standalone equity currency, will enable us to motivate and retain our best producers more effectively than our peers in the key markets and services that are critical to our growth. Our ownership stakes, retention tools and partnership structure, together with the creation of Newmark equity solely linked to our business, will more strongly align our employee interests with those of our stockholders, and provide effective tools to recruit, motivate and retain our key employees and independent contractors.

Actively Cross-Sell Services to Increase Revenue and Expand Margins. We expect the combination of our services and products to generate substantial revenue synergies across our platforms, increase revenues per

 



 

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producer and expand margins. To complement and drive future growth opportunities within our GCS business, we are leveraging our capabilities in providing innovative front-end real estate technology solutions to complement and cross-sell other corporate services to those clients, including leasing services, project management, facilities management and lease administration services. Furthermore, the combination of Berkeley Point as a leading multifamily origination provider with ARA, our top-three multifamily investment sales business, and Newmark’s fast growing commercial mortgage business is an opportunity for strong loan originations and cross-selling opportunities across the multifamily market. We expect revenues to increase as Berkeley Point begins to capture a greater portion of financings on ARA’s investment sales transactions.

Utilize Our Technology to Provide Value and Deepen Relationships with Clients. We believe owners and occupiers of commercial real estate are increasingly focused on improving their efficiency, cost reduction and outsourcing of non-core real estate competencies. Through the use of our innovative technology and consulting services, we help clients become more efficient in their commercial real estate activities, and thus realize additional profit. We will continue to provide technology solutions for companies that self-manage, offering them visibility into their real estate data and tools to better manage their real estate utilization and spend. For instance, we are well positioned to provide technology services for the approximately 80% of the market that we believe does not outsource their real estate functions. The deep insight into our clients that we gain through our data and technology will provide us with opportunities to cross-sell consulting and transaction services.

Maximize Recurring and Other Revenue Opportunity from Each Service Offering to Real Estate Owners. We drive growth throughout the life cycle of each commercial real estate asset by providing best-in-class investment sales, debt and equity financing, agency leasing and property management. Our product offerings often create recurring revenues from properties, in particular with respect to property management, where the average life of our properties under management exceeds five years, and our servicing portfolio of $58.2 billion that has an average life of eight years at June 30, 2017. Our multifamily investment sales business and our commercial mortgage brokerage business also drive revenue, through referrals, to our GSE lending business. And we have also begun a meaningful expansion of our valuation and appraisal business, which we expect to spur significant growth and complement our platforms supporting the buying and selling of commercial real estate.

Opportunity to Grow Global Footprint. In 2016, less than 1% of our revenues were from international sources, while our largest, full-service, U.S.-listed competitors earned approximately 40-50% of their 2016 revenues outside the U.S., excluding investment management. We believe that our successful history of acquiring businesses across the U.S. and in making profitable hires across our business lines demonstrates our ability to increase revenues in the U.S. and grow substantially through acquisition and hiring globally. Currently, we facilitate servicing our clients’ needs outside of the Americas through our alliance with London-based Knight Frank LLP (which we refer to as “Knight Frank”). We believe that we have a substantial opportunity to grow in the U.S. and internationally across leasing, investment sales, mortgage brokerage, property management, facilities management, loan servicing, advisory and consulting, appraisal, property and development services.

Our Restructuring and Post-IPO Organizational Structure

Our Restructuring

We are Newmark Group, Inc., a Delaware corporation. We were formed as NRE Delaware, Inc. on November 18, 2016 and changed our name to Newmark Group, Inc. on October 18, 2017. We currently have nominal assets and operations. We were formed for the purpose of becoming a public company conducting the operations of BGC Partners’ Real Estate Services segment, including Newmark and Berkeley Point.

Through the following series of transactions prior to and following the completion of this offering, we will become a separate publicly traded company. Immediately following this offering, a majority of our issued and

 



 

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outstanding shares of common stock will be held by BGC Partners. If BGC Partners completes the distribution contemplated below under “—The Distribution,” a majority of our issued and outstanding shares of common stock will be held by the stockholders of BGC Partners as of the date of any such distribution.

The Separation and Contribution

Prior to the completion of this offering, pursuant to the separation and distribution agreement, members of the BGC group will transfer to us substantially all of the assets and liabilities of the BGC group relating to BGC Partners’ Real Estate Services segment, including Newmark, Berkeley Point and the right to receive the remainder of the Nasdaq payment. For a description of the Nasdaq payment, see “Business—Nasdaq Transaction.”

Assumption and Repayment of Indebtedness

In connection with the separation and prior to the closing of this offering, we will assume from BGC Partners a term loan that has an outstanding principal amount of $575 million, plus accrued but unpaid interest thereon (which we refer to as the “Term Loan”). Newmark OpCo will also assume from BGC U.S. certain note obligations owed to BGC Partners that have an outstanding principal amount of approximately $        , plus accrued but unpaid interest thereon (which we refer to as the “BGC Notes”).

We currently intend to contribute all of the net proceeds of this offering (including the underwriters’ option to purchase additional shares of Class A common stock) to Newmark OpCo in exchange for a number of units representing Newmark OpCo limited partnership interests equal to the number of shares issued by us in this offering. Newmark OpCo intends to use such net proceeds to repay the Term Loan in full and intends to use any remaining net proceeds for various general partnership purposes, including repayment of the BGC Notes or other indebtedness assumed by us prior to the completion of this offering, potential strategic alliances, acquisitions, joint ventures or hiring personnel. The Term Loan has an outstanding principal amount of $575 million, plus accrued but unpaid interest thereon, with an interest rate calculated from one-month LIBOR plus 2.25%, which is currently approximately 3.5% per annum, subject to adjustment. The terms of the Term Loan require that the net proceeds of this offering be used to repay the Term Loan until the Term Loan is repaid in full. See “Use of Proceeds.” Following this offering, in the event that any member of the Newmark group receives net proceeds from the incurrence of indebtedness for borrowed money after this offering, Newmark OpCo will be obligated to use such net proceeds to repay the remaining BGC Notes. In addition, we will be obligated to repay any remaining amounts under the BGC Notes prior to the distribution.

The Distribution

BGC Partners has advised us that it currently expects to pursue a distribution to its stockholders of all of the shares of our common stock that it then owns in a manner that is intended to qualify as generally tax-free for U.S. federal income tax purposes. As currently contemplated, shares of our Class A common stock held by BGC Partners would be distributed to the holders of shares of Class A common stock of BGC Partners and shares of our Class B common stock held by BGC Partners would be distributed to the holders of shares of Class B common stock of BGC Partners (which are currently Cantor and another entity controlled by Mr. Lutnick). The determination of whether, when and how to proceed with any such distribution is entirely within the discretion of BGC Partners. See “Certain Relationships and Related-Party Transactions—Separation and Distribution Agreement—The Distribution.” The shares of our common stock that BGC Partners will own upon the completion of this offering will be subject to the 180-day “lock-up” restriction contained in the underwriting agreement for this offering. See “Underwriting (Conflicts of Interest).”

 



 

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Our Post-IPO Organizational Structure

BGC Partners will hold             shares of our Class A common stock after this offering representing approximately     % of our outstanding Class A common stock, assuming that the underwriters do not exercise their option to purchase additional shares of Class A common stock in this offering and representing approximately     % of our outstanding Class A common stock, assuming that the underwriters exercise in full their option to purchase additional shares of Class A common stock in this offering. BGC Partners will also hold all of the issued and outstanding shares of our Class B common stock after this offering. Each share of Class A common stock is generally entitled to one vote on matters submitted to our stockholders. Each share of Class B common stock is generally entitled to the same rights as a share of Class A common stock, except that, on matters submitted to a vote of our stockholders, each share of Class B common stock is entitled to 10 votes. The Class B common stock generally votes together with the Class A common stock on all matters submitted to a vote of our stockholders. After giving effect to this offering, our Class B common stock and our Class A common stock held by BGC Partners will represent approximately     % of the total voting power of our common stock, assuming that the underwriters do not exercise their option to purchase additional shares of Class A common stock in this offering, and will represent approximately     % of the total voting power of our common stock, assuming that the underwriters exercise in full their option to purchase additional shares of Class A common stock in this offering. We expect to retain our dual class structure, and there are no circumstances under which the holders of Class B common stock would be required to convert their shares of Class B common stock into shares of Class A common stock. Our certificate of incorporation will not provide for automatic conversion of shares of Class B common stock into shares of Class A common stock upon the occurrence of any event.

We are a holding company with no direct operations. We conduct substantially all of our operations through our operating subsidiaries. The limited partnership interests of Newmark OpCo are held by us and Newmark Holdings, and the limited partnership interests of Newmark Holdings are currently held by Cantor and the founding partners, working partners and limited partnership unit holders. As of the completion of this offering, we expect Newmark Holdings to have 157 founding partners holding 12,722,552 founding partner units. Newmark Holdings and Newmark OpCo are variable interest entities. Virtually all of our consolidated net assets and net income are those of consolidated variable interest entities. There is a one-for-one exchange ratio between Newmark Holdings limited partnership interests and our common stock, which reflects that, currently, one Newmark Holdings limited partnership interest and one share of our common stock each represent an equivalent indirect economic interest in the income stream of Newmark OpCo. However, depending on our dividend policy, the distribution policy of Newmark Holdings and other reasons, this exchange ratio between Newmark Holdings limited partnership interests and our common stock could change. See “Dividend Policy” and “Certain Relationships and Related-Party Transactions—Amended and Restated Newmark Holdings Limited Partnership Agreement—Adjustment to Exchange Ratio.” 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. 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.

As a result of the distribution of limited partnership interests of Newmark Holdings in connection with the separation, each holder of BGC Holdings limited partnership interests will hold a BGC Holdings limited partnership interest and a corresponding Newmark Holdings limited partnership interest for each BGC Holdings limited partnership interest held thereby immediately prior to the separation. The BGC Holdings limited partnership interests and Newmark Holdings limited partnership interests will each be entitled to receive cash

 



 

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distributions from BGC Holdings and Newmark Holdings, respectively, in accordance with the terms of such partnership’s respective limited partnership agreement. We currently expect that the combined cash distributions to a holder of one BGC Holdings limited partnership interest and one Newmark Holdings limited partnership interest following the separation will equal the cash distribution payable to a holder of one BGC Holdings limited partnership interest immediately prior to the separation, before giving effect to the dilutive impact of the shares of our common stock to be issued in this offering.

The Newmark Holdings limited partnership interests held by Cantor are generally exchangeable with us for Class B common stock (or, at Cantor’s option or if there are no additional authorized but unissued shares of Class B common stock, Class A common stock) on a one-for-one basis (subject to adjustments as set forth in the Newmark Holdings limited partnership agreement), subject to the limitation on exchanges prior to the distribution as described below under “Certain Relationships and Related-Party Transactions—Amended and Restated Newmark Holdings Limited Partnership Agreement—Exchanges.”

The Newmark Holdings founding partner interests (which will be issued in the separation to holders of BGC Holdings founding partner interests, who received such founding partner interests in connection with the separation of BGC Partners from Cantor in 2008) will not be exchangeable with us unless certain circumstances occur or unless Cantor has so determined. In particular, the Newmark Holdings founding partner interests that Cantor has provided will be exchangeable with us for Class A common stock on a one-for-one basis (subject to adjustments as set forth in the Newmark Holdings limited partnership agreement), in accordance with the terms of the Newmark Holdings limited partnership agreement. Further, we provide exchangeability for partnership units into shares of our Class A common stock in connection with (1) our partnership redemption, compensation and restructuring programs, (2) other incentive compensation arrangements and (3) business combination transactions. Working partner interests will not be exchangeable with us unless otherwise determined by us with the written consent of a Newmark Holdings exchangeable limited partnership interest majority in interest, in accordance with the terms of the Newmark Holdings limited partnership agreement. See “Certain Relationships and Related-Party Transactions—Amended and Restated Newmark Holdings Limited Partnership Agreement—Exchanges.”

The following diagram illustrates our expected ownership structure immediately after the completion of this offering. The following diagram does not reflect the various subsidiaries of ours, Newmark OpCo, Newmark Holdings, BGC Partners or Cantor, 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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Post-IPO Diagram

 

LOGO

 



 

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The types of interests of Newmark, Newmark Holdings and Newmark OpCo outstanding following the completion of the separation are described further under “Structure of Newmark.” You should also read “Risk Factors,” “Certain Relationships and Related-Party Transactions” and “Description of Capital Stock” for additional information about our corporate structure and the risks posed by this structure.

The diagram above does not show certain operating subsidiaries that are organized as corporations whose equity are either wholly-owned by Newmark or whose equity are majority owned by Newmark with the remainder owned by Newmark OpCo.

 



 

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Reasons for the Separation and Distribution

We believe that the separation and distribution of Newmark and BGC Partners will provide significant benefits, including:

 

    The separation and distribution will facilitate employee hiring, retention, and motivation at each of BGC Partners and the Company by providing leadership opportunities that would not exist in the combined structure, by giving management and other employees a greater sense of control of our business, and by more closely aligning employees’ prospects with those of the businesses for which they work.

 

    The separation and distribution will allow each of BGC Partners and the Company to operate its respective business without the distractions of the other company’s business. We expect the separation and distribution will free up time and human resources and enable BGC Partners’ senior management to focus on BGC Partners’ other businesses without distraction from the responsibility to devote time and attention to the Company’s business, while permitting the Company’s management team to focus solely on the Company’s strategic initiatives and future growth.

 

    The Company’s business and BGC Partners’ business compete for capital in the current structure. After the separation and distribution, we expect the Company will be able to make investments in its future growth without regard to the goals of BGC Partners’ other businesses.

 

    As a separate entity, the Company will have a better, more focused story and a track record of growth to present to investors, thereby facilitating the Company’s ability to raise equity capital.

 

    The separation and distribution will provide Newmark with direct access to the capital markets and will facilitate our ability to effect future acquisitions utilizing our Class A common stock, which will become a more effective acquisition currency because equity markets tend to value higher, and we believe sellers prefer to receive, equity in “pure play” companies. As a result, Newmark will have more flexibility to capitalize on its unique growth opportunities.

Our Relationship with BGC Partners and Cantor

Upon completion of this offering, BGC Partners, directly through its ownership of shares of our Class A common stock and Class B common stock, and Cantor, indirectly through its control of BGC Partners, will each be able to exercise control over our management and affairs and all matters requiring stockholder approval, including the election of our directors and determinations with respect to acquisitions and dispositions, as well as material expansions or contractions of our business, entry into new lines of business and borrowings and issuances of our Class A common stock and Class B common stock or other securities.

In connection with the separation, we will enter into the separation and distribution agreement and other agreements with BGC Partners and/or Cantor to effect the separation and provide a framework for our relationship with BGC Partners and Cantor following the separation. These agreements will provide for the allocation between us and BGC Partners of BGC Partners’ assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after the separation, and will govern certain relationships between us and BGC Partners and Cantor after the separation.

The separation and distribution agreement sets forth the agreements between BGC Partners, Cantor and us regarding the principal corporate transactions required to effect the separation, this offering and the distribution, if any, and other agreements governing the relationship between us and BGC Partners and Cantor. The separation and distribution agreement will generally provide for the transfer by BGC Partners to us of the assets and liabilities related to our business, while BGC Partners will retain all of its other assets and liabilities. Each of us and BGC Partners will indemnify, defend and hold harmless the other parties’ (and Cantor’s) groups and each of

 



 

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their respective directors, officers, general partners, managers and employees from and against all liabilities to the extent relating to, arising out of or resulting from liabilities allocated to us or BGC Partners, as applicable, under the separation and distribution agreement or breaches by it of the separation and distribution agreement or any of the ancillary agreements (other than the transition services agreement), among other matters.

We will also enter into a tax matters agreement with BGC Partners that will govern the parties’ respective rights, responsibilities and obligations after the separation with respect to taxes, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings, tax elections, assistance and cooperation in respect of tax matters, procedures and restrictions relating to the distribution, if any, and certain other tax matters. We will also enter into an administrative services agreement with Cantor, which will govern the provision by Cantor of various administrative services to us, and our provision of various administrative services to Cantor, at a cost equal to (1) the direct cost that the providing party incurs in performing those services, including third-party charges incurred in providing services, plus (2) a reasonable allocation of other costs determined in a consistent and fair manner so as to cover the providing party’s appropriate costs or in such other manner as the parties agree. We will also enter into a transition services agreement with BGC Partners, which will govern the provision by BGC Partners of various administrative services to us, and our provision of various administrative services to BGC Partners, on a transitional basis (with a term of up to two years following the distribution) and at a cost equal to (1) the direct cost that the providing party incurs in performing those services, including third-party charges incurred in providing services, plus (2) a reasonable allocation of other costs determined in a consistent and fair manner so as to cover the providing party’s appropriate costs or in such other manner as the parties agree.

For additional information regarding these and other agreements we will enter with BGC Partners and Cantor in connection with the separation, see “Certain Relationships and Related-Party Transactions” and “Risk Factors—Risks Related to Our Relationship with BGC Partners, Cantor and Their Respective Affiliates.”

Howard W. Lutnick, who serves as our Chairman, is also the Chairman of the Board, President and Chief Executive Officer of our indirect parent, Cantor, President of CF Group Management, Inc. (which we refer to as “CFGM”), which is the managing general partner of Cantor, and the Chief Executive Officer and Chairman of our direct parent, BGC Partners. In addition, Mr. Lutnick holds offices at various other affiliates of Cantor.

BGC Partners’ and Cantor’s ability to exercise control over us could create or appear to create potential conflicts of interest. Potential conflicts of interest could also arise if we decide to enter into any new commercial arrangements with BGC Partners or Cantor in the future or in connection with BGC Partners’ or Cantor’s desire to enter into new commercial arrangements with third parties. Moreover, Cantor has existing real estate-related businesses, and Newmark and Cantor will be partners in a real estate-related joint venture, Real Estate Newco. While these businesses do not currently compete with Newmark, it is possible that, in the future, real estate-related opportunities in which Newmark would be interested may also be pursued by Cantor and/or Real Estate Newco. In order to address potential conflicts of interest between or among BGC Partners, Cantor and their respective representatives and us, our certificate of incorporation will contain provisions regulating and defining the conduct of our affairs as they may involve BGC Partners and/or Cantor and their respective representatives, and our powers, rights, duties and liabilities and those of our representatives in connection therewith. See “Certain Relationships and Related-Party Transactions—Potential Conflicts of Interest and Competition with BGC Partners and Cantor” and “Risk Factors—Risks Related to Our Relationship with BGC Partners, Cantor and Their Respective Affiliates.”

Executive Offices

Our executive offices are located at 125 Park Avenue, New York, New York 10017. Our telephone number is (212) 372-2000. Our website is located at www.ngkf.com. The information contained on, or that may be obtained through, our website is not part of, and is not incorporated into, this prospectus.

 



 

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JOBS Act

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (which we refer to as the “JOBS Act”) and have elected to comply with certain reduced disclosure requirements for this prospectus in accordance with the JOBS Act. We expect that our revenues for 2017 will exceed $1.07 billion. As a result, we expect that we will cease to qualify as an emerging growth company after the later of the completion of this offering and January 1, 2018 and thereafter will no longer be eligible for the exemptions from disclosure provided to an emerging growth company.

The JOBS Act provides that an emerging growth company can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 



 

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This Offering

 

Class A common stock to be sold in this offering

            shares

Shares of all classes of Newmark
common stock to be outstanding
immediately following this offering(1):

 

 

        Class A common stock

            shares

 

        Class B common stock

            shares

 

Use of Proceeds

We estimate that our net proceeds from this offering will be approximately $         ($         if the underwriters exercise their option to purchase additional shares of Class A common stock in full), assuming a public offering price of $         per share (which is the midpoint of the offering price range set forth on the cover page of this prospectus), after deducting underwriters’ discounts and commissions in connection with this offering and estimated offering expenses payable by us. We currently intend to contribute all of the net proceeds of this offering (including the underwriters’ option to purchase additional shares of Class A common stock) to Newmark OpCo in exchange for a number of units representing Newmark OpCo limited partnership interests equal to the number of shares issued by us in this offering. Newmark OpCo intends to use such net proceeds to repay the Term Loan in full and intends to use any remaining net proceeds for various general partnership purposes, including repayment of the BGC Notes or other indebtedness assumed by us prior to the completion of this offering, potential strategic alliances, acquisitions, joint ventures or hiring personnel. The Term Loan has an outstanding principal amount of $575 million, plus accrued but unpaid interest thereon, with an interest rate calculated from one-month LIBOR adjustment. The terms of the Term Loan require that the net proceeds of this offering be used to repay the Term Loan until the Term Loan is repaid in full. See “Use of Proceeds.”

 

Economic and Voting Rights

We have two classes of authorized common stock: the Class A common stock offered hereby and Class B common stock. The economic rights of the holders of Class A common stock and Class B common stock are identical, but they differ as to voting and conversion rights. Each share of our Class A common stock entitles its holder to one vote per share, thereby entitling holders of our Class A common stock to         votes in the aggregate immediately after this offering, representing     % of our total voting power immediately after this offering, assuming that the underwriters do not

 

(1) The number of shares of our Class A common stock and our Class B common stock outstanding after the offering does not give effect to the underwriters’ option to purchase additional shares. If the underwriters purchase all of the additional shares available pursuant to their option,                 shares of Class A common stock will be outstanding immediately following this offering and the exercise of such option.

 



 

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exercise their option to purchase additional shares of Class A common stock in this offering, and         votes in the aggregate immediately after this offering, representing     % of our total voting power immediately after this offering, assuming that the underwriters exercise in full their option to purchase additional shares of Class A common stock in this offering. Each share of our Class B common stock entitles its holder to 10 votes per share, thereby entitling holders of our Class B common stock to         votes, representing     % of our total voting power immediately after this offering, assuming that the underwriters do not exercise their option to purchase additional shares of Class A common stock in this offering, and representing         % of our total voting power immediately after this offering, assuming that the underwriters exercise in full their option to purchase additional shares of Class A common stock in this offering. Our Class B common stock generally votes together with our Class A common stock on all matters submitted to a vote of our stockholders. Before the distribution, our Class B common stock will be solely held by BGC Partners. Each share of Class B common stock is convertible into one share of Class A common stock at the option of the holder thereof at any time. See “Description of Capital Stock—Common Stock.”

 

Dividend Policy

We expect our board of directors to authorize a dividend policy that will provide that we intend to pay a dividend on a quarterly basis. Any dividends to our common stockholders are expected to be calculated based on our post-tax Adjusted Earnings, as a measure of net income, allocated to us and generated over the fiscal quarter ending prior to the record date for the dividend. See “Dividend Policy” for a definition of “post-tax Adjusted Earnings” per fully diluted share.

We currently expect that, following the distribution (i.e., the spin-off), our quarterly dividend will be less than 25% of our post-tax Adjusted Earnings per fully diluted share to our common stockholders. The declaration, payment, timing and amount of any future dividends payable by us will be at the discretion of our board of directors; provided that, after the distribution (i.e., the spin-off), any quarterly dividend to our common stockholders that is 25% or more of our post-tax Adjusted Earnings per fully diluted share shall require the consent of the holder of a majority of the Newmark Holdings exchangeable limited partnership interests. See “Dividend Policy.” See “Dividend Policy.”

 

Risk Factors

For a discussion of factors you should consider before buying shares of our Class A common stock, see “Risk Factors.”

 

Controlled Company

Following this offering, BGC Partners will control more than a majority of the total voting power of our common stock, and we will be a “controlled company” within the meaning of the NASDAQ

 



 

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Stock Market rules. However, we do not currently expect to rely upon the “controlled company” exemption.

 

NASDAQ Global Market symbol

“NMRK”

 

Conflicts of Interest

Because an affiliate of each of the underwriters, other than Cantor Fitzgerald & Co. (which we refer to as “CF&Co”), is a lender under the Term Loan and will receive at least 5% of the net proceeds of this offering as a result of the repayment of the Term Loan out of the net proceeds of this offering, such underwriters are deemed to have a conflict of interest under Financial Industry Regulatory Authority (which we refer to as “FINRA”) Rule 5121. In addition, CF&Co, which is an affiliate of ours, is deemed to have a conflict of interest under FINRA Rule 5121. Accordingly, this offering will be conducted in accordance with FINRA Rule 5121, which requires, among other things, that a “qualified independent underwriter” has participated in the preparation of, and has exercised the usual standards of due diligence of an underwriter with respect to, this prospectus and the registration statement of which this prospectus is a part.          has agreed to act as the qualified independent underwriter for purposes of FINRA Rule 5121. In its role as a qualified independent underwriter,              has participated in due diligence and the preparation of this prospectus and the registration statement of which this prospectus is a part.              will not receive any additional fees for serving as a qualified independent underwriter in connection with this offering. We have agreed to indemnify                           against liabilities incurred in connection with acting as a qualified independent underwriter in this offering, including liabilities under the Securities Act. Pursuant to FINRA Rule 5121, CF&Co will not confirm sales to any account over which it exercises discretionary authority without the specific prior written approval of the account holder. See “Use of Proceeds” and “Underwriting (Conflicts of Interest)—Conflicts of Interest.”

 



 

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Summary Historical and Pro Forma Combined Financial and Operating Data

The following tables summarize our historical, historical recast and pro forma combined financial and operating data. The summary historical combined balance sheet data as of December 31, 2016 and 2015 and statement of operations data for the years ended December 31, 2016 and 2015 are derived from our audited combined financial statements included elsewhere in this prospectus. The summary historical recast combined balance sheet data as of December 31, 2016 and 2015 and recast statement of operations data for the years ended December 31, 2016 and 2015 are derived from our audited recast financial statements included elsewhere in this prospectus. The summary historical combined financial data as of and for the six months ended June 30, 2017 and 2016 are derived from our unaudited interim combined financial statements included elsewhere in this prospectus. The summary historical combined recast financial data as of and for the six months ended June 30, 2017 and 2016 are derived from our unaudited interim recast combined financial statements included elsewhere in this prospectus. In the opinion of management, the unaudited combined financial statements include all normal and recurring adjustments that we consider necessary for a fair presentation of the financial position and the operating results for these periods. Historical operating data may not be indicative of future performance. The operating results for the six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ended December 31, 2017 or any other interim periods or any future year or period.

The summary historical combined and recast combined financial data include certain expenses of BGC Partners and Cantor that were allocated to us for certain corporate functions, including treasury, legal, accounting, insurance, information technology, payroll administration, human resources, stock incentive plans and other services. Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocated expenses, reasonably reflect the utilization of services provided to or the benefit received by us during the periods presented. However, these shared expenses may not represent the amounts that we would have incurred had we operated autonomously or independently from BGC Partners and Cantor. Actual costs that would have been incurred if we had been a standalone company would depend on multiple factors, including organizational structure and strategic decisions in various areas, such as information technology and infrastructure. In addition, our summary historical combined financial data do not reflect changes that we expect to experience in the future as a result of our separation from BGC Partners, including changes in our cost structure, personnel needs, tax structure, capital structure, financing and business operations.

The summary unaudited pro forma condensed combined financial data reflect the impact of certain transactions, which comprise the following:

 

    the separation;

 

    the BP Transaction;

 

    the receipt of approximately $            million in proceeds, net of underwriting discounts and commissions, from the sale of shares of our Class A common stock in this offering and the repayment of the Term Loan; and

 

    other adjustments described in the notes to the unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined balance sheet reflects the separation as if it occurred on June 30, 2017, while the unaudited pro forma condensed combined statements of operations give effect to the separation as if it occurred on January 1, 2016, the beginning of the earliest period presented. The pro forma adjustments, described in “Unaudited Pro Forma Condensed Combined Financial Data,” are based on currently available information and certain assumptions that management believes are reasonable. Excluded from the pro forma adjustments are items that are nonrecurring in nature or are not material.

 



 

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The unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and are not necessarily indicative of the operating results or financial position that would have occurred had the separation from BGC Partners been completed on June 30, 2017 for the unaudited pro forma condensed combined balance sheet or on January 1, 2016 for the unaudited pro forma condensed combined statements of operations. The unaudited pro forma condensed combined financial statements should not be relied on as indicative of the historical operating results that we would have achieved or any future operating results or financial position that we will achieve after the completion of this offering.

This summary historical, historical recast and pro forma combined financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations (Excluding Berkeley Point),” “Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Newmark Recast Financial Statements (Including Berkeley Point),” “Unaudited Pro Forma Condensed Combined Financial Data,” Newmark’s combined financial statements and related notes, and Newmark’s recast combined financial statements and related notes included elsewhere in this prospectus.

 

    Pro Forma     Historical (Excluding Berkeley Point)  
    Six Months
Ended June 30,
    Year Ended December 31,     Six Months Ended June 30,     Year Ended
December 31,
 
    2017     2016      2015         2017             2016         2016     2015  
    (in thousands)  

Revenues:

              

Commissions

  $     $      $     $ 448,837     $ 375,386     $ 859,005     $ 808,878  

Management and other

           102,358       91,652       196,959       188,389  
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    —         —          —         551,195       467,038       1,055,964       997,267  

Expenses:

              

Compensation and employee benefits

           402,034       341,879       771,406       753,034  

Allocations of net income and grant of exchangeability to limited partnership units

           34,500       23,435       72,318       142,195  
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total compensation and employee benefits

    —         —          —         436,534       365,314       843,724       895,229  

Operating, administrative and other

           82,694       73,213       154,868       136,428  

Fees to related parties

           8,657       9,841       17,731       17,951  

Depreciation and amortization

           8,298       6,220       13,349       16,644  
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    —         —          —         536,183       454,588       1,029,672       1,066,252  

Other income (losses), net

              

Other income (loss)

    —         —          —         (1,097     (1,328     15,645       —    
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (losses), net

    —         —          —         (1,097     (1,328     15,645    

Income (loss) from operations

    —         —          —         13,915       11,122       41,937       (68,985

Interest income, net

           1,830       1,510       3,358       1,450  
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes and noncontrolling interests

    —         —          —         15,745       12,632       45,295       (67,535

Provision (benefit) for income taxes

           1,383       800       3,913       (6,767
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    —         —          —         14,362       11,832       41,382       (60,768

Net income (loss) attributable to noncontrolling interests

           308       (564     (1,189     77  
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Newmark’s net income (loss) available to its parent, BGC Partners

  $ —         —          —       $ 14,054     $ 12,396     $ 42,571     $ (60,845
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 



 

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     Pro Forma      Historical (Excluding Berkeley Point)  
     June 30,
2017
     June 30,
2017
     December 31,
2016
     December 31,
2015
 
            (in thousands)         

Cash and cash equivalents

   $                   $ 34,264      $ 33,038      $ 10,536  

Total current assets

   $      $ 307,328      $ 293,273      $ 298,421  

Total assets

   $      $ 1,028,597      $ 995,491      $ 857,052  

Total current liabilities

   $      $ 422,825      $ 412,821      $ 334,844  

Total liabilities

   $      $ 504,111      $ 491,510      $ 407,619  

Total invested equity

   $      $ 524,486      $ 503,981      $ 449,433  

 

     Historical Recast (Including Berkeley Point)  
     Six Months Ended June 30,     Year Ended December 31,  
           2017                 2016           2016     2015  
     (in thousands)  

Revenues:

        

Commissions

   $ 444,806     $ 373,867     $ 849,419     $ 806,931  

Gains from mortgage banking activities, net

     118,808       73,631       193,387       115,304  

Management services, servicing fees and other

     174,039       142,271       307,177       278,012  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     737,653       589,769       1,349,983       1,200,247  

Expenses:

        

Compensation and employee benefits

     453,663       378,375       849,975       816,268  

Allocations of net income and grant of exchangeability to limited partnership units

     34,500       23,435       72,318       142,195  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total compensation and employee benefits

     488,163       401,810       922,293       958,463  

Operating, administrative and other

     106,786       87,682       185,344       162,316  

Fees to related parties

     8,885       9,841       18,010       18,471  

Depreciation and amortization

     41,455       37,438       72,197       71,774  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     645,289       536,771       1,197,844       1,211,024  

Other income (losses), net

        

Other income (loss)

     (1,308     (1,886     15,279       (460
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (losses), net

     (1,308     (1,886     15,279       (460

Income (loss) from operations

     91,056       51,112       167,418       (11,237

Interest income, net

     2,515       1,756       3,787       1,867  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes and noncontrolling interests

     93,571       52,868       171,205       (9,370

Provision (benefit) for income taxes

     1,407       858       3,993       (6,644
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     92,164       52,010       167,212       (2,726

Net income (loss) attributable to noncontrolling interests

     308       (564     (1,189     77  
  

 

 

   

 

 

   

 

 

   

 

 

 
Newmark’s net income (loss) available to its parent, BGC Partners(1)    $ 91,856     $ 52,574     $ 168,401     $ (2,803
  

 

 

   

 

 

   

 

 

   

 

 

 

 



 

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     Historical Recast (Including Berkeley Point)  
     June 30,
2017
     December 31,
2016
     December 31,
2015
 
     (in thousands)  

Cash and cash equivalents

   $ 95,722      $ 66,627      $ 111,430  

Total current assets

   $ 1,524,065      $ 1,482,745      $ 826,919  

Total assets

   $ 2,632,320      $ 2,534,688      $ 1,657,930  

Total current liabilities

   $ 1,403,176      $ 1,410,374      $ 726,019  

Total liabilities

   $ 1,550,625      $ 1,550,905      $ 853,896  

Total invested equity

   $ 1,081,695      $ 983,783      $ 804,034  

(1) Below is a reconciliation from GAAP Newmark’s net income (loss) available to its parent, BGC Partners to Adjusted EBITDA (in millions):

 

     Year Ended December 31,     Six Months Ended June 30,  
     2016     2015     2017     2016  

GAAP Newmark’s net income (loss) available to its parent, BGC partners

   $ 168.4     $ (2.8   $ 91.9     $ 52.6  

Provision (benefit) for income taxes

     4.0       (6.6     1.4       0.9  

Net income (loss) attributable to noncontrolling interests

     (1.2     0.1       0.3       (0.6

OMSR revenue

     (124.4     (68.0     (71.9     (48.9

MSR amortization

     58.1       54.5       32.9       30.9  

Grant of exchangeability to limited partnership units

     45.6       130.6       23.7       16.2  

Other equity based compensation

     14.9       13.5       11.7       5.9  

Employee loan amortization and reserves(1)

     24.3       48.6       3.1       2.9  

Depreciation and amortization(2)

     14.1       17.2       8.5       6.6  

Non-recurring (gains)/losses

     (14.8     1.9       1.8       1.3  

Other non-cash, non-dilutive, non-economic items

     1.5       1.2       2.5       0.5  

Interest expense

     0.4       0.5       0.2       0.6  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 190.9     $ 190.7     $ 106.1     $ 68.9  

Allocation of net income

     26.7       11.6       10.8       7.3  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA before allocation to units

   $ 217.6     $ 202.3     $ 116.9     $ 76.2  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Employee loan amortization and reserves includes loan amortization of $6.3 million in 2016, $4.6 million in 2015, $3.1 million for the six months ended June 30, 2017 and $2.9 million for the six months ended June 30, 2016.
(2) Depreciation and amortization includes fixed asset depreciation of $9.9 million in 2016, $7.3 million in 2015, $5.8 million for the six months ended June 30, 2017 and $5.4 million for the six months ended June 30, 2016.

 



 

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RISK FACTORS

An investment in shares of our Class A common stock involves risks and uncertainties, including the potential loss of all or a part of your investment. The following are important risks and uncertainties that could affect our business, but we do not ascribe any particular likelihood or probability to them unless specifically indicated. Before making an investment decision to purchase our common stock, you should carefully read and consider all of the risks and uncertainties described below, as well as other information included in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated and combined financial statements and notes thereto included elsewhere in this prospectus. The occurrence of any of the following risks or additional risks and uncertainties that are currently immaterial or unknown could materially and adversely affect our business, financial condition, liquidity, result of operations, cash flows or prospects. This prospectus also contains forward-looking statements and estimates that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks and uncertainties described below. See “Special Note Regarding Forward-Looking Statements.”

RISKS RELATED TO OUR BUSINESS

Global Economic and Market Conditions

Negative general economic conditions and commercial real estate market conditions (including perceptions of such conditions) can have a material adverse effect on our business, financial condition, results of operations and prospects.

Commercial real estate markets are cyclical. They relate to the condition of the economy or, at least, to the perceptions of investors and users as to the relevant economic outlook. For example, companies may be hesitant to expand their office space or enter into long-term real estate commitments if they are concerned about the general economic environment. Companies that are under financial pressure for any reason, or are attempting to more aggressively manage their expenses, may reduce the size of their workforces, limit capital expenditures, including with respect to their office space, permit more of their staff to work from home and/or seek corresponding reductions in office space and related management or other services.

Negative general economic conditions and declines in the demand for commercial real estate brokerage and related management services in several markets or in significant markets could also have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects as a result of the following factors:

 

    A general decline in acquisition and disposition activity can lead to a reduction in the commissions and fees we receive for arranging such transactions, as well as in commissions and fees we earn for arranging the financing for acquirers.

 

    A general decline in the value and performance of commercial real estate and in rental rates can lead to a reduction in management and leasing commissions and fees. Additionally, such declines can lead to a reduction in commissions and fees that are based on the value of, or revenue produced by, the properties for which we provide services. This may include commissions and fees for appraisal and valuation, sales and leasing, and property and facilities management.

 

    Cyclicality in the commercial real estate markets may lead to volatility in our earnings, and the commercial real estate business can be highly sensitive to market perception of the economy generally and our industry specifically. Real estate markets are also thought to “lag” the broader economy. This means that, even when underlying economic fundamentals improve in a given market, it may take additional time for these improvements to translate into strength in the commercial real estate markets.

 

   

In weaker economic environments, income-producing multifamily real estate may experience higher property vacancies, lower investor and tenant demand and reduced values. In such environments, we

 

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could experience lower transaction volumes and transaction sizes as well as fewer loan originations with lower relative principal amounts, as well as potential credit losses arising from risk-sharing arrangements with respect to certain GSE loans.

 

    Periods of economic weakness or recession, significantly rising interest rates, fiscal uncertainty, declining employment levels, declining demand for commercial real estate, falling real estate values, disruption to the global capital or credit markets, political uncertainty or the public perception that any of these events may occur, may negatively affect the performance of some or all of our business lines.

 

    Our ability to raise funding in the long-term or short-term debt capital markets or the equity capital markets, or to access secured lending markets could in the future be adversely affected by conditions in the United States and international economy and markets, with the cost and availability of funding adversely affected by illiquid credit markets and wider credit spreads and changes in interest rates.

While the U.S. commercial property market continues to display strength despite slowing growth of commercial property prices, according to CoStar Realty Information, Inc. (which we refer to as “CoStar”) as of July 28, 2017, there can be no assurances that such strength will continue. Although Deutsche Bank Markets Research as of July 5, 2017 estimates that the spreads between commercial property capitalization rates for all property types and both 10-year U.S. Treasuries and BBB-rated U.S. corporate bonds remain around their 20-year average, following the U.S. elections in 2016, interest rates rose across the U.S. benchmark yield curve, due in part to expectations of increased economic growth due to potential fiscal stimulus. We would expect these expectations to fuel continued demand for commercial real estate for as long as the U.S. economy continues to expand at a moderate pace but there can be no assurances that such sentiment will continue.

Business Concentration Risks

Our business is geographically concentrated and could be significantly affected by any adverse change in the regions in which we operate.

Our current business operations are primarily located in the United States. While we are expanding our business to new geographic areas, and operate internationally through our alliance with Knight Frank, we are still highly concentrated in the United States. Because we derived substantially all of our total revenues on a consolidated basis for the year ended December 31, 2016 from our operations in the United States, we are exposed to adverse competitive changes and economic downturns and changes in political conditions domestically. If we are unable to identify and successfully manage or mitigate these risks, our business, financial condition, results of operations, cash flows and prospects could be materially adversely affected.

The concentration of business with corporate clients can increase business risk, and our business can be adversely affected due to the loss of certain of these clients.

We value the expansion of business relationships with individual corporate clients because of the increased efficiency and economics that can result from developing recurring business from performing an increasingly broad range of services for the same client. Although our client portfolio is currently highly diversified—for the year ended December 31, 2016, our top 10 clients, collectively, accounted for approximately 6% of our total revenue on a consolidated basis, and our largest client accounted for less than 1% of our total revenue on a consolidated basis—as we grow our business, relationships with certain corporate clients may increase, and our client portfolio may become increasingly concentrated. For example, part of our strategy is to increase our GCS revenues which may lead to an increase in corporate clients and therefore greater concentration of revenues. Having increasingly large and concentrated clients also can lead to greater or more concentrated risks if, among other possibilities, any such client (1) experiences its own financial problems; (2) becomes bankrupt or insolvent, which can lead to our failure to be paid for services we have previously provided or funds we have previously advanced; (3) decides to reduce its operations or its real estate facilities; (4) makes a change in its real estate strategy, such as no longer outsourcing its real estate operations; (5) decides to change its providers of real estate

 

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services; or (6) merges with another corporation or otherwise undergoes a change of control, which may result in new management taking over with a different real estate philosophy or in different relationships with other real estate providers.

Where we provide real estate services to firms in the financial services industry, including banks and investment banks, we are experiencing indirectly the increasing extent of the regulatory environment to which they are subject in the aftermath of the global financial crisis. This increases the cost of doing business with them, which we are not always able to pass on, as the result of the additional resources and processes we are required to provide as a critical supplier.

Competition

We operate in a highly competitive industry with numerous competitors, some of which may have greater financial and operational resources than we do.

We compete to provide a variety of services within the commercial real estate industry. Each of these business disciplines is highly competitive on a local, regional, national and global level. We face competition not only from other national real estate service companies, but also from global real estate services companies, boutique real estate advisory firms, and consulting and appraisal firms. Depending on the product or service, we also face competition from other real estate service providers, institutional lenders, insurance companies, investment banking firms, commercial banks, investment managers and accounting firms, some of which may have greater financial resources than we do. Although many of our competitors are local or regional firms that are substantially smaller than we are, some of our competitors are substantially larger than us on a local, regional, national or international basis and have similar service competencies to ours. Such competitors include CBRE Group, Inc., Jones Lang LaSalle Incorporated, Cushman & Wakefield, Savills Studley, Inc. and Colliers International. In addition, specialized firms like Walker & Dunlop, Inc., Berkadia Commercial Mortgage, LLC, HFF, Inc., Marcus & Millichap Inc. and Eastdil Secured, LLC compete with us in certain product offerings. Our industry has continued to consolidate, and there is an inherent risk that competitive firms may be more successful than we are at growing through merger and acquisition activity. See “Business—Competition.” In general, there can be no assurance that we will be able to continue to compete effectively with respect to any of our commercial real estate business lines or on an overall basis, to maintain current commission and fee levels or margins, or to maintain or increase our market share.

Additionally, competitive conditions, particularly in connection with increasingly large clients, may require us to compromise on certain contract terms with respect to the extent of risk transfer, acting as principal rather than agent in connection with supplier relationships, liability limitations and other terms and conditions. Where competitive pressures result in higher levels of potential liability under our contracts, the cost of operational errors and other activities for which we have indemnified our clients will be greater and may not be fully insured.

New Opportunities/Possible Transactions and Hires

If we are unable to identify and successfully exploit new product, service and market opportunities, including through hiring new brokers, salespeople, managers and other professionals, our business, financial condition, results of operations, cash flows and prospects could be materially adversely affected.

Because of significant competition in our market, our strategy is to broker more transactions, manage more properties, increase our share of existing markets and seek out new clients and markets. We may face enhanced risks as these efforts to expand our business result in our transacting with a broader array of clients and expose us to new products and services and markets. Pursuing this strategy may also require significant management attention and hiring expense and potential costs and liability in any litigation or arbitration that may result. We may not be able to attract new clients or brokers, salespeople, managers, or other professionals or successfully enter new markets. If we are unable to identify and successfully exploit new product, service and market opportunities, our business, financial condition, results of operations and prospects could be materially adversely affected.

 

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We may pursue strategic alliances, acquisitions, joint ventures or other growth opportunities (including hiring new brokers), which could present unforeseen integration obstacles or costs and could dilute our stockholders. We may also face competition in our acquisition strategy, and such competition may limit our number of strategic alliances, acquisitions, joint ventures and other growth opportunities (including hiring new brokers).

We have explored a wide range of strategic alliances, acquisitions and joint ventures with other real estate services firms, including maintaining or developing relationships with independently owned offices, and with other companies that have interests in businesses in which there are brokerage, management or other strategic opportunities. We continue to evaluate and potentially pursue possible strategic alliances, acquisitions, joint ventures and other growth opportunities (including hiring new brokers). Such transactions may be necessary in order for us to enter into or develop new products or services or markets, as well as to strengthen our current ones.

Strategic alliances, acquisitions, joint ventures and other growth opportunities (including hiring new brokers) specifically involve a number of risks and challenges, including:

 

    potential disruption of our ongoing business and product, service and market development and distraction of management;

 

    difficulty retaining and integrating personnel and integrating administrative, operational, financial reporting, internal control. compliance, technology and other systems;

 

    the necessity of hiring additional management and other critical personnel and integrating them into current operations;

 

    increasing the scope, geographic diversity and complexity of our operations;

 

    the risks relating to integrating accounting and financial systems and accounting policies and the related risk of having to restate our historical financial statements;

 

    potential dependence upon, and exposure to liability, loss or reputational damage relating to systems, controls and personnel that are not under our control;

 

    addition of business lines in which we have not previously engaged;

 

    potential unfavorable reaction to our strategic alliance, acquisition or joint venture strategy by our clients;

 

    to the extent that we pursue opportunities outside the United States, exposure to political, economic, legal, regulatory, operational and other risks that are inherent in operating in a foreign country, including 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, as well as the outbreak of hostilities;

 

    the upfront costs associated with pursuing transactions and recruiting personnel, which efforts may be unsuccessful in the increasingly competitive marketplace for the most talented producers and managers;

 

    conflicts or disagreements between any strategic alliance or joint venture partner and us;

 

    exposure to potential unknown liabilities of any acquired business, strategic alliance or joint venture that are significantly larger than we anticipate at the time of acquisition, and unforeseen increased expenses or delays associated with acquisitions, including costs in excess of the cash transition costs that we estimate at the outset of a transaction;

 

    reduction in availability of financing due to credit rating downgrades or defaults by us in connection with strategic alliances, acquisitions, joint ventures and other growth opportunities;

 

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    a significant increase in the level of our indebtedness in order to generate significant cash resources that may be required to effect acquisitions;

 

    dilution resulting from any issuances of shares of our common stock or limited partnership units in connection with strategic alliances, acquisitions, joint ventures and other growth opportunities;

 

    adverse effects on our liquidity as a result of payment of cash resources and/or issuance of shares of our common stock or limited partnership units of Newmark OpCo; and

 

    a lag in the realization of financial benefits from these transactions and arrangements.

We face competition for acquisition targets, which may limit our number of acquisitions and growth opportunities and may lead to higher acquisition prices or other less favorable terms. To the extent that we choose to grow internationally from acquisitions, strategic alliances, joint ventures or other growth opportunities, we may experience additional expenses or obstacles, including the short-term contractual restrictions contained in our agreement with Knight Frank, which such agreement could both affect and be affected by such choice. See “Business—Our Knight Frank Partnership.” There can be no assurance that we will be able to identify, acquire or profitably manage additional businesses or integrate successfully any acquired businesses without substantial costs, delays or other operational or financial difficulties.

Any future growth will be partially dependent upon the continued availability of suitable transactional candidates at favorable prices and upon advantageous terms and conditions, which may not be available to us, as well as sufficient liquidity and credit to fund these transactions. Future transactions and any necessary related financings also may involve significant transaction-related expenses, which include payment of break-up fees, assumption of liabilities, including compensation, severance and lease termination costs, and transaction and deferred financing costs, among others. In addition, there can be no assurance that such transactions will be accretive or generate favorable operating margins. The success of these transactions will also be determined in part by the ongoing performance of the acquired companies and the acceptance of acquired employees of our partnership compensation structure and other variables which may be different from the existing industry standards or practices at the acquired companies.

We will need to successfully manage the integration of recent acquisitions and future growth effectively. The integration and additional growth may place a significant strain upon our management, administrative, operational, financial reporting, internal control and compliance infrastructure. Our ability to grow depends upon our ability to successfully hire, train, supervise and manage additional employees, expand our operational, financial reporting, compliance and other control systems effectively, allocate our human resources optimally, maintain clear lines of communication between our transactional and management functions and our finance and accounting functions, and manage the pressure on our management, administrative, operational, financial reporting, internal control and compliance infrastructure. Additionally, managing future growth may be difficult due to our new geographic locations, markets and business lines. As a result of these risks and challenges, we may not realize the full benefits that we anticipate from strategic alliances, acquisitions, joint ventures or other growth opportunities. There can be no assurance that we will be able to accurately anticipate and respond to the changing demands we will face as we integrate and continue to expand our operations, and we may not be able to manage growth effectively or to achieve growth at all. Any failure to manage the integration of acquisitions and other growth opportunities effectively could have a material adverse effect on our business, financial condition, results of operations and prospects.

Regulatory/Legal

We may have liabilities in connection with our business, including appraisal and valuation, sales and leasing and property and facilities management activities.

As a licensed real estate broker and provider of commercial real estate services, we and our licensed sales professionals and independent contractors that work for us are subject to statutory due diligence, disclosure and

 

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standard-of-care obligations. Failure to fulfill these obligations could subject us or our sales professionals or independent contractors to litigation from parties who purchased, sold or leased properties that we brokered or managed.

We could become subject to claims by participants in real estate sales and leasing transactions, as well as building owners and companies for whom we provide management services, claiming that we did not fulfill our obligations. We could also become subject to claims made by clients for whom we provided appraisal and valuation services and/or third parties who perceive themselves as having been negatively affected by our appraisals and/or valuations. We also could be subject to audits and/or fines from various local real estate authorities if they determine that we are violating licensing laws by failing to follow certain laws, rules and regulations. While these liabilities have been insignificant in the past, we have no assurance that this will continue to be the case.

In our property and facilities management business, we hire and supervise third-party contractors to provide services for our managed properties. We may be subject to claims for defects, negligent performance of work or other similar actions or omissions by third parties we do not control. Moreover, our clients may seek to hold us accountable for the actions of contractors because of our role as property or facilities manager or project manager, even if we have technically disclaimed liability as a contractual matter, in which case we may be pressured to participate in a financial settlement for purposes of preserving the client relationship. While these liabilities have been insignificant in the past, we have no assurance that this will continue to be the case.

Because we employ large numbers of building staff in facilities that we manage, we face risk in potential claims relating to employment injuries, termination and other employment matters. While these risks are generally passed back to the building owner, we have no assurance it will continue to be the case.

In connection with a limited number of our facilities management agreements, we have guaranteed that the client will achieve certain savings objectives. In the event that these objectives are not met, we are obligated to pay the shortfall amount to the client. In most instances, the obligation to pay such amount is limited to the amount of fees (or the amount of a subset of the fees) earned by us under the contract, but no assurance can be given that we will be able to mitigate against these payments or that the payments, particularly if aggregated with those required under other agreements, could have a material adverse effect on our ongoing arrangements with particular clients or our business, financial condition, results of operations or prospects. The percentage of our revenue for the fiscal year ended December 31, 2016 subject to such obligations under our current facilities management agreements is less than 1%. While these liabilities have been immaterial to date, we have no assurance that this will continue to be the case.

Adverse outcomes of property and facilities management disputes or litigation could have a material adverse effect on our business, financial condition, results of operations and prospects, particularly to the extent we may be liable on our contracts, or if our liabilities exceed the amounts of the insurance coverage procured and maintained by us. Some of these litigation risks may be mitigated by any commercial insurance we maintain in amounts we believe are appropriate. However, in the event of a substantial loss or certain types of claims, our insurance coverage and/or self-insurance reserve levels might not be sufficient to pay the full damages. Additionally, in the event of grossly negligent or intentionally wrongful conduct, insurance policies that we may have may not cover us at all. Further, the value of otherwise valid claims we hold under insurance policies could become uncollectible in the event of the covering insurance company’s insolvency, although we seek to limit this risk by placing our commercial insurance only with highly rated companies. Any of these events could materially negatively impact our business, financial condition, results of operations and prospects. While these liabilities have been insignificant in the past, we have no assurance that this will continue to be the case.

 

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If we fail to comply with laws, rules and regulations applicable to commercial real estate brokerage, valuation and appraisal and mortgage transactions and our other business lines, then we may incur significant financial penalties.

Due to the broad geographic scope of our operations throughout North America and the commercial real estate services we perform, we are subject to numerous federal, state, local and foreign laws, rules and regulations specific to our services. For example, the brokerage of real estate sales and leasing transactions and other related activities require us to maintain brokerage licenses in each state in which we conduct activities for which a real estate license is required. We also maintain certain state licenses in connection with our lending, servicing and brokerage of commercial and multifamily mortgage loans. If we fail to maintain our licenses or conduct brokerage activities without a license or violate any of the laws, rules and regulations applicable to our licenses, then we may be subject to audits, required to pay fines (including treble damages in certain states) or be prevented from collecting commissions owed, be compelled to return commissions received or have our licenses suspended or revoked.

In addition, because the size and scope of commercial real estate transactions have increased significantly during the past several years, both the difficulty of ensuring compliance with the numerous state licensing and regulatory regimes and the possible loss resulting from non-compliance have increased. Furthermore, the laws, rules and regulations applicable to our business lines also may change in ways that increase the costs of compliance. The failure to comply with federal, state, local and foreign laws, rules and regulations could result in significant financial penalties that could have a material adverse effect on our business, financial condition, results of operations and prospects.

The loss of relationships with the GSEs and HUD would, and changes in such relationships could, adversely affect our ability to originate commercial real estate loans through such programs. Compliance with the minimum collateral and risk-sharing requirements of such programs, as well as applicable state and local licensing agencies, could reduce our liquidity.

Currently, through Berkeley Point, we originate a significant percentage of our loans for sale through the GSEs and HUD programs. Berkeley Point is approved as a Fannie Mae DUS lender, a Freddie Mac Program Plus seller/servicer in 12 states and the District of Columbia, a Freddie Mac Targeted Affordable Housing Seller, a HUD MAP lender nationwide, and a Ginnie Mae issuer. Our status as an approved lender affords us a number of advantages, which may be terminated by the applicable GSE or HUD at any time. Although we intend to take all actions to remain in compliance with the requirements of these programs, as well as applicable state and local licensing agencies, the loss of such status would, or changes in our relationships with the GSEs and HUD could, prevent us from being able to originate commercial real estate loans for sale through the particular GSE or HUD, which could have a material adverse effect on our business, financial condition, results of operations and prospects. It could also result in a loss of similar approvals from the GSEs or HUD. As of June 30, 2017, we exceeded the most restrictive applicable net worth requirement of these programs by approximately $322.6 million.

We are subject to risk of loss in connection with defaults on loans sold under the Fannie Mae DUS program that could materially and adversely affect our results of operations and liquidity.

Under the Fannie Mae DUS program, we originate and service 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

 

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Point business’s average annual losses from such risk-sharing programs have been a minimal percentage of the aggregate principal amount of such loans to date, 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 our 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.

A change to the conservatorship of Fannie Mae and Freddie Mac and related actions, along with any changes in laws and regulations affecting the relationship between Fannie Mae and Freddie Mac and the U.S. federal government or the existence of Fannie Mae and Freddie Mac, could have a material adverse effect on our business, financial condition, results of operations and prospects.

Each GSE has been created under a conservatorship established by its regulator, the Federal Housing Finance Agency, since 2008. The conservatorship is a statutory process designed to preserve and conserve the GSEs’ assets and property and put them in a sound and solvent condition. The conservatorships have no specified termination dates. There has been significant uncertainty regarding the future of the GSEs, including how long they will continue to exist in their current forms. Changes in such forms could eliminate or substantially reduce the number of loans we originate with the GSEs. Policymakers and others have focused significant attention in recent years on how to reform the nation’s housing finance system, including what role, if any, the GSEs should play. Such reforms could significantly limit the role of the GSEs in the nation’s housing finance system. Any such reduction in the loans we originate with the GSEs could lead to a reduction in fees related to the loans we originate or service. These effects could cause our Berkeley Point business to realize significantly lower revenues from its loan originations and servicing fees, and ultimately could have a material adverse effect on our business, financial condition, results of operations and prospects.

Environmental regulations may adversely impact our commercial real estate business and/or cause us to incur costs for cleanup of hazardous substances or wastes or other environmental liabilities.

Federal, state, local and foreign laws, rules and regulations impose various environmental zoning restrictions, use controls, and disclosure obligations which impact the management, development, use and/or sale of real estate. Such laws and regulations tend to discourage sales and leasing activities, as well as mortgage lending availability, with respect to some properties. A decrease or delay in such transactions may materially and adversely affect our business, financial condition, results of operations and prospects. In addition, a failure by us to disclose environmental concerns in connection with a real estate transaction may subject us to liability to a buyer/seller or lessee/lessor of property. While historically we have not incurred any significant liability in connection with these types of environmental issues, there is no assurance that this will not occur.

In addition, in our role as property or facilities manager, we could incur liability under environmental laws for the investigation or remediation of hazardous or toxic substances or wastes relating to properties we currently or formerly managed. Such liability may be imposed without regard to the lawfulness of the original disposal activity, or our knowledge of, or fault for, the release or contamination. Further, liability under some of these laws may be joint and several, meaning that one liable party could be held responsible for all costs related to a contaminated site. Insurance for such matters may not be available or sufficient. While historically we have not incurred any significant liability under these laws, this may not always be the case.

Certain requirements governing the removal or encapsulation of asbestos-containing materials, as well as recently enacted local ordinances obligating property or facilities managers to inspect for and remove lead-based paint in certain buildings, could increase our costs of legal compliance and potentially subject us to violations or claims. More stringent enforcement of existing regulations could cause us to incur significant costs in the future, and/or materially and adversely impact our commercial real estate brokerage and management services business.

 

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Our operations are affected by federal, state and/or local environmental laws in the jurisdictions in which we maintain office space for our own operations and where we manage properties for clients, and we may face liability with respect to environmental issues occurring at properties that we occupy or manage.

Various laws, rules and regulations restrict the levels of certain substances that may be discharged into the environment by properties and such laws, rules and regulations may impose liability on current or previous real estate owners or operators for the cost of investigating, cleaning up or removing contamination caused by hazardous or toxic substances at the property. We may face costs or liabilities under these laws as a result of our role as an on-site property manager. While we believe that we have taken adequate measures to prevent any such losses, no assurances can be given that these events will not occur. Within our own operations, we face additional costs from rising costs of environmental compliance, which make it more expensive to operate our corporate offices. Our operations are generally conducted within leased office building space, and, accordingly, we do not currently anticipate that regulations restricting the emissions of greenhouse gases, or taxes that may be imposed on their release, would result in material costs or capital expenditures. However, we cannot be certain about the extent to which such regulations will develop as there are higher levels of understanding and commitments by different governments in the United States and around the world regarding risks related to the climate and how they should be mitigated.

We may be adversely affected by the impact of recent income tax regulations.

The U.S. Department of the Treasury and the Internal Revenue Service (which we refer to as the “IRS”) recently released final and temporary regulations regarding the treatment of certain related-party corporate debt as equity for U.S. federal income tax purposes. These regulations include provisions that may adversely affect the tax consequences of common transactions, including intercompany obligations and/or financing, and may impact many companies in the real estate services sector, including several of our clients and competitors. These regulations could have an adverse impact on our income tax position or could possibly cause us to change the manner in which we conduct certain activities in ways that impose other costs on us. These regulations were issued recently, are highly complex and there is limited guidance regarding their application. Accordingly, we are unable to predict the extent, if any, to which such regulations would have a material and adverse effect on our business, financial condition, results of operations and prospects.

Intellectual Property

We may not be able to protect our intellectual property rights or may be prevented from using intellectual property used in our business.

Our success is dependent, in part, upon our intellectual property. We rely primarily on trade secret, contract, patent, copyright and trademark law in the United States and other jurisdictions as well as confidentiality procedures and contractual provisions to establish and protect our intellectual property rights to proprietary technologies, products, services or methods, and our brand.

Unauthorized use of our intellectual property could make it more expensive to do business and harm our operating results. We cannot ensure that our intellectual property rights are sufficient to protect our competitive advantages or that any particular patent, copyright or trademark is valid and enforceable, and all patents ultimately expire. In addition, the laws of some foreign countries may not protect our intellectual property rights to the same extent as the laws in the United States, or at all. Any significant impairment of our intellectual property rights could harm our business or our ability to compete.

Protecting our intellectual property rights is costly and time consuming. Although we have taken steps to protect ourselves, there can be no assurance that we will be aware of all patents, copyrights or trademarks that may pose a risk of infringement by our products and services. Generally, it is not economically practicable to determine in advance whether our products or services may infringe the present or future rights of others.

 

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Accordingly, we may face claims of infringement or other violations of intellectual property rights that could interfere with our ability to use intellectual property or technology that is material to our business. The number of such third-party claims may grow. Our technologies may not be able to withstand such third-party claims or rights against their use.

We may have to rely on litigation to enforce our intellectual property rights, protect our trade secrets, determine the validity and scope of the rights of others or defend against claims of infringement or invalidity. For example, we recently responded to a claim by Newmark Realty Capital, Inc. (which we refer to as “Realty Capital”) against us alleging, among other things, trademark infringement under Section 32 of the Lanham Act. In connection with our answer, we filed counterclaims alleging that Realty Capital has infringed our trademarks and seeking an order cancelling Realty Capital’s registered trademarks. We also separately initiated an action before the U.S. Patent and Trademark Office seeking invalidation of Realty Capital’s registration of a design mark that includes the stand-alone name “Newmark.” No assurance can be given as to whether these cases will be determined in our favor or that our ability to use the “Newmark” name will be impacted by the proceedings. Any such claims or litigation, whether successful or unsuccessful, could result in substantial costs, the diversion of resources and the attention of management, any of which could materially negatively affect our business. Responding to these claims could also require us to enter into agreements with the third parties claiming infringement, stop selling or redesign affected products or services or pay damages on our own behalf or to satisfy indemnification commitments with our clients. Such agreements, if available, may not be available on terms acceptable to us, and may negatively affect our business, financial condition, results of operations or prospects.

If our software licenses from third parties are terminated or adversely changed or amended or contain material defects or errors, or if any of these third parties were to cease doing business, or if products or services offered by third parties were to contain material defects or errors, our ability to operate our businesses may be materially adversely affected.

We license databases and software from third parties, much of which is integral to our systems and our business. The licenses are terminable if we breach our obligations under the license agreements. If any material licenses were terminated or adversely changed or amended, if any of these third parties were to cease doing business or if any licensed software or databases licensed by these third parties were to contain material defects or errors, we may be forced to spend significant time and money to replace the licensed software and databases, and our ability to operate our business may be materially adversely affected. Further, any errors or defects in third-party services or products (including hardware, software, databases, cloud computing and other platforms and systems) or in services or products that we develop ourselves, could result in errors in, or a failure of our services or products, which could harm our business. Although we take steps to locate replacements, there can be no assurance that the necessary replacements will be available on acceptable terms, if at all. There can be no assurance that we will have an ongoing license to use all intellectual property which our systems require, the failure of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

IT Systems and Cyber-security Risks

Defects or disruptions in our technology or services could diminish demand for our products and service and subject us to liability.

Because our technology, products and services are complex and use or incorporate a variety of computer hardware, software and databases, both developed in-house and acquired from third-party vendors, our technology, products and services may have errors or defects. Errors and defects could result in unanticipated downtime or failure, and could cause financial loss and harm to our reputation and our business. Furthermore, if we acquire companies, we may encounter difficulty in incorporating the acquired technologies and maintaining the quality standards that are consistent with our technology, products and services.

 

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If we experience computer systems failures or capacity constraints, our ability to conduct our business operations could be materially harmed.

If we experience computer systems failures or capacity constraints, our ability to conduct our business operations could be harmed. We support and maintain many of our computer systems and networks internally. Our failure to monitor or maintain these systems and networks or, if necessary, to find a replacement for this technology in a timely and cost-effective manner, could have a material adverse effect on our business, financial condition, results of operations and prospects.

Although all of our business critical systems have been designed and implemented with fault tolerant and/or redundant clustered hardware and diversely routed network connectivity, our redundant systems or disaster recovery plans may prove to be inadequate. We may be subject to system failures and outages that might impact our revenues and relationships with clients. In addition, we will be subject to risk in the event that systems of our clients, business partners, vendors and other third parties are subject to failures and outages.

We rely on various third parties for computer and communications systems, such as telephone companies, online service providers, data processors, and software and hardware vendors. Our systems, or those of our third-party providers, may fail or operate slowly, causing one or more of the following, which may not in all cases be covered by insurance:

 

    unanticipated disruptions in service to our clients;

 

    slower response times;

 

    financial losses;

 

    litigation or other client claims; and

 

    regulatory actions.

We may experience additional systems failures in the future from power or telecommunications failures, acts of God or war, weather-related events, terrorist attacks, human error, natural disasters, fire, power loss, sabotage, cyber-attacks, hardware or software malfunctions or defects, computer viruses, intentional acts of vandalism and similar events. Any system failure that causes an interruption in service or decreases the responsiveness of our service could damage our reputation, business and brand name.

Malicious cyber-attacks and other adverse events affecting our operational systems or infrastructure, or those of third parties, could disrupt our business, result in the disclosure of confidential information, damage our reputation and cause losses or regulatory penalties.

Developing and maintaining our operational systems and infrastructure is challenging, particularly as a result of rapidly evolving legal and regulatory requirements and technological shifts. Our financial, accounting, data processing or other operating and compliance systems and facilities may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, such as a malicious cyber-attack or other adverse events, which may adversely affect our ability to provide services.

In addition, our operations rely on the secure processing, storage and transmission of confidential and other information on our computer systems and networks. Although we take protective measures such as software programs, firewalls and similar technology, to maintain the confidentiality, integrity and availability of our and our clients’ information, and endeavor to modify these protective measures as circumstances warrant, the nature of cyber threats continues to evolve. As a result, our computer systems, software and networks may be vulnerable to unauthorized access, loss or destruction of data (including confidential client information), account takeovers, unavailability or disruption of service, computer viruses, acts of vandalism, or other malicious code, cyber-attack and other adverse events that could have an adverse security impact. Despite the defensive measures we have taken, these threats may come from external factors such as governments, organized crime, hackers, and other third parties such as outsource or infrastructure-support providers and application developers, or may originate internally from within us.

 

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We also face the risk of operational disruption, failure, termination or capacity constraints of any of the third parties that facilitate our business activities. Such parties could also be the source of a cyber-attack on or breach of our operational systems, data or infrastructure.

There have been an increasing number of cyber-attacks in recent years in various industries, and cyber-security risk management has been the subject of increasing focus by our regulators. If one or more cyber-attacks occur, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, as well as our clients’ or other third parties’, operations, which could result in reputational damage, financial losses and/or client dissatisfaction, which may not in all cases be covered by insurance. Any such cyber incidents involving our computer systems and networks, or those of third parties important to our business, could have a material adverse effect on our business, financial condition, results of operations and prospects.

Natural Disasters, Weather-Related Events, Terrorist Attacks and Other Disruptions to Infrastructure

Our ability to conduct our business may be materially adversely impacted by catastrophic events, including natural disasters, weather-related events, terrorist attacks and other disruptions.

We may encounter disruptions involving power, communications, transportation or other utilities or essential services depended on by us or by third parties with whom we conduct business. This could include disruptions as the result of natural disasters, pandemics or weather-related or similar events, such as fires, hurricanes, earthquakes and floods, political instability, labor strikes or turmoil or terrorist attacks. For example, during 2012, our own operations and properties we manage for clients in the northeastern United States, and in particular New York City, were impacted by Hurricane Sandy, in some cases significantly. In 2017, several parts of the United States, including Texas, Florida and Puerto Rico, sustained significant damage from hurricanes. We continue to assess the impact on our borrowers and other clients and what impact, if any, these hurricanes could have on our business, financial condition, results of operations and prospects.

These disruptions may occur, for example, as a result of events affecting only the buildings in which we operate (such as fires), or as a result of events with a broader impact on the communities where those buildings are located. If a disruption occurs in one location and persons in that location are unable to communicate with or travel to or work from other locations, our ability to service and interact with our clients and others may suffer, and we may not be able to successfully implement contingency plans that depend on communications or travel.

Such events can result in significant injuries and loss of life, which could result in material financial liabilities, loss of business and reputational harm. They can also impact the availability and/or loss of commercial insurance policies, both for our own business and for those clients whose properties we manage and who may purchase their insurance through the insurance buying programs we make available to them.

There can be no assurance that the disaster recovery and crisis management procedures we employ will suffice in any particular situation to avoid a significant loss. Given that our employees are increasingly mobile and less reliant on physical presence in our offices, our disaster recovery plans increasingly rely on the availability of the Internet (including “cloud” technology) and mobile phone technology, so the disruption of those systems would likely affect our ability to recover promptly from a crisis situation. Although we maintain insurance for liability, property damage and business interruption, subject to deductibles and various exceptions, no assurance can be given that our business, financial condition, results of operations and prospects will not be materially negatively affected by such events in the future.

 

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Key Employees

Our ability to retain our key employees and the ability of certain key employees to devote adequate time to us are critical to the success of our business, and failure to do so may materially adversely affect our business, financial condition, results of operations and prospects.

Our people are our most important resource. We must retain the services of our key employees and strategically recruit and hire new talented employees to attract clients and transactions that generate most of our revenues.

Howard W. Lutnick, who serves as our Chairman, is also the Chairman of the Board, President and Chief Executive Officer of our indirect parent, Cantor, President of CFGM, which is the managing general partner of Cantor, and the Chief Executive Officer and Chairman of our direct parent, BGC Partners. In addition, Mr. Lutnick holds offices at various other affiliates of Cantor. Mr. Lutnick is not subject to an employment agreement with us or any of our subsidiaries.

Currently, Mr. Lutnick spends significant amounts of his BGC Partners time on our matters, although this percentage may vary depending on business developments at Newmark or Cantor, BGC Partners or any of our or their respective affiliates. As a result, Mr. Lutnick dedicates only a portion of their professional efforts to our business and operations, and there is no contractual obligation for Mr. Lutnick to spend a specific amount of his time with us and/or BGC Partners or Cantor. Mr. Lutnick may not be able to dedicate adequate time to our business and operations, and we could experience an adverse effect on our operations due to the demands placed on our management team by other professional obligations. In addition, Mr. Lutnick’s other responsibilities could cause conflicts of interest with us. The Newmark Holdings limited partnership agreement, which includes non-competition and other arrangements applicable to our key employees who are limited partners of Newmark Holdings, may not prevent certain of our key employees, including Mr. Lutnick, whose employment by Cantor and BGC Partners is not subject to these provisions in the Newmark Holdings limited partnership agreement, from resigning or competing against us.

Should Mr. Lutnick leave or otherwise become unavailable to render services to us, ultimate control of us would likely pass to Cantor, and indirectly pass to the then-controlling stockholder of CFGM (which is currently Mr. Lutnick), Cantor’s managing general partner, or to such other managing general partner as CFGM would appoint, and as a result control could remain with Mr. Lutnick.

In addition, our success has largely been dependent on executive officers such as Barry M. Gosin, who serves as our Chief Executive Officer, and other key employees, including some who have been hired in connection with acquisitions. If any of our key employees were to join an existing competitor, form a competing company, offer services to BGC Partners or Cantor that compete with our services or otherwise leave us, some of our clients could choose to use the services of that competitor or another competitor instead of our services, which could adversely affect our revenues and as a result could materially adversely affect our business, financial condition, results of operations and prospects.

Seasonality

Our business is generally affected by seasonality, which could have a material adverse effect on our results of operations in a given period.

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. This could have a material effect on our results of operations in any given period.

The seasonality of our business makes it difficult to determine during the course of the year whether planned results will be achieved and to adjust to changes in expectations. To the extent that we are not able to

 

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identify and adjust for changes in expectations or we are confronted with negative conditions that inordinately impact seasonal norms, our business, financial condition, results of operations and prospects could be materially adversely affected.

Other General Business Risks

If we experience difficulties in collecting accounts receivable or experience defaults by multiple clients, it could materially adversely affect our business, financial condition, results of operations and prospects.

We face challenges in our ability to efficiently and/or effectively collect accounts receivable. Any of our clients or other parties obligated to make payments to us may experience a downturn in their business that may weaken their results of operations and financial condition. As a result, a client or other party obligated to make payments to us may fail to make payments when due, become insolvent or declare bankruptcy. A bankruptcy of a client or other party obligated to make payments to us would delay or preclude full collection of amounts owed to us. In addition, certain corporate services and property and facilities management agreements require that we advance payroll and other vendor costs on behalf of clients. If such a client or other party obligated to make payments to us were to file for bankruptcy, we may not be able to obtain reimbursement for those costs or for the severance obligations we would incur. Any such failure to make payments when due or the bankruptcy or insolvency of a large number of our clients (e.g., during an economic downturn) could result in disruption to our business and material losses to us. While historically we have not incurred material losses as a result of the difficulties described above, this may not always be the case.

We may not be able to replace partner offices when affiliation agreements are terminated, which may decrease our scope of services and geographic reach.

We have agreements in place to operate on a collaborative and cross-referral basis with certain offices in the United States and elsewhere in the Americas in return for contractual and referral fees paid to us and/or certain mutually beneficial co-branding and other business arrangements. These independently owned offices generally use some variation of Newmark in their names and marketing materials. These agreements are normally multi-year contracts, and generally provide for mutual referrals in their respective markets, generating additional contract and brokerage fees. Through these independently owned offices, our clients have access to additional brokers with local market research capabilities as well as other commercial real estate services in locations where we do not have a physical presence. From time to time our arrangement with these independent firms may be terminated pursuant to the terms of the individual affiliation agreements. The opening of a Company-owned office to replace an independent office requires us to invest capital, which in some cases could be material. There can be no assurance that, if we lose additional independently owned offices, we will be able to identify suitable replacement affiliates or fund the establishment or acquisition of an owned office. In addition, although we do not control the activities of these independently owned offices and are not responsible for their liabilities, we may face reputational risk if any of these independently owned offices are involved in or accused of illegal, unethical or similar behavior. Failure to maintain coverage in important geographic markets may negatively impact our operations, reputation and ability to attract and retain key employees and expand domestically and internationally and could have a material adverse effect on our business, financial condition, results of operations and prospects.

Declines in or terminations of servicing engagements or breaches of servicing agreements could have a material adverse effect on our business, financial condition, results of operations and prospects.

We expect that loan servicing fees will continue to constitute a significant portion of our revenues from the Berkeley Point business for the foreseeable future. Nearly all of these fees are derived from loans that Berkeley Point originates and sells through the agencies’ programs or places with institutional investors. A decline in the number or value of loans that we originate for these investors or terminations of our servicing engagements will decrease these fees. HUD has the right to terminate Berkeley Point’s current servicing engagements for cause. In addition to termination for cause, Fannie Mae and Freddie Mac may terminate Berkeley Point’s servicing

 

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engagements without cause by paying a termination fee. Institutional investors typically may terminate servicing engagements with Berkeley Point at any time with or without cause, without paying a termination fee. We are also subject to losses that may arise from servicing errors, such as a failure to maintain insurance, pay taxes, or provide notices. If we breach our servicing obligations to the agencies or institutional investors, including as a result of a failure to perform by any third parties to which we have contracted certain routine back-office aspects of loan servicing, the servicing engagements may be terminated. Significant declines or terminations of servicing engagements or breaches of such obligations, in the absence of replacement revenue sources, could materially and adversely affect our business, financial condition and results of operations.

Reductions in loan servicing fees as a result of defaults or prepayments by borrowers could have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition to exposure to potential loss sharing, our loan servicing business is also subject to potential reductions in loan servicing fees if the borrower defaults on a loan originated thereby, as the generation of loan servicing fees depends upon the continued receipt and processing of periodic installments of principal, interest and other payments such as amounts held in escrow to pay property taxes and other required expenses. The loss of such loan servicing fees would reduce the amount of cash actually generated from loan servicing and from interest on amounts held in escrow. The expected loss of future loan servicing fees would also result in non-cash impairment charges to earnings. Such cash and non-cash charges could have a material adverse effect on our business, financial condition, results of operations and prospects.

Real Estate Newco may engage in a broad range of commercial real estate activities, and we will have limited influence over the selection or management of such activities.

In the BP Transaction, we acquired approximately 27% of the capital in Real Estate Newco. Cantor controls the remaining 73% of its capital and controls the general partner of Real Estate Newco, who will manage Real Estate Newco. Real Estate Newco collaborates with Cantor’s significant existing real estate finance business, and Real Estate Newco may conduct activities in any real estate-related business or asset-backed securities-related business or any extensions thereof and ancillary activities thereto. See “Certain Relationships and Related-Party Transactions—BP Transaction Agreement and Real Estate Newco Limited Partnership Agreement.” Accordingly, we will have limited to no influence on the selection or management of the activities conducted by Real Estate Newco, each of which may have different risks and uncertainty associated with it and that are each beyond our control. See “Risk Factors—Risks Related to Our Relationship with BGC Partners, Cantor and their Respective Affiliates—Upon the completion of this offering, we will be controlled by BGC Partners (which is controlled by Cantor). Upon completion of the distribution, we will be controlled by Cantor. BGC Partners’ and Cantor’s respective interests may conflict with our interests, and BGC Partners and Cantor may exercise their control in a way that favors their respective interests to our detriment.”

Liquidity, Funding and Indebtedness

Liquidity is essential to our business, and insufficient liquidity could have a material adverse effect on our business, financial condition, results of operations and prospects.

Liquidity is essential to our business. Our liquidity could be impaired due to circumstances that we may be unable to control, such as a general market disruption or an operational problem that affects our clients, other third parties or us.

We are a holding company with no direct operations. We conduct substantially all of our operations through our operating subsidiaries. We do not have any material assets other than our direct and indirect ownership in the equity of our subsidiaries. As a result, our operating cash flow is dependent upon the earnings of our subsidiaries. In addition, we are dependent on the distribution of earnings, loans or other payments by our subsidiaries to us. In the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding with respect to any of

 

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our subsidiaries, we, as an equity owner of such subsidiary, and therefore holders of our securities, including our Class A common stock, will be subject to the prior claims of such subsidiary’s creditors, including trade creditors, and any preferred equity holders. Any dividends declared by us, any payment by us of our indebtedness or other expenses, and all applicable taxes payable in respect of our net taxable income, if any, are paid from cash on hand and funds received from distributions, loans or other payments from Newmark OpCo. Regulatory, tax restrictions or elections, and other legal or contractual restrictions may limit our ability to transfer funds freely from our subsidiaries. These laws, regulations and rules may hinder our ability to access funds that we may need to meet our obligations. Certain debt and security agreements entered into by our subsidiaries contain or may contain various restrictions, including restrictions on payments by our subsidiaries to us and the transfer by our subsidiaries of assets pledged as collateral. To the extent that we need funds to pay dividends, repay indebtedness and meet other expenses, or to pay taxes on our share of Newmark OpCo’s net taxable income, and Newmark OpCo or its subsidiaries are restricted from making such distributions under applicable law, regulations, or agreements, or are otherwise unable to provide such funds, it could materially adversely affect our business, financial condition, results of operations and prospects, including our ability to raise additional funding, including through access to the debt and equity capital markets.

Our ability to raise funding in the long-term or short-term debt capital markets or the equity capital markets, or to access secured lending markets could in the future be adversely affected by conditions in the United States and international economy and markets, with the cost and availability of funding adversely affected by illiquid credit markets and wider credit spreads and changes in interest rates. To the extent we are not able to access the debt capital markets on acceptable terms in the future, we may seek to raise funding and capital through equity issuances or other means.

Turbulence in the U.S. and international economy and markets may adversely affect our liquidity and financial condition and the willingness of certain clients to do business with each other or with us. Acquisitions and financial reporting obligations related thereto may impact our ability to access capital markets on a timely basis and may necessitate greater short-term borrowing in the interim, which in turn may adversely affect the interest rates on our debt and our credit ratings and associated outlooks.

We generally have had limited need for short-term unsecured funding. We may, however, have need to access short-term capital sources in order to meet business needs from time to time, including financing acquisitions, conducting operations or hiring or retaining real estate brokers, salespeople, managers and other professionals. Our inability to secure such short-term capital could have a material adverse effect on our business, financial condition, results of operations and prospects.

We require a significant amount of short-term funding capacity for loans we originate through Berkeley Point. As of June 30, 2017, Berkeley Point had $950 million of committed loan funding available through three commercial banks and an uncommitted $325 million Fannie Mae loan repurchase facility. Consistent with industry practice, Berkeley Point’s existing warehouse facilities are short-term, requiring annual renewal. If any of the committed facilities are terminated or are not renewed or the uncommitted facility is not honored, we would be required to obtain replacement financing, which we may be unable to find on favorable terms, or at all, and, in such event, we might not be able to originate loans, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We are subject to the risk of failed loan deliveries, and even after a successful closing and delivery, may be required to repurchase the loan or to indemnify the investor if there is a breach of a representation or warranty made by us in connection with the sale of loans, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We bear the risk that a borrower will not close on a loan that has been pre-sold to an investor and the amount of such borrower’s rate lock deposit and any amounts recoverable from such borrower for breach of its obligations are insufficient to cover the investor’s losses. In addition, the investor may choose not to take

 

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delivery of the loan if a catastrophic change in the condition of a property occurs after we fund the loan and prior to the investor purchase date. We also have the risk of errors in loan documentation which prevent timely delivery of the loan prior to the investor purchase date. A complete failure to deliver a loan could be a default under the warehouse line used to finance the loan. No assurance can be given that we will not experience failed deliveries in the future or that any losses will not have a material adverse effect on our business, financial condition, results of operations or prospects.

We must make certain representations and warranties concerning each loan we originate for the GSEs’ and HUD’s programs or securitizations. The representations and warranties relate to our practices in the origination and servicing of the loans and the accuracy of the information being provided by it. In the event of a material breach of representations or warranties concerning a loan, even if the loan is not in default, investors could, among other things, require us to repurchase the full amount of the loan and seek indemnification for losses from it, or, for Fannie Mae DUS loans, increase the level of risk-sharing on the loan. Our obligation to repurchase the loan is independent of our risk-sharing obligations. Our ability to recover on a claim against the borrower or any other party may be contractually limited and would also be dependent, in part, upon the financial condition and liquidity of such party. Although these obligations have not had a significant impact on our results to date, significant repurchase or indemnification obligations imposed on us could have a material adverse effect on our business, financial condition, results of operations and prospects.

We expect to have debt, which could adversely affect our ability to raise additional capital to fund our operations and activities, limit our ability to react to changes in the economy or the commercial real estate services industry, expose us to interest rate risk and prevent us from meeting our obligations under our indebtedness.

Immediately following the separation, we expect to have $             in aggregate principal amount of indebtedness, and we may incur additional indebtedness in the future. The amount of debt we incur may have important, adverse consequences to us and our investors, including that:

 

    it may limit our ability to borrow money, dispose of assets or sell equity to fund our working capital, capital expenditures, dividend payments, debt service, strategic initiatives or other obligations or purposes;

 

    it may limit our flexibility in planning for, or reacting to, changes in the economy, the markets, regulatory requirements, our operations or our business;

 

    we may be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;

 

    it may make us more vulnerable to downturns in the economy or our business;

 

    it may require a substantial portion of our cash flow from operations to make interest payments;

 

    it may make it more difficult for us to satisfy other obligations;

 

    it may increase the risk of a future credit ratings downgrade of us, which could increase future debt costs and limit the future availability of debt financing; and

 

    we may not be able to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase common stock.

To the extent that we incur additional indebtedness, the risks described above could increase. In addition, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not be sufficient to service our outstanding debt or to repay the outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to service or refinance our debt.

 

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We may incur substantially more debt or take other actions which would intensify the risks discussed herein.

We may incur substantial additional debt in the future, some of which may be secured debt. Under the terms of our existing debt, we are permitted under certain circumstances to incur additional debt, grant liens on our assets to secure existing or future debt, recapitalize our debt or take a number of other actions that could have the effect of diminishing our ability to make payments on our debt when due. To the extent that we borrow additional funds subsequent to this offering, the terms of such borrowings may contain more stringent financial covenants, change of control provisions, make-whole provisions or other terms that could have a material adverse effect on our business, financial condition, results of operations and prospects.

Credit rating downgrades or defaults by us could adversely affect us.

The credit ratings and associated outlooks of companies may be critical to their reputation and operational and financial success. A company’s credit ratings and associated outlooks are influenced by a number of factors, including: 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, the company’s competitive position in the industry and its relationships 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 of that company or related companies warrant such a change. Any reduction in the credit ratings of Newmark, BGC Partners, Cantor or any of their other affiliates, and/or the associated outlook could adversely affect the availability of debt financing to us on acceptable terms, as well as the cost and other terms upon which we may obtain any such financing. In addition, credit ratings and associated outlooks may be important to clients in certain markets and in certain transactions. A company’s contractual counterparties may, in certain circumstances, demand collateral in the event of a credit ratings or outlook downgrade of that company.

Our acquisitions may require significant cash resources and may lead to a significant increase in the level of our indebtedness.

Potential future acquisitions may lead to a significant increase in the level of our indebtedness. We may enter into short- or long-term financing arrangements in connection with acquisitions which may occur from time to time. In addition, we may incur substantial nonrecurring transaction costs, including break-up fees, assumption of liabilities and expenses and compensation expenses and we would likely incur similar expenses. The increased level of our consolidated indebtedness in connection with potential acquisitions may restrict our ability to raise additional capital on favorable terms, and such leverage, and any resulting liquidity or credit issues, could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may not be able to realize the full value of the Nasdaq payment, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

On June 28, 2013, BGC Partners sold eSpeed to Nasdaq in the Nasdaq Transaction. The total consideration paid or payable by Nasdaq in the Nasdaq Transaction included an earn-out of up to 14,883,705 shares of common stock of Nasdaq to be paid ratably over 15 years after the closing of the Nasdaq Transaction, provided that Nasdaq produces at least $25 million in gross revenues for the applicable year. Up to 10,914,717 Nasdaq shares remain payable by Nasdaq under this earn-out. In connection with the separation prior to the completion of this offering, BGC will transfer to Newmark the right to receive the remainder of the Nasdaq payment. This earn-out presents market risk to us as the value of consideration related to the Nasdaq payment is subject to fluctuations based on the stock price of Nasdaq common stock. Therefore, if Nasdaq were to experience financial difficulties or a significant downturn, the value of the Nasdaq payment may decline and we may receive fewer or no additional Nasdaq shares pursuant to this earn-out, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

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RISKS RELATED TO OUR CORPORATE AND PARTNERSHIP STRUCTURE

We are a holding company, and accordingly we are dependent upon distributions from Newmark OpCo to pay dividends, taxes and indebtedness and other expenses and to make repurchases.

We are a holding company with no direct operations, and we will be able to pay dividends, taxes and other expenses, and to make repurchases of shares of our Class A common stock and purchases of Newmark Holdings limited partnership interests or other equity interests in our subsidiaries, only from our available cash on hand and funds received from distributions, loans or other payments from Newmark OpCo. Tax restrictions or elections and other legal or contractual restrictions may limit our ability to transfer funds freely from our subsidiaries. In addition, any unanticipated accounting, tax or other charges against net income could adversely affect our ability to pay dividends and to make repurchases. See also “—Liquidity is essential to our business, and insufficient liquidity could have a material adverse effect on our business, financial condition, results of operations and prospects.”

We may not pay a dividend and may not pay the same dividend paid by Newmark OpCo to its equity holders.

We currently intend to pay dividends on a quarterly basis. Our ability to pay dividends is dependent upon on our available cash on hand and funds received from distributions, loans or other payments from Newmark OpCo. Newmark OpCo intends to distribute to its limited partners, including us, on a pro rata and quarterly basis, cash in an amount that will be determined by Newmark Holdings, its general partner, of which we are the general partner. Newmark OpCo’s ability, and in turn our ability, to make such distributions will depend upon the continuing profitability and strategic and operating needs of our business. We may not pay the same dividend to our shares as the dividend paid by Newmark OpCo to its limited partners.

We may also repurchase shares of our common stock or purchase Newmark Holdings limited partnership interests or other equity interests in our subsidiaries, including from BGC Partners, Cantor or our executive officers, other employees, partners and others, or cease to make such repurchases or purchases, from time to time. In addition, from time to time, we may reinvest all or a portion of the distributions we receive in Newmark OpCo’s business. Accordingly, there can be no assurance that future dividends will be paid or that dividend amounts will be maintained at current or future levels. See “Dividend Policy.”

 

Because our voting control is concentrated among the holders of our Class B common stock, the market price of our Class A common stock may be materially adversely affected by its disparate voting rights.

The holders of our Class A common stock and Class B common stock will have substantially identical economic rights, but their voting rights will be different. Holders of Class A common stock will be entitled to one vote per share, while holders of Class B common stock will be entitled to 10 votes per share on all matters to be voted on by stockholders in general.

BGC Partners will hold                 shares of our Class A common stock after this offering representing approximately     % of our outstanding Class A common stock, assuming that the underwriters do not exercise their option to purchase additional shares of Class A common stock in this offering and representing approximately     % of our outstanding Class A common stock, assuming that the underwriters exercise in full their option to purchase additional shares of Class A common stock in this offering. In addition, as of immediately after the offering, BGC Partners will hold                 shares of our Class B common stock representing all of the outstanding shares of our Class B common stock. Together, the shares of Class A common stock and Class B common stock held by BGC Partners after this offering will represent approximately     % of our total voting power, assuming that the underwriters do not exercise their option to purchase additional shares of Class A common stock in this offering, and approximately     % of our total voting power, assuming that the

 

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underwriters exercise in full their option to purchase additional shares of Class A common stock in this offering. Upon the completion of the distribution, Cantor (including CFGM) will beneficially own all of the outstanding shares of our Class B common stock, representing approximately     % of our total voting power. In addition, Cantor will have the right to exchange exchangeable partnership interests in Newmark Holdings into additional shares of Class A or Class B common stock, and pursuant to the exchange agreement, BGC Partners, Cantor, CFGM and other Cantor affiliates entitled to hold Class B common stock under our certificate of incorporation will have the right to exchange from time to time, on a one-to-one basis, subject to adjustment, shares of our Class A common stock now owned or subsequently acquired by such persons for shares of our Class B common stock, up to the number of shares of Class B common stock that are authorized but unissued under our certificate of incorporation. Prior to the distribution, however, without the prior consent of BGC Partners, the Cantor entities may not exchange such shares of our Class A common stock into shares of our Class B common stock. We expect to retain our dual class structure, and there are no circumstances under which the holders of Class B common stock would be required to convert their shares of Class B common stock into shares of Class A common stock.

As long as BGC Partners or, after the distribution, Cantor, beneficially owns a majority of our total voting power, it will have the ability, without the consent of the other holders of our Class A common stock, to elect all of the members of our board of directors and to control our management and affairs. In addition, it will be able to in its sole discretion determine the outcome of matters submitted to a vote of our stockholders for approval and will be able to cause or prevent a change of control of us. In certain circumstances, the shares of Class B common stock issued to BGC Partners or, after the distribution, Cantor, may be transferred without conversion to Class A common stock, such as when the shares are transferred to an entity controlled by Cantor, BGC Partners or Mr. Lutnick.

The Class B common stock is controlled by BGC Partners or, after the distribution, will be controlled by Cantor, and will not be subject to conversion or redemption by us. Our certificate of incorporation will not provide for automatic conversion of shares of Class B common stock into shares of Class A common stock upon the occurrence of any event. Furthermore, the Class B common stock will only be issuable to Cantor, Mr. Lutnick or certain persons or entities controlled by them and, prior to the distribution, BGC Partners. The difference in the voting rights of Class B common stock could adversely affect the market price of our Class A common stock.

The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.

S&P Dow Jones and FTSE Russell have recently announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500, namely, to exclude companies with multiple classes of shares of common stock from being added to such indices. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the dual class structure of our common stock may prevent the inclusion of our Class A common stock in such indices and may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for our Class A common stock. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock.

Delaware law may protect decisions of our board of directors that have a different effect on holders of our Class A common stock and Class B common stock.

Stockholders may not be able to challenge decisions that have an adverse effect upon holders of our Class A common stock compared to holders of our Class B common stock if our board of directors acts in a disinterested,

 

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informed manner with respect to these decisions, in good faith and in the belief that it is acting in the best interests of our stockholders. Delaware law generally provides that a board of directors owes an equal duty to all stockholders, regardless of class or series, and does not have separate or additional duties to different groups of stockholders, subject to applicable provisions set forth in a corporation’s certificate of incorporation and general principles of corporate law and fiduciary duties.

If we or Newmark Holdings were deemed an “investment company” under the Investment Company Act of 1940 (which we refer to as the “Investment Company Act”), applicable restrictions could make it impractical for us to continue our business and structure as contemplated and could materially adversely affect our business, financial condition, results of operations and prospects.

If we were to cease participation in the management of Newmark Holdings, if Newmark Holdings, in turn, were to cease participation in the management of Newmark OpCo, or if Newmark OpCo, in turn, were to cease participation in the management of our operating subsidiaries, or if we were deemed not to have a majority of the voting power of Newmark Holdings (including through our ownership of the Special Voting Limited Partnership Interest), or if Newmark Holdings, in turn, were deemed not to have a majority of the voting power of Newmark OpCo (including through its ownership of the Special Voting Limited Partnership Interest), or if Newmark OpCo, in turn, were deemed not to have a majority of the voting power of our operating subsidiaries, or if any of our operating subsidiaries were deemed to be “investment companies,” our interests in Newmark Holdings and Newmark OpCo, and Newmark Holdings’ interests in Newmark OpCo, could be deemed “investment securities,” and we and Newmark Holdings could be deemed “investment companies,” under the Investment Company Act.

Generally, an entity is deemed an “investment company” under Section 3(a)(1)(A) of the Investment Company Act if it is primarily engaged in the business of investing, reinvesting, or trading in securities, and is deemed an “investment company” under Section 3(a)(1)(C) of the Investment Company Act if it owns investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. Government securities and cash items) on an unconsolidated basis. We believe that neither we nor Newmark Holdings should be deemed an “investment company” as defined under Section 3(a)(1)(A) because neither of us is primarily engaged in the business of investing, reinvesting, or trading in securities. Rather, through our operating subsidiaries, we and Newmark Holdings operate various types of commercial real estate services businesses as described in this prospectus. Neither we nor Newmark Holdings is an “investment company” under Section 3(a)(1)(C) because more than 60% of the value of our total assets on an unconsolidated basis are interests in majority-owned subsidiaries that are not themselves “investment companies” or are otherwise not investment securities. In particular, Berkeley Point, a significant majority-owned subsidiary, is entitled to rely on, among other things, the mortgage banker exemption in Section 3(c)(5)(C) of the Investment Company Act.

We expect to take all legally permissible action to ensure that we and Newmark Holdings are not deemed investment companies under the Investment Company Act, but no assurance can be given that this will not occur.

The Investment Company Act and the rules thereunder contain detailed prescriptions for the organization and operations of investment companies. Among other things, the Investment Company Act and the rules thereunder limit or prohibit transactions with affiliates, limit the issuance of debt and equity securities, prohibit the issuance of stock options and impose certain governance requirements. If anything were to happen that would cause us or Newmark Holdings to be deemed to be an investment company under the Investment Company Act, the Investment Company Act would limit our or its capital structure, ability to transact business with affiliates (including BGC Partners, Cantor, Newmark Holdings or Newmark OpCo, as the case may be) and ability to compensate key employees. Therefore, if we or Newmark Holdings became subject to the Investment Company Act, it could make it impractical to continue our business in this structure, impair agreements and arrangements and impair the transactions contemplated by those agreements and arrangements, between and among us, Newmark Holdings and Newmark OpCo, or any combination thereof, and materially adversely affect our business, financial condition, results of operations and prospects.

 

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RISKS RELATED TO THE SEPARATION AND THE DISTRIBUTION

We have no operating history as a separate public company, and our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.

Our historical and pro forma financial information included in this prospectus is derived from the combined financial statements and accounting records of BGC Partners. Accordingly, the historical and pro forma financial information included herein does not necessarily reflect the results of operations, financial position and cash flows that we would have achieved as a separate, publicly traded company during the periods presented or those that we will achieve in the future primarily as a result of the following factors:

 

    Prior to the separation, our business has been operated by BGC Partners as part of its broader corporate organization, rather than as an independent company. BGC Partners or one of its affiliates has performed various corporate functions for us, including legal services, treasury, accounting, auditing, risk management, information technology, human resources, corporate affairs, tax administration, certain governance functions (including internal audit and compliance with the Sarbanes-Oxley Act) and external reporting. Our historical and pro forma financial results reflect allocations of corporate expenses from BGC Partners for these and similar functions. These allocations are likely less than the comparable expenses we believe we would have incurred had we operated as a separate public company.

 

    Currently, our business is integrated with the other businesses of BGC Partners. Historically, we have shared economies of scale in costs, employees and vendor relationships. While we will enter into transitional arrangements that will govern certain commercial and other relationships between BGC Partners and us after the separation, those transitional arrangements may not fully capture the benefits our business has enjoyed as a result of being integrated with the other businesses of BGC Partners. The loss of these benefits could have an adverse effect on our business, financial condition, results of operations and prospects following the completion of the separation.

 

    Generally, our working capital requirements and capital for our general corporate purposes, including acquisitions and capital expenditures, have historically been satisfied as part of the enterprise-wide cash management policies of BGC Partners. Following the completion of the separation, we may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements.

 

    Following the completion of the separation, the cost of capital for our business may be higher than BGC Partners’ cost of capital prior to the separation.

The pro forma financial information included in this prospectus includes adjustments based upon available information we believe to be reasonable. However, the assumptions may change and actual results may differ. In addition, we have not made pro forma adjustments to reflect many significant changes that will occur in our cost structure, funding and operations as a result of our transition to becoming a public company.

Other significant changes may occur in our cost structure, management, financing and business operations as a result of operating as a public company separate from BGC Partners. The adjustments and allocations we have made in preparing our historical and pro forma financial statements may not appropriately reflect our operations during those periods as if we had in fact operated as a stand-alone entity, or what the actual effect of our separation from BGC Partners will be. For additional information about the presentation of our historical and pro forma financial information included in this prospectus, see “Selected Combined Financial Data” and “Unaudited Pro Forma Condensed Combined Financial Data.”

 

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We may experience increased costs resulting from a decrease in the purchasing power as a result of our separation from BGC Partners.

Historically, we have been able to take advantage of BGC Partners’ size and purchasing power in procuring goods, technology and services, including insurance, employee benefit support and audit services. As a separate public company, we will be a smaller and less diversified company than BGC Partners, and we may not have access to financial and other resources comparable to those available to BGC Partners prior to this offering. As a separate, stand-alone company, we may be unable to obtain goods, technology and services at prices and on terms as favorable as those available to us prior to this offering, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may experience difficulty in separating our assets and resources from BGC Partners.

We may face difficulty in separating our assets from BGC Partners’ assets and integrating newly acquired assets into our business. Our business, financial condition, results of operations and prospects could be harmed if we incur unexpected costs in separating our assets from BGC Partners’ assets or integrating newly acquired assets. We do not expect to face this difficulty, but there can be no assurance that we will not.

The separation may adversely affect our business, and we may not achieve some or all of the expected benefits of the separation.

We may not be able to achieve the full strategic and financial benefits expected to result from the separation, or such benefits may be delayed or not occur at all. These benefits include the following:

 

    improving strategic planning, increasing management focus and streamlining decision-making by providing the flexibility to implement our strategic plan and to respond more effectively to different client needs and the changing economic environment;

 

    allowing us to adopt the capital structure, investment policy and dividend policy best suited to our financial profile and business needs, as well as resolving the current competition for capital among BGC Partners’ businesses;

 

    creating an independent equity structure that will facilitate our ability to effect future acquisitions utilizing our Class A common stock; and

 

    facilitating incentive compensation arrangements for employees more directly tied to the performance of our business, and enhancing employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives.

We may not achieve the anticipated benefits for a variety of reasons. There also can be no assurance that the separation will not adversely affect our business.

There is no assurance that the distribution will occur. If the distribution does not occur, our business and common stock may suffer.

BGC Partners will hold                 shares of our Class A common stock after this offering representing approximately     % of our outstanding Class A common stock, assuming that the underwriters do not exercise their option to purchase additional shares of Class A common stock in this offering, and representing approximately     % of our outstanding Class A common stock, assuming that the underwriters exercise in full their option to purchase additional shares of Class A common stock in this offering. In addition, as of immediately after the offering, BGC Partners will hold                 shares of our Class B common stock representing all of the outstanding shares of our Class B common stock. BGC Partners has advised us that it currently expects to pursue a distribution to its stockholders of all of the shares of our common stock that it then owns in a manner that is intended to qualify as generally tax-free for U.S. federal income tax purposes. The

 

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shares of our common stock that BGC Partners will own upon the completion of this offering will be subject to the 180-day “lock-up” restriction contained in the underwriting agreement for this offering. See “Underwriting (Conflicts of Interest).” Further, there is no assurance that BGC Partners will complete the distribution. The distribution is subject to a number of conditions, and even though BGC Partners may distribute those shares in a tax-efficient manner to the stockholders of BGC Partners, BGC Partners may determine not to proceed with the distribution if the BGC Partners board of directors determines, in its sole discretion, that the distribution is not in the best interest of BGC Partners and its stockholders. Accordingly, the distribution may not occur on the expected timeframe, or at all.

If the distribution does not occur, we may not be able to obtain some of the benefits that we expect as a result of the distribution, including greater strategic focus, increased agility and speed and the other benefits. The separation and the distribution will permit us to build a management team that can focus solely on our strategic initiatives and future growth.

If, following the completion of the distribution, there is a determination that the distribution is taxable for U.S. federal income tax purposes because the facts, assumptions, representations or undertakings underlying the tax opinion with respect to the distribution are incorrect or for any other reason, then BGC Partners and its stockholders could incur significant U.S. federal income tax liabilities, and we could incur significant liabilities.

It is a condition to the distribution that BGC Partners receive an opinion of Wachtell, Lipton, Rosen & Katz, outside counsel to BGC Partners, to the effect that the distribution, together with certain related transactions, will qualify as a transaction that is described in Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (which we refer to as the “Code”). The opinion will rely on certain facts, assumptions, representations and undertakings from BGC Partners and us regarding the past and future conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not otherwise satisfied, BGC Partners and its stockholders may not be able to rely on the opinion of tax counsel. Moreover, notwithstanding this opinion of counsel, the IRS could determine on audit that the separation or the distribution is taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion, or for other reasons, including as a result of certain significant changes in the stock ownership of BGC Partners or us after the separation or distribution. If the separation or distribution is determined to be taxable for U.S. federal income tax purposes, BGC Partners and its stockholders could incur significant U.S. federal income tax liabilities and we may be required to indemnify BGC Partners for all or a portion of any such tax liabilities under the tax matters agreement. Any such liabilities could be substantial, and could have a material adverse effect on our business, financial condition, results of operations and prospects. For a description of the sharing of such liabilities between BGC Partners and us, see “Certain Relationships and Related-Party Transactions—Tax Matters Agreement.”

We may not be able to execute transactions that are outside of Treasury Regulations safe harbors.

Under current law, a spin-off can be rendered taxable to the parent corporation and its stockholders as a result of certain post-spin-off acquisitions of shares or assets of the spun-off corporation. For example, a spin-off may result in taxable gain to the parent corporation under Section 355(e) of the Code if the spin-off were later deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, shares representing a 50% or greater interest (by vote or value) in the spun-off corporation. To preserve the tax-free treatment of the separation and the distribution, and in addition to our other indemnity obligations, the tax matters agreement between us and BGC Partners will restrict us, through the end of the two-year period following the distribution, except in specific circumstances, from: (i) entering into any transaction pursuant to which all or a portion of the shares of our common stock would be acquired, whether by merger or otherwise, (ii) issuing equity securities beyond certain thresholds, (iii) repurchasing shares of our common stock other than in certain open-market transactions, and (iv) ceasing to actively conduct certain of our

 

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businesses. The tax matters agreement will also prohibit us from taking or failing to take any other action that would prevent the distribution and certain related transactions from qualifying as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. In the absence of the availability of a safe harbor under applicable Treasury Regulations, these restrictions may limit our ability to pursue strategic transactions, equity issuances or repurchases or other transactions that we may believe to be in the best interests of our stockholders or that might increase the value of our business. Current Treasury Regulations allow for a number of safe harbors. For more information, see “Certain Relationships and Related-Party Transactions—Tax Matters Agreement.”

RISKS RELATED TO OUR RELATIONSHIP WITH BGC PARTNERS, CANTOR AND THEIR RESPECTIVE AFFILIATES

Upon the completion of this offering, we will be controlled by BGC Partners (which is controlled by Cantor). Upon completion of the distribution, we will be controlled by Cantor. BGC Partners’ and Cantor’s respective interests may conflict with our interests, and BGC Partners and Cantor may exercise their control in a way that favors their respective interests to our detriment.

BGC Partners will hold                 shares of our Class A common stock after this offering representing approximately     % of our outstanding Class A common stock, assuming that the underwriters do not exercise their option to purchase additional shares of Class A common stock in this offering, and representing approximately     % of our outstanding Class A common stock, assuming that the underwriters exercise in full their option to purchase additional shares of Class A common stock in this offering. In addition, as of immediately after the offering, BGC Partners will hold                 shares of our Class B common stock representing all of the outstanding shares of our Class B common stock. Together, the shares of Class A common stock and Class B common stock held by BGC Partners after this offering will represent approximately     % of our total voting power, assuming that the underwriters do not exercise their option to purchase additional shares of Class A common stock in this offering, and approximately     % of our total voting power, assuming that the underwriters exercise in full their option to purchase additional shares of Class A common stock in this offering. BGC Partners is controlled by Cantor. If the distribution occurs, Cantor will beneficially own                 shares of our Class A common stock representing approximately     % of our outstanding Class A common stock, assuming that the underwriters do not exercise their option to purchase additional shares of Class A common stock in this offering, and representing approximately     % of our outstanding Class A common stock, assuming that the underwriters exercise in full their option to purchase additional shares of Class A common stock in this offering, and all of the outstanding shares of our Class B common stock, together representing approximately     % of our total voting power, assuming that the underwriters do not exercise their option to purchase additional shares of Class A common stock in this offering, and approximately     % of our total voting power, assuming that the underwriters exercise in full their option to purchase additional shares of Class A common stock in this offering. We expect to retain our dual class structure, and there are no circumstances under which the holders of Class B common stock would be required to convert their shares of Class B common stock into shares of Class A common stock.

As a result, upon completion of this offering, BGC Partners, directly through its ownership of shares of our Class A common stock and Class B common stock, and Cantor, indirectly through its control of BGC Partners, will each be able to exercise control over our management and affairs and all matters requiring stockholder approval, including the election of our directors and determinations with respect to acquisitions and dispositions, as well as material expansions or contractions of our business, entry into new lines of business and borrowings and issuances of our Class A common stock and Class B common stock or other securities. BGC Partners’ voting power, prior to the completion of the distribution, and Cantor’s voting power, indirectly prior to the completion of the distribution and directly after the completion of the distribution, may also have the effect of delaying or preventing a change of control of us.

 

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BGC Partners’ and Cantor’s ability to exercise control over us could create or appear to create potential conflicts of interest. Conflicts of interest may arise between us and each of BGC Partners and Cantor in a number of areas relating to our past and ongoing relationships, including:

 

    potential acquisitions and dispositions of businesses;

 

    the issuance or disposition of securities by us;

 

    the election of new or additional directors to our board of directors;

 

    the payment of dividends by us (if any), distribution of profits by Newmark OpCo and/or Newmark Holdings and repurchases of shares of our Class A common stock or purchases of Newmark Holdings limited partnership interests or other equity interests in our subsidiaries, including from BGC Partners, Cantor or our executive officers, other employees, partners and others;

 

    business operations or business opportunities of ours and BGC Partners’ or Cantor’s that would compete with the other party’s business opportunities;

 

    intellectual property matters;

 

    business combinations involving us; and

 

    the nature, quality and pricing of administrative services and transition services to be provided to or by BGC Partners or Cantor or their respective affiliates.

Potential conflicts of interest could also arise if we decide to enter into any new commercial arrangements with BGC Partners or Cantor in the future or in connection with BGC Partners’ or Cantor’s desire to enter into new commercial arrangements with third parties.

We also expect each of BGC Partners and Cantor to manage its respective ownership of us so that it will not be deemed to be an investment company under the Investment Company Act, including by maintaining its voting power in us above a majority absent an applicable exemption from the Investment Company Act. This may result in conflicts with us, including those relating to acquisitions or offerings by us involving issuances of shares of our Class A common stock, or securities convertible or exchangeable into shares of Class A common stock, that would dilute BGC Partners’ or Cantor’s voting power in us.

In addition, each of BGC Partners and Cantor has from time to time in the past and may in the future consider possible strategic realignments of its own businesses and/or of the relationships that exist between and among BGC Partners and/or Cantor and their other respective affiliates and us. Any future material related-party transaction or arrangement between BGC Partners and/or Cantor and their other respective affiliates and us is subject to the prior approval by our audit committee, but generally does not require the separate approval of our stockholders, and if such stockholder approval is required, BGC Partners and/or Cantor may retain sufficient voting power to provide any such requisite approval without the affirmative consent of our other stockholders. Further, our regulators may require the consolidation, for regulatory purposes, of BGC Partners, Cantor and/or their other respective affiliates and us or require other restructuring of the group. There is no assurance that such consolidation or restructuring would not result in a material expense or disruption to our business.

Cantor has existing real estate-related businesses, and Newmark and Cantor will be partners in a real estate-related joint venture, Real Estate Newco. While these businesses do not currently compete with Newmark, it is possible that, in the future, real estate-related opportunities in which Newmark would be interested may also be pursued by Cantor and/or Real Estate Newco, and Real Estate Newco may conduct activities in any real estate-related business or asset-backed securities-related business or any extensions thereof and ancillary activities thereto. For example, Cantor’s commercial lending business has historically offered conduit loans to the multifamily market. While conduit loans have certain key differences versus multifamily agency loans, such as those offered by Berkeley Point, there can be no assurance that Cantor’s and/or Real Estate Newco’s lending businesses will not seek to offer multifamily loans to our existing and potential multifamily customer base.

 

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Moreover, the service of officers or partners of BGC Partners or Cantor as our executive officers and directors, and those persons’ ownership interests in and payments from BGC Partners or Cantor and their respective affiliates, could create conflicts of interest when we and those directors or executive officers are faced with decisions that could have different implications for us and them.

Our agreements and other arrangements with BGC Partners and Cantor, including the separation and distribution agreement, may be amended upon agreement of the parties to those agreements and approval of our audit committee. During the time that we are controlled by BGC Partners and/or Cantor, BGC Partners and/or Cantor may be able to require us to agree to amendments to these agreements. We may not be able to resolve any potential conflicts, and, even if we do, the resolution may be less favorable to us than if we were dealing with an unaffiliated party. Additionally, pursuant to the separation and distribution agreement, for so long as BGC Partners beneficially owns at least 50% of the total voting power of our outstanding capital stock entitled to vote in the election of directors, we will not, and will cause our subsidiaries to not (without BGC Partners’ prior written consent) take certain actions, including, without limitation, acquiring any other businesses or assets or disposing of any of our assets, in each case with an aggregate value for all such transactions in excess of $100 million, or incurring any indebtedness, other than indebtedness not in excess of $50 million in the aggregate or any indebtedness incurred to repay the Term Loan, the BGC Notes or other indebtedness of BGC Partners or its subsidiaries that we will assume in the separation. See “Certain Relationships and Related-Party Transactions—Separation and Distribution Agreement—Operating Covenants.”

In order to address potential conflicts of interest between or among BGC Partners, Cantor and their respective representatives and us, our certificate of incorporation will contain provisions regulating and defining the conduct of our affairs as they may involve BGC Partners and/or Cantor and their respective representatives, and our powers, rights, duties and liabilities and those of our representatives in connection therewith. Our certificate of incorporation provides that, to the greatest extent permitted by law, no Cantor Company or BGC Partners Company, each as defined in our certificate of incorporation, or any of the representatives, as defined in our certificate of incorporation, of a Cantor Company or BGC Partners Company will, in its capacity as our stockholder or affiliate, owe or be liable for breach of any fiduciary duty to us or any of our stockholders. In addition, to the greatest extent permitted by law, none of any Cantor Company, BGC Partners Company or any of their respective representatives will owe any duty to refrain from engaging in the same or similar activities or lines of business as us or our representatives or doing business with any of our or our representatives’ clients or customers. If any Cantor Company, BGC Partners Company or any of their respective representatives acquires knowledge of a potential transaction or matter that may be a corporate opportunity (as defined in our certificate of incorporation) for any such person, on the one hand, and us or any of our representatives, on the other hand, such person will have no duty to communicate or offer such corporate opportunity to us or any of our representatives, and will not be liable to us, any of our stockholders or any of our representatives for breach of any fiduciary duty by reason of the fact that they pursue or acquire such corporate opportunity for themselves, direct such corporate opportunity to another person or do not present such corporate opportunity to us or any of our representatives, subject to the requirement described in the following sentence. If a third party presents a corporate opportunity to a person who is both our representative and a representative of a BGC Partners Company and/or a Cantor Company, expressly and solely in such person’s capacity as our representative, and such person acts in good faith in a manner consistent with the policy that such corporate opportunity belongs to us, then such person will be deemed to have fully satisfied and fulfilled any fiduciary duty that such person has to us as our representative with respect to such corporate opportunity, provided that any BGC Partners Company, any Cantor Company or any of their respective representatives may pursue such corporate opportunity if we decide not to pursue such corporate opportunity.

The corporate opportunity policy that is included in our certificate of incorporation is designed to resolve potential conflicts of interest between us and our representatives and BGC Partners, Cantor and their respective representatives. The Newmark Holdings limited partnership agreement contains similar provisions with respect to us and/or BGC Partners and Cantor and each of our respective representatives, and the Newmark OpCo limited partnership agreement will contain similar provisions with respect to us and/or Newmark Holdings and

 

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each of our respective representatives. This policy, however, could make it easier for BGC Partners or Cantor to compete with us. If BGC Partners or Cantor competes with us, it could materially harm our business, financial condition, results of operations and prospects.

See “Certain Relationships and Related-Party Transactions—Potential Conflicts of Interest and Competition with BGC Partners and Cantor.”

Mr. Lutnick will have actual or potential conflicts of interest because of his positions with BGC Partners and/or Cantor.

Upon completion of this offering, Mr. Lutnick will continue to serve as Chairman of the Board and Chief Executive Officer of BGC Partners, and as Chairman of the Board and Chief Executive Officer of Cantor. In addition, Mr. Lutnick will own BGC Partners common stock, options to purchase BGC Partners common stock, other BGC Partners’ equity awards or partnership interests in BGC Holdings, or equity interests in Cantor. These interests may be significant compared to his total assets. His positions at BGC Partners and/or Cantor and the ownership of any such equity or equity awards create, or may create the appearance of, conflicts of interest when he is faced with decisions that could have different implications for BGC Partners or Cantor than the decisions have for us.

Agreements between us and BGC Partners and/or Cantor are between related parties, and the terms of these agreements may be less favorable to us than those that we could negotiate with third parties and may subject us to litigation.

Our relationship with BGC Partners and/or Cantor may result in agreements with BGC Partners and/or Cantor that are between related parties. For example, we will provide to and receive from Cantor and BGC Partners and their respective affiliates various administrative services and transition services, respectively. As a result, the prices charged to us or by us for services provided under agreements with BGC Partners and Cantor may be higher or lower than prices that may be charged by third parties, and the terms of these agreements may be less favorable to us than those that we could have negotiated with third parties. Any future material related-party transaction or arrangement between us and BGC Partners and/or Cantor is subject to the prior approval by our audit committee, but generally does not require the separate approval of our stockholders, and if such stockholder approval were required, BGC Partners and/or Cantor may retain sufficient voting power to provide any such requisite approval without the affirmative consent of our other stockholders. These related-party relationships may also from time to time subject us to litigation.

We will be controlled by BGC Partners, which is controlled by Cantor. Cantor controls its wholly owned subsidiary, CF&Co, which is an underwriter of this offering and may provide us with additional investment banking services. In addition, Cantor, CF&Co and their affiliates may provide us with advice and services from time to time.

We will be controlled by BGC Partners, which is controlled by Cantor. Cantor, in turn, controls its wholly owned subsidiary, CF&Co, which is an underwriter of this offering. Pursuant to the underwriting agreement, we will pay CF&Co                 % of the gross proceeds from the sale of shares of our Class A common stock. In addition, Cantor, CF&Co and their affiliates may provide investment banking services to us and our affiliates, including acting as our financial advisor in connection with business combinations, dispositions or other transactions, and placing or recommending to us various investments, stock loans or cash management vehicles. They would receive customary fees and commissions for these services. They may also receive brokerage and market data and analytics products and services from us and our respective affiliates.

 

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RISKS RELATED TO THIS OFFERING, OWNERSHIP OF OUR CLASS A COMMON STOCK AND OUR STATUS AS A PUBLIC COMPANY

A sufficiently active trading market for our Class A common stock may not develop or be maintained, and you may not be able to resell your shares at or above the initial public offering price.

Prior to this offering, there has been no public market for shares of our Class A common stock. Although we have applied to list our Class A common stock on the NASDAQ Global Market, a sufficiently active trading market for our shares may never develop or be sustained following this offering. In addition, we cannot assure you as to the liquidity of any such market that may develop or the price that our stockholders may obtain for their shares of our Class A common stock. The initial public offering price of our Class A common stock will be determined through negotiations between us and the qualified independent underwriter. This initial public offering price may not be indicative of the market price of our Class A common stock after this offering. In the absence of a sufficiently active trading market for our Class A common stock, investors may not be able to sell their Class A common stock at or above the initial public offering price or at the time that they would like to sell. As a result, you could lose all or part of your investment.

The market price of our Class A common stock may be volatile, which could cause the value of an investment in our Class A common stock to decline.

The market price of our Class A common stock may fluctuate substantially due to a variety of factors, including:

 

    our quarterly or annual earnings, or those of other companies in our industry;

 

    actual or anticipated fluctuations in our results of operations;

 

    differences between our actual financial and operating results and those expected by investors and analysts;

 

    changes in analysts’ recommendations or estimates or our ability to meet those estimates;

 

    the prospects of our competition and of the commercial real estate market in general;

 

    changes in general valuations for companies in our industry; and

 

    changes in business, legal or regulatory conditions, or other general economic or market conditions and overall market fluctuations.

In particular, the realization of any of the risks described in these “Risk Factors” or under “Special Note Regarding Forward-Looking Statements” could have a material adverse impact on the market price of our Class A common stock in the future and cause the value of your investment to decline. In addition, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of particular companies. These types of broad market fluctuations may adversely affect the trading price of our Class A common stock.

In the past, stockholders of other companies have sometimes instituted securities class action litigation against issuers following periods of volatility in the market price of their securities. Any similar litigation against us could result in substantial costs, divert management’s attention and our other resources and could have a material adverse effect on our business, financial condition, results of operations and prospects. There is no assurance that such a suit will not be brought against us.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.

The trading market for our Class A common stock will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us

 

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downgrade our stock or publish unfavorable research about our business, our stock price could decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

As a public company, we will incur significant legal, accounting and other expenses, including costs associated with public company reporting requirements. We also will incur costs associated with the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act and related rules implemented or to be implemented by the U.S. Securities and Exchange Commission (which we refer to as the “SEC”) and the NASDAQ Stock Market. Prior to the completion of this offering, these costs have been incurred by BGC Partners on a consolidated basis. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect the rules and regulations associated with being a public company to result in substantial legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept constraints on policy limits and coverage or incur substantially higher costs to obtain coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers and may divert management’s attention.

If we fail to implement and maintain an effective internal control environment, our operations, reputation and stock price could suffer, we may need to restate our financial statements and we may be delayed in or prevented from accessing the capital markets.

As a result of becoming a public company, we will be required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the first full fiscal year beginning after the effective date of this offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. A material weakness is a control deficiency or combination of control deficiencies that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging.

Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, internal controls over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the internal controls. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As such, we could lose investor confidence in the accuracy and completeness of our financial reports, which may have a material adverse effect on our reputation and stock price.

Our ability to identify and remediate any material weaknesses in our internal controls could affect our ability to prepare financial reports in a timely manner, control our policies, procedures, operations and assets, assess and manage our operational, regulatory and financial risks, and integrate our acquired businesses.

 

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Similarly, we need to effectively manage any growth that we achieve in such a way as to ensure continuing compliance with all applicable internal control, financial reporting and legal and regulatory requirements. Any failures to ensure full compliance with internal control and financial reporting requirements could result in restatement, delay or prevent us from accessing the capital markets and harm our reputation and the market price for our Class A common stock.

We are an emerging growth company and as a result have certain reduced disclosure requirements in this prospectus.

We are an emerging growth company, as defined in the JOBS Act and have elected to comply with certain reduced disclosure requirements for this prospectus in accordance with the JOBS Act. As an emerging growth company, we are not required to disclose certain executive compensation information in this prospectus pursuant to the JOBS Act. We also are required to present only two years of audited financial statements and related Management’s Discussion and Analysis of Financial Condition and Results of Operations in this prospectus. We expect that our revenues for 2017 will exceed $1.07 billion. As a result, we expect that we will cease to qualify as an emerging growth company after the later of the completion of this offering and January 1, 2018 and thereafter will no longer be eligible for the exemptions from disclosure provided to an emerging growth company.

We will be a “controlled company” within the meaning of the NASDAQ Stock Market rules and we will qualify for exemptions from certain corporate governance requirements. We do not currently expect or intend to rely on any of these exemptions, but there is no assurance that we will not rely on these exemptions in the future.

Because BGC Partners will control more than a majority of the total voting power of our common stock following this offering, we will be a “controlled company” within the meaning of the NASDAQ Stock Market rules. Under these rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a “controlled company” and may elect not to comply with certain stock exchange rules regarding corporate governance, including:

 

    the requirement that a majority of its board of directors consist of independent directors;

 

    the requirement that its director nominees be selected or recommended for the board’s selection by a majority of the board’s independent directors in a vote in which only independent directors participate or by a nominating committee comprised solely of independent directors, in either case, with a formal written charter or board resolutions, as applicable, addressing the nominations process and such related matters as may be required under the federal securities laws; and

 

    the requirement that its compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

We do not currently expect or intend to rely on any of these exemptions, but there is no assurance that we will not rely on these exemptions in the future. If we were to utilize some or all of these exemptions, you may not have the same protections afforded to stockholders of companies that are subject to all of the NASDAQ Stock Market rules regarding corporate governance.

Future sales of shares of Class A common stock, including in this offering, could adversely affect the market price of our Class A common stock. Our stockholders could be diluted by such future sales and be further diluted upon exchange of Newmark Holdings limited partnership interests into our common stock and upon issuance of additional Newmark OpCo limited partnership interests to Newmark Holdings as a result of future issuances of Newmark Holdings limited partnership interests.

Future sales of our shares could adversely affect the market price of our Class A common stock. If our existing stockholders sell a large number of shares, or if we issue a large number of shares of our common stock

 

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in connection with future acquisitions, strategic alliances, third-party investments and private placements or otherwise, such as this offering, the market price of our Class A common stock could decline significantly. Moreover, the perception in the public market that these stockholders might sell shares could depress the market price of our Class A common stock.

BGC Partners will hold                 shares of our Class A common stock after this offering representing approximately     % of our outstanding Class A common stock, assuming that the underwriters do not exercise their option to purchase additional shares of Class A common stock in this offering and representing approximately     % of our outstanding Class A common stock, assuming that the underwriters exercise in full their option to purchase additional shares of Class A common stock in this offering. In addition, as of immediately after the offering, BGC Partners will hold                 shares of our Class B common stock representing all of the outstanding shares of our Class B common stock. Together, the shares of Class A common stock and Class B common stock held by BGC Partners after this offering will represent approximately     % of our total voting power, assuming that the underwriters do not exercise their option to purchase additional shares of Class A common stock in this offering, and approximately     % of our total voting power, assuming that the underwriters exercise in full their option to purchase additional shares of Class A common stock in this offering. BGC Partners has advised us that it currently expects to pursue a distribution to its stockholders of all of the shares of our common stock that it then owns in a manner that is intended to qualify as generally tax-free for U.S. federal income tax purposes. The determination of whether, when and how to proceed with any such distribution is entirely within the discretion of BGC Partners. The shares of our common stock that BGC Partners and our executive officers and directors will own upon the completion of this offering will be subject to the 180-day “lock-up” restriction contained in the underwriting agreement for this offering. See “Underwriting (Conflicts of Interest).” If the distribution occurs, the distributed shares of Class A common stock would be eligible for immediate resale in the public market, except for those held by Cantor and other affiliates of ours, which distributed shares could be sold pursuant to a registered offering or pursuant to an exemption under the Securities Act. We are unable to predict whether significant amounts of our Class A common stock will be sold in the open market in anticipation of, or following, the distribution. Any potential sale, disposition or distribution of our Class A common stock, or the perception that such sale, disposition or distribution could occur, could adversely affect prevailing market prices for our Class A common stock.

Even if BGC Partners does not distribute the shares of our common stock that it will own upon the completion of this offering by means of the distribution, BGC Partners may sell all or a portion of such shares to the public or in one or more private transactions after the expiration of the “lock-up” restriction (which is 180 days after completion of this offering) contained in the agreement with the underwriters and described under “Underwriting (Conflicts of Interest).” We have entered into a registration rights agreement with BGC Partners and Cantor that grants them registration rights to facilitate their sale of shares of our Class A common stock in the market. Any sale or distribution, or expectations in the market of a possible sale or distribution, by BGC Partners or Cantor of all or a portion of our shares of Class A common stock through the distribution, in a registered offering, pursuant to an exemption under the Securities Act or otherwise could depress or reduce the market price for our Class A common stock or cause our shares to trade below the prices at which they would otherwise trade.

Moreover, the shares of our Class A common stock sold in this offering will be freely tradable without restriction, except for any shares acquired by an affiliate of ours, which shares can be sold under Rule 144 under the Securities Act, subject to various volume and other limitations. Subject to certain limited exceptions, we, our executive officers and directors and BGC Partners have agreed with the underwriters not to sell, dispose of or hedge any shares of our Class A common stock or securities convertible into or exchangeable for shares of our Class A common stock without the prior written consent of the representatives of the underwriters for the period ending 180 days after the date of this prospectus. After the expiration of the 180-day “lock-up” restriction, our executive officers and directors and BGC Partners could dispose of all or any part of their shares of our Class A common stock through a public offering, sales under Rule 144 or other transactions. In addition, certain of the underwriters may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements

 

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at any time and for any reason. Sales of a substantial number of such shares upon expiration of the lock-up restriction and market stand-off agreements, the perception that such sales may occur, or early release of these agreements, could cause our market price to fall or make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate.

After the completion of this offering, we expect to register under the Securities Act,                 shares of Class A common stock, which are reserved for issuance upon exercise of options, restricted stock and other equity awards granted under our Long-Term Incentive Plan (which we refer to as the “Equity Plan”). These shares can be sold in the public market upon issuance, subject to restrictions under the securities laws applicable to resales by affiliates. We may in the future register additional shares of Class A common stock under the Securities Act that become reserved for issuance under other equity incentive plans.

In addition, immediately following this offering, there will be outstanding                 limited partnership interests of Newmark Holdings. Such limited partnership interests will be exchangeable with us for shares of our common stock on a one-for-one basis (subject to adjustments as set forth in the Newmark Holdings limited partnership agreement) in accordance with the terms of the Newmark Holdings limited partnership agreement, provided that BGC Partners’ prior consent will be required to effect any such exchanges prior to the distribution. Shares of Class A common stock issued upon such exchange would be eligible for resale in the public market. See “Certain Relationships and Related-Party Transactions—Amended and Restated Newmark Holdings Limited Partnership Agreement—Exchanges.”

We may register for resale the shares of our Class A common stock for which the Newmark Holdings limited partnership interests are exchangeable. In light of the number of shares of our common stock issuable in connection with the full exchange of the Newmark Holdings exchangeable limited partnership interests, the price of our Class A common stock may decrease and our ability to raise capital through the issuance of equity securities may be adversely impacted as these exchanges occur and any transfer restrictions lapse.

Prior to the distribution, to the extent that BGC Partners receives any Newmark OpCo units as a result of any exchange of Newmark Holdings exchangeable limited partnership interests or as a result of any contribution by BGC Partners to Newmark OpCo or purchase by BGC Partners of Newmark OpCo units, then, in each case, BGC Partners will contribute such Newmark OpCo units to Newmark in exchange for an equal number of newly issued shares of Newmark common stock, which would dilute the other stockholders of Newmark. See “Certain Relationships and Related-Party Transactions—Separation and Distribution Agreement—BGC Partners Contribution of Newmark OpCo Units Prior to the Distribution.”

Any such potential sale, disposition or distribution of our common stock, or the perception that such sale, disposition or distribution could occur, could adversely affect prevailing market prices for our Class A common stock.

Delaware law, our corporate organizational documents and other requirements may impose various impediments to the ability of a third party to acquire control of us, which could deprive our investors of the opportunity to receive a premium for their shares.

We are a Delaware corporation, and the anti-takeover provisions of the Delaware General Corporation Law (which we refer to as the “DGCL”) our certificate of incorporation and our amended and restated bylaws (which we refer to as our “bylaws”) impose various impediments to the ability of a third party to acquire control of us, even if a change of control would be beneficial to our Class A stockholders.

These provisions, summarized below, may discourage coercive takeover practices and inadequate takeover bids. These provisions may also encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection give us the potential ability to negotiate with the initiator of an unfriendly or unsolicited proposal to acquire or restructure us and outweigh the

 

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disadvantages of discouraging those proposals because negotiation of them could result in an improvement of their terms.

Our bylaws will provide that special meetings of stockholders may be called only by the Chairman of our board of directors, or in the event the Chairman of our board of directors is unavailable, by the Chief Executive Officer or by the holders of a majority of the voting power of our Class B common stock, which will be held by BGC Partners before the distribution and by Cantor and CFGM after the distribution. In addition, our certificate of incorporation will permit us to issue “blank check” preferred stock.

Our bylaws will require advance written notice prior to a meeting of our stockholders of a proposal or director nomination which a stockholder desires to present at such a meeting, which generally must be received by our Secretary not later than 120 days prior to the first anniversary of the date of our proxy statement for the preceding year’s annual meeting. In the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not later than the close of business on the later of the 120th day prior to the date of such proxy statement or the 10th day following the day on which public announcement of the date of such meeting is first made by us. Our bylaws will provide that all amendments to our bylaws must be approved by either the holders of a majority of the voting power of all of our outstanding capital stock entitled to vote or by a majority of our board of directors.

We currently intend to elect in our certificate of incorporation not to be subject to Section 203 of the DGCL, which generally prohibits a publicly held Delaware corporation from engaging in a business combination, such as a merger, with a person or group owning 15% or more of the corporation’s voting stock, for a period of three years following the date on which the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in accordance with Section 203. Accordingly, we are not subject to the anti-takeover effects of Section 203. However, our certificate of incorporation will contain provisions that have the same effect as Section 203, except that they provide that each of the Qualified Class B Holders and certain of their direct transferees will not be deemed to be “interested stockholders,” and accordingly will not be subject to such restrictions.

Further, our Equity Plan contains provisions pursuant to which grants that are unexercisable or unvested may automatically become exercisable or vested as of the date immediately prior to certain change of control events. Additionally, change in control and employment agreements between us and our named executive officers also provide for certain grants, payments and grants of exchangeability in the event of certain change of control events.

The foregoing factors, as well as the significant common stock ownership by BGC Partners before the distribution and Cantor after the distribution, including shares of our Class B common stock, and rights to acquire additional such shares, and the provisions of any debt agreements could impede a merger, takeover or other business combination or discourage a potential investor from making a tender offer for our Class A common stock that could result in a premium over the market price for shares of Class A common stock.

Our certificate of incorporation will provide that a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware) shall be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.

Our certificate of incorporation will provide that, unless we consent to the selection of an alternative forum, a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware) shall be the sole and exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a claim for or based on a breach of duty or obligation owed by any current or former director, officer, employee or agent of ours to us or to our

 

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stockholders, including any claim alleging the aiding and abetting of such a breach; any action asserting a claim against us or any current or former director, officer, employee or agent of ours arising pursuant to any provision of the DGCL or our certificate of incorporation or bylaws; any action asserting a claim related to or involving us that is governed by the internal affairs doctrine; or any action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and our directors, officers, employees and agents. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve substantial 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,” “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:

 

    our relationship with Cantor, BGC Partners and their respective affiliates and any related conflicts of interest, competition for and retention of brokers and other managers and key employees;

 

    the timing of the distribution and whether the distribution will occur at all;

 

    pricing, commissions and fees, and market position with respect to any of our products and services and those of our competitors;

 

    the effect of industry concentration and reorganization, reduction of customers and consolidation;

 

    market conditions, including trading volume and volatility, potential deterioration of equity and debt capital markets for commercial real estate and related services, and our ability to access the capital markets;

 

    risks associated with the integration of acquired businesses with our other businesses;

 

    risks related to changes in our relationships with the GSEs and HUD, changes in prevailing interest rates and the risk of loss in connection with loan defaults;

 

    economic or geopolitical conditions or uncertainties, the actions of governments or central banks, and the impact of terrorist acts, acts of war or other violence or unrest, as well as natural disasters or weather-related or similar events;

 

    the effect on our business, our clients, the markets in which we operate, and the economy in general of possible shutdowns of the U.S. government, sequestrations, uncertainties regarding the debt ceiling and the federal budget, and other potential political policies and impasses;

 

    the regulation of our businesses, changes in regulation relating to commercial real estate and other industries, and risks relating to compliance matters, including our taking action 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 counterparty failure;

 

    the costs and expenses of developing, maintaining and protecting intellectual property, including judgments or settlements paid or received in connection with intellectual property, or employment or other litigation and their related costs;

 

    certain financial risks, including the possibility of future losses and negative cash flow from operations, risks of obtaining financing and risks of the resulting leverage, as well as interest and currency rate fluctuations;

 

    the ability to enter new markets or develop new products or services and to induce customers to use these products or services and to secure and maintain market share;

 

    the ability to enter into marketing and strategic alliances, and other transactions, including acquisitions, dispositions, reorganizations, partnering opportunities and joint ventures, and the integration of any completed transactions;

 

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    our estimates or determinations of potential value with respect to various assets or portions of our business, including with respect to the accuracy of the assumptions or the valuation models or multiples used;

 

    the ability to hire new personnel;

 

    the ability to effectively manage any growth that may be achieved, while ensuring compliance with all applicable financial reporting, internal control, legal compliance, and regulatory requirements;

 

    financial reporting, accounting and internal control factors, including identification of any material weaknesses in our internal controls and our ability to prepare historical and pro forma financial statements and reports in a timely manner;

 

    the effectiveness of our risk management policies and procedures, and the impact of unexpected market moves and similar events;

 

    the ability to meet expectations with respect to payment of dividends and repurchases of our common stock or purchases of Newmark Holdings limited partnership interests or other equity interests in our subsidiaries, including from BGC Partners, Cantor or our executive officers, other employees, partners and others; and

 

    other factors, including those that are discussed under “Risk Factors,” to the extent applicable.

We believe that all forward-looking statements are based upon reasonable assumptions when made. However, we caution that it is impossible to predict actual results or outcomes or the effects of risks, uncertainties or other factors on anticipated results or outcomes and that accordingly you should not place undue reliance on these statements. Forward-looking statements speak only as of the date when made, and we undertake no obligation to update these statements in light of subsequent events or developments.

 

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USE OF PROCEEDS

We estimate that our net proceeds from this offering will be approximately $                 ($                 if the underwriters exercise their option to purchase additional shares of Class A common stock in full), assuming a public offering price of $                 per share (which is the midpoint of the offering price range set forth on the cover page of this prospectus), after deducting underwriters’ discounts and commissions in connection with this offering and estimated offering expenses payable by us.

We currently intend to contribute all of the net proceeds of this offering (including the underwriters’ option to purchase additional shares of Class A common stock) to Newmark OpCo in exchange for a number of units representing Newmark OpCo limited partnership interests equal to the number of shares issued by us in this offering. Newmark OpCo intends to use such net proceeds to repay the Term Loan in full and intends to use any remaining net proceeds for various general partnership purposes, including repayment of the BGC Notes or other indebtedness assumed by us prior to the completion of this offering, potential strategic alliances, acquisitions, joint ventures or hiring personnel. The Term Loan has an outstanding principal amount of $575 million, plus accrued but unpaid interest thereon, with an interest rate calculated from one-month LIBOR plus 2.25%, which is currently approximately 3.5% per annum, subject to adjustment. The terms of the Term Loan require that the net proceeds of this offering be used to repay the Term Loan until the Term Loan is repaid in full.

 

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DIVIDEND POLICY

We expect our board of directors to authorize a dividend policy that will provide that we intend to pay a dividend on a quarterly basis. Any dividends to our common stockholders are expected to be calculated based on our post-tax Adjusted Earnings, as a measure of net income, allocated to us and generated over the fiscal quarter ending prior to the record date for the dividend. See below for a definition of “post-tax Adjusted Earnings” per fully diluted share.

We currently expect that, following the distribution (i.e., the spin-off), our quarterly dividend will be less than 25% of our post-tax Adjusted Earnings per fully diluted share to our common stockholders. The declaration, payment, timing and amount of any future dividends payable by us will be at the discretion of our board of directors; provided that, after the distribution (i.e., the spin-off), any quarterly dividend to our common stockholders that is 25% or more of our post-tax Adjusted Earnings per fully diluted share shall require the consent of the holder of a majority of the Newmark Holdings exchangeable limited partnership interests.

Certain Definitions

Newmark uses non-GAAP financial measures including, but not limited to, “pre-tax Adjusted Earnings” and “post-tax Adjusted Earnings,” which are supplemental measures of operating results that are used by management to evaluate the financial performance of the Company and its consolidated subsidiaries. Newmark believes that Adjusted Earnings best reflect the operating earnings generated by the Company on a consolidated basis and are the earnings which management considers available for, among other things, dividend and/or distribution to Newmark’s common stockholders and holders of Newmark Holdings partnership units during any period.

As compared with items such as “Income (loss) before income taxes and noncontrolling interests” and “Newmark’s net income (loss) available to its parent, BGC Partners,” all prepared in accordance with GAAP, Adjusted Earnings calculations primarily exclude certain non-cash compensation and other expenses that generally do not involve the receipt or outlay of cash by the Company and/or which do not dilute existing stockholders, as described below. In addition, Adjusted Earnings calculations exclude certain gains and charges that management believes do not best reflect the ordinary operating results of Newmark.

Adjustments Made to Calculate Pre-Tax Adjusted Earnings

Pre-tax Adjusted Earnings are defined as GAAP Income (loss) from operations before income taxes and noncontrolling interest in subsidiaries excluding items, such as:

 

    Non-cash charges relating to grants of exchangeability to limited partnership units;

 

    Non-cash asset impairment charges, if any;

 

    Net non-cash GAAP gains related to originated mortgage servicing right (which we refer to as “OMSR”) gains and mortgage servicing right (which we refer to as “MSR”) amortization;

 

    Allocations of net income to limited partnership units; and

 

    Non-cash charges related to the amortization of intangibles with respect to acquisitions.

In addition to the abovementioned items, Adjusted Earnings calculations exclude certain unusual, one-time or non-recurring items, if any. These charges are excluded from Adjusted Earnings because the Company views excluding such charges as a better reflection of the ongoing, ordinary operations of Newmark. Newmark’s definition of Adjusted Earnings also excludes certain gains and charges with respect to acquisitions, dispositions, or resolutions of litigation. Management believes that excluding such gains and charges also best reflects the ongoing operating performance of Newmark.

 

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Adjustments Made to Calculate Post-Tax Adjusted Earnings

Since Adjusted Earnings are calculated on a pre-tax basis, management intends to also report post-tax Adjusted Earnings to fully-diluted shareholders. Post-tax Adjusted Earnings to fully-diluted shareholders are defined as pre-tax Adjusted Earnings, less noncontrolling interest in subsidiaries, and reduced by the tax provision as described below.

The Company’s calculation of the provision for taxes on an annualized basis starts with the GAAP income tax provision, adjusted to reflect tax-deductible items. Management uses this non-GAAP provision for taxes in part to help it evaluate, among other things, the overall performance of the business, make decisions with respect to the Company’s operations, and to determine the amount of dividends payable to common shareholders. The provision for taxes with respect to Adjusted Earnings includes additional tax-deductible items, such as limited partnership unit exchange or conversion, employee loan amortization, charitable contributions, and certain net-operating loss carryforwards.

Newmark incurs income tax expenses based on the location, legal structure and jurisdictional taxing authorities of each of its subsidiaries. Certain of the Company’s entities are taxed as U.S. partnerships and are subject to the Unincorporated Business Tax (“UBT”) in New York City. Any U.S. federal and state income tax liability or benefit related to the partnership income or loss, with the exception of UBT, rests with the unit holders rather than with the partnership entity. The Company’s consolidated financial statements include U.S. federal, state and local income taxes on the Company’s allocable share of the U.S. results of operations. Outside of the U.S., Newmark is expected to operate principally through subsidiary corporations subject to local income taxes. For these reasons, taxes for Adjusted Earnings are expected to be presented to show the tax provision the consolidated Company would expect to pay if 100 percent of earnings were taxed at global corporate rates.

Calculations of Pre-Tax and Post-Tax Adjusted Earnings per Share

Newmark’s Adjusted Earnings per share calculations assume either that:

 

    The fully-diluted share count includes the shares related to any dilutive instruments, but excludes the associated interest expense, net of tax, when the impact would be dilutive; or

 

    The fully-diluted share count excludes the shares related to these instruments, but includes the associated interest expense, net of tax.

The share count for Adjusted Earnings excludes shares expected to be issued in future periods but not yet eligible to receive dividends and/or distributions.

Each quarter, the dividend payable to Newmark’s common stockholders, if any, is expected to be determined by the Company’s Board of Directors with reference to a number of factors, including post-tax Adjusted Earnings per fully-diluted share. Newmark may also pay a pro-rata distribution of net income to limited partnership units, as well as to Cantor for its noncontrolling interest. The amount of this net income, and therefore of these payments per unit, would be determined using the above definition of pre-tax Adjusted Earnings using the fully-diluted share count.

Other Matters with Respect to Adjusted Earnings

The term “Adjusted Earnings” should not be considered in isolation or as an alternative to GAAP net income (loss). The Company views Adjusted Earnings as a metric that is not indicative of liquidity or the cash available to fund its operations, but rather as a performance measure. Pre- and post-tax Adjusted Earnings are not intended to replace the Company’s presentation of GAAP financial results. However, management believes that these measures help provide investors with a clearer understanding of Newmark’ financial performance and offer useful information to both management and investors regarding certain financial and business trends related to the Company’s financial condition and results of operations. Management believes that Adjusted Earnings measures and the GAAP measures of financial performance should be considered together.

 

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Newmark anticipates providing forward-looking guidance for GAAP revenues and for certain Adjusted Earnings measures from time to time. However, the Company does not anticipate providing an outlook for other GAAP results. This is because certain GAAP items, which are excluded from Adjusted Earnings, are difficult to forecast with precision before the end of each period. The Company therefore believes that it is not possible to forecast GAAP results or to quantitatively reconcile GAAP results to non-GAAP results with sufficient precision unless Newmark makes unreasonable efforts. The items that are difficult to predict on a quarterly basis with precision and which can have a material impact on the Company’s GAAP results include, but are not limited, to the following:

 

    Allocations of net income and grants of exchangeability to limited partnership units, which are determined at the discretion of management throughout and up to the period-end;

 

    The impact of certain marketable securities, as well as any gains or losses related to associated mark-to-market movements and/or hedging. These items are calculated using period-end closing prices;

 

    Non-cash asset impairment charges, which are calculated and analyzed based on the period-end values of the underlying assets. These amounts may not be known until after period-end; and

 

    Acquisitions, dispositions and/or resolutions of litigation which are fluid and unpredictable in nature.

 

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CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2017, on (1) an actual basis,(2) an actual basis recast for the BP Transaction (which we refer to as “Actual Recast”) and (3) a pro forma as adjusted basis to give effect to the Term Loan and the BGC Notes assumed by us and to the issuance by us of                 shares of our Class A common stock in this offering, based upon the assumed initial public offering price of $                 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

This table should be read in conjunction with “Selected Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations (Excluding Berkeley Point),” “Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Newmark Recast Financial Statements (Including Berkeley Point),” Newmark’s combined financial statements and related notes, and Newmark’s recast combined financial statements and related notes included elsewhere in this prospectus. The data assume that there has been no exercise, in whole or in part, of the underwriters’ option to purchase additional shares of our Class A common stock in this offering.

 

     As of June 30, 2017  
     Actual
Recast
(Including
Berkeley
Point)
     Actual      Pro Forma
(as adjusted)
 
     (in thousands)  

Cash and cash equivalents

   $ 95,722      $ 34,264     

Term Loan and BGC Notes

     —          —       

Stockholders’ equity:

        

Class A common stock, par value of $0.01 per share: 0 shares authorized on an actual basis;                 shares authorized,                 shares issued and outstanding on a pro forma as adjusted basis

     —          —       

Class B common stock, par value of $0.01 per share: 0 shares authorized on an actual basis;                 shares authorized,                 shares issued and outstanding on a pro forma as adjusted basis

     —          —       

Additional paid-in-capital

     719,802        460,487     

Retained earnings

     360,741        62,847     
  

 

 

    

 

 

    

 

 

 

Total stockholders’ equity

     1,080,543        523,334     
  

 

 

    

 

 

    

 

 

 

Noncontrolling interests

     1,152        1,152     
  

 

 

    

 

 

    

 

 

 

Total equity

     1,081,695        524,486     
  

 

 

    

 

 

    

 

 

 

Total capitalization

   $ 1,081,695      $ 524,486     
  

 

 

    

 

 

    

 

 

 

 

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DILUTION

If you invest in our Class A common stock, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma as adjusted net tangible book value per share of our Class A common stock immediately after completion of this offering. Our pro forma as adjusted net tangible book value is adjusted to give effect to our incurrence of related party debt from BGC Partners and to our sale of             shares of our Class A common stock in this offering at the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Our pro forma net tangible book value represents the amount of our total tangible assets less our total liabilities, divided by the total number of pro forma shares of our common stock outstanding. As of June 30, 2017, our pro forma net tangible book value was $            , or $             per share of our common stock.

After giving effect to the incurrence of related party debt from BGC Partners and to the sale of              shares of our Class A common stock at the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2017 would have been $            , or $             per share of our common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $             per share to our stockholder before this offering, and an immediate dilution of $             per share to investors purchasing shares of Class A common stock in this offering. The following table illustrates this dilution:

 

Assumed initial public offering price per share of Class A common stock

      $               

Pro forma net tangible book value per share as of June 30, 2017

   $                  

Increase in pro forma net tangible book value per share attributable to investors purchasing shares of Class A common stock in this offering

     
  

 

 

    

Pro forma as adjusted net tangible book value per share immediately after completion of this offering

     
     

 

 

 

Dilution in pro forma as adjusted net tangible book value per share to investors purchasing shares of Class A common stock in this offering

      $  
     

 

 

 

Each $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share to investors purchasing shares of Class A common stock in this offering by $            , and would increase or decrease, as applicable, dilution per share to investors purchasing shares of our Class A common stock in this offering by approximately $            , assuming the number of shares of our Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their option to purchase additional shares of our Class A common stock in full, the pro forma as adjusted net tangible book value per share of our common stock immediately after the completion of this offering would be $             per share, and the dilution in pro forma net tangible book value per share to investors purchasing shares of Class A common stock in this offering would be $             per share of Class A common stock.

The following table sets forth, on the pro forma as adjusted basis described above as of June 30, 2017, the differences between the number of shares of Class A common stock purchased from us, the total consideration

 

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and the average price per share paid by our existing stockholder and by the investors purchasing shares of Class A common stock in this offering at the assumed initial offering public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased     Total Consideration
(in thousands)
    Average
Price Per
Share
 
     Number      Percent     Amount      Percent    

Existing stockholder

               $                            $               

Investors purchasing shares of Class A common stock in this offering

            
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100.0   $        100.0   $  
  

 

 

    

 

 

   

 

 

    

 

 

   

Each $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the total consideration paid by investors purchasing shares of our Class A common stock in this offering and total consideration paid by all stockholders by approximately $            , assuming the number of shares of our Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their option to purchase additional shares in full:

 

    the number of shares of common stock held by our existing stockholder will represent approximately     % of the total number of shares of our common stock outstanding immediately after completion of this offering; and

 

    the number of shares held by investors purchasing shares of our Class A common stock in this offering will represent approximately     % of the total number of shares of our common stock outstanding immediately after completion of this offering.

For purposes of the discussion and the tables above, the number of shares of Class A common stock that will be outstanding after this offering excludes the following shares:

 

                shares of our Class A common stock reserved for issuance under the Equity Plan; and

 

                shares of our Class A common stock reserved for issuance upon exchange of shares of our Class B common stock.

 

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SELECTED COMBINED FINANCIAL DATA

The following tables summarize our historical, historical recast and pro forma combined financial data. The historical recast combined financial data includes the acquisition of Berkeley Point. The acquisition of Berkeley Point has been determined to be a combination under common control that will result in a change in the reporting entity. Accordingly, the financial results of Newmark have been retrospectively adjusted or recast. The selected combined balance sheet data as of December 31, 2015 and 2016 and statement of operations data for the years ended December 31, 2015 and 2016 are derived from our audited combined financial statements included elsewhere in this prospectus. The selected recast combined balance sheet data as of December 31, 2016 and 2015 and recast combined statement of operations data for the years ended December 31, 2016 and 2015 are derived from our audited recast financial statements included elsewhere in this prospectus. The selected combined financial data as of and for the six months ended June 30, 2017 and 2016 are derived from our unaudited interim combined financial statements included elsewhere in this prospectus. The selected recast combined financial data as of and for the six months ended June 30, 2017 and 2016 are derived from our unaudited interim recast combined financial statements included elsewhere in this prospectus. In the opinion of management, the unaudited interim combined financial statements and unaudited interim recast combined financial statements include all normal and recurring adjustments that we consider necessary for a fair presentation of the financial position and the operating results for these periods. Historical operating data may not be indicative of future performance. The operating results for the six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ended December 31, 2017 or any other interim periods or any future year or period.

The selected combined and recast combined financial data include certain expenses of BGC Partners and Cantor that were allocated to us for certain corporate functions, including treasury, legal, accounting, insurance, information technology, payroll administration, human resources, stock incentive plans and other services. Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocated expenses, reasonably reflect the utilization of services provided to or the benefit received by us during the periods presented. However, these shared expenses may not represent the amounts that we would have incurred had we operated autonomously or independently from BGC Partners and Cantor. Actual costs that would have been incurred if we had been a standalone company would depend on multiple factors, including organizational structure and strategic decisions in various areas, such as information technology and infrastructure. In addition, our selected combined financial data do not reflect changes that we expect to experience in the future as a result of our separation from BGC Partners, including changes in our cost structure, personnel needs, tax structure, capital structure, financing and business operations.

 

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This selected combined financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations (Excluding Berkeley Point)” and Newmark’s combined financial statements and related notes included elsewhere in this prospectus.

 

     Historical (Excluding Berkeley Point)  
     Six Months Ended
June 30,
    Year Ended
December 31,
 
     2017     2016     2016     2015  
     (in thousands)  

Revenues:

        

Commissions

   $ 448,837     $ 375,386     $ 859,005     $ 808,878  

Management services and other

     102,358       91,652       196,959       188,389  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     551,195       467,038       1,055,964       997,267  

Expenses:

        

Compensation and employee benefits

     402,034       341,879       771,406       753,034  

Allocations of net income and grant of exchangeability to limited partnership units

     34,500       23,435       72,318       142,195  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total compensation and employment benefits

     436,534       365,314       843,724       895,229  

Operating, administrative and other

     82,694       73,213       154,868       136,428  

Fees to related parties

     8,657       9,841       17,731       17,951  

Depreciation and amortization

     8,298       6,220       13,349       16,644  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     536,183       454,588       1,029,672       1,066,252  

Other income (losses), net

        

Other income (loss)

     (1,097     (1,328     15,645       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (losses), net

     (1,097     (1,328     15,645       —    

Income (loss) from operations

     13,915       11,122       41,937       (68,985

Interest income, net

     1,830       1,510       3,358       1,450  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes and noncontrolling interests

     15,745       12,632       45,295       (67,535

Provision (benefit) for income taxes

     1,383       800       3,913       (6,767
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     14,362       11,832       41,382       (60,768

Net income (loss) attributable to noncontrolling interests

     308       (564     (1,189     77  
  

 

 

   

 

 

   

 

 

   

 

 

 

Newmark’s net income (loss) available to its parent, BGC Partners

   $ 14,054     $ 12,396     $ 42,571     $ (60,845
  

 

 

   

 

 

   

 

 

   

 

 

 

Combined Balance Sheet Data:

        

Cash and cash equivalents

   $ 34,264       $ 33,038     $ 10,536  

Total assets

   $ 1,028,597       $ 995,491     $ 857,052  

Total liabilities

   $ 504,111       $ 491,510     $ 407,619  

Total invested equity

   $ 524,486       $ 503,981     $ 449,433  

 

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This selected recast combined financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Newmark Recast Financial Statements (Including Berkeley Point)” and Newmark’s recast combined financial statements and related notes included elsewhere in this prospectus.

 

     Historical Recast (Including Berkeley Point)  
     Six Months Ended
June 30,
    Year Ended
December 31,
 
     2017     2016     2016     2015  
     (in thousands)  

Revenues:

        

Commissions

   $ 444,806     $ 373,867     $ 849,419     $ 806,931  

Gains from mortgage banking activities, net

     118,808       73,631       193,387       115,304  

Management services, servicing fees and other

     174,039       142,271       307,177       278,012  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     737,653       589,769       1,349,983       1,200,247  

Expenses:

        

Compensation and employee benefits

     453,663       378,375       849,975       816,268  

Allocations of net income and grant of exchangeability to limited partnership units

     34,500       23,435       72,318       142,195  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total compensation and employee benefits

     488,163       401,810       922,293       958,463  

Operating, administrative and other

     106,786       87,682       185,343       162,316  

Fees to related parties

     8,885       9,841       18,010       18,471  

Depreciation and amortization

     41,455       37,438       72,197       71,774  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     645,289       536,771       1,197,843       1,211,024  

Other income (losses), net

        

Other income (loss)

     (1,308     (1,886     15,279       (460
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (losses), net

     (1,308     (1,886     15,279       (460

Income (loss) from operations

     91,056       51,112       167,419       (11,237

Interest income, net

     2,515       1,756       3,786       1,867  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes and noncontrolling interests

     93,571       52,868       171,205       (9,370

Provision (benefit) for income taxes

     1,407       858       3,993       (6,644
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     92,164       52,010       167,212       (2,726

Net income (loss) attributable to noncontrolling interests

     308       (564     (1,189     77  
  

 

 

   

 

 

   

 

 

   

 

 

 

Newmark’s net income (loss) available to its parent, BGC Partners

   $ 91,856     $ 52,574     $ 168,401     $ (2,803
  

 

 

   

 

 

   

 

 

   

 

 

 

Combined Balance Sheet Data:

        

Cash and cash equivalents

   $ 95,722       $ 66,627     $ 111,430  

Total assets

   $ 2,632,320       $ 2,534,688     $ 1,657,930  

Total liabilities

   $ 1,550,625       $ 1,550,905     $ 853,896  

Total invested equity

   $ 1,081,695       $ 983,783     $ 804,034  

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

The unaudited pro forma condensed combined financial statements consist of the unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2017 and for the years ended December 31, 2016 and December 31, 2015, and the unaudited pro forma condensed combined balance sheet as of June 30, 2017. The unaudited pro forma condensed combined financial statements have been derived by application of pro forma adjustments to our historical combined financial statements (and not our historical recast combined financial statements) included elsewhere in this prospectus.

The unaudited pro forma condensed combined balance sheet reflects the separation as if it occurred on June 30, 2017, while the unaudited pro forma condensed combined statements of operations give effect to the separation as if it occurred on January 1, 2016, the beginning of the earliest period presented. The pro forma adjustments, described in the related notes, are based on currently available information and certain assumptions that management believes are reasonable.

The unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and are not necessarily indicative of the operating results or financial position that would have occurred had the separation from BGC Partners been completed on June 30, 2017 for the unaudited pro forma condensed combined balance sheet or on January 1, 2016 for the unaudited pro forma condensed combined statements of operations. The unaudited pro forma condensed combined financial statements should not be relied on as indicative of the historical operating results that we would have achieved or any future operating results or financial position that we will achieve after the completion of this offering.

In addition, the preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (which we refer to as “U.S. GAAP”) requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are preliminary and have been made solely for purposes of developing these unaudited pro forma condensed combined financial statements. Actual results could differ, perhaps materially, from these estimates and assumptions.

The unaudited pro forma condensed combined financial data reflect the impact of certain transactions, which comprise the following:

 

    the separation;

 

    the BP Transaction;

 

    the receipt of approximately $             million in proceeds, net of underwriting discounts and commissions, from the sale of shares of our Class A common stock in this offering and the repayment of the Term Loan; and

 

    other adjustments described in the notes to the unaudited pro forma condensed combined financial statements.

We have operated as a business segment of BGC Partners since 2012. As a result, BGC Partners, and its parent Cantor, provide certain corporate services to us, and costs associated with these functions have been allocated to us. These allocations include costs related to corporate services, such as executive management, information technology, legal, finance and accounting, investor relations, human resources, risk management, tax, treasury and other services. The costs of such services have been allocated to us based on the most relevant allocation method to the service provided, primarily based on relative percentage of total sales, relative percentage of headcount or specific identification. The total amount of these allocations from BGC Partners was approximately $8.9 million in the six months ended June 30, 2017, approximately $18.0 million in the year ended December 31, 2016 and approximately $18.5 million in the year ended December 31, 2015. These cost

 

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allocations are primarily reflected within fees to related parties in our combined statements of operations. Management believes the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by us during the periods presented. Following the completion of this offering, we expect BGC Partners and Cantor to continue to provide some services related to these functions on a transitional basis for a fee. These services will be provided under the administrative services agreement with Cantor and the transition services agreement described in “Certain Relationships and Related-Party Transactions.” Upon the completion of this offering, we will assume responsibility for many standalone public company costs, including the costs of certain corporate services currently provided by BGC Partners. The unaudited pro forma condensed combined financial statements do not include such public company costs, which we currently estimate to be approximately $2.5 million during our first fiscal year as a standalone public company.

The following unaudited pro forma condensed combined financial statements and related notes should be read in conjunction with “Use of Proceeds,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations (Excluding Berkeley Point),” “Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Newmark Recast Financial Statements (Including Berkeley Point),” Newmark’s combined financial statements and related notes, and Newmark’s recast combined financial statements and related notes included elsewhere in this prospectus.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2017

(in thousands, except per share data)

 

          (A)     (B)           (C)     (D)     (E)              
    Newmark
Historical
    Berkeley
Point
Historical
Adjusted
    Adjustments     Newmark
Recast
    Related
Party
Debt
Financing/
Interest
Expense
    Separation of
Partnership
Interests
    Tax
Effect
    Newmark
Pro Forma
       

Revenues:

                 

Commissions

  $ 448,837     $ —       $ (4,031   $ 444,806       —         —         —       $    

Gain from mortgage banking activities, net

    —         114,777       4,031       118,808       —         —         —        

Management services, servicing fees and other

    102,358       71,286       395       174,039       —         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total revenues

    551,195       186,063       395       737,653       —         —         —        

Expenses:

                 

Compensation and employee benefits

    402,034       51,629       —         453,663       —         —         —        

Allocations of net income and grant of exchangeability to limited partnership units

    34,500       —         —         34,500       —         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total compensation and employee benefits

    436,534       51,629       —         488,163       —         —         —        

Operating, administrative and other

    82,694       24,092       —         106,786       —         —         —        

Fees to related parties

    8,657       228       —         8,885       —         —         —        

Depreciation and amortization

    8,298       33,157       —         41,455       —         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total operating expenses

    536,183       109,106       —         645,289       —         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Other income (losses), net

                 

Other income (loss)

    (1,097     (211     —         (1,308     —         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total other income (losses), net

    (1,097     (211     —         (1,308     —         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Income (loss) from operations

    13,915       76,746       395       91,056       —         —         —        

Interest income (expense), net

    1,830       685       —         2,515         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Income (loss) before income taxes and noncontrolling interests

    15,745       77,431       395       93,571         —         —        

Provision (benefit) for income taxes

    1,383       24       —         1,407       —         —         23,805      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net income (loss)

    14,362       77,407       395       92,164         —         (23,805    

Net income (loss) attributable to noncontrolling interests

    308       —         —         308       —           —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net income (loss) to Common Shareholders

  $ 14,054     $ 77,407     $ 395     $ 91,856     $     $       (23,805   $                 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Earnings per Share, Basic and Diluted

                 

Basic

    N/A       N/A         N/A           $       (F

Diluted

    N/A       N/A         N/A           $       (F

Weighted Average Shares Outstanding

                 

Basic

    N/A       N/A         N/A               (F

Diluted

    N/A       N/A         N/A               (F

The accompanying notes to the unaudited pro forma condensed combined financial statements are an integral part of these financial statements.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2016

(in thousands, except per share data)

 

         

(A)

    (B)           (C)     (D)     (E)              
    Newmark
Historical
    Berkeley
Point
Historical
Adjusted
    Adjustments     Newmark
Recast
    Related
Party
Debt
Financing/
Interest
Expense
    Separation of
Partnership
Interests
    Tax
Effect
    Newmark
Pro Forma
       

Revenues:

                 

Commissions

  $ 859,005     $ —       $ (9,586   $ 849,419       —         —         —       $                 

Gain from mortgage banking activities

    —         183,801       9,586       193,387       —         —         —        

Management services, servicing fees and other

    196,959       109,589       629       307,177       —         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total revenues

    1,055,964       293,390       629       1,349,983       —         —         —        

Expenses:

                 

Compensation and employee benefits

    771,406       78,569       —         849,975       —         —         —        

Allocations of net income and grant of exchangeability to limited partnership units

    72,318       —         —         72,318       —         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total compensation and employee benefits

    843,724       78,569       —         922,293       —         —         —        

Operating, administrative and other

    154,868       30,476       —         185,344       —         —         —        

Fees to related parties

    17,731       279       —         18,010       —         —         —        

Depreciation and amortization

    13,349       58,848       —         72,197       —         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total operating expenses

    1,029,672       168,172       —         1,197,844       —         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Other income (losses), net

                 

Other income (loss)

    15,645       (366     —         15,279       —         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total other income (losses), net

    15,645       (366     —         15,279       —         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Income (loss) from operations

    41,937       124,852       629       167,418       —         —         —        

Interest income (expense), net

    3,358       429       —         3,787         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Income (loss) before income taxes and noncontrolling interests

    45,295       125,281       629       171,205         —         —        

Provision (benefit) for income taxes

    3,913       80       —         3,993       —         —         43,820      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net income (loss)

    41,382       125,201       629       167,212         —         (43,820    

Net income (loss) attributable to noncontrolling interests

    (1,189     —         —         (1,189     —            
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net income (loss) to Common Shareholders

  $ 42,571     $ 125,201     $ 629     $ 168,401     $     $     $ (43,820   $    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Earnings per Share, Basic and Diluted

                 

Basic

    N/A       N/A         N/A           $       (F

Diluted

    N/A       N/A         N/A           $       (F

Weighted Average Shares Outstanding

                 

Basic

    N/A       N/A         N/A               (F

Diluted

    N/A       N/A         N/A               (F

The accompanying notes to the unaudited pro forma condensed combined financial statements are an integral part of these financial statements.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2015

(in thousands, except per share data)

 

         

(A)

    (B)           (C)     (D)     (E)              
    Newmark
Historical
    Berkeley
Point
Historical
Adjusted
    Adjustments     Newmark
Recast
    Related
Party
Debt
Financing/
Interest
Expense
    Separation
of
Partnership
Interests
    Tax
Effect
    Newmark
Pro Forma
       

Revenues:

                 

Commissions

  $ 808,878     $ —       $ (1,947   $ 806,931       —         —         —       $    

Gain from mortgage banking activities

    —         113,357       1,947       115,304       —         —         —        

Management services, servicing fees and other

    188,389       88,739       884       278,012       —         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total revenues

    997,267       202,096       884       1,200,247       —         —         —        

Expenses:

                 

Compensation and employee benefits

    753,034       63,234       —         816,268       —         —         —        

Allocations of net income and grant of exchangeability to limited partnership units

    142,195       —         —         142,195       —         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total compensation and employee benefits

    895,229       63,234       —         958,463       —         —         —        

Operating, administrative and other

    136,428       25,888       —         162,316       —         —         —        

Fees to related parties

    17,951       520       —         18,471       —         —         —        

Depreciation and amortization

    16,644       55,130       —         71,774       —         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total operating expenses

    1,066,252       144,772       —         1,211,024       —         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Other income (losses), net

                 

Other income (loss)

    —         (460     —         (460     —         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total other income (losses), net

    —         (460     —         (460     —         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Income (loss) from operations

    (68,985     56,864       884       (11,237     —         —         —        

Interest income (expense), net

    1,450       417       —         1,867         —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Income (loss) before income taxes and noncontrolling interests

    (67,535     57,281       884       (9,370       —         —        

Provision (benefit) for income taxes

    (6,767     123       —         (6,644     —         —         (2,012    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net income (loss)

    (60,768     57,158       884       (2,726       —         2,012      

Net income (loss) attributable to noncontrolling interests

    77       —         —         77       —           —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net income (loss) to Common Shareholders

  $ (60,845   $ 57,158     $ 884     $ (2,803   $     $     $ 2,012     $                 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Earnings per Share, Basic and Diluted

                 

Basic

    N/A       N/A         N/A           $       (F

Diluted

    N/A       N/A         N/A           $       (F

Weighted Average Shares Outstanding

                 

Basic

    N/A       N/A         N/A               (F

Diluted

    N/A       N/A         N/A               (F

The accompanying notes to the unaudited pro forma condensed combined financial statements are an integral part of these financial statements.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 30, 2017

(in thousands)

 

          (A)           (A)     (G)     (H)     (I)     (J)     (K)     (L)     (M)     (D)        
    Newmark
Historical
    Berkeley
Point
Historical
Adjusted
    Newmark
Recast
    Equity
Investment
in Real
Estate
Newco
    Newmark
Term Loan
    BGC Notes     Net Capital
Adjustment
    IPO
Proceeds
    Repayment
of
Newmark
Term Loan
    Deferred
Tax
Asset/
Liability
    Related
Party
Receivables
and Payables 
    Separation
of
Partnership
Interests
    Newmark
Pro
Forma
 

Assets:

                         

Current assets:

                         

Cash and cash equivalents

  $ 34,264     $ 61,458     $ 95,722     $     $              $              $ (49,209   $     $       $ 36,256       $  

Restricted cash and cash equivalents

    —         52,111       52,111                      

Loans held for sale

    —         933,850       933,850                      

Receivables, net

    154,753       18,261       173,014                      

Receivable from related parties

    110,571       129,311       239,882                     (239,882    

Other current assets

    7,740       21,746       29,486       —             —         —           —         —         —      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    307,328       1,216,737       1,524,065       —             (49,209         —         (203,626     —      

Goodwill

    419,560       191       419,751                      

Mortgage servicing rights, net

    —         376,427       376,427                      

Loans, forgivable loans and other receivables from employees and partners, net

    194,577       2,983       197,560                      

Fixed assets, net

    58,383       1,354       59,737                      

Other intangible assets, net

    22,248       5,439       27,687                      

Other assets

    26,501       592       27,093       100,000           —         —           39,021        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    1,028,597     $ 1,603,723     $ 2,632,320       100,000           (49,209         39,021       (203,626     —      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current Liabilities:

                         

Current portion of accounts payable, accrued expenses and other liabilities

    86,063       19,727       105,790                      

 

77


Table of Contents

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 30, 2017

(in thousands)

 

          (A)           (A)     (G)     (H)     (I)     (J)     (K)     (L)     (M)     (D)        
    Newmark
Historical
    Berkeley
Point
Historical
Adjusted
    Newmark
Recast
    Equity
Investment
in Real
Estate
Newco
    Newmark
Term Loan
    BGC Notes     Net Capital
Adjustment
    IPO
Proceeds
    Repayment
of
Newmark
Term Loan
    Deferred
Tax
Asset/
Liability
    Related
Party
Receivables
and Payables 
    Separation
of
Partnership
Interests
    Newmark
Pro
Forma
 

Payable to related parties

    203,626       —         203,626                     (203,626    

Warehouse notes payable, net

    —         933,909       933,909                      

Accrued compensation

    133,136       26,715       159,851                      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    422,825       980,351       1,403,176       —           —         —         —             (203,626     —      

Other long term liabilities

    81,286       66,163       147,449       —                   (3,396      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    504,111       1,046,514       1,550,625       —           —         —         —           (3,396     (203,626     —      

Commitments and contingencies

                         

Invested Equity/stockholders’ equity:

                         

Stockholders’ equity:

                         

Class A common stock, par value of $0.01 per share: 305,281 shares issued and outstanding

    —         —         —                        

Class B common stock, par value of $0.01 per share: 34,848 shares issued and outstanding

    —         —         —                        

Additional paid-in capital

    —         —         —                        

BGC’s Partners’ net investment in Newmark

    523,334       557,209       1,080,543       100,000         (49,209           42,417       —           —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

78


Table of Contents

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 30, 2017

(in thousands)

 

          (A)           (A)     (G)     (H)     (I)     (J)     (K)     (L)     (M)     (D)        
    Newmark
Historical
    Berkeley
Point
Historical
Adjusted
    Newmark
Recast
    Equity
Investment
in Real
Estate
Newco
    Newmark
Term Loan
    BGC Notes     Net Capital
Adjustment
    IPO
Proceeds
    Repayment
of
Newmark
Term Loan
    Deferred
Tax
Asset/
Liability
    Related
Party
Receivables
and Payables 
    Separation
of
Partnership
Interests
    Newmark
Pro
Forma
 

Total stockholders’ equity

    523,334       557,209       1,080,543       100,000         (49,209           42,417       —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Noncontrolling interests

    1,152       —         1,152               —           —         —         —         —