10 takeaways from 4Q23 brokerage earnings calls...
Earnings calls are boring.
Brokerage earnings calls are even more boring.
...until markets go to sh*t.
Then (and only then?) seemingly innocuous discussions with big brokerage CEOs take on new life.
JLL wrapped up the 2023 brokerage earnings season yesterday. ...the last of the seven large, publicly traded brokerages.
Here's what we found most interesting from the 7 calls...
1. Abated cost cutting:
After a slow 2023 and job cuts, brokerages say they're lean and ready for the rebound. Cuts slowed in 4Q23.
2. Margins are generally rebounding:
Profit margins had fallen from the high teens to barely double-digit, but some firms saw a rebound in 4Q23.
3. Leasing activity is stabilizing:
Leasing commissions stabilized a bit in late 2023. Although still falling 5-10% YoY, CBRE gave us a sliver of hope with a mild increase in 4Q23 vs. 4Q22.
4. Capital markets still depressed:
Capital markets activity continues to be a meaningful drag, down 20-30% YoY and down 40-50% from the peak.
5. Doubling down on low-margin businesses:
Property and facilities management don't often get a lot of airtime from CEOs, but these businesses are currently generating most of big firm's growth. In related news, CBRE just dropped $1 billion on a government facilities management firm.
6. Concentrated multifamily firms are lagging:
Multifamily-focused Walker & Dunlop and Marcus & Millichap have slowed more than others due to falling multifamily values and transaction activity.
7. Servicing portfolios help:
W&D's servicing revenue is significantly larger than brokerage revenue, which fits with how many times "servicing" is mentioned in its 10K (236) vs. mentions of brokers (137). Servicing is also a big business for several of the other firms.
[Related question for MF experts: Are brokers keeping interest on borrowers' escrows?]
8. Is Newmark's bet on people paying off?
Newmark has rang a consistent bell over the last few years. ...something like: 'We've bought a high-powered team that will prove its value when there's a pronounced difference between winners and losers.' The firm's relatively quick recovery seems to fit with this narrative.
9. Is Cushman a mirror of Newmark?
Cushman is a legacy combination of several brokerages with a new (ish) CEO, a meaningful debt load, and a primary shareholder looking to unload its position. Cushman, like Newmark, has some very talented brokers, but the firm's revenue seems to be lagging.
10. Optimism:
Most CEOs expressed general optimism about a recovery in activity during the second half of 2024.
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