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Newmark Group, Inc. (NASDAQ:NMRK)
Q3 2019 Earnings Call
Oct 30, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Newmark's third quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I will now turn the call over to Jason Harbes, VP of Investor Relations. Sir, you may begin when you're ready.

Jason Harbes -- Vice President, Investor Relations

Thanks, and good morning. We issued our third quarter 2019 financial results press release and a presentation summarizing these results this morning. You can find these documents at ir.ngkf.com. Unless otherwise stated, the results provided on today's call compare only the third quarter of 2019 with the year-earlier period. We will be referring to our results on this call only on an adjusted earnings basis unless otherwise stated. We may also refer to adjusted EBITDA.

Please see today's press release for results under Generally Accepted Accounting Principles or GAAP. Please see the sections in the back of today's press release for the complete definitions of any such non-GAAP terms, reconciliations of these items to the corresponding GAAP results and how, when and why management uses them. Additional information with respect to our GAAP and non-GAAP results mentioned on today's call is available on our website and in our investor presentation.

I also remind you that information on this call regarding our business that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements involve risks and uncertainties. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark's Securities and Exchange Commission filings, including, but not limited to, the risk factors set forth in our most recent Form 10-K, Form 10-Q or Form 8-K filings.

I'm now happy to turn the call over to our host, Barry Gosin, CEO of Newmark Group, Inc.

Barry M. Gosin -- Chief Executive Officer

Thank you, Jason. Good morning, and thank you for joining us for Newmark's third quarter 2019 conference call. With me today are Newmark's Chief Financial Officer, Mike Rispoli; our President of Multifamily Capital Markets, Jeff Day; and Lou Alvarado, our Chief Revenue Officer.

Newmark generated 13% growth in revenues, showing improvement across all of our major business lines with particular strength, capital markets and mortgage banking. I'm happy to report that the Company's Board of Directors declared a qualified dividend of $0.10 per common share. At yesterday's closing price, this translates into a yield of 4%. Newmark continues to hire the industry's most talented professionals, who are drawn to our entrepreneurial culture, productivity enhancing technology, client focus. This is reflected by Newmark's 6% growth in front office headcount, 5% improvement revenue per producer in the quarter.

For the trailing 12 months ended September 30, our revenue per producer was up 7% year-on-year to $914,000. As we continue to generate higher percentage of our revenues from recurring businesses, we no longer plan to highlight our broker productivity metrics quarterly basis beginning next year. This is consistent with our full-service peers.

Turning to the industry, NKF Research estimates that overall US investment sales volumes were down 6% year-on-year in the quarter and down 2% over the first nine months of 2019. According to the Mortgage Bankers Association, overall commercial mortgage originations are expected to increase 14% in 2019. We believe that Newmark continues to gain market share as our volumes across investment sales, mortgage brokerage and originations increased 38% and 32% respectively, third quarter and year-to-date.

Our GSE originations grew 43%, led by a $1.3 billion transaction in the third quarter. Our research team estimates that the average vacancy rate for office improved 50 basis points year-over-year to 12.8%. Industrial was flat at 5.1%, while retail vacancies rose 70 basis points compared with the year-earlier. Our leasing revenues increased by 5% in the third quarter and 11% year-to-date as a result of the strong 22% growth we generated in the second quarter of 2019. We remain enthusiastic about the growth prospects for Newmark, combination of our top talent, technology and our proven ability to cross sell and collaborate will continue to drive growth across our platform.

With that, I'm happy to turn the call over to Mike.

Michael Rispoli -- Chief Financial Officer

Thank you, Barry, and good morning everyone. In the third quarter, our revenues increased by 13.1% to $586.6 million. Year-to-date, our revenues were up 12%. Our compensation expenses increased 17% in the third quarter and 12.5% year-to-date, primarily due to higher revenues and continued hiring of leading industry professionals. Non-compensation expenses were up 9.4%. As a percentage of revenue, non-compensation expenses were 76 basis points lower year-over-year.

In the past several years, Newmark has acquired approximately 50 companies. We have identified opportunities to streamline our operations and complete the integration of these various businesses. We believe the result of these actions will generate in excess of $15 million of annualized savings by the end of 2020. We will update you on our progress during the coming year.

Turning to our quarterly earnings. Our pre-tax adjusted earnings were up 6.5% and 12.9% year-to-date. Adjusted EBITDA improved 4.3% and 8.8% year-to-date. Our pre-tax adjusted earnings margin was 22.1% in the first nine months of the year, and our adjusted EBITDA margin was 24.8%. Our tax rate for adjusted earnings 15% versus 13.3% a year-earlier.

Our fully diluted post-tax adjusted earnings per share increased to $0.60. We expect our fourth quarter tax rate to be lower than the fourth quarter of 2018 rate of 18.1%. We also expect our fourth quarter fully diluted weighted average share count to be lower than the $267.6 million last year.

During the third quarter of 2019, Newmark repurchased 2.3 million shares of Class A common stock for $20.1 million at an average price of $8.81 per share. Our fully diluted period end count was $266.8 million, down from $268 million at year end. Our weighted average fully diluted share count for adjusted earnings was $268.4 million, down 1% sequentially and up 2.2% year-over-year. Moving on to the balance sheet. Our total liquidity was $121.4 million at September 30, 2019. Our unsecured long-term debt was $598.6 million, net debt was $477.2 million, and our net debt to trailing 12 months adjusted EBITDA remained at 0.9 times. Given the strength of our balance sheet, our $250 million credit facility, strong cash flow generation from the business and low leverage, we remain well positioned to continue our growth.

Turning to guidance for 2019, we expect the following. Revenue is in the range of $2.225 billion to $2.275 billion, up from $2.048 billion in 2018. Adjusted EBITDA in the range of $560 million to $580 million, up from $524.4 million last year. Adjusted earnings tax rate between 14% and 16%, compared with 14.8% in 2018. Adjusted earnings per share between $1.62 and $1.68 versus $1.50 in 2018. We also expect 2019 fully diluted spot share count to be flat to down 1% from the 268 million shares outstanding as of December 31, 2018. Our outlook assumes no material acquisitions or meaningful changes in the Company's stock price.

Operator, we would now like to open the call for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Jade Rahmani from KBW. Please go ahead.

Jade Rahmani -- Keefe, Bruyette & Woods -- Analyst

Good morning, and thank you for taking the questions. Can you talk about what you're seeing on the recruiting front? Which areas you believe hold the most promise in terms of attracting talent, and also whether you're seeing any fallout from changes that have happened at a couple of your largest competitors such as Eastdil and HFF?

Barry M. Gosin -- Chief Executive Officer

We're doing very well on the recruiting side. In fact, it's really the mainstay of our present growth strategy. As we've continued to elevate the brand and the Company is a success around a variety of different areas. We are seeing the top level of talent who wants to come to the platform and it's very exciting for us. I look forward to having a very robust recruiting year.

Jade Rahmani -- Keefe, Bruyette & Woods -- Analyst

Have you seen any -- have you seen any friction points or fall out from the two firms I mentioned?

Barry M. Gosin -- Chief Executive Officer

Any time there is mergers and consolidation, it creates friction. When a company has too many people in a particular space, in a particular category, and there is one less player that have to goes into a beauty contest to win a piece of business, it becomes a bit of an opportunity for all of the peers who remain and that's -- so for us that's been a good thing.

Jade Rahmani -- Keefe, Bruyette & Woods -- Analyst

Can you comment on the compensation structure of new hires and if that's changed at all in terms of mix of cash and equity? And specifically on the equity portion, can you comment on the type of security that's being issued, and when you would anticipate it being factored into the diluted share count?

Michael Rispoli -- Chief Financial Officer

Sure. Hi, Jade. This is Mike. We've historically used around 65% cash and 35% equity for our new hires. We are seeing that mix change a little bit, maybe it's closer to 70%-30% now. The cash is -- or maybe even 75%-25%. The cash is a forgivable loan, which just expires at the end of their contract. And the equity or restricted stock units that have a vesting period over the contract term. So that's the current mix.

Jade Rahmani -- Keefe, Bruyette & Woods -- Analyst

And the restricted stock, has that changed in terms of how it's structured? Did the prior restricted stock have a set vesting period?

Michael Rispoli -- Chief Financial Officer

In the past, we used partnership units which didn't have vesting schedule, but were given exchange rights over time. The restricted stock units just have a straight vesting schedule.

Jade Rahmani -- Keefe, Bruyette & Woods -- Analyst

Okay. So, I mean, the key question is, is there anticipated dilution in the future that we're just not seeing evidently at the present time?

Michael Rispoli -- Chief Financial Officer

Sure. I think we've spoken in the past and we continue to say that our target going forward is 2% on average over the next few years.

Jade Rahmani -- Keefe, Bruyette & Woods -- Analyst

Okay. Just on the capital markets side, can you comment on where you saw the greatest strength, maybe by property type or geography?

Michael Rispoli -- Chief Financial Officer

There continues to be an enormous amount of interest investing in real estate. It's the best asset class in terms of the long-term returns with negative interest rates putting money in the US, it's a good safe investment across all categories, some more aggressively than others. The core in some markets is pricey, but on the West Coast and the growth markets are still doing incredibly well. Value added opportunity, multifamily still has a good runway; industrial, still very active. And even in retail, we are seeing some green shoots with respect to repricing and discovery. We have a business in selling some of those malls that have been stressed.

Jade Rahmani -- Keefe, Bruyette & Woods -- Analyst

Thanks for taking the questions.

Operator

Your next question comes from the line of Alexander Goldfarb from Sandler O'Neil. Please go ahead.

Alexander Goldfarb -- Sandler O'Neil -- Analyst

Hi, good morning. Good morning. So just two questions. The first is, on the guidance, you guys have reduced your assumption for share count, which obviously a good thing, and yet the guidance range merely narrowed. So can you just talk about some of the factors that were sort of in there? Because before it was zero to plus one on share count, now it's zero to down one. So if I could, good swing and yet the guidance merely narrowed. So what are some of the offsets that didn't allow guidance to actually increase?

Michael Rispoli -- Chief Financial Officer

Yeah, good morning, Alex. I think that if you look at our guidance, it's been pretty consistent at the midpoint of the range throughout the year. We continue to see strength in the pipeline in the business. If we look at our adjusted EBITDA guidance, it's pretty consistent, particularly at the midpoint, it hasn't changed much throughout the year. The share count seems a little bit, but not enough to really drive change in EPS, and we still feel good about the overall performance of company for the year.

Alexander Goldfarb -- Sandler O'Neil -- Analyst

Okay. And then just sort of big picture, I mean you guys have made some tremendous steps this year, improving communication, obviously, delivering good results. You still have another year before the tax-free spend period expires. What are your thoughts on as you -- over the next year, speaking to simplify the corporate structure, maybe with the BGC, Howard Lutnick shares the majority. What are some of your thoughts Barry on trying to simplify Newmark to try and unlock the value that I think is depressing the shares, but obviously you guys have good underlying growth? So maybe you could just talk about your thoughts for what you could do from a corporate structure over the next year to try and improve the value.

Barry M. Gosin -- Chief Executive Officer

But you -- we've had this conversation just a few times, Alex.

Alexander Goldfarb -- Sandler O'Neil -- Analyst

No, I know, but you're putting down really solid results, Barry, it's showing. So it's sort of the next level, right?

Barry M. Gosin -- Chief Executive Officer

When I sold the business to BGC, one of the things that was attractive for me and I think it's attractive to the people that sell their company, thus is knowing who is running the Company, who is committed to building an enterprise. Is this just an enterprise to go quarter-to-quarter, or is this an enterprise to build real value long term by domination in the marketplace and that requires the vision and commitment in the long term. And generally, all of the actions and activities that have occurred over the last seven years has been a result of a view that is out there to create a great company and it's all coming together.

And so personally, I think that having the structure we have is, it works, much of the investors in our company are investors who are here for the short duration, those people who believe in our company and want to invest for the long-term should invest in this company for the long term. So I'm not -- I don't -- there is -- I don't think there's any plans to change the structure. I think it's a structure that actually works better for people whose interests are aligned, because the commitment to being a shareholder for the long duration is there has been exhibited by one, our investment in the company, and two, the steadiness of our ownership of that stock.

Alexander Goldfarb -- Sandler O'Neil -- Analyst

Okay. Thank you, Barry.

Operator

Your next question comes from the line of Jason Weaver with Compass Point. Please go ahead.

Jason Weaver -- Compass Point -- Analyst

Hi, good morning. Thanks for taking my question. Just touching once more on the capital markets results. I know you mentioned you're not disclosing productivity metrics any longer, but can you just bifurcate a little bit whether this is due to head count growth or whether that's organically within individual broker productivity?

Michael Rispoli -- Chief Financial Officer

So, Jason, I think, as you've seen in the results, we're growing both our headcount and we're growing our broker productivity. We did add significant amount of talent starting in the fourth quarter of last year and all the way through the third quarter of this year and I think we've talked about six to 12-month ramp-up of that talent. So we're just starting to see some of the production from that talent now. We think that will continue to drive earnings growth as we move forward.

Jason Weaver -- Compass Point -- Analyst

Got you. Thank you. And then one more. On the balance sheet, we saw an S&P headline expecting you to run the company between 1.5 to 2 times leverage compared -- that's compared to your 0.9x today. Can you just talk a little bit about your appetite for leverage and/or M&A at this point in the cycle?

Michael Rispoli -- Chief Financial Officer

Yes, I think, S&P has a little bit of a different metric in the way they measure it, but I think overall they reaffirmed their rating outlook and with a stable guidance. But I think we have always said we want to maintain our metric within 1.5 times or less. We're at 0.9 times on the way we measure it now. We could leverage up to the right deal. But we're not going to overpay for deals in the market, we will pay an appropriate price if we see the right deal. We think it's going to help us grow the company long term.

Jason Weaver -- Compass Point -- Analyst

All right. Thank you.

Operator

Your next question comes from the line of Michael Funk with Bank of America. Please go ahead.

Michael Funk -- Bank of America Merrill Lynch -- Analyst

Hi, good morning, guys. Thank you for taking the questions. Let me just kind of pull back a little bit higher level commentary here as well, very strong investment sales during the quarter, better than we were expecting. So just maybe some more color on where you're seeing strength there, kind of regionally, you mean the visibility into that metric for 4Q and on 2020 to start.

Michael Rispoli -- Chief Financial Officer

Sales have been very active on both coasts, all the coastal markets and for different reasons. So we're continuing to see a lot of activity in the multifamily space, a lot of activity and good solid cash flowing is in core assets. Again, there's $200 billion of dry powder in the marketplace. There is another $100 billion around the globe. It makes for a very fertile market.

Michael Funk -- Bank of America Merrill Lynch -- Analyst

And then on the productivity, Mike, I appreciate you don't want to keep giving this kind of into perpetuity. It's been a special metric you've been giving, but helping us think about modeling longer term, where do you think you can take that metric, as you kind of fully ramp your employees?

Michael Rispoli -- Chief Financial Officer

We've always said our target has been to get to -- get that number to $1 million or more. And then, we'll continue to strive to get to that number, and eventually grow beyond that.

Michael Funk -- Bank of America Merrill Lynch -- Analyst

Great. And then just on Fannie and Freddie you know also relatively strong numbers this quarter. Can you give us some commentary on what do you think the proposed caps of $100 billion might do or means that business going forward?

Jeff Day -- President and Head of Multifamily Capital Markets, Chief Strategy Officer

Sure, this is Jeff Day.

Michael Funk -- Bank of America Merrill Lynch -- Analyst

Hi, Jeff. How are you doing?

Jeff Day -- President and Head of Multifamily Capital Markets, Chief Strategy Officer

Doing great. We obviously have great visibility through the end of 2020 and if you look at the caps, as articulated, relative to past volumes, we think that's got some good runway, both Fannie Mae and Freddie Mac are very active, and the pipeline is very strong. So we're very optimistic that this is a resolution that's good for the taxpayer and also good for the business.

Michael Funk -- Bank of America Merrill Lynch -- Analyst

Great. And just one final one, kind of two separate but related kind of topics or questions. You know obviously WeWork and the changes that have been going on there and kind of the impact that co-working add to net office absorption last year. And then some of the recent headlines, for example, JPMorgan, thinking about moving employees out of New York City to Texas. So if you can just give us some thoughts on what those types of activities might mean for leasing in some of the larger markets like New York City?

Barry M. Gosin -- Chief Executive Officer

People have been moving outside out of New York City, they have been in the business [Technical Issues] If you remember, Avenue of the Americas, the Celanese Building, the [Technical Issues] building, so that's not changed. New York is the single best place for talent in America that will continue to [Technical Issues] as long as I remain in this business, certainly and beyond. It's different. The difference is, it's more of a very talent focused millennial coding, front office and for more back office employees, which are the less paid are commodity type employees. There will always be continue to be a movement to save money.

But New York is actually doing really well. They now have life science has beginning to grow green shoots in New York. And then now there is an opportunity in Texas. We are in all these markets. We represent lots of companies, we look at their site selection, we have a business that consults for them in both workplace, site selection, labor analytics and we provide the advice and counsel to help them make those kind of decisions. So we are in the mix. I think it's all good.

Michael Funk -- Bank of America Merrill Lynch -- Analyst

Great. Thank you guys, so much, for the time.

Operator

[Operator Instructions] Your next question comes from the line of Henry Coffey with Wedbush. Please go ahead.

Henry Coffey -- Wedbush -- Analyst

Good morning. I'll save all my advertising for Southern markets and no tax rate -- no state tax rates for one like you've got six feet of snow out there. Great quarter. Thank you for taking my question. The market, obviously, likes what's going on today. Stocks up a lot, great quarter. And going back to a couple of callers, I think it is just fair to say that if you pulled a bunch of investors, there are things they like and there are things they don't, they like buybacks and they like people beating earnings, there are probably other things they don't like and maybe over time you guys could sort of examine those because they do hold back value. On sort of a big picture basis, you're obviously touching all -- you're involved in all of the touch points around real estate and capital markets. Have you heard anything, not so much from the FHFA, which has been very vocal about wanting to develop capital opportunities outside of the GSEs. But have you heard anything from the street about likely programs in the multifamily area that might mimic what's going on in commercial that could sort of move that ball forward?

Jeff Day -- President and Head of Multifamily Capital Markets, Chief Strategy Officer

Well, I think -- this is Jeff day, again. Clearly, at CMBS execution is something that works very well for multifamily [Indecipherable] an execution we use regularly, in addition to the GSEs and like companies and pension funds. But I wouldn't say that there is any new concept or theory of note that's being discussed on the street that would impact the business as it stands today.

Henry Coffey -- Wedbush -- Analyst

So I mean nobody is moving that ball forward is, I guess, the way I'm hearing your answer. There's a lot of discussion coming out of the GSEs and out of the FHFA about changing the market. Is it just discussion, is Calabria just talking and writing great proposals? Or is the street looking at this and saying, look, there is a real opportunity somewhere between the GSE market for multifamily and what the insurance companies want?

Jeff Day -- President and Head of Multifamily Capital Markets, Chief Strategy Officer

So, if you look at the history of conservatorship, there has been a series of discussions and proposals about GSE reform, which [Indecipherable] about change. And so, while I think everyone has their theories about what they might do until there are more concrete and visible proposals that people can react to, I think it's really just conjecture right now.

Henry Coffey -- Wedbush -- Analyst

In terms of financing multifamily, can you give us some comparison between the cost of the various alternatives, whether it's CMBS, whether it's insurance company placement or something with the agencies?

Barry M. Gosin -- Chief Executive Officer

We clear the market for our clients. Remember, we are in there to get business, advising clients from a third party point of view. So there are part of the platform does clear the market through insurance companies through CMBS or other sources of financing. So we're well positioned to provide a solution regardless of where it goes. The investors prefer Freddie and Fannie, if they can get it, and the pricing equal, they would prefer to do Freddie, Fannie for a host of reasons, but we do it all.

Henry Coffey -- Wedbush -- Analyst

But the client preferences for the GSE kind of product.

Jeff Day -- President and Head of Multifamily Capital Markets, Chief Strategy Officer

That's generally correct. Yes.

Henry Coffey -- Wedbush -- Analyst

Great, that's very helpful. Thank you.

Operator

Your next question comes from the line of Patrick O'Shaughnessy with Raymond James. Please go ahead.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Hey, good morning. On your second quarter earnings call, you guys provided a fourth quarter revenue guide of $693 million of revenue at the midpoint. By my math your updated full year revenue guidance implies for fourth quarter revenue of $664 million at the midpoint. So, to what extent was your strength in revenue, particularly in capital markets in the third quarter a pull forward of activity that you would have otherwise expected in the fourth quarter?

Michael Rispoli -- Chief Financial Officer

Hi. I think we did see some pull forward of activity into the third quarter -- pipeline for the fourth quarter still remains pretty healthy. We just provided guidance based on our historical close rates of that [Indecipherable]. Your number is correct in terms of the midpoint.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Okay, but you haven't initially noticed any deterioration in the environment since you put out that initial guidance?

Michael Rispoli -- Chief Financial Officer

No. We're not seeing any deterioration in either capital markets or leases.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Okay. Thank you. And then speaking of leasing, leasing revenue growth did decelerate in the quarter. I think it was 5% year-over-year, our revenue growth in the third quarter, down from 22% in the June quarter. I've realized that the comps were definitely more difficult, but it's pretty unusual to see a quarter-over-quarter decline in leasing revenue in 3Q versus 2Q. So can you talk about what you've seen out there in the leasing environment?

Michael Rispoli -- Chief Financial Officer

I think the leasing environment for us remains really healthy. We're seeing a lot of technology companies, financial services companies, continued activity in the co-working space. We're not seeing any slowdown on the leasing side. And I think that we're up 11% year-to-date, we are up 20-plus-percent in the second quarter, which I think it was just timing of when the deals closed. We are really not seeing any change in activity in the market, still very healthy.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Okay, thank you. On the expense side, your comp ratio was a little bit higher this quarter than what we had expected and higher than it was in the year ago period, despite the pretty strong revenues. Is there anything that you would call out in terms of compensation expenses that were maybe unusual or we shouldn't think of that as kind of the run rate going forward?

Michael Rispoli -- Chief Financial Officer

Sure. I think for the year, it will be pretty comparable comp rate year-over-year, maybe up a little bit. In particular, in the third quarter, I think we've talked about the fact that we've hired a lot of talent in the first couple of quarters of this year and that continued into the third quarter. And what happens when you hire these really large teams as you bring on all their expenses, but none of the revenue for the first six to 12 months. So that puts a little bit of pressure on your expenses. We think that will work itself through as their productivity starts to pick up.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Okay. And then last one from me. Can you guys provide some additional color on what capabilities your recent acquisition of Workframe provides and how that solution might be differentiated from what else that's out there?

Barry M. Gosin -- Chief Executive Officer

It's one of a variety of things that we've invested in and we're building internally, but Workframe is a collaboration and communication tool. It binds improving workflow, improving communication, the ability to keep all our projects documentation in real-time in the cloud available to the clients. There is actually no need for email, it's very good for a host of things we're doing. We just did a very large portfolio appraisal of $18 billion group of properties and all of the -- all of the lenders, owners that could get online and see the relative changes and the process during the appraisal period and [Technical Issues]. So we think, it could help our brokers, it could help all of our businesses. We are also tying it together with several other of our technologies to provide a comprehensive integrated technological holistic system for enhancing and weaponizing the focus [Technical Issues].

Patrick O'Shaughnessy -- Raymond James -- Analyst

Great. Thank you very much.

Operator

Your next question comes from the line of Jade Rahmani with KBW. Please go ahead.

Jade Rahmani -- Keefe, Bruyette & Woods -- Analyst

Thanks very much. But just back on the GSE multifamily, did you see during the quarter, Fannie Mae meaningfully pull back from the market, and then once the new caps were announced reenter the market?

Jeff Day -- President and Head of Multifamily Capital Markets, Chief Strategy Officer

I think both Fannie Mae and Freddie Mac, let's just say paused for a moment as they were working through those issues, but we've seen the pipeline and their activity come back in a real robust way.

Jade Rahmani -- Keefe, Bruyette & Woods -- Analyst

And do you have any concerns about the constraint, that sets target of 37.5% in affordable -- in the affordable product, which is the less institutional?

Michael Rispoli -- Chief Financial Officer

No, if you look at the way that they define affordable and the fact that the mission has been a critical component of the Fannie Mae and Freddie Mac business model for an extended period, we're very focused on that piece and we're committed to delivering that ratio and we don't believe that that's going to be a challenge for us.

Jade Rahmani -- Keefe, Bruyette & Woods -- Analyst

And turning to leasing, could you comment on how you view the outlook for the leasing market? Are there any pockets of softness? I think Colliers yesterday reported 1.5% decline in Americas leasing revenue growth and it had been running in the 15% to 23% growth rates, clearly co-working has been a meaningful driver of leasing absorption. So overall, how would you characterize the outlook for leasing and do you expect a positive growth going forward?

Luis Alvarado -- Chief Revenue Officer and East Region Market Leader

Yes, this is Lou Alvarado. We still see -- when we look at our offices, we look at our pipeline, we still see a strong growth and still continued activity in the leasing. I think that we see that is pointing to a slowdown. Certainly rates are higher, but that drive is particularly on markets for talent and the focus for people to find space where they can run their business and recruit the talent they have, still continue and the activity is there. So nothing that we've seen that leads us to have a concern about the volume of activity that will be seen from the leasing front.

Jade Rahmani -- Keefe, Bruyette & Woods -- Analyst

And I think that Newmark's research showed rent growth up about close to 3% year-over-year in asking rent, some of the other brokers firm subsided around 4%. Do you know -- do you have any data on what the effective rent growth has been net of concessions?

Luis Alvarado -- Chief Revenue Officer and East Region Market Leader

I don't have any really firm data. I can tell you that certainly in the markets where you're seeing the strength, you're seeing concessions get reduced, and where concessions are still being given you're seeing more term. So it kind of washes. So certainly where there -- it's not -- it is a landlord market, no question about it, and that's what's driving the deals, but tenants still have the appetite and when you really look at it, they are trying to really make their money on salaries, not the rent. So the rent is not as big an impact to them as it is the location and their ability to attract the talent.

Jade Rahmani -- Keefe, Bruyette & Woods -- Analyst

Thanks very much.

Operator

There are no further question at this time. I will turn the call back over to the presenters for closing remarks.

Barry M. Gosin -- Chief Executive Officer

Thank you all for joining us today, and we look forward to speaking to you again next quarter.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 38 minutes

Call participants:

Jason Harbes -- Vice President, Investor Relations

Barry M. Gosin -- Chief Executive Officer

Michael Rispoli -- Chief Financial Officer

Jeff Day -- President and Head of Multifamily Capital Markets, Chief Strategy Officer

Luis Alvarado -- Chief Revenue Officer and East Region Market Leader

Jade Rahmani -- Keefe, Bruyette & Woods -- Analyst

Alexander Goldfarb -- Sandler O'Neil -- Analyst

Jason Weaver -- Compass Point -- Analyst

Michael Funk -- Bank of America Merrill Lynch -- Analyst

Henry Coffey -- Wedbush -- Analyst

Patrick O'Shaughnessy -- Raymond James -- Analyst

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