Investors in the real estate industry are giddy after Cushman & Wakefield (NYSE:CWK) enjoyed a successful IPO that saw shares trading upwards by as much as 7 percent after the company debuted on the NYSE. The global brokerage firm didn’t disappoint, originally pricing its stock at the middle of the expected range before seeing it swell when investors took an interest in it.
These are the details that drove Cushman & Wakefield’s IPO forward, and how the real estate giant is maneuvering itself to proceed in the market after its successful debut.
A good day for the real estate industry
Cushman & Wakefield is one of the biggest real estate firms in the world, so it should be of little surprise to investors that its thriving market debut was an excellent day for the broader real estate industry. The company originally planned to offer some 45 million shares to the public, which meant it gleaned some $765 million in total from its market debut.
Cushman & Wakefield has already made it clear that the vast majority of the funds gained from its IPO will be used to pay down existing debts, a lackluster but financially sound course of action that won’t pop any eyeballs but will likely soothe investors. Despite the real estate giant’s impressive size, its currently indebted to the point that some investors may have cold feet about backing it. According to filings made with the SEC ahead of the company’s debut, it had $3.1 billion in debt last year.
Despite the real estate giant’s colossal debts, it may yet woo over more investors thanks to the huge extent to which its commercial empire has already spread. After all, Cushman & Wakefield are no mom and pop operation, as the industry titan already operates more than 3.5 billion square feet of commercial real estate. It’s 48,000 odd employees in some 70 countries should help illustrate to investors that it’s not going anywhere anytime soon, either.
Still, Cushman & Wakefield isn’t presently profitable, and likely won’t be drawing in hefty sums of cash anytime soon, largely in part because of the company’s huge outstanding debt. Last year, for instance, Cushman & Wakefield generated an impressive $6.9 billion in revenue but actually posted net losses exceeding $220 million. Such dismal economic figures are likely to weigh the real estate colossus for some time, and will act as its Achilles’ heel when it comes to competing against other real estate giants.
The commercial real estate market is set for growth
Cushman & Wakefield has a number of tricks up its sleeve, however. According to research from Deloitte, for instance, the commercial real estate industry is poised for growth, and the broader American economy is still going strong. The company will doubtlessly benefit from industry wide growth and a friendly operating environment that could help it pay down its debts in the near-future. The Chicago-based firm has been expanding in recent years, too, with new team members being brought onboard to help maximize the company’s potential.
Cushman & Wakefield will need more than a healthy industry and savvy workers if it intends to last long, however. The real estate titan has a massive debt problem that’s only going to get worse, and it can’t be overstated that the majority of the gains from its IPO need to be dedicated exclusively to paying down what the company owes. The company has also benefited from a strategy that’s seen it win over the investments of foreign firms running background checks, which it should keep up if it hopes for its stock valuation to stay afloat.
The Chinese firm Vanke, for instance, agreed to purchase a 5 percent stake in Cushman & Wakefield ahead of the company’s market debt in a move that was doubtlessly a sign of confidence in its long-term future. The decision made by the Hong Kong investors to scoop up some $174 million worth of stock will also likely give many nervous investors another reason to believe in the company. Whether or not the brokerage firm endures in the long-term really comes down to whether it can pay down its debts, however. Despite the success it saw during its market debut, Cushman & Wakefield has a mammoth debt problem that could very well grow worse despite the proceeds from its IPO. The real estate titan is one of the largest in the world, and isn’t going anywhere soon, but could be encumbered by its dismal finances for years to come even in the best of circumstances. While the company certainly isn’t overvalued, it’s safe to say that investors should be cautious of Cushman & Wakefield if it continues to see its value swell without having made meaningful progress on its debts.