(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Unless the context requires otherwise, the words "Marcus & Millichap," "MMI," "we," the "Company," "us" and "our" refer to Marcus & Millichap, Inc., and its consolidated subsidiaries. Forward-Looking Statements The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to any continuing impact of the COVID-19 pandemic. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021, or for any other future period. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Item 1 of this Form 10-Q and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 1, 2021, including the "Risk Factors" section and the consolidated financial statements and notes included therein. Overview We are a leading national brokerage firm specializing in commercial real estate investment sales, financing, research and advisory services. We have been the top commercial real estate investment broker in the United States based on the number of investment transactions for more than 15 years. As of September 30, 2021, we had 1,982 investment sales and financing professionals that are primarily exclusive independent contractors operating in 82 offices, who provide real estate brokerage and financing services to sellers and buyers of commercial real estate assets. During the three and nine months ended September 30, 2021, we closed 3,325 and 8,942 investment sales, financing and other transactions with total sales volume of approximately $20.8 billion and $50.2 billion, respectively. During the year ended December 31, 2020, we closed 8,954 investment sales, financing and other transactions with total sales volume of approximately $43.4 billion. We generate revenues by collecting real estate brokerage commissions upon the sale, and fees upon the financing, of commercial properties, and by providing equity advisory services, loan sales and consulting and advisory services. Real estate brokerage commissions are typically based upon the value of the property and financing fees are typically based upon the size of the loan. During the three months ended September 30, 2021, approximately 90% of our revenues were generated from real estate brokerage commissions, 9% from financing fees and 1% from other real estate related services. During the nine months ended September 30, 2021, approximately 89% of our revenues were generated from real estate brokerage commissions, 10% from financing fees and 1% from other real estate related services. During the year ended December 31, 2020, approximately 88% of our revenues were generated from real estate brokerage commissions, 10% from financing fees and 2% from other real estate related services. We divide commercial real estate into four major market segments, characterized by price:
Properties priced less than $1 million;
Private client market:
Middle market:
Larger transaction market:
Our strength is in serving private clients in the $1-$10 million
Three Months Ended September 30,
2021 2020 Change
Real Estate Brokerage Number Volume Revenues Number Volume Revenues Number Volume Revenues
(in millions) (in thousands) (in millions) (in thousands) (in millions) (in thousands)
<$1 million 267 $ 183 $ 7,419 241 $ 156 $ 6,290 26 $ 27 $ 1,129
Private client market ($1 - <$10 million) 1,894 6,296 183,033 1,168 3,592 97,856 726 2,704 85,177
Middle market ($10 - <$20 million) 136 1,940 35,353 70 945 17,643 66 995 17,710
Larger transaction market (
�
$20 million) 159 8,088 73,954 48 2,302 19,055 111 5,786 54,899
2,456 $ 16,507 $ 299,759 1,527 $ 6,995 $ 140,844 929 $ 9,512 $ 158,915
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Nine Months Ended September 30,
2021 2020 Change
Real Estate Brokerage Number Volume Revenues Number Volume Revenues Number Volume Revenues
(in millions) (in thousands) (in millions) (in thousands) (in millions) (in thousands)
<$1 million 791 $ 532 $ 21,175 649 $ 410 $ 16,550 142 $ 122 $ 4,625
Private client market ($1 - <$10 million) 4,861 15,639 446,592 3,203 10,207 282,937 1,658 5,432 163,655
Middle market ($10 - <$20 million) 370 5,141 97,699 204 2,785 51,902 166 2,356 45,797
Larger transaction market (
�
$20 million) 352 17,619 149,992 161 7,459 64,655 191 10,160 85,337
6,374 $ 38,931 $ 715,458 4,217 $ 20,861 $ 416,044 2,157 $ 18,070 $ 299,414
COVID-19
COVID-19
pandemic on all aspects of our business and in the regions we operate. We
continue to follow the local guidelines in cities where our offices are located,
and all of our offices have
re-opened.
Our business was impacted by the
COVID-19
pandemic during most of 2020, with the total number of transactions and total
revenues declining 7.9% and 11.1%, respectively, in the year ended December 31,
2020 compared to the same period in 2019. During the nine months ended
September 30, 2021, total revenues and total number of transactions increased
71.7% and 49.6%, respectively, compared to the same period in 2020 and 40.9% and
29.2%, respectively, compared to the same period in 2019. While our total
revenues were significantly above prior years' levels, some uncertainty exists
in our ability to sustain the growth rates experienced during the three and nine
months ended September 30, 2021.
Due to the continuing uncertainty around the
COVID-19
pandemic, we are unable to predict its potential impact on our financial
condition, results of operations and cash flows. These uncertainties include the
scope, severity and duration of the pandemic; variants in the virus, vaccination
rates and the effects thereof; expectation gaps among buyers and sellers on
pricing and property operation, vulnerability to economic weakness and/or slow
recovery; the direct and indirect economic effects of the actions taken by state
and local governments to continue to contain the pandemic or mitigate its
impact; and the impact of these and other factors on our employees, independent
contractors, clients and potential clients.
Cybersecurity
In August 2021, we were subject to a cybersecurity attack on our information
technology systems. We immediately engaged cybersecurity experts to secure and
restore all essential systems and were able to do so with no material disruption
to our business. At this time, there is no evidence of any material risk or
misuse relating to personal information.
We continue to work with our external cybersecurity experts to assess and
enhance the security of our systems and personal information. We maintained
cyber insurance, which has covered the majority of costs related to this
incident.
Factors Affecting Our Business
Our business and our operating results, financial condition and liquidity are
significantly affected by the number and size of commercial real estate
investment sales and financing transactions that we close in any period. The
number and size of these transactions are affected by our ability to recruit and
retain investment sales and financing professionals, identify and contract
properties for sale and identify those that need financing and refinancing. We
principally monitor the commercial real estate market through four factors,
which generally drive our business. The factors are the economy, commercial real
estate supply and demand, capital markets and investor sentiment and investment
activity.
The Economy
Our business is dependent on economic conditions within the markets in which we
operate. Changes in the economy on a global, national, regional or local basis
can have a positive or a negative impact on our business. Economic indicators
and projections related to job growth, unemployment, interest rates, retail
spending and confidence trends can have a positive or a negative impact on our
business. Overall market conditions, including global trade, interest rate
changes and job creation, can affect investor sentiment and, ultimately, the
demand for our services from investors in real estate.
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COVID-19
surge could potentially disrupt the return to office timetable again, creating a
new round of pricing instability. Another area of investor uncertainty centers
on potential tax reform, but recent communications from the House of
Representatives suggests that changes to very important commercial real estate
focused tax policies such as the 1031 tax deferred exchange and the
step-up
basis are improbable at this time. This has bolstered investor confidence, but
until the final version of any tax policy changes are officially adopted,
commercial real estate investors could remain wary. Despite these areas of
uncertainty, we believe the overall enthusiasm for commercial real estate
investment as demonstrated by increasing transaction activity remains positive.
Seasonality
Our real estate brokerage commissions and financing fees have tended to be
seasonal and, combined with other factors, can affect an investor's ability to
compare our financial condition and results of operations on a
quarter-by-quarter
basis. Historically, this seasonality has generally caused our revenue,
operating income, net income and cash flows from operating activities to be
lower in the first half of the year and higher in the second half of the year,
particularly in the fourth quarter. The concentration of earnings and cash flows
in the last six months of the year, particularly in the fourth quarter, is due
to an industry-wide focus of clients to complete transactions towards the end of
the calendar year. This historical trend can be disrupted both positively and
negatively by major economic events, political events, natural disasters or
pandemics such as the
COVID-19
pandemic, which may impact, among other things, investor sentiment for a
particular property type or location, volatility in financial markets, current
and future projections of interest rates, attractiveness of other asset classes,
market liquidity and the extent of limitations or availability of capital
allocations for larger property buyers, among others. Private client investors
may accelerate or delay transactions due to personal or business-related reasons
unrelated to economic events. In addition, our operating margins are typically
lower during the second half of each year due to our commission structure for
some of our senior investment sales and financing professionals. These senior
investment sales and financing professionals are on a graduated commission
schedule that resets annually, pursuant to which higher commissions are paid for
higher sales volumes. Our historical pattern of seasonality may or may not
continue to the same degree experienced in prior years.
Operating Segments
We follow the guidance for segment reporting, which requires reporting
information on operating segments in interim and annual financial statements.
Substantially all of our operations involve the delivery of commercial real
estate services to our customers including real estate investment sales,
financing and consulting and advisory services. Management makes operating
decisions, assesses performance and allocates resources based on an ongoing
review of these integrated operations, which constitute only one operating
segment for financial reporting purposes.
Key Financial Measures and Indicators
Revenues
Our revenues are primarily generated from our real estate investment sales
business. In addition to real estate brokerage commissions, we generate revenues
from financing fees and from other revenues, which are primarily comprised of
consulting and advisory fees.
Because our business is transaction oriented, we rely on investment sales and
financing professionals to continually develop leads, identify properties to
sell and finance, market those properties and close the sale timely to generate
a consistent flow of revenue. While our sales volume is impacted by seasonality
factors, the timing of closings is also dependent on many market and personal
factors unique to a particular client or transaction, particularly clients
transacting in the
$1-$10 million
private client market segment. These factors can cause transactions to be
accelerated or delayed beyond our control. Further, commission rates earned are
generally inversely related to the value of the property sold. As a result of
our expansion into the middle and larger transaction market segments, we have
seen our overall commission rates fluctuate from
period-to-period
as a result of changes in the relative mix of the number and volume of
investment sales transactions closed in the middle and larger transaction market
segments as compared to the
$1-$10 million
private client market segment. These factors may result in
period-to-period
variations in our revenues that differ from historical patterns.
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COMTEX_396395892/2041/2021-11-05T14:17:12
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