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(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 other 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 the potential continuing impact of the COVID-19 pandemic. The results of operations for the three and six months ended June 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 June 30, 2021, we had 2,022 investment sales and financing professionals that are primarily exclusive independent contractors operating in 84 offices, who provide real estate brokerage and financing services to sellers and buyers of commercial real estate assets. We also offer market research, consulting and advisory services to our clients. During the three and six months ended June 30, 2021, we closed 3,285 and 5,617 investment sales, financing and other transactions with total sales volume of approximately $17.4 billion and $29.4 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 each of the three and six months ended June 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 June 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                                                          297     $           200     $          7,618         192     $           118     $          4,518         105     $            82     $          3,100
        Private client market ($1 - <$10 million)                          1,767               5,675              158,136         793               2,614               70,817         974               3,061               87,319
        Middle market ($10 - <$20 million)                                   156               2,134               41,745          43                 618               11,591         113               1,516               30,154
        Larger transaction market (
        $20 million)                                                         110               5,551               45,404          47               2,074               16,445          63               3,477               28,959
                                                                           2,330     $        13,560     $        252,903       1,075     $         5,424     $        103,371       1,255     $         8,136     $        149,532

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                                                                                                               Six Months Ended June 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                                                          524     $           349     $         13,756         408     $           254     $         10,260         116     $            95     $          3,496
        Private client market ($1 - <$10 million)                          2,967               9,343              263,559       2,035               6,615              185,081         932               2,728               78,478
        Middle market ($10 - <$20 million)                                   234               3,201               62,346         134               1,840               34,259         100               1,361               28,087
        Larger transaction market (
        $20 million)                                                         193               9,531               76,038         113               5,157               45,600          80               4,374               30,438
                                                                           3,918     $        22,424     $        415,699       2,690     $        13,866     $        275,200       1,228     $         8,558     $        140,499


        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
        and are available to our employees and sales and financing professionals.
        Our business was impacted by the
        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 six months ended June 30,
        2021, total revenues and total number of transactions increased 52.2% and 46.4%,
        respectively, compared to the same period in 2020 and 26.6% and 25.2%,
        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 six months ended
        June 30, 2021, for the second half of 2021.
        We continue to monitor the economic trends and related demand for our services
        and will adjust our operations accordingly. Our priority continues to be to
        support our team's efforts to increase client contact, provide expanded content
        and advisory services to investors and clients, and preserve our financial
        position through expense controls. We continue to extend the use of technology
        and resource sharing measures adopted over the past year as ways to achieve more
        efficiency on a long-term basis. Given our significant liquidity, we expect our
        company to be well positioned to benefit from and contribute to the economic
        recovery and the related increase in the volume of real estate transactions as
        the pandemic subsides, including making accretive and synergistic acquisitions,
        which will help expand service offerings and market coverage.
        Due to a continuing uncertainty around the
        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 further 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.
        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
        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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        pandemic. Retail, hotel and seniors housing properties delivered more modest
        gains, beginning their recovery from the severe impact of the pandemic. Office
        space demand remains comparatively weak, but it has finally moved back into
        positive territory following four quarters of negative space demand. A key
        consideration for office space will be the extent to which companies bring their
        employees back to the office. It appears that some headway has been made as a
        modest recovery of housing demand in major urban metros like New York and the
        Bay Area manifested in the second quarter of 2021. Whether employees fully
        return to the office, adopt some form of hybrid work week or continue to work
        from home could significantly impact future commercial real estate space demand.
        Through the pandemic, housing and space demand followed the population migration
        to suburban areas and to smaller cities, drawing increased investor capital to
        these areas. If workers return to offices in the urban core of major metros, the
        trend could at least partially revert to
        trends. Regardless, on a macro-level space demand drivers appear to be reviving,
        and this is supporting increased investor activity.
        Capital Markets
        Credit and liquidity issues in the financial markets have a direct impact on the
        flow of capital to the commercial real estate market. Real estate purchases are
        often financed with debt and, as a result, credit and liquidity impact
        transaction activity and prices. Changes in interest rates, as well as steady
        and protracted movements of interest rates in one direction, whether increases
        or decreases, could adversely or positively affect the operations and income
        potential of commercial real estate properties, as well as lender and equity
        underwriting for real estate investments. These changes generally influence the
        demand of investors for commercial real estate investments.
        Capital liquidity remains strong with debt financing available for most property
        types in most markets. Although hotels and some retail properties have faced
        difficulty in obtaining financing through the
        pandemic, lenders are becoming increasingly active in these segments. On a macro
        level, banks and government agencies have been the most active lenders, but
        commercial mortgage-backed securities and life insurance company lenders have
        become increasingly active, further increasing the availability of debt capital.
        Interest rates were particularly favorable through the second quarter of 2021,
        with the
        treasury hovering in the 1.5% range, and have since dipped even lower. The low
        cost of capital has been promoting investor activity, but elevated inflation
        risk could force the Federal Reserve to begin to tighten their monetary policy
        earlier than previously expected. We believe such action could result in upward
        pressure on interest rates and could potentially weigh on investor activity
        depending on the speed and magnitude of any changes.
        Investor Sentiment and Investment Activity
        We rely on investors to buy and sell properties in order to generate
        commissions. Investors' desires to engage in real estate transactions are
        dependent on many factors that are beyond our control. The economy, supply and
        demand for properly positioned properties, available credit and market events
        impact investor sentiment and, therefore, transaction velocity. In addition, our
        private clients are often motivated to buy, sell and/or refinance properties due
        to personal circumstances such as death, divorce, partnership breakups and
        estate planning.

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        pandemic. It appears some buyers still hope to find distressed properties in
        segments, but well-financed owners have generally been able to weather the worst
        of the downturn and the majority are expected to hold through the nascent
        recovery until pricing fully revives. We believe the investment climate remains
        positive, but could be inhibited by a significant
        resurgence or variants, Federal Reserve actions or commentary that pushes
        interest rates higher or by the release of potential tax policy changes by
        Congress. Prospective increases in personal, corporate, capital gains and estate
        taxes have the potential to dampen consumption and business investment while
        simultaneously rendering existing investment and estate plans obsolete. Tax
        policy changes could spark a short-term wave of transactions or they could slow
        transaction activity depending on exactly how the changes are framed and the
        time frame in which they are enacted. In addition, questions remain about the
        future of 1031 tax deferred exchanges, but this tax code section has survived
        many attempts at elimination largely because studies have demonstrated that
        cancelling this tax code section would likely cause considerable economic and
        tax revenue losses. Nonetheless, based on the foregoing, we believe the emerging
        medical solutions to the health crisis and the nascent release of
        demand among consumers and real estate investors should ultimately outweigh tax
        policy headwinds.
        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
        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
        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
        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.

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Aug 06, 2021


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