Greetings. Welcome to Marcus & Millichap’s Third Quarter 2021 Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Tom Shearer. Thank you. You may begin.

Thank you. Good morning. And welcome to Marcus & Millichap’s third quarter 2021 earnings conference call. With us today are President and Chief Executive Officer, Hessam Nadji; and Chief Financial Officer, Steve DeGennaro. Before I turn the call over to management, please remember that our prepared remarks and the responses to questions may contain forward-looking statements. Words such as may, will, expect, believe, estimate, anticipate, goal and variations of these words and similar expressions are intended to identify forward-looking statements. Actual results can differ materially from those implied by such forward-looking statements due to a variety of factors, including but not limited to, general economic conditions and commercial real estate market conditions, the company's ability to retain and attract transactional professionals, the company's ability to retain its business philosophy and partnership culture and the competitive pressures, the company's ability to integrate new agents and sustain its growth and other factors discussed in the company's public filings including its Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2021. Although, the company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can make no assurance these expectations can be attained. The company undertakes no obligation to update any forward-looking statement whether as a result of new information, future events or otherwise. In addition, certain financial information presented on this call represents non-GAAP financial measures. The company's earnings release, which was issued this morning and is available on the company's website represents a reconciliation to the appropriate GAAP measures and explains why the company believes such non-GAAP measures are useful to investors. This conference is being webcast. The webcast link is available on the Investor Relations section of our website at www.marcusmillichap.com, along with the slide presentation you may reference during the prepared remarks. With that, it's my pleasure to turn the call over to CEO, Hessam Nadji.

Thank you, Tom. On behalf of the entire Marcus & Millichap team, good morning, and welcome to our third quarter 2021 earnings call. We're very pleased to report another record quarter of revenue and earnings, coming on the heels of a record first half. For the third quarter, we delivered revenue of $332 million, adjusted EBITDA of $51 million and net income of nearly $34 million. Compared to the third quarter of 2020, revenue more than doubled and adjusted EBITDA increased more than four-fold. This is largely a testament to our pivot from helping clients solve problems and navigate last year's market disruption to leveraging an improving market environment throughout 2021. Historically, low interest rates, record liquidity and to some extent, higher motivation to transact ahead of tax law changes have bolstered the transaction market. Beyond the market recovery, we believe many of our actions and strategies over the past several years, particularly at the onset of the pandemic also drove MMI’s results. To put our performance into perspective on a pre-pandemic basis, we had outperformed our 2019 third quarter revenue and adjusted EBITDA by 68% and 83% respectively. While the market has improved dramatically, our brokerage transactions year-to-date exceeded the same period in 2019 by 28%, which is a clear outperformance compared to an estimated 9% improvement in overall market sales as reported by real capital analytics. During the third quarter, we closed over 3,300 transactions representing total sales volume of $20.8 billion. This is similar to the record volume experienced during the second quarter of 2021 and over 36% higher than the third quarter of 2019. Year-to-date, total sales volume was $50.2 billion, reflecting close to 9,000 transactions, or just under 30% ahead of the same period in 2019. The primary driver of these record numbers is the…

Thank you, Hessam. In the third quarter, we delivered all time record revenue, adjusted EBITDA, net income and earnings per share. While year-over-year comparisons are extremely favourable, we are more pleased with a significant growth in all areas of the business compared to the pre-pandemic third quarter of 2019. Total revenue in the third quarter was $332 million, which exceeded our previous record of $285 million in the second quarter of 2021 by 16.6% and marks the second time a record quarter has occurred outside the fourth quarter. For the nine months ended 2021 total revenues were $801 million, up 71.7% year-over-year and up 40.9% compared to the same period in 2019. Brokerage commissions for the third quarter accounted for approximately 90% of our total revenues or $300 million, an increase of 113% over the third quarter of 2020 and 66% compared to the third quarter of 2019. On a year-to-date basis, brokerage commissions increased 72% year-over-year. Our core Private Client business remains a strength accounting for 61% of brokerage revenue for the quarter or $183 million, which is an 87% increase compared to the third quarter of 2020. Revenue from the Private Client segment for the first nine months of 2021 was $447 million an increase of 58% over the same period in the prior year. In spite of our leading market share in the Private Client segment, there is still plenty of white space in this highly fragmented sector and the sheer size of this market provides further growth opportunity. This quarter, our Middle Market and Larger Transaction Market segments together accounted for 36% of total brokerage revenue at $109.3 million, up nearly threefold year-over-year as Hessam mentioned. Brokerage revenue from these combined segments for the first nine months of 2021 accounted for 35% of total brokerage revenue…

Thank you. [Operator Instructions] Our first question is from Blaine Heck with Wells Fargo. Please proceed.

Great. Thanks. Good morning. Hessam, can you just provide your latest thoughts on potential risks from regulatory issues? And I think the main concern has been around the elimination of 1031 exchanges. Is it your opinion that changes to that program are effectively off the table? And are there any other regulatory issues we should be monitoring that that could affect your business going forward?

Blaine, good morning. Thanks for being on the call and for your question. It’s been widely publicized. The current proposal for tax reform has improved significantly as related to various aspects that would affect commercial real estate, including the 1031 exchange tax deferred provision compared to the original proposal. In fact, we just hosted an update on this very topic with our featured speaker who is the CEO of Real Estate Roundtable, Jeff DeBoer was incredibly active on behalf of the industry with Capitol Hill really making sure that these proposals are grounded and well-thought-through. So as of this moment, which is a little bit of a moving target, we believe that the proposals have improved dramatically. And yes, from what we understand, the 1031 exchange provision has been removed from any significant change. Now as Jeff reminded all of our clients on the webcast, there is still a process and still negotiations going on. But the improvement is clear since the April-May timeframe.

Great. That’s helpful. Can you guys just talk about the M&T partnership in a little bit more detail, if possible? Was there an initial cash outlay for that agreement? I think the press release mentioned a preferred stock investment. So any detail there would be helpful. And then, when does or when did the agreement kind of go into effect? And how should we think about the effect on that partnership on financing revenues as we think about them going forward?

Sure. We definitely have improved the tools and the process we now have with M&T through this strategic alliance and our partnership with them that did involve a capital investment into M&T. By setting it up as we have, we have the benefit of dedicated personnel on the M&T side and processes, workflow and execution improvements over any other agency lending oriented correspondent relationship we’ve ever had before. The reason for that is because we’re now a step above a normal standard correspondent relationship and we’ve actually entered this partnership with M&T, which allows us to have more deal control as well as the synchronized processes for quick quotes, for deals submittal, status movement on pending transactions. And of course getting deals across the finish line in partnership with M&T and the agencies. So from that standpoint, the execution will be significantly better than anything we’ve had in place. This enables in turn our originators to have the benefits of these expanded tools and better execution, and therefore be able to integrate better with our investment sales teams. As I mentioned in my formal remarks, we’re leading broker of major apartments is valued at $10 million plus or any way that you analyze the multi-family market, we’re the number one broker in transactions. Therefore, having this expanded capability and access to agency lending through our originators, enables our investment sales brokers now to bring more value to the same clients. So not only can we capture a higher percentage of our own transactions through agency financing, and by the way, other financing. Our originators continue to clear the market on behalf of the borrower. The agency that of course is not the only option as everybody knows this year, for example, the share of agency execution is down significantly from last year because the market changes. And therefore, I think the notion that we will integrate better, we will capture more repeat business from the same client base that does financing with us and does investment sales transactions with us are clear advantages. In addition to additional recruiting and really retention of value proposition brought to our team because of this enhanced partnership.

Great. That’s helpful color. I guess, can you give the dollar amount of that initial capital investment?

We will not disclose that.

Okay. Moving on, I guess, on previous calls, you guys have discussed and on this call, you did as well, some challenges in hiring during – due to having to kind of conduct the recruiting virtually. And we noticed the number of professionals continued to decrease sequentially between the second and third quarters. Have you guys found that as cities opened during the quarter hiring became a little bit easier? Or are you still kind of swimming against the tide of professionals leaving because they've had such a rough year last year, and if that's the case, when do you think that fallout starts to wane given that you're seeing such better velocity on the transaction side this year?

Sure. Let me separate my answer, on the retention front from the recruiting front. On the recruiting front where we're having very steady success in attracting new talent and people coming in, of course, it's a very competitive labor market as everybody knows. But we were still getting a very strong flow of new candidates that are coming in through our virtual career nights and virtual recruiting and interviewing process, as well as of course the in-person part of all that has improved significantly from even six months ago. It's just not back to normal. The effect of the net numbers that you mentioned, are more driven by the fallout from last year, as you mentioned. And really even the first part of this year, the environment is much more challenging for a new person, who's learning the business. Who's being mentored and trained either by a mentor, sales or loan originator or our regional managers because of the fact that the in-person physical component of that learning and development, whether it's team meetings and group training and activity reviews, or client interactions has been hampered and remains hampered quite a bit. But the numbers really show what's happened over the past 18 months. Not so much as an indication of what's going to happen over the next 18 months. To your point, we expect a dramatic improvement in all of this, as everyone can come back into the office and we can resume much more of our in-person, part of the culture and training and touch points. We are fully prepared for a hybrid work model, of course, the business with brokers being on the road so much and in front of clients so much, it's a quasi hybrid anyway, as an – essentially as an industry, but even more so now with the technology that was implemented and what's been learned throughout the pandemic, a hybrid work model will be very effective for us. But that will always have a large physical component because that's an important part of the business that we're in.

Okay, great. That's helpful. Last one for me. So can you just talk little bit more about the opportunities that you guys see in front of you with respect to additional acquisitions? Maybe just some more color on the types of businesses you're looking at, whether it be on the financing or transaction side, and then any color on the size of deals would be helpful as well.

Sure. I'll take that. And I have Steve chime in as well. We have been exploring many companies that are complimentary to the firm. I've had ongoing conversations with a few that we're very encouraged by within our core business and complimentary to our market coverage and product type expertise on the brokerage side. And of course, on the financing side, we've shared with you many times before there is ample runway. Many of our metros still don't have a fully developed finance professionals or teams on the ground. Many of our teams have the capacity to grow further and our ability to capture more of our internal financing opportunity. And of course grow externally is significant on the financing side. So it's a parallel track of looking at targets, both on the financing side, as well as the investment brokerage side. But being very targeted and selective based on what's complimentary and not an overlap that would result in conflict. In terms of other business lines, we've looked at some other adjacent businesses, our own governance around that is the first and most important question in our mind. And that is we are being in this business line, add value to our core customer base to our future customer base that we're looking to grow with i.e. institutional investors that we're growing with through our IPA strategy, which has been very effective. And lenders with home, we're looking to do more business as reflected in our acquisition of mission capital last year, and a very important component of mission capital was their loan sale business, which put us now in a place to bring a whole other value proposition to the same lenders. We've been doing a standard mortgage brokerage with who often sell loans in pools, or even individually that we weren't really qualified to capture. Those are just some examples between the IPA strategy and the loan sales strategy and ways we're looking to supplement the core business, but there's appraisal as a potential vertical there's investment management as a potential vertical for the private client segment. There are services such as cost segregation and other consultative advisory services that will be complimentary. So within the context of how will we add value to our clients and how will we support our current sales force to a better value proposition. We look at other business lines to supplement our growth.

And in terms of – Blaine, we've also made changes to our process internally, historically our M&A efforts have been either led by or initiated by boots on the ground, our local sales management who have gotten relationships with other firms boutiques in their territory. Those efforts will continue. However, we've also initiated a more centralized process where we've got executive sponsorship of deals and potential targets. We brought on additional resources on the legal and the financial side to be part of that process, enhanced our capabilities in that area.

Great. That’s helpful color. Thanks guys.

Thanks Blaine.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing comments.

Thank you, operator. Once again, let me thank everyone for participating on our earnings call. And we look forward to seeing more of you on the road and through additional virtual connectivity. But most importantly, I really want to thank our clients as I did in my formal remarks once again, without their trust in us, we would not be achieving the results that we are achieving. And of course, the tremendous hard work of our entire team. Thank you for joining the call.

Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.