00:06 Greeting and welcome to the Marcus & Millichap's First Quarter 2022 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.

00:23 Thank you. Good morning and welcome to Marcus & Millichap's first quarter 2022 earnings conference call. With us today are President and Chief Executive Officer, Hessam Nadji; and Chief Financial Officer, Steve DeGennaro. 00:37 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. 00:59 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 March 1, 2021. 01:37 Although the company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can make no assurance that its expectations will be attained. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. 01:57 In addition, certain financial information presented on this call represents non-GAAP financial measures. The company's earnings release, which was issued this morning is available on the company's website, represents 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, and 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. 02:29 With that, it is my pleasure to turn the call over to CEO, Hessam Nadji.

02:34 Thank you, Tom. On behalf of the entire Marcus & Millichap team, good morning and welcome to our first quarter 2022 earnings call. We are proud to report a record first quarter and third best overall quarter in our 51-year history. Our team delivered revenue of $319 million, adjusted EBITDA of $52 million, and net income of $33 million in the first three months of the year. 03:01 Revenue increased 74%, while net income grew a 118% over our previous record first quarter in 2021. We registered healthy year-over-year revenue growth in all market segments, including our private client business, which increased 53%, middle market and larger transactions, which were up a combined 134% and in our financing business, MMCC, which showed an increase of 48%. 03:33 These strong across the board results once again demonstrate contributions from elevated client outreach initiatives, investments in proprietary technology, retention and productivity of our 10-year professionals, and the addition of many experienced producers and teams. 03:52 Our nine acquisitions since 2018 have also integrated into the company very well and have a healthy growth trajectory. At the same time, favorable market conditions and the urgency to transact continue to foster strong trading volumes. 04:09 Improving our already high occupancy levels, above average rent growth in most property types, and the anticipation of rising interest rates are key drivers behind the market momentum. 04:22 Our extensive geographic and product type coverage, enabled us to help a record number of investors execute through the full spectrum of risk-reward and investment options within commercial real estate. 04:36 We achieved strong sales increases among the best performing lowest risk assets namely multi-family, single tenant, and necessity retail, as well as industrial. On the other-end, recovery segments, including self-storage, shopping centers, hospitality and even office sales set…

10:50 Thank you, Hessam. As mentioned, we are pleased to have delivered a strong quarter with significant year-over-year growth in revenue and earnings. Diving into the details beyond the headline numbers, real estate brokerage commissions for the first quarter accounted for 90% of our total revenues or $287 million, an increase of 76% year-over-year. This represents transaction volume of $17 billion across 2,137 deals and year-over-year increases up 94% and 35% respectively. 11:26 $17 billion in quarterly volume is the second highest in our history. Larger deals help drive average deal size to more than $8 million per transaction, up from $5.6 million a year ago. 11:39 Within brokerage, our core private client business accounted for 56% of revenue for the quarter were $161 million, which was a 53% increase, compared to the first quarter of 2021. 11:53 In the quarter, our middle market and larger transaction segments together accounted for 42% of total brokerage revenue at $120 million, an increase of 134% over last year. Across the two segments, multi-family self-storage and retail were the leading growth drivers. We believe there is ample room for future growth through share gains in our core private client segment, as well as the larger transactions market. 12:24 Moving on to our financing division, MMCC, revenues were $26 million in the first quarter, an increase of 48% year-over-year. Fees from refinancing, which accounted for 52% of loan originations for the quarter, increased by 32% over prior year. Overall, financing transactions accounted for $2.7 billion of volume across 520 deals, representing year-over-year increases of 65%, and 5%, respectively. The impact of larger transactions is also evident in this financing business. 13:02 As we have messaged before, MMCC remains a key growth area where we have invested in infrastructure, technology, lender relationships, and talent acquisition…

17:16 [Operator Instructions] Our first question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.

17:50 Great, thanks. Good morning. Hessam, I wanted to ask about a statement that went out in the press release and I think you reiterated here on the call. You commented on an increased equity rotation across property types and geographic markets as investors reposition their portfolios in response to the changing market conditions out there. I was hoping you could just elaborate on that a little bit more. I think you talked about some of the sectors in your prepared remarks, but where are you seeing the most significant changes and a which property types and geographies are the biggest winners and losers in this recent rotation?

18:29 Sure. Hi, Blaine. Great to have you on the call. The most profound source of capital that seems to really be focused on the rotation is apartment equity going into single tenant net lease, going into opportunistic retail, and even some recovery sectors like hospitality and even office. 18:29 We have seen that in the past. It's been a steady part of the 1031 exchange market, but in the last 12 months to 18 months, we've seen an increase in that particular volume, but at the same time, we're seeing additional property types benefit from this capital migration even off the office sector is seeing some rotation and the fact that investors can now look at an economic recovery that's been very broad based, occupancy recovery that's pretty much positive for every sector out there has brought more confidence in rolling equity into different property types, and in the case of the execution of the 1031 exchange provision [differing capital gains to taxes] [ph]. 19:45 And we see that continuing as we speak and there is a lot of momentum in the market because of that – again, as I mentioned earlier, particularly in the single tenant net lease segment.

19:59 Okay, great. And just as a follow-up, any geographies in particular that you think are either benefiting or to the detriment in this rotation?

20:11 Yeah. The one trend that we have been tracking is the capital coming from the higher priced markets such as New York, California, and some of the other markets that have benefited from a very high degree of appreciation over the long-term, and as we've seen the migration to the [Sunbelts] [ph] Florida, Texas, Arizona, Nevada have been beneficiaries of the exchange capital and overall trading volumes going up following the population migration, job migration, and so on. 20:48 That's not to say that the coastal markets, especially New York and San Francisco, Los Angeles and even Seattle are not seeing recovery. If anything, because some of these growth markets led to recovery and the coast or more urban markets lagged, they now have a little bit more runway in front of them in terms of job creation, occupancy recovery, and rent growth.

21:16 Got it. That's great. Great color. Just switching gears, on the strength in the investment sales volume that you guys saw in the first quarter, how much of that first quarter activity do you think is attributable to investors getting out a run of potential interest rate increases or inflation concerns? And if it's a sizable amount of the activity, should we be expecting a slowdown at all as we look forward into the second or third quarters? So, do you think it's sustainable in the near term?

21:47 Blaine, I don't know if it’s accurate to say that is the primary driver of the increased sales volume and activity in the marketplace. I would definitely say, it's an important factor, but there are number of different drivers behind the increase in volume, of course, the economic recovery, the improved fundamentals, tremendous rent growth, and I do believe that the urgency to lock in interest rates go ahead and make your decision to sell, go ahead and make your decision to buy ahead of additional anticipated interest rate increases, has been a positive force in the market or a tailwind. 22:28 The more important question in my mind going forward really has been how will the increased cost of debt impact the pricing equation and the vast spread equation. Of course, with 140 basis point increase in the 10-year treasury so far this year, you would expect that to become a factor and it certainly has in the dialogue. 22:51 What we're seeing though is that any pricing pressure or bid-ask pressure has been really limited to select property types and markets that is really [15 white hot] [ph] trading trends and a lot of appreciation and so far, the modest price adjustments that have been justified have come fairly quickly because a lot of those sellers have had tremendous appreciation and to have other reasons, business reasons, liquidity reasons, taking advantage of the rotation of capital reasons to go ahead and adjust their price expectation and have effective strike price and move on. 23:30 As the market continues into the year and interest rates increase, that's the key factor that we're watching. But the offset really is what I mentioned on my remarks, and you also mentioned this tremendous rent growth. Rent growth cannot be underestimated, whether it's multi-family because of its stability and high occupancies, but also in the recovery segments. And that is a significant offset.

23:57 Got it. That's very helpful. Last question for me. Can you talk a little bit about your acquisition plan for 2022? What can you tell us about the current pipeline or potential investment opportunities on the horizon and whether you have any investments in mind that cater to specific sectors within real estate or specific markets as you've seen that rotation or will it be more focused on the financing side as we've seen recently and tied to that, have you seen any break in pricing for potential acquisitions as this market volatility has increased?

24:32 Sure. Our strategy hasn't changed since the last quarter earnings call or even before that, and that we have always targeted complementary coverage in larger transactions, growing our institutional practice, IPA, growing finance coverage in many metros where we hadn't had representation through the qualified finance expert expansion into office and industrial as a way to diversify our revenue and of course shopping centers, another growth area for us. That's always been the driver of how we targeted folks in property segments, as well as various metros. None of that has changed. 25:25 At the same time, we're looking at opportunities within hospitality to expand, where you’re talking to some teams that fit the profile that I just described in multiple markets and we'll see firms on both the financing side of the equation, as well as the brokerage side of the equation, and what's been happening around us, really in the last six weeks or so on interest rates and the market volatility concerns really hasn't affected any of our strategy or frankly the attitude of the target firms, because there is an expectation that fundamentals are healthy and we may have some volatility because of what's going on around us, but when you look at both the business fundamentals and the capital market fundamentals with financial systems, that's in really good shape, banks are very well capitalized, it’s nothing like 2008, 2009 or the expectations of some, sort of a distressed marketplace. 26:26 So, there is a bit of bid-ask expectation gap when it comes to our acquisitions, but that's always been the case. And for us, it's the emphasis on the value of the platform. Now that we've had some experience with acquisitions being able to showcase the results, both for the target firms that have joined us and for us, which have been very, very positive, as I mentioned in my comments, and just filming on that. 26:52 People really aren't joining us just for the evaluation or the capital event. They're much more focused on long-term growth and how they can do better for their clients because they're part of Marcus & Millichap.

27:07 Great. Thanks Hessam.

27:09 Thanks, Blaine.

27:12 And we have reached the end of the question-and-answer session. I'll now turn the call back over to Hessam Nadji for closing remarks.

27:20 Thank you, operator. I thank all of you for joining our earnings call. We'll be out on the road. We look forward to seeing some of you and having you back on our next earnings call. Thanks and the call is adjourned.

27:33 And this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.