Marcus & Millichap, Inc. — Call Transcript 2025

Greetings and welcome to Marcus & Millichap's Third Quarter 2025 Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Jacques Cornet. Thank you. You may begin. Thank you, Operator. Good morning and welcome to Marcus & Millichap's Third Quarter 2025 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 in 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 transaction professionals, the company's ability to retain its business philosophy and partnership culture amid 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 February 27, 2025. 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 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. The conference call is being webcast. The webcast link is available on the investor relations section of the company's website at www.marcusandmillichap.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, Jacques. Good morning and welcome to our Third Quarter 2025 Earnings Call. I'm pleased to report that we delivered a strong quarter, total revenue increasing 15% over Q3 2024. This marks the fifth consecutive quarter of year-over-year revenue growth as we continue to navigate the severe and complex market disruption of the past three years. Adjusted EBITDA for the quarter was $7 million compared to approximately break-even in the prior year period. This year's third quarter results include a $4 million legal reserve that Steve will address in his remarks. Excluding this reserve, the company's SG&A was modestly lower than the prior year, reflecting our ongoing focus on cost management while still making strategic investments in technology, talent, and branding. As noted on prior calls, the expensing of investments made over the past several years in talent retention and acquisition during a period of hampered revenue production has been a significant drag on our earnings. We expect this dynamic to shift into operating leverage as the market improves. During the quarter, our results outpaced the market based on transaction growth of 25% for MMI versus an estimated market growth of 12% in transactions based on RCA data for sales of $2.5 million plus assets. This was driven by momentum in our private client brokerage business, which was up 17% in revenue and 22% in the number of transactions. This critical segment, defined as transactions in the $1-10 million price range, is improving thanks to more banks and credit unions returning to the market, gradual price discovery, and more investors finally coming off the sidelines. Private client apartments and single-tenant retail posted strong revenue gains of 35% and 16%, respectively. The company's mid-market segment also contributed to the quarter's results with a revenue increase of 35% from deals in the $10-20 million price range, mostly dominated by larger private and quasi-institutional investors and developers. Our team's elevated client outreach campaigns and countless opinions of value that did not culminate in transactions over the past two years were instrumental in staying close to our clients during a time of uncertainty and providing guidance when they became ready to execute. This is the essence of Marcus & Millichap's client-centric and relationship-driven culture and business model that continue to differentiate us. Our larger deals, valued at $20 million or more, declined 12% in revenue and 13% in transaction count for the quarter, similar to what we reported last quarter. Once again, this is a result of outsized growth in larger deals last year, which led to recovery from the 2023 market shock. Our $20 million and above transactions grew by 19% in calendar year 2024, 30% in the third quarter of 2024, and 59% in last year's final quarter. As a result, we've faced a very difficult comparison this year. Given this dynamic, our overall brokerage volume in the third quarter posted a 2% gain compared to a 17% increase in market volume, as reported by RCA, again for the $2.5 million plus asset sales. Our IPA division continues to deepen its institutional client base, which we're taking to the next level by the recent addition of two new executives: Andrew Leahy, who heads our IPA Multifamily Division, and Dax Chen, our new head of IPA Research. Each of these is a seasoned institutional executive with more than 20 years of experience with some of the most renowned institutional investors in the industry. The added leadership, which we're very excited about, combined with our healthy pipeline and robust exclusive inventory, positions us well to continue the expansion of our institutional platform as a supplement to our private client market dominance. Financing revenue once again exhibited strong growth, up 28%, reflecting improved lending conditions and our team's ability to leverage our extensive network of active lenders. So far this year, we've closed over 1,100 financing transactions with nearly 350 separate lenders, enabling our team to pivot when lenders move in and out of the market. Revenue growth has been widespread, with contributions from our veteran originators, IPA Capital Markets, as well as recent additions of experienced originators. We're also seeing steady progress in integrating our sales and financing teams, offering combined services to our private and institutional clients. Our loan sales and advisory division, Mission Capital, is also seeing a significant uptick in activity and has posted solid revenue growth this year as more lenders are finally moving both performing and non-performing loans to the marketplace. Other developments of note include the net addition of 29 investment brokers in the quarter. As I've shared on previous calls, restoring and improving the company's organic talent development after a post-pandemic disruption has remained a priority, and our actions are starting to produce results, although the turnover rate of newer professionals is still elevated due to a difficult market environment. The quarter's improvement is encouraging, as is our continued success in attracting and integrating experienced professionals. Our team also made progress in expanding MMI's brokerage transaction services, which is designed as a centralized resource for analytics and production support to our salesforce. We see this as an area that can directly benefit from AI technology and bringing more efficiency and expanded output to our team and to our clients. Lastly, I'm pleased to report that our auction division, which started in 2022, continues to gain traction, particularly in its collaboration with our investment brokers, who are bringing this added marketing channel to many of our clients. So far this year, we've closed 191 sales through our auction platform, accounting for an estimated 25% share of total commercial property auctions in the U.S. Looking forward, we're encouraged by the ongoing improvement in our key operating metrics, including shorter marketing timelines, fewer significant price reductions, and near-record exclusive listing inventory. Marketing and closing timelines still remain longer than usual and continue to weigh on productivity, largely due to persistently tight underwriting by lenders and a narrow margin of error on valuations among buyers and sellers. However, the trend is improving, which allows us to allocate more bandwidth to new business development as the market regains alignment. From a market perspective, this year's rate reduction failed to bring down long-term yields and did not spark a significant boost in the transaction pipeline as it did going into the fourth quarter of last year. Nonetheless, we remain cautiously optimistic about the start of a new sales and financing cycle as the market resets, with measured improvement in the trading environment for three key reasons. First, we believe the Fed will continue to reduce interest rates over the next year, notwithstanding what may or may not happen in December, to shore up the labor market. Although long-term rates are likely range-bound, a more accommodative Fed and the end of quantitative tightening will be constructive for real estate transactions. Second, the price adjustments that have occurred over the last two years are making many assets compelling on a replacement cost basis. Although there is clearly a flight to safety with capital preferring high-quality assets in strong locations, investor confidence and fear of missing out are becoming more evident in the marketplace. This is most pronounced in apartments, industrial, and retail in the majority of the metros we serve. The recovery in the office sector is clearly broadening with the growing return to office mandates and average daily attendance at 80% of pre-pandemic levels. This measure was at 50% just two years ago and 57% just last year. Last but not least, the pullback in new construction, driven by limited risk appetite by equity capital and high construction costs, will set the stage for stronger occupancies and rent growth across most property types in 2026 and 2027. Again, this is most pronounced for apartments and industrial, which were the most active in new deliveries over the past five years. Self-storage was also affected by this, and we'll see improvements in the coming years. For MMI, our vision of expanding market coverage through improved organic hiring and scaling our experienced professional recruiting, as well as synergistic acquisitions, remains our primary growth path. These are the parallel paths we have set to expand our private client market share and continue building on IPA's success. Going into 2026, we're expanding our growth strategy in retail and industrial in particular, both of which offer significant growth for our opportunity in the majority of the markets we serve. We also believe that further scaling of our financing capabilities has much room to run, as we're proving through the success of many senior-level originators who have joined MMI in the last several years. On the acquisition front, we continue to see a wide bid-ask spread and misaligned expectations on the guaranteed portion of valuations, and therefore capitalizing on more accretive opportunities to recruit experienced individuals and teams. Given the fragmented nature of our core business and the limited number of large, viable M&A targets, most of our efforts focus on boutique firms with highly concentrated ownership, which presents its own challenges. We're expanding our recruiting team and resources to increase capacity for additional experienced talent acquisition while we continue to explore complementary business expansions. From a capital allocation standpoint, our dividend and share repurchase program over the past three and a half years has enabled us to maximize shareholder value while maintaining an exceptionally strong balance sheet. In the near term, we face a particularly challenging comparison to last year's exceptional fourth quarter, which benefited from the significant reduction in interest rates. That said, we expect to see continued sequential improvement in our business as the drivers of transaction activity continue to improve. Our strategy remains focused on leveraging our unique platform, expanding our market reach, and investing in the tools and talent that will drive long-term growth. With that, I will turn the call over to Steve for more details on the quarter. Steve? Thank you, Hessam. As mentioned, total revenue for the third quarter was $194 million, an increase of 15% compared to $169 million for the same period in the prior year. Year-to-date, total revenue was $511 million, up 12% compared to $456 million last year. Breaking down revenue by segment, real estate brokerage commissions for the third quarter accounted for 84% of total revenue, or $162 million, an increase of 14% year-over-year. While transaction volume declined 2% to $8.4 billion, the company closed nearly 1,600 transactions at an average commission rate of 1.9%, which was nearly 30 basis points higher than last year. The increase in private client volume drove a 4% decrease in average fee per transaction due to the higher mix of smaller deals. We are not experiencing any notable fee erosion in the marketplace in any of our price tranches. For the nine months year-to-date, real estate brokerage commission accounted for 84% of total revenue, or $427 million, an increase of 10% year-over-year. The year-to-date improvement included 8% growth in transaction volume to $23 billion across 4,136 transactions and a 2% increase in the average commission rate. Average transaction size year-to-date was $5.6 million compared to $5.8 million a year ago, reflecting a higher proportion of private client revenue for the nine-month period. Within brokerage for the quarter, our core private client business accounted for 63% of brokerage revenue, or $102 million, up from 62% and $87.5 million in the same period last year. Private client transactions grew 24% in volume and 22% in transaction count. Year-to-date, private client contributed 64% of brokerage revenue, or $274 million, versus 63% and $245 million last year. Middle market and larger transaction segments together accounted for 32% of brokerage revenue, generating $52 million in revenue compared to 35% and $49 million last year. While we achieved a 4% increase in the number of transactions within these segments, the overall dollar volume decreased 17%, reflecting a change in mix to more middle market activity and fewer transactions in the larger transaction space. Large transactions significantly outgrew the market last year, creating a tough year-on-year comparison. Year-to-date, middle market and larger transaction segments combined represented 32% of brokerage revenue, or $136 million, compared to 33% and $126 million last year. Revenue from our financing business, which includes MMCC, grew 28% year-over-year to $26 million in the third quarter. The strong growth was driven primarily by a 34% increase in transaction volume totaling $2.9 billion across 406 financing transactions, which was a 28% increase year-over-year. The average financing commission rate was nominally down four basis points, as expected, due to an increase in larger deals closed in the quarter. The overall performance reflects the continued momentum and progress in scaling our financing platform. For the nine-month period, financing revenue was $71 million, a 33% increase compared to last year. This growth was driven by a 40% rise in transaction count and $8.2 billion in volume, up 46% year-over-year. Other revenue, primarily from leasing, consulting, and advisory fees, was $5 million in the third quarter, compared with $6 million in the same period last year. For the nine-month period, other revenue totaled $13 million compared to $16 million in the prior year. Turning to expenses, total operating expense for the quarter was $196 million compared to $180 million a year ago. For the nine-month period, total operating expense was $540 million compared to $496 million last year. Year-over-year increases in absolute dollars for both the quarter and year-to-date period are largely attributable to the increase in cost of services resulting from higher revenue. Cost of services for the quarter was $121 million, or 62.4% of revenue, compared to 62.2% last year. For the nine-month period, cost of services totaled $316 million, or 61.8% of revenue, up 50 basis points year-over-year. The increase in cost of services as a percentage of revenue was primarily driven by year-over-year revenue growth, resulting in producers achieving higher commission thresholds. SG&A expense for the quarter was $73 million, or 37.4% of revenue, compared to $71 million, or 41.9% of revenue in the same period last year. The current quarter results include a $4 million reserve for a litigation matter that we believe has a number of legal rulings we intend to aggressively appeal. Also, as Hessam pointed out, our SG&A expense would have decreased by $2 million year-over-year, excluding the legal reserve, as a result of tight cost controls. I'd also like to reiterate that we have continued to make investments in key strategic areas throughout the market disruption, with an eye towards long-term competitiveness. For the nine-month period, SG&A totaled $216 million, or 42.2% of revenue, down from 44.9% in the prior year. For the third quarter, we reported net income of $240,000, or a penny per share, which includes an 8 cent per share charge for the legal reserve that we took in the quarter. This compares to a net loss of $5.4 million, or 14 cents lost per share in the prior year. In spite of the $4 million legal reserve, the year-over-year earnings per share improvement of $0.15 marks a notable return to profitability. During the third quarter, we maintained the same tax methodology we adopted in the second quarter and recorded a provision for income taxes of $1.2 million. For the nine-month period, the net loss was $20.9 million, or $0.54 per share, compared to a net loss of $23.8 million, or $0.61 per share in the same period of the prior year. Adjusted EBITDA for the third quarter was $6.9 million, compared to break-even adjusted EBITDA in the same period last year. Year-to-date, adjusted EBITDA was nearly break-even, compared to a loss of $8.7 million in the prior year. Adjusted EBITDA for both the quarter and year-to-date would have been $4 million higher if not for the legal reserve, underscoring the substantial progress in operating performance over the prior year. Moving to the balance sheet, we continue to be well-capitalized with no debt and $382 million in cash, cash equivalents, and marketable securities, a $49 million increase over last quarter. Subsequent to quarter end, we returned $10 million in capital to shareholders through a dividend paid in early October. During the nine months ended September 30th, the company repurchased nearly 265,000 shares of common stock at an average price of $30.33 per share for a total of $8 million. Since August of 2022, the company has repurchased more than 2.4 million shares of common stock at an average price of $32.03 per share for a total price of $77 million. From the inception of our dividend and share repurchase programs over three years ago, we have returned a combined $200 million in capital to shareholders. We remain committed to a balanced, long-term capital allocation strategy, which includes investing in technology, recruiting and retaining the best-in-class producers, strategic acquisitions, and returning capital to shareholders. We are encouraged to see signs of market stabilization evidenced by improved listing activity, a stronger pipeline, a better lending environment, and renewed investor engagement. Ongoing uncertainty around global macro conditions, inflation, tariff policy, and the labor market still exists, but the Fed has signaled a more accommodative environment, which should drive more transactional activity. For the fourth quarter, we anticipate quarter-over-quarter sequential revenue growth consistent with normal year-end seasonality, however, being mindful that our prior year results benefited from an exceptional surge in activity as investors capitalized on rate declines. Cost of services as a percentage of revenue should follow the usual pattern as revenue builds through the year and be sequentially higher than the third quarter. As for SG&A, after normalizing for the legal reserve in the third quarter, SG&A for the fourth quarter should increase modestly on a dollar basis. With the current tax methodology, tax expense is expected to be in the range of $4 million-$6 million for the fourth quarter. With that, Operator, we can now open the call for Q&A. Thank you. We'll now begin the Q&A session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you. Our first question is from Mitch Germain with Citizens. Hey, good morning, guys. I appreciate the chance to ask a question. I know you talked about some of the tougher comps in the larger transaction segment of your business, but your hiring efforts have been on more experienced producers. Maybe just talk about that dynamic in terms of the ability to get some of that larger deal activity accelerating again. Sure, Mitch. Good morning. The look sort of beyond the headline numbers in that category for us shows that in the usual price ranges where our IPA division and more senior Marcus & Millichap professionals execute transactions in the $20 million-$50 million price range, our business has been fairly steady. There was pretty much a same amount of deals done this year in the third quarter than last year. What happened last year is that we had an outsized number of very large deals, $70 million plus, that we executed, which is predominantly why the comparison has become tough. Last year, we executed 21 deals priced above $71 million, and this year there were seven. There is no particular pattern to that or reflection of any change in strategy. It's just a matter of the size deals that many, many of our institutional clients and large private clients happen to execute at a given time. The strategy, both on the support levels of our existing IPA and senior Marcus & Millichap teams that are doing larger deals, is unwavering, is on track. No changes at all have been executed there other than adding more leadership, adding a new head of research, and investing more in expanding the IPA platform and capturing more share of the larger market transaction because we really believe it integrates well with our private client business, particularly as we see more and more of our private clients move equity from smaller assets and multi-decade held portfolios into larger institutional quality assets as they get closer and closer to retirement and estate planning. That bridging of the capital migration from private owners to the institutional market is a huge value proposition of IPA and Marcus & Millichap. We are just really at the beginning stages of building that out, especially as the demographics continue to move in that direction. On the hiring front, the experienced brokers that we target for acquisition or recruiting are very select in terms of which markets we have what need, and what product type we have what need. It is those needs and avoiding overlap with our existing capacity in a market that drives the recruiting strategy. It is a very market-by-market, property-type-by-property-type effort. It takes a long time because you have to develop relationships with those individuals. They have to get to know the platform over time. Many of them are with other brands where they may not be maximizing their potential. Frankly, that's the reason that a number of them have joined IPA and Marcus & Millichap over the last five years. Gotcha. Okay. That's super helpful. Curious about the conversations you're having with some of your customers. I know that many of them have really been on the sidelines the last several years. It does seem like some of them are now returning to the markets. Are you getting a sense that they've either, A, just accepted the new pricing dynamic that's in the market, and B, are you seeing them begin to feel a little bit more constructive about transaction in this backdrop? Yes and yes. We're seeing more motivation to put property on the market because of the reality that there is no Fed miracle. Many of our private clients over the last year and a half were expecting a much more dramatic drop in interest rates, the evidence for which was not there. We have been very consistent in our analysis of the market where we did not believe interest rates would go back down significantly, and they have not. That realization is now creating more motivation as the first thing. The second is more and more of our private clients that did not have a reason to sell are now facing reasons to sell because of loan maturities, maybe some operational issues, and death, divorce, partnership breakups, and all the other private client motivations. We are seeing motivation also pick up due to that reason. Most importantly, though, Mitch, is a combination of moderately better interest rates. We have seen lender spreads come in, which is favorable. Price adjustments is the primary reason there is now more alignment in the market where we had a lot of unsuccessful listings on the market over the last 18 months due to unrealistic pricing. Frankly, for us, there was a process of price discovery because there was so much moving around in the marketplace. It was hard to tell where the market really was. You had to put product out to market the best you could with great underwriting and see what the market response was going to be. The number of listings that are now basically aging or becoming unsellable at the expected price of the seller is dropping, which is telling us that the market is finding that realignment. More and more of our deals are having less significant price adjustments, and fewer are falling out of contract. All of which tells us that this alignment in price expectation is starting to happen. Is it there all the way? Absolutely not. We still have a ways to go. There's still plenty of owners that believe their assets are worth more than they actually are based on real numbers, and especially year one and year two operations, which is where we're finding the most friction between buyers and sellers. Great. Last one for me is I checked your financials to see when was the last time you had a similar level of revenues. And you were extremely more profitable back then. I'm curious, and I really appreciate Steve's discussion around some of the legal reserve and some of the platform scale. What's the new magic number to get back to producing the type of profitability that you did before? Obviously, you've had cost of living adjustments and numerous issues that may have changed in your business from four or five years ago. I'm just curious, how do you become a bit more scalable and start to see a little bit greater improvement in bottom line when you start producing, I don't know, 200 plus in terms of revenues per quarter? Mitch, this is Hessam. Let me share some comments on that one, and then I'll turn it over to Steve. The most important difference over the last, let's say, six, seven years of our operating structure is the fact that we have invested capital in talent acquisition, talent retention, and essentially talent development at levels that the company hadn't engaged in prior to this period. As a result of that, we have more experienced market leaders that have joined the company from the outside. Retention of our top-level producers has been stellar, and we have invested in their careers by bringing them on or keeping them at Marcus & Millichap over the long term. As you know, all of those kinds of long-term agreements have performance thresholds, have safety nets for the company's ultimate margin of protection over the term of an agreement. That capital that's been invested is actually being amortized on an ongoing straight-line basis at a time when all of that talent is facing a disrupted marketplace that has not been functioning. Therefore, their normal, just long-term average revenue production capability has been significantly hampered. You have an additional expense line of a non-cash item in the amortization of the capital that has been put out in getting this amazing talent pool retained and added to our company. Yet the revenue component from all that talent has been significantly held back. As that starts to change, what has been a drag should become an operating leverage for us. In terms of the comparison of cost structure, that's probably the largest item, and it's a non-cash item, as you know. Other investments in the platform do include a much bigger commitment to technology than we have implemented over the last five years than previously to when I became CEO because, frankly, the company needed to move a lot faster and be a lot more nimble on things like a CRM system, on things like automated matching of buyers and sellers to our website. A lot of it was really sprung out of the pandemic because we pivoted and took major leaps forward in internal automation. A lot of automation we now offer to our clients through MyMMI, which is a major investment in a platform where client buyers in particular can tell us what they're looking for. The matching of their investment parameters to our fresh inventory is an amazing sort of mechanism for bringing efficiency to both our clients and to our salesforce. Those are some key elements of why the expense structure has changed. We're building the firm for a much larger revenue base than where we are today. Because of the talent that's been brought on board and retained and these investments, we really believe in a normal market operating environment, we'll be able to achieve that leverage. I just wanted to give that context, but let me turn it over to Steve. That's pretty broad context. I guess a couple of additional points I would make and specific to your question, Mitch, that significant leverage, you're starting to see it happen at this revenue level. We're just shy of $200 million in this quarter. You can kind of do the math that sands the legal reserve what results would have been. We are kind of at that inflection point where you really see an acceleration of profitability, perhaps not all the way back to where we were at comparable revenue levels six, seven, eight years ago for reasons Hessam mentioned. This is the inflection point. One additional point, the investments in not only retention and recruiting of those senior agents, the technology as well that Hessam mentioned, but central services where we will also gain additional leverage by adding more value and therefore connectivity to the firm with our producers. Just a couple of additional points to tack on there. Perfect. Thank you, guys. Thank you, Mitch. Our next question is from Blaine Heck with Wells. Great. Thanks. Hessam, you mentioned the banks and credit unions expanding lending, which is clearly a positive for the transaction market. I am wondering if you can give some context around the scale of that expansion and how you feel about their willingness to lend today, especially on smaller transactions, just relative to their activity maybe last year and relative to a more normalized level of activity in a functional transaction market. Happy to, Blaine. There is a marked difference from even a year ago in just the number of lenders at any given time willing to give us quotes on certain assets, number one. Number two, with quotes coming back so out of market about a year ago, a good number of lender quotes were just not usable. If you contrast that to where we are today, we have more lenders signaling to us that they're back in the market. The quotes that are coming back are a lot closer to consummating a transaction than they were even a year ago. The loan-to-values are improving. Part of that is lender spreads having come in. Probably the most important change is that it seems like what was clogging up the banking system in terms of loans that had to be extended, loans that needed workouts, and so on has largely been addressed or there are plans to address them. Fewer lenders appear to be clogged up versus a year ago. It's taken our team of 100 or so originators across the country that are technologically connected to each other on a collaborative basis where we have real-time information sharing on what lenders are quoting at what levels based on specific loans that are being requested or mandates that we have. That information sharing is another reason we're able to move faster in securing the right financing for each of our clients. In terms of the composition of where the capital is coming from for our financing, something close to 50% is now being funded by banks and credit unions. That percentage hasn't changed a whole lot from a year ago, but the time that it's taking and the number of lenders you had to knock on doors with a year ago is where the improvement has been. It's taken less time to secure loans from banks and credit unions. We're seeing that also predominantly from the regional banks. A lot of regional banks were out of the market a year ago that are back in the market, which is for us as a local private client provider, that regional bank connectivity has been significantly important over the history of the firm. It's improving. Great. That's great color and seems like a marked improvement over the last year. I guess to the second part of the question, when you compare the activity today to maybe what you saw in pre-pandemic periods, are we all the way back? Are we halfway back? How would you compare the activity versus kind of optimal capital efficiency? On our overall basis, we believe the market is still somewhere around 15%-20% below normal as a whole. If you look at various price points and property types, the real answer is in that level of detail. For example, if you look at Southern California, or if you look at other regions like Texas, some markets are a lot closer to the velocity in what we consider a normal period. We used 2014 to 2019 as the last sort of five-year period of a normal, less choppy environment. The Texas markets are a lot closer to that normal than, let's say, the California markets are. Larger apartments are still well below their normalized five-year average pre-pandemic, as are small apartments and single-tenant net lease. I would say that small apartments and single-tenant net lease are about 20%-25% below where that average trading in a normal environment should fall. Got it. Very helpful. Switching gears, can you talk a little bit more about the auction business? I do not think we have discussed that in very good detail in past quarters. Just how large you see that segment growing in the next few years and maybe touch on any differences in the fees you generate from that business versus your more typical brokerage business? Absolutely. First of all, it goes back to specialization and expertise. We built the capabilities that are now in place organically by bringing on auction specialists that had significant experience. Shortly after we knew that there was a real market for it, both internally in terms of the collaboration and externally, we brought on Jim Palmer as the executive in charge. That goes back to our philosophy that you have to have management that has had practical experience in the niche. Jim certainly brings that with his years and years of involvement in the auction business. The combination of auction specialists, producers that are dedicated to the auction business, that's all they do, strategically located in various regions under the direction of a dedicated executive with experience, Jim Palmer is the combination that has made this very successful for us. One of the benefits is that for our investment salesforce that is out there, especially in a disrupted market with conventional marketing, and as we've discussed and I made comments on just earlier on this call, the response to listings, aging listings, and listings that were not movable in a conventional way over the past, let's say, 24 months, we've found that more and more of them are good candidates for marketing through an auction platform. The auction platform obviously has the benefit of having pre-qualified bidders where we know that they're financially capable and committed to executing transactions. As we've not only been able to find the right niche in executing the auction model, the benefit of the internal collaboration is that we collect a brokerage service fee for the seller, and then there are the auction-related fees on top of that and a buyer premium that is added. It is a win-win for the client, and it is multiple fee generation opportunities for the firm. Got it. That is very helpful. Last one for me. With respect to the litigation, was this a one-time event, or do you expect some ongoing headwinds? Maybe you can just give some color on the nature of the litigation. Is this related to ongoing segments of your business such that there could be more coming or just a more nuanced situation? Yes. Blaine, I'll take that. First of all, I'll refer you and everyone to the 10-Q that will be on file with the SEC later today for some additional context. In addition to that, I'll say that we do anywhere from 8,000 to 10,000 transactions a year. So inevitably, from time to time, disputes of varying nature are going to arise, most of which go away in the normal course of business. A very small number of those actually go to trial. This matter, unfortunately, which involves a disputed disclosure-related claim, actually did go to trial. It certainly is an outlier. We believe the verdict which went against us was rendered in error. Therefore, we have very strong grounds for appeal. We intend to exhaust all our legal avenues to have the award reduced or reversed entirely. No, it is not an indication of any greater pattern or specific segment of the business. It is an extreme outlier, not an indication of any greater issue. With respect to the amount, just based on the information that we have got available and our assessment at this time, we felt that was the appropriate amount to reserve. All right. Great. Appreciate that, Color. Thanks, guys. Thank you. There are no further questions at this time. I would like to hand the floor back over to Hessam Nadji for any closing comments. Thank you, Operator. Thank you, everyone, for joining the call. We look forward to seeing a lot of you on the road and having you back on our next earnings call. This call is adjourned. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Speaker 6: Greetings and welcome to Marcus & Millichap's Third Quarter 2025 Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Jacques Cornet. Thank you. You may begin. Greetings and welcome to Marcus & Millichap's Third Quarter 2025 Earnings Conference Call. greetings and welcome to marcus & millichap's third quarter 2025 earnings conference call As a reminder, this call is being recorded. as a reminder this call is being recorded I would now like to turn the conference over to your host, Jacques Cornet. i would now like to turn the conference over to your host jacques cornet Thank you. thank you You may begin. you may begin

Speaker 2: Thank you, Operator. Good morning and welcome to Marcus & Millichap's Third Quarter 2025 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 in similar expressions are intended to identify forward-looking statements. Thank you, Operator. thank you operator Good morning and welcome to Marcus & Millichap's Third Quarter 2025 Earnings Conference Call. good morning and welcome to marcus & millichap's third quarter 2025 earnings conference call With us today are President and Chief Executive Officer Hessam Nadji and Chief Financial Officer Steve DeGennaro. 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. 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 in similar expressions are intended to identify forward-looking statements. words such as may will expect believe estimate anticipate goal and variations of these words in 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 transaction professionals, the company's ability to retain its business philosophy and partnership culture amid 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 February 27, 2025. 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 statement, whether as a result of new information, future events, or otherwise. 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 transaction professionals, the company's ability to retain its business philosophy and partnership culture amid 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 February 27, 2025. 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 transaction professionals the company's ability to retain its business philosophy and partnership culture amid 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 february 27 2025 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. 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 statement, whether as a result of new information, future events, or otherwise. 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. The conference call is being webcast. The webcast link is available on the investor relations section of the company's website at www.marcusandmillichap.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. In addition, certain financial information presented on this call represents non-GAAP financial measures. 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. 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 The conference call is being webcast. the conference call is being webcast The webcast link is available on the investor relations section of the company's website at www.marcusandmillichap.com, along with the slide presentation you may reference during the prepared remarks. the webcast link is available on the investor relations section of the company's website at www.marcusandmillichap.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. with that it's my pleasure to turn the call over to ceo hessam nadji

Speaker 5: Thank you, Jacques. Good morning and welcome to our Third Quarter 2025 Earnings Call. I'm pleased to report that we delivered a strong quarter, total revenue increasing 15% over Q3 2024. This marks the fifth consecutive quarter of year-over-year revenue growth as we continue to navigate the severe and complex market disruption of the past three years. Adjusted EBITDA for the quarter was $7 million compared to approximately break-even in the prior year period. This year's third quarter results include a $4 million legal reserve that Steve will address in his remarks. Excluding this reserve, the company's SG&A was modestly lower than the prior year, reflecting our ongoing focus on cost management while still making strategic investments in technology, talent, and branding. Thank you, Jacques. thank you jacques Good morning and welcome to our Third Quarter 2025 Earnings Call. good morning and welcome to our third quarter 2025 earnings call I'm pleased to report that we delivered a strong quarter, total revenue increasing 15% over Q3 2024. i'm pleased to report that we delivered a strong quarter total revenue increasing 15% over q3 2024 This marks the fifth consecutive quarter of year-over-year revenue growth as we continue to navigate the severe and complex market disruption of the past three years. this marks the fifth consecutive quarter of year-over-year revenue growth as we continue to navigate the severe and complex market disruption of the past three years Adjusted EBITDA for the quarter was $7 million compared to approximately break-even in the prior year period. adjusted ebitda for the quarter was $7 million compared to approximately break-even in the prior year period This year's third quarter results include a $4 million legal reserve that Steve will address in his remarks. this year's third quarter results include a $4 million legal reserve that steve will address in his remarks Excluding this reserve, the company's SG&A was modestly lower than the prior year, reflecting our ongoing focus on cost management while still making strategic investments in technology, talent, and branding. excluding this reserve the company's sg&a was modestly lower than the prior year reflecting our ongoing focus on cost management while still making strategic investments in technology talent and branding As noted on prior calls, the expensing of investments made over the past several years in talent retention and acquisition during a period of hampered revenue production has been a significant drag on our earnings. We expect this dynamic to shift into operating leverage as the market improves. During the quarter, our results outpaced the market based on transaction growth of 25% for MMI versus an estimated market growth of 12% in transactions based on RCA data for sales of $2.5 million plus assets. This was driven by momentum in our private client brokerage business, which was up 17% in revenue and 22% in the number of transactions. This critical segment, defined as transactions in the $1-10 million price range, is improving thanks to more banks and credit unions returning to the market, gradual price discovery, and more investors finally coming off the sidelines. As noted on prior calls, the expensing of investments made over the past several years in talent retention and acquisition during a period of hampered revenue production has been a significant drag on our earnings. as noted on prior calls the expensing of investments made over the past several years in talent retention and acquisition during a period of hampered revenue production has been a significant drag on our earnings We expect this dynamic to shift into operating leverage as the market improves. we expect this dynamic to shift into operating leverage as the market improves During the quarter, our results outpaced the market based on transaction growth of 25% for MMI versus an estimated market growth of 12% in transactions based on RCA data for sales of $2.5 million plus assets. during the quarter our results outpaced the market based on transaction growth of 25% for mmi versus an estimated market growth of 12% in transactions based on rca data for sales of $2.5 million plus assets This was driven by momentum in our private client brokerage business, which was up 17% in revenue and 22% in the number of transactions. this was driven by momentum in our private client brokerage business which was up 17% in revenue and 22% in the number of transactions This critical segment, defined as transactions in the $1-10 million price range, is improving thanks to more banks and credit unions returning to the market, gradual price discovery, and more investors finally coming off the sidelines. this critical segment defined as transactions in the $1-10 million price range is improving thanks to more banks and credit unions returning to the market gradual price discovery and more investors finally coming off the sidelines Private client apartments and single-tenant retail posted strong revenue gains of 35% and 16%, respectively. The company's mid-market segment also contributed to the quarter's results with a revenue increase of 35% from deals in the $10-20 million price range, mostly dominated by larger private and quasi-institutional investors and developers. Our team's elevated client outreach campaigns and countless opinions of value that did not culminate in transactions over the past two years were instrumental in staying close to our clients during a time of uncertainty and providing guidance when they became ready to execute. This is the essence of Marcus & Millichap's client-centric and relationship-driven culture and business model that continue to differentiate us. Our larger deals, valued at $20 million or more, declined 12% in revenue and 13% in transaction count for the quarter, similar to what we reported last quarter. Private client apartments and single-tenant retail posted strong revenue gains of 35% and 16%, respectively. private client apartments and single-tenant retail posted strong revenue gains of 35% and 16% respectively The company's mid-market segment also contributed to the quarter's results with a revenue increase of 35% from deals in the $10-20 million price range, mostly dominated by larger private and quasi-institutional investors and developers. the company's mid-market segment also contributed to the quarter's results with a revenue increase of 35% from deals in the $10-20 million price range mostly dominated by larger private and quasi-institutional investors and developers Our team's elevated client outreach campaigns and countless opinions of value that did not culminate in transactions over the past two years were instrumental in staying close to our clients during a time of uncertainty and providing guidance when they became ready to execute. our team's elevated client outreach campaigns and countless opinions of value that did not culminate in transactions over the past two years were instrumental in staying close to our clients during a time of uncertainty and providing guidance when they became ready to execute This is the essence of Marcus & Millichap's client-centric and relationship-driven culture and business model that continue to differentiate us. this is the essence of marcus & millichap's client-centric and relationship-driven culture and business model that continue to differentiate us Our larger deals, valued at $20 million or more, declined 12% in revenue and 13% in transaction count for the quarter, similar to what we reported last quarter. our larger deals valued at $20 million or more declined 12% in revenue and 13% in transaction count for the quarter similar to what we reported last quarter Once again, this is a result of outsized growth in larger deals last year, which led to recovery from the 2023 market shock. Our $20 million and above transactions grew by 19% in calendar year 2024, 30% in the third quarter of 2024, and 59% in last year's final quarter. As a result, we've faced a very difficult comparison this year. Given this dynamic, our overall brokerage volume in the third quarter posted a 2% gain compared to a 17% increase in market volume, as reported by RCA, again for the $2.5 million plus asset sales. Our IPA division continues to deepen its institutional client base, which we're taking to the next level by the recent addition of two new executives: Andrew Leahy, who heads our IPA Multifamily Division, and Dax Chen, our new head of IPA Research. Once again, this is a result of outsized growth in larger deals last year, which led to recovery from the 2023 market shock. once again this is a result of outsized growth in larger deals last year which led to recovery from the 2023 market shock Our $20 million and above transactions grew by 19% in calendar year 2024, 30% in the third quarter of 2024, and 59% in last year's final quarter. our $20 million and above transactions grew by 19% in calendar year 2024 30% in the third quarter of 2024 and 59% in last year's final quarter As a result, we've faced a very difficult comparison this year. as a result we've faced a very difficult comparison this year Given this dynamic, our overall brokerage volume in the third quarter posted a 2% gain compared to a 17% increase in market volume, as reported by RCA, again for the $2.5 million plus asset sales. given this dynamic our overall brokerage volume in the third quarter posted a 2% gain compared to a 17% increase in market volume as reported by rca again for the $2.5 million plus asset sales Our IPA division continues to deepen its institutional client base, which we're taking to the next level by the recent addition of two new executives: Andrew Leahy, who heads our IPA Multifamily Division, and Dax Chen, our new head of IPA Research. our ipa division continues to deepen its institutional client base which we're taking to the next level by the recent addition of two new executives andrew leahy who heads our ipa multifamily division and dax chen our new head of ipa research Each of these is a seasoned institutional executive with more than 20 years of experience with some of the most renowned institutional investors in the industry. The added leadership, which we're very excited about, combined with our healthy pipeline and robust exclusive inventory, positions us well to continue the expansion of our institutional platform as a supplement to our private client market dominance. Financing revenue once again exhibited strong growth, up 28%, reflecting improved lending conditions and our team's ability to leverage our extensive network of active lenders. So far this year, we've closed over 1,100 financing transactions with nearly 350 separate lenders, enabling our team to pivot when lenders move in and out of the market. Revenue growth has been widespread, with contributions from our veteran originators, IPA Capital Markets, as well as recent additions of experienced originators. Each of these is a seasoned institutional executive with more than 20 years of experience with some of the most renowned institutional investors in the industry. each of these is a seasoned institutional executive with more than 20 years of experience with some of the most renowned institutional investors in the industry The added leadership, which we're very excited about, combined with our healthy pipeline and robust exclusive inventory, positions us well to continue the expansion of our institutional platform as a supplement to our private client market dominance. the added leadership which we're very excited about combined with our healthy pipeline and robust exclusive inventory positions us well to continue the expansion of our institutional platform as a supplement to our private client market dominance Financing revenue once again exhibited strong growth, up 28%, reflecting improved lending conditions and our team's ability to leverage our extensive network of active lenders. financing revenue once again exhibited strong growth up 28% reflecting improved lending conditions and our team's ability to leverage our extensive network of active lenders So far this year, we've closed over 1,100 financing transactions with nearly 350 separate lenders, enabling our team to pivot when lenders move in and out of the market. so far this year we've closed over 1,100 financing transactions with nearly 350 separate lenders enabling our team to pivot when lenders move in and out of the market Revenue growth has been widespread, with contributions from our veteran originators, IPA Capital Markets, as well as recent additions of experienced originators. revenue growth has been widespread with contributions from our veteran originators ipa capital markets as well as recent additions of experienced originators We're also seeing steady progress in integrating our sales and financing teams, offering combined services to our private and institutional clients. Our loan sales and advisory division, Mission Capital, is also seeing a significant uptick in activity and has posted solid revenue growth this year as more lenders are finally moving both performing and non-performing loans to the marketplace. Other developments of note include the net addition of 29 investment brokers in the quarter. As I've shared on previous calls, restoring and improving the company's organic talent development after a post-pandemic disruption has remained a priority, and our actions are starting to produce results, although the turnover rate of newer professionals is still elevated due to a difficult market environment. The quarter's improvement is encouraging, as is our continued success in attracting and integrating experienced professionals. We're also seeing steady progress in integrating our sales and financing teams, offering combined services to our private and institutional clients. we're also seeing steady progress in integrating our sales and financing teams offering combined services to our private and institutional clients Our loan sales and advisory division, Mission Capital, is also seeing a significant uptick in activity and has posted solid revenue growth this year as more lenders are finally moving both performing and non-performing loans to the marketplace. our loan sales and advisory division mission capital is also seeing a significant uptick in activity and has posted solid revenue growth this year as more lenders are finally moving both performing and non-performing loans to the marketplace Other developments of note include the net addition of 29 investment brokers in the quarter. other developments of note include the net addition of 29 investment brokers in the quarter As I've shared on previous calls, restoring and improving the company's organic talent development after a post-pandemic disruption has remained a priority, and our actions are starting to produce results, although the turnover rate of newer professionals is still elevated due to a difficult market environment. as i've shared on previous calls restoring and improving the company's organic talent development after a post-pandemic disruption has remained a priority and our actions are starting to produce results although the turnover rate of newer professionals is still elevated due to a difficult market environment The quarter's improvement is encouraging, as is our continued success in attracting and integrating experienced professionals. the quarter's improvement is encouraging as is our continued success in attracting and integrating experienced professionals Our team also made progress in expanding MMI's brokerage transaction services, which is designed as a centralized resource for analytics and production support to our salesforce. We see this as an area that can directly benefit from AI technology and bringing more efficiency and expanded output to our team and to our clients. Lastly, I'm pleased to report that our auction division, which started in 2022, continues to gain traction, particularly in its collaboration with our investment brokers, who are bringing this added marketing channel to many of our clients. So far this year, we've closed 191 sales through our auction platform, accounting for an estimated 25% share of total commercial property auctions in the U.S. Looking forward, we're encouraged by the ongoing improvement in our key operating metrics, including shorter marketing timelines, fewer significant price reductions, and near-record exclusive listing inventory. Our team also made progress in expanding MMI's brokerage transaction services, which is designed as a centralized resource for analytics and production support to our salesforce. our team also made progress in expanding mmi's brokerage transaction services which is designed as a centralized resource for analytics and production support to our salesforce We see this as an area that can directly benefit from AI technology and bringing more efficiency and expanded output to our team and to our clients. we see this as an area that can directly benefit from ai technology and bringing more efficiency and expanded output to our team and to our clients Lastly, I'm pleased to report that our auction division, which started in 2022, continues to gain traction, particularly in its collaboration with our investment brokers, who are bringing this added marketing channel to many of our clients. lastly i'm pleased to report that our auction division which started in 2022 continues to gain traction particularly in its collaboration with our investment brokers who are bringing this added marketing channel to many of our clients So far this year, we've closed 191 sales through our auction platform, accounting for an estimated 25% share of total commercial property auctions in the U.S. so far this year we've closed 191 sales through our auction platform accounting for an estimated 25% share of total commercial property auctions in the u.s Looking forward, we're encouraged by the ongoing improvement in our key operating metrics, including shorter marketing timelines, fewer significant price reductions, and near-record exclusive listing inventory. looking forward we're encouraged by the ongoing improvement in our key operating metrics including shorter marketing timelines fewer significant price reductions and near-record exclusive listing inventory Marketing and closing timelines still remain longer than usual and continue to weigh on productivity, largely due to persistently tight underwriting by lenders and a narrow margin of error on valuations among buyers and sellers. However, the trend is improving, which allows us to allocate more bandwidth to new business development as the market regains alignment. From a market perspective, this year's rate reduction failed to bring down long-term yields and did not spark a significant boost in the transaction pipeline as it did going into the fourth quarter of last year. Nonetheless, we remain cautiously optimistic about the start of a new sales and financing cycle as the market resets, with measured improvement in the trading environment for three key reasons. Marketing and closing timelines still remain longer than usual and continue to weigh on productivity, largely due to persistently tight underwriting by lenders and a narrow margin of error on valuations among buyers and sellers. marketing and closing timelines still remain longer than usual and continue to weigh on productivity largely due to persistently tight underwriting by lenders and a narrow margin of error on valuations among buyers and sellers However, the trend is improving, which allows us to allocate more bandwidth to new business development as the market regains alignment. however the trend is improving which allows us to allocate more bandwidth to new business development as the market regains alignment From a market perspective, this year's rate reduction failed to bring down long-term yields and did not spark a significant boost in the transaction pipeline as it did going into the fourth quarter of last year. from a market perspective this year's rate reduction failed to bring down long-term yields and did not spark a significant boost in the transaction pipeline as it did going into the fourth quarter of last year Nonetheless, we remain cautiously optimistic about the start of a new sales and financing cycle as the market resets, with measured improvement in the trading environment for three key reasons. nonetheless we remain cautiously optimistic about the start of a new sales and financing cycle as the market resets with measured improvement in the trading environment for three key reasons First, we believe the Fed will continue to reduce interest rates over the next year, notwithstanding what may or may not happen in December, to shore up the labor market. Although long-term rates are likely range-bound, a more accommodative Fed and the end of quantitative tightening will be constructive for real estate transactions. Second, the price adjustments that have occurred over the last two years are making many assets compelling on a replacement cost basis. Although there is clearly a flight to safety with capital preferring high-quality assets in strong locations, investor confidence and fear of missing out are becoming more evident in the marketplace. This is most pronounced in apartments, industrial, and retail in the majority of the metros we serve. The recovery in the office sector is clearly broadening with the growing return to office mandates and average daily attendance at 80% of pre-pandemic levels. First, we believe the Fed will continue to reduce interest rates over the next year, notwithstanding what may or may not happen in December, to shore up the labor market. first we believe the fed will continue to reduce interest rates over the next year notwithstanding what may or may not happen in december to shore up the labor market Although long-term rates are likely range-bound, a more accommodative Fed and the end of quantitative tightening will be constructive for real estate transactions. although long-term rates are likely range-bound a more accommodative fed and the end of quantitative tightening will be constructive for real estate transactions Second, the price adjustments that have occurred over the last two years are making many assets compelling on a replacement cost basis. second the price adjustments that have occurred over the last two years are making many assets compelling on a replacement cost basis Although there is clearly a flight to safety with capital preferring high-quality assets in strong locations, investor confidence and fear of missing out are becoming more evident in the marketplace. although there is clearly a flight to safety with capital preferring high-quality assets in strong locations investor confidence and fear of missing out are becoming more evident in the marketplace This is most pronounced in apartments, industrial, and retail in the majority of the metros we serve. this is most pronounced in apartments industrial and retail in the majority of the metros we serve The recovery in the office sector is clearly broadening with the growing return to office mandates and average daily attendance at 80% of pre-pandemic levels. the recovery in the office sector is clearly broadening with the growing return to office mandates and average daily attendance at 80% of pre-pandemic levels This measure was at 50% just two years ago and 57% just last year. Last but not least, the pullback in new construction, driven by limited risk appetite by equity capital and high construction costs, will set the stage for stronger occupancies and rent growth across most property types in 2026 and 2027. Again, this is most pronounced for apartments and industrial, which were the most active in new deliveries over the past five years. Self-storage was also affected by this, and we'll see improvements in the coming years. For MMI, our vision of expanding market coverage through improved organic hiring and scaling our experienced professional recruiting, as well as synergistic acquisitions, remains our primary growth path. These are the parallel paths we have set to expand our private client market share and continue building on IPA's success. This measure was at 50% just two years ago and 57% just last year. this measure was at 50% just two years ago and 57% just last year Last but not least, the pullback in new construction, driven by limited risk appetite by equity capital and high construction costs, will set the stage for stronger occupancies and rent growth across most property types in 2026 and 2027. last but not least the pullback in new construction driven by limited risk appetite by equity capital and high construction costs will set the stage for stronger occupancies and rent growth across most property types in 2026 and 2027 Again, this is most pronounced for apartments and industrial, which were the most active in new deliveries over the past five years. again this is most pronounced for apartments and industrial which were the most active in new deliveries over the past five years Self-storage was also affected by this, and we'll see improvements in the coming years. self-storage was also affected by this and we'll see improvements in the coming years For MMI, our vision of expanding market coverage through improved organic hiring and scaling our experienced professional recruiting, as well as synergistic acquisitions, remains our primary growth path. for mmi our vision of expanding market coverage through improved organic hiring and scaling our experienced professional recruiting as well as synergistic acquisitions remains our primary growth path These are the parallel paths we have set to expand our private client market share and continue building on IPA's success. these are the parallel paths we have set to expand our private client market share and continue building on ipa's success Going into 2026, we're expanding our growth strategy in retail and industrial in particular, both of which offer significant growth for our opportunity in the majority of the markets we serve. We also believe that further scaling of our financing capabilities has much room to run, as we're proving through the success of many senior-level originators who have joined MMI in the last several years. On the acquisition front, we continue to see a wide bid-ask spread and misaligned expectations on the guaranteed portion of valuations, and therefore capitalizing on more accretive opportunities to recruit experienced individuals and teams. Given the fragmented nature of our core business and the limited number of large, viable M&A targets, most of our efforts focus on boutique firms with highly concentrated ownership, which presents its own challenges. Going into 2026, we're expanding our growth strategy in retail and industrial in particular, both of which offer significant growth for our opportunity in the majority of the markets we serve. going into 2026 we're expanding our growth strategy in retail and industrial in particular both of which offer significant growth for our opportunity in the majority of the markets we serve We also believe that further scaling of our financing capabilities has much room to run, as we're proving through the success of many senior-level originators who have joined MMI in the last several years. we also believe that further scaling of our financing capabilities has much room to run as we're proving through the success of many senior-level originators who have joined mmi in the last several years On the acquisition front, we continue to see a wide bid-ask spread and misaligned expectations on the guaranteed portion of valuations, and therefore capitalizing on more accretive opportunities to recruit experienced individuals and teams. on the acquisition front we continue to see a wide bid-ask spread and misaligned expectations on the guaranteed portion of valuations and therefore capitalizing on more accretive opportunities to recruit experienced individuals and teams Given the fragmented nature of our core business and the limited number of large, viable M&A targets, most of our efforts focus on boutique firms with highly concentrated ownership, which presents its own challenges. given the fragmented nature of our core business and the limited number of large viable m&a targets most of our efforts focus on boutique firms with highly concentrated ownership which presents its own challenges We're expanding our recruiting team and resources to increase capacity for additional experienced talent acquisition while we continue to explore complementary business expansions. From a capital allocation standpoint, our dividend and share repurchase program over the past three and a half years has enabled us to maximize shareholder value while maintaining an exceptionally strong balance sheet. In the near term, we face a particularly challenging comparison to last year's exceptional fourth quarter, which benefited from the significant reduction in interest rates. That said, we expect to see continued sequential improvement in our business as the drivers of transaction activity continue to improve. Our strategy remains focused on leveraging our unique platform, expanding our market reach, and investing in the tools and talent that will drive long-term growth. With that, I will turn the call over to Steve for more details on the quarter. Steve? We're expanding our recruiting team and resources to increase capacity for additional experienced talent acquisition while we continue to explore complementary business expansions. we're expanding our recruiting team and resources to increase capacity for additional experienced talent acquisition while we continue to explore complementary business expansions From a capital allocation standpoint, our dividend and share repurchase program over the past three and a half years has enabled us to maximize shareholder value while maintaining an exceptionally strong balance sheet. from a capital allocation standpoint our dividend and share repurchase program over the past three and a half years has enabled us to maximize shareholder value while maintaining an exceptionally strong balance sheet In the near term, we face a particularly challenging comparison to last year's exceptional fourth quarter, which benefited from the significant reduction in interest rates. in the near term we face a particularly challenging comparison to last year's exceptional fourth quarter which benefited from the significant reduction in interest rates That said, we expect to see continued sequential improvement in our business as the drivers of transaction activity continue to improve. that said we expect to see continued sequential improvement in our business as the drivers of transaction activity continue to improve Our strategy remains focused on leveraging our unique platform, expanding our market reach, and investing in the tools and talent that will drive long-term growth. our strategy remains focused on leveraging our unique platform expanding our market reach and investing in the tools and talent that will drive long-term growth With that, I will turn the call over to Steve for more details on the quarter. with that i will turn the call over to steve for more details on the quarter Steve? steve

Speaker 3: Thank you, Hessam. As mentioned, total revenue for the third quarter was $194 million, an increase of 15% compared to $169 million for the same period in the prior year. Year-to-date, total revenue was $511 million, up 12% compared to $456 million last year. Breaking down revenue by segment, real estate brokerage commissions for the third quarter accounted for 84% of total revenue, or $162 million, an increase of 14% year-over-year. While transaction volume declined 2% to $8.4 billion, the company closed nearly 1,600 transactions at an average commission rate of 1.9%, which was nearly 30 basis points higher than last year. The increase in private client volume drove a 4% decrease in average fee per transaction due to the higher mix of smaller deals. We are not experiencing any notable fee erosion in the marketplace in any of our price tranches. Thank you, Hessam. thank you hessam As mentioned, total revenue for the third quarter was $194 million, an increase of 15% compared to $169 million for the same period in the prior year. as mentioned total revenue for the third quarter was $194 million an increase of 15% compared to $169 million for the same period in the prior year Year-to-date, total revenue was $511 million, up 12% compared to $456 million last year. year-to-date total revenue was $511 million up 12% compared to $456 million last year Breaking down revenue by segment, real estate brokerage commissions for the third quarter accounted for 84% of total revenue, or $162 million, an increase of 14% year-over-year. breaking down revenue by segment real estate brokerage commissions for the third quarter accounted for 84% of total revenue or $162 million an increase of 14% year-over-year While transaction volume declined 2% to $8.4 billion, the company closed nearly 1,600 transactions at an average commission rate of 1.9%, which was nearly 30 basis points higher than last year. while transaction volume declined 2% to $8.4 billion the company closed nearly 1,600 transactions at an average commission rate of 1.9% which was nearly 30 basis points higher than last year The increase in private client volume drove a 4% decrease in average fee per transaction due to the higher mix of smaller deals. the increase in private client volume drove a 4% decrease in average fee per transaction due to the higher mix of smaller deals We are not experiencing any notable fee erosion in the marketplace in any of our price tranches. we are not experiencing any notable fee erosion in the marketplace in any of our price tranches For the nine months year-to-date, real estate brokerage commission accounted for 84% of total revenue, or $427 million, an increase of 10% year-over-year. The year-to-date improvement included 8% growth in transaction volume to $23 billion across 4,136 transactions and a 2% increase in the average commission rate. Average transaction size year-to-date was $5.6 million compared to $5.8 million a year ago, reflecting a higher proportion of private client revenue for the nine-month period. Within brokerage for the quarter, our core private client business accounted for 63% of brokerage revenue, or $102 million, up from 62% and $87.5 million in the same period last year. Private client transactions grew 24% in volume and 22% in transaction count. Year-to-date, private client contributed 64% of brokerage revenue, or $274 million, versus 63% and $245 million last year. For the nine months year-to-date, real estate brokerage commission accounted for 84% of total revenue, or $427 million, an increase of 10% year-over-year. for the nine months year-to-date real estate brokerage commission accounted for 84% of total revenue or $427 million an increase of 10% year-over-year The year-to-date improvement included 8% growth in transaction volume to $23 billion across 4,136 transactions and a 2% increase in the average commission rate. the year-to-date improvement included 8% growth in transaction volume to $23 billion across 4,136 transactions and a 2% increase in the average commission rate Average transaction size year-to-date was $5.6 million compared to $5.8 million a year ago, reflecting a higher proportion of private client revenue for the nine-month period. average transaction size year-to-date was $5.6 million compared to $5.8 million a year ago reflecting a higher proportion of private client revenue for the nine-month period Within brokerage for the quarter, our core private client business accounted for 63% of brokerage revenue, or $102 million, up from 62% and $87.5 million in the same period last year. within brokerage for the quarter our core private client business accounted for 63% of brokerage revenue or $102 million up from 62% and $87.5 million in the same period last year Private client transactions grew 24% in volume and 22% in transaction count. private client transactions grew 24% in volume and 22% in transaction count Year-to-date, private client contributed 64% of brokerage revenue, or $274 million, versus 63% and $245 million last year. year-to-date private client contributed 64% of brokerage revenue or $274 million versus 63% and $245 million last year Middle market and larger transaction segments together accounted for 32% of brokerage revenue, generating $52 million in revenue compared to 35% and $49 million last year. While we achieved a 4% increase in the number of transactions within these segments, the overall dollar volume decreased 17%, reflecting a change in mix to more middle market activity and fewer transactions in the larger transaction space. Large transactions significantly outgrew the market last year, creating a tough year-on-year comparison. Year-to-date, middle market and larger transaction segments combined represented 32% of brokerage revenue, or $136 million, compared to 33% and $126 million last year. Revenue from our financing business, which includes MMCC, grew 28% year-over-year to $26 million in the third quarter. The strong growth was driven primarily by a 34% increase in transaction volume totaling $2.9 billion across 406 financing transactions, which was a 28% increase year-over-year. Middle market and larger transaction segments together accounted for 32% of brokerage revenue, generating $52 million in revenue compared to 35% and $49 million last year. middle market and larger transaction segments together accounted for 32% of brokerage revenue generating $52 million in revenue compared to 35% and $49 million last year While we achieved a 4% increase in the number of transactions within these segments, the overall dollar volume decreased 17%, reflecting a change in mix to more middle market activity and fewer transactions in the larger transaction space. while we achieved a 4% increase in the number of transactions within these segments the overall dollar volume decreased 17% reflecting a change in mix to more middle market activity and fewer transactions in the larger transaction space Large transactions significantly outgrew the market last year, creating a tough year-on-year comparison. large transactions significantly outgrew the market last year creating a tough year-on-year comparison Year-to-date, middle market and larger transaction segments combined represented 32% of brokerage revenue, or $136 million, compared to 33% and $126 million last year. year-to-date middle market and larger transaction segments combined represented 32% of brokerage revenue or $136 million compared to 33% and $126 million last year Revenue from our financing business, which includes MMCC, grew 28% year-over-year to $26 million in the third quarter. revenue from our financing business which includes mmcc grew 28% year-over-year to $26 million in the third quarter The strong growth was driven primarily by a 34% increase in transaction volume totaling $2.9 billion across 406 financing transactions, which was a 28% increase year-over-year. the strong growth was driven primarily by a 34% increase in transaction volume totaling $2.9 billion across 406 financing transactions which was a 28% increase year-over-year The average financing commission rate was nominally down four basis points, as expected, due to an increase in larger deals closed in the quarter. The overall performance reflects the continued momentum and progress in scaling our financing platform. For the nine-month period, financing revenue was $71 million, a 33% increase compared to last year. This growth was driven by a 40% rise in transaction count and $8.2 billion in volume, up 46% year-over-year. Other revenue, primarily from leasing, consulting, and advisory fees, was $5 million in the third quarter, compared with $6 million in the same period last year. For the nine-month period, other revenue totaled $13 million compared to $16 million in the prior year. Turning to expenses, total operating expense for the quarter was $196 million compared to $180 million a year ago. The average financing commission rate was nominally down four basis points, as expected, due to an increase in larger deals closed in the quarter. the average financing commission rate was nominally down four basis points as expected due to an increase in larger deals closed in the quarter The overall performance reflects the continued momentum and progress in scaling our financing platform. the overall performance reflects the continued momentum and progress in scaling our financing platform For the nine-month period, financing revenue was $71 million, a 33% increase compared to last year. for the nine-month period financing revenue was $71 million a 33% increase compared to last year This growth was driven by a 40% rise in transaction count and $8.2 billion in volume, up 46% year-over-year. this growth was driven by a 40% rise in transaction count and $8.2 billion in volume up 46% year-over-year Other revenue, primarily from leasing, consulting, and advisory fees, was $5 million in the third quarter, compared with $6 million in the same period last year. other revenue primarily from leasing consulting and advisory fees was $5 million in the third quarter compared with $6 million in the same period last year For the nine-month period, other revenue totaled $13 million compared to $16 million in the prior year. for the nine-month period other revenue totaled $13 million compared to $16 million in the prior year Turning to expenses, total operating expense for the quarter was $196 million compared to $180 million a year ago. turning to expenses total operating expense for the quarter was $196 million compared to $180 million a year ago For the nine-month period, total operating expense was $540 million compared to $496 million last year. Year-over-year increases in absolute dollars for both the quarter and year-to-date period are largely attributable to the increase in cost of services resulting from higher revenue. Cost of services for the quarter was $121 million, or 62.4% of revenue, compared to 62.2% last year. For the nine-month period, cost of services totaled $316 million, or 61.8% of revenue, up 50 basis points year-over-year. The increase in cost of services as a percentage of revenue was primarily driven by year-over-year revenue growth, resulting in producers achieving higher commission thresholds. SG&A expense for the quarter was $73 million, or 37.4% of revenue, compared to $71 million, or 41.9% of revenue in the same period last year. For the nine-month period, total operating expense was $540 million compared to $496 million last year. for the nine-month period total operating expense was $540 million compared to $496 million last year Year-over-year increases in absolute dollars for both the quarter and year-to-date period are largely attributable to the increase in cost of services resulting from higher revenue. year-over-year increases in absolute dollars for both the quarter and year-to-date period are largely attributable to the increase in cost of services resulting from higher revenue Cost of services for the quarter was $121 million, or 62.4% of revenue, compared to 62.2% last year. cost of services for the quarter was $121 million or 62.4% of revenue compared to 62.2% last year For the nine-month period, cost of services totaled $316 million, or 61.8% of revenue, up 50 basis points year-over-year. for the nine-month period cost of services totaled $316 million or 61.8% of revenue up 50 basis points year-over-year The increase in cost of services as a percentage of revenue was primarily driven by year-over-year revenue growth, resulting in producers achieving higher commission thresholds. the increase in cost of services as a percentage of revenue was primarily driven by year-over-year revenue growth resulting in producers achieving higher commission thresholds SG&A expense for the quarter was $73 million, or 37.4% of revenue, compared to $71 million, or 41.9% of revenue in the same period last year. sg&a expense for the quarter was $73 million or 37.4% of revenue compared to $71 million or 41.9% of revenue in the same period last year The current quarter results include a $4 million reserve for a litigation matter that we believe has a number of legal rulings we intend to aggressively appeal. Also, as Hessam pointed out, our SG&A expense would have decreased by $2 million year-over-year, excluding the legal reserve, as a result of tight cost controls. I'd also like to reiterate that we have continued to make investments in key strategic areas throughout the market disruption, with an eye towards long-term competitiveness. For the nine-month period, SG&A totaled $216 million, or 42.2% of revenue, down from 44.9% in the prior year. For the third quarter, we reported net income of $240,000, or a penny per share, which includes an 8 cent per share charge for the legal reserve that we took in the quarter. This compares to a net loss of $5.4 million, or 14 cents lost per share in the prior year. The current quarter results include a $4 million reserve for a litigation matter that we believe has a number of legal rulings we intend to aggressively appeal. the current quarter results include a $4 million reserve for a litigation matter that we believe has a number of legal rulings we intend to aggressively appeal Also, as Hessam pointed out, our SG&A expense would have decreased by $2 million year-over-year, excluding the legal reserve, as a result of tight cost controls. also as hessam pointed out our sg&a expense would have decreased by $2 million year-over-year excluding the legal reserve as a result of tight cost controls I'd also like to reiterate that we have continued to make investments in key strategic areas throughout the market disruption, with an eye towards long-term competitiveness. i'd also like to reiterate that we have continued to make investments in key strategic areas throughout the market disruption with an eye towards long-term competitiveness For the nine-month period, SG&A totaled $216 million, or 42.2% of revenue, down from 44.9% in the prior year. for the nine-month period sg&a totaled $216 million or 42.2% of revenue down from 44.9% in the prior year For the third quarter, we reported net income of $240,000, or a penny per share, which includes an 8 cent per share charge for the legal reserve that we took in the quarter. for the third quarter we reported net income of $240,000 or a penny per share which includes an 8 cent per share charge for the legal reserve that we took in the quarter This compares to a net loss of $5.4 million, or 14 cents lost per share in the prior year. this compares to a net loss of $5.4 million or 14 cents lost per share in the prior year In spite of the $4 million legal reserve, the year-over-year earnings per share improvement of $0.15 marks a notable return to profitability. During the third quarter, we maintained the same tax methodology we adopted in the second quarter and recorded a provision for income taxes of $1.2 million. For the nine-month period, the net loss was $20.9 million, or $0.54 per share, compared to a net loss of $23.8 million, or $0.61 per share in the same period of the prior year. Adjusted EBITDA for the third quarter was $6.9 million, compared to break-even adjusted EBITDA in the same period last year. Year-to-date, adjusted EBITDA was nearly break-even, compared to a loss of $8.7 million in the prior year. In spite of the $4 million legal reserve, the year-over-year earnings per share improvement of $0.15 marks a notable return to profitability. in spite of the $4 million legal reserve the year-over-year earnings per share improvement of $0.15 marks a notable return to profitability During the third quarter, we maintained the same tax methodology we adopted in the second quarter and recorded a provision for income taxes of $1.2 million. during the third quarter we maintained the same tax methodology we adopted in the second quarter and recorded a provision for income taxes of $1.2 million For the nine-month period, the net loss was $20.9 million, or $0.54 per share, compared to a net loss of $23.8 million, or $0.61 per share in the same period of the prior year. for the nine-month period the net loss was $20.9 million or $0.54 per share compared to a net loss of $23.8 million or $0.61 per share in the same period of the prior year Adjusted EBITDA for the third quarter was $6.9 million, compared to break-even adjusted EBITDA in the same period last year. adjusted ebitda for the third quarter was $6.9 million compared to break-even adjusted ebitda in the same period last year Year-to-date, adjusted EBITDA was nearly break-even, compared to a loss of $8.7 million in the prior year. year-to-date adjusted ebitda was nearly break-even compared to a loss of $8.7 million in the prior year Adjusted EBITDA for both the quarter and year-to-date would have been $4 million higher if not for the legal reserve, underscoring the substantial progress in operating performance over the prior year. Moving to the balance sheet, we continue to be well-capitalized with no debt and $382 million in cash, cash equivalents, and marketable securities, a $49 million increase over last quarter. Subsequent to quarter end, we returned $10 million in capital to shareholders through a dividend paid in early October. During the nine months ended September 30th, the company repurchased nearly 265,000 shares of common stock at an average price of $30.33 per share for a total of $8 million. Since August of 2022, the company has repurchased more than 2.4 million shares of common stock at an average price of $32.03 per share for a total price of $77 million. Adjusted EBITDA for both the quarter and year-to-date would have been $4 million higher if not for the legal reserve, underscoring the substantial progress in operating performance over the prior year. adjusted ebitda for both the quarter and year-to-date would have been $4 million higher if not for the legal reserve underscoring the substantial progress in operating performance over the prior year Moving to the balance sheet, we continue to be well-capitalized with no debt and $382 million in cash, cash equivalents, and marketable securities, a $49 million increase over last quarter. moving to the balance sheet we continue to be well-capitalized with no debt and $382 million in cash cash equivalents and marketable securities a $49 million increase over last quarter Subsequent to quarter end, we returned $10 million in capital to shareholders through a dividend paid in early October. subsequent to quarter end we returned $10 million in capital to shareholders through a dividend paid in early october During the nine months ended September 30th, the company repurchased nearly 265,000 shares of common stock at an average price of $30.33 per share for a total of $8 million. during the nine months ended september 30th the company repurchased nearly 265,000 shares of common stock at an average price of $30.33 per share for a total of $8 million Since August of 2022, the company has repurchased more than 2.4 million shares of common stock at an average price of $32.03 per share for a total price of $77 million. since august of 2022 the company has repurchased more than 2.4 million shares of common stock at an average price of $32.03 per share for a total price of $77 million From the inception of our dividend and share repurchase programs over three years ago, we have returned a combined $200 million in capital to shareholders. We remain committed to a balanced, long-term capital allocation strategy, which includes investing in technology, recruiting and retaining the best-in-class producers, strategic acquisitions, and returning capital to shareholders. We are encouraged to see signs of market stabilization evidenced by improved listing activity, a stronger pipeline, a better lending environment, and renewed investor engagement. Ongoing uncertainty around global macro conditions, inflation, tariff policy, and the labor market still exists, but the Fed has signaled a more accommodative environment, which should drive more transactional activity. For the fourth quarter, we anticipate quarter-over-quarter sequential revenue growth consistent with normal year-end seasonality, however, being mindful that our prior year results benefited from an exceptional surge in activity as investors capitalized on rate declines. From the inception of our dividend and share repurchase programs over three years ago, we have returned a combined $200 million in capital to shareholders. from the inception of our dividend and share repurchase programs over three years ago we have returned a combined $200 million in capital to shareholders We remain committed to a balanced, long-term capital allocation strategy, which includes investing in technology, recruiting and retaining the best-in-class producers, strategic acquisitions, and returning capital to shareholders. we remain committed to a balanced long-term capital allocation strategy which includes investing in technology recruiting and retaining the best-in-class producers strategic acquisitions and returning capital to shareholders We are encouraged to see signs of market stabilization evidenced by improved listing activity, a stronger pipeline, a better lending environment, and renewed investor engagement. we are encouraged to see signs of market stabilization evidenced by improved listing activity a stronger pipeline a better lending environment and renewed investor engagement Ongoing uncertainty around global macro conditions, inflation, tariff policy, and the labor market still exists, but the Fed has signaled a more accommodative environment, which should drive more transactional activity. ongoing uncertainty around global macro conditions inflation tariff policy and the labor market still exists but the fed has signaled a more accommodative environment which should drive more transactional activity For the fourth quarter, we anticipate quarter-over-quarter sequential revenue growth consistent with normal year-end seasonality, however, being mindful that our prior year results benefited from an exceptional surge in activity as investors capitalized on rate declines. for the fourth quarter we anticipate quarter-over-quarter sequential revenue growth consistent with normal year-end seasonality however being mindful that our prior year results benefited from an exceptional surge in activity as investors capitalized on rate declines Cost of services as a percentage of revenue should follow the usual pattern as revenue builds through the year and be sequentially higher than the third quarter. As for SG&A, after normalizing for the legal reserve in the third quarter, SG&A for the fourth quarter should increase modestly on a dollar basis. With the current tax methodology, tax expense is expected to be in the range of $4 million-$6 million for the fourth quarter. With that, Operator, we can now open the call for Q&A. Cost of services as a percentage of revenue should follow the usual pattern as revenue builds through the year and be sequentially higher than the third quarter. cost of services as a percentage of revenue should follow the usual pattern as revenue builds through the year and be sequentially higher than the third quarter As for SG&A, after normalizing for the legal reserve in the third quarter, SG&A for the fourth quarter should increase modestly on a dollar basis. as for sg&a after normalizing for the legal reserve in the third quarter sg&a for the fourth quarter should increase modestly on a dollar basis With the current tax methodology, tax expense is expected to be in the range of $4 million-$6 million for the fourth quarter. with the current tax methodology tax expense is expected to be in the range of $4 million-$6 million for the fourth quarter With that, Operator, we can now open the call for Q&A. with that operator we can now open the call for q&a

Speaker 6: Thank you. We'll now begin the Q&A session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue. Thank you. thank you We'll now begin the Q&A session. we'll now begin the q&a session If you'd like to ask a question, please press star one on your telephone keypad. if you'd like to ask a question please press star one on your telephone keypad A confirmation tone will indicate your line is in the question queue. a confirmation tone will indicate your line is in the question queue You may press star two to remove your question from the queue. you may press star two to remove your question from the queue For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you. Our first question is from Mitch Germain with Citizens. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. for participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys One moment, please, while we pull for questions. one moment please while we pull for questions Thank you. thank you Our first question is from Mitch Germain with Citizens. our first question is from mitch germain with citizens

Speaker 1: Hey, good morning, guys. I appreciate the chance to ask a question. I know you talked about some of the tougher comps in the larger transaction segment of your business, but your hiring efforts have been on more experienced producers. Maybe just talk about that dynamic in terms of the ability to get some of that larger deal activity accelerating again. Hey, good morning, guys. hey good morning guys I appreciate the chance to ask a question. i appreciate the chance to ask a question I know you talked about some of the tougher comps in the larger transaction segment of your business, but your hiring efforts have been on more experienced producers. i know you talked about some of the tougher comps in the larger transaction segment of your business but your hiring efforts have been on more experienced producers Maybe just talk about that dynamic in terms of the ability to get some of that larger deal activity accelerating again. maybe just talk about that dynamic in terms of the ability to get some of that larger deal activity accelerating again

Speaker 5: Sure, Mitch. Good morning. The look sort of beyond the headline numbers in that category for us shows that in the usual price ranges where our IPA division and more senior Marcus & Millichap professionals execute transactions in the $20 million-$50 million price range, our business has been fairly steady. There was pretty much a same amount of deals done this year in the third quarter than last year. What happened last year is that we had an outsized number of very large deals, $70 million plus, that we executed, which is predominantly why the comparison has become tough. Last year, we executed 21 deals priced above $71 million, and this year there were seven. There is no particular pattern to that or reflection of any change in strategy. Sure, Mitch. sure mitch Good morning. good morning The look sort of beyond the headline numbers in that category for us shows that in the usual price ranges where our IPA division and more senior Marcus & Millichap professionals execute transactions in the $20 million-$50 million price range, our business has been fairly steady. the look sort of beyond the headline numbers in that category for us shows that in the usual price ranges where our ipa division and more senior marcus & millichap professionals execute transactions in the $20 million-$50 million price range our business has been fairly steady There was pretty much a same amount of deals done this year in the third quarter than last year. there was pretty much a same amount of deals done this year in the third quarter than last year What happened last year is that we had an outsized number of very large deals, $70 million plus, that we executed, which is predominantly why the comparison has become tough. what happened last year is that we had an outsized number of very large deals $70 million plus that we executed which is predominantly why the comparison has become tough Last year, we executed 21 deals priced above $71 million, and this year there were seven. last year we executed 21 deals priced above $71 million and this year there were seven There is no particular pattern to that or reflection of any change in strategy. there is no particular pattern to that or reflection of any change in strategy It's just a matter of the size deals that many, many of our institutional clients and large private clients happen to execute at a given time. The strategy, both on the support levels of our existing IPA and senior Marcus & Millichap teams that are doing larger deals, is unwavering, is on track. No changes at all have been executed there other than adding more leadership, adding a new head of research, and investing more in expanding the IPA platform and capturing more share of the larger market transaction because we really believe it integrates well with our private client business, particularly as we see more and more of our private clients move equity from smaller assets and multi-decade held portfolios into larger institutional quality assets as they get closer and closer to retirement and estate planning. It's just a matter of the size deals that many, many of our institutional clients and large private clients happen to execute at a given time. it's just a matter of the size deals that many many of our institutional clients and large private clients happen to execute at a given time The strategy, both on the support levels of our existing IPA and senior Marcus & Millichap teams that are doing larger deals, is unwavering, is on track. the strategy both on the support levels of our existing ipa and senior marcus & millichap teams that are doing larger deals is unwavering is on track No changes at all have been executed there other than adding more leadership, adding a new head of research, and investing more in expanding the IPA platform and capturing more share of the larger market transaction because we really believe it integrates well with our private client business, particularly as we see more and more of our private clients move equity from smaller assets and multi-decade held portfolios into larger institutional quality assets as they get closer and closer to retirement and estate planning. no changes at all have been executed there other than adding more leadership adding a new head of research and investing more in expanding the ipa platform and capturing more share of the larger market transaction because we really believe it integrates well with our private client business particularly as we see more and more of our private clients move equity from smaller assets and multi-decade held portfolios into larger institutional quality assets as they get closer and closer to retirement and estate planning That bridging of the capital migration from private owners to the institutional market is a huge value proposition of IPA and Marcus & Millichap. We are just really at the beginning stages of building that out, especially as the demographics continue to move in that direction. On the hiring front, the experienced brokers that we target for acquisition or recruiting are very select in terms of which markets we have what need, and what product type we have what need. It is those needs and avoiding overlap with our existing capacity in a market that drives the recruiting strategy. It is a very market-by-market, property-type-by-property-type effort. It takes a long time because you have to develop relationships with those individuals. They have to get to know the platform over time. Many of them are with other brands where they may not be maximizing their potential. That bridging of the capital migration from private owners to the institutional market is a huge value proposition of IPA and Marcus & Millichap. that bridging of the capital migration from private owners to the institutional market is a huge value proposition of ipa and marcus & millichap We are just really at the beginning stages of building that out, especially as the demographics continue to move in that direction. we are just really at the beginning stages of building that out especially as the demographics continue to move in that direction On the hiring front, the experienced brokers that we target for acquisition or recruiting are very select in terms of which markets we have what need, and what product type we have what need. on the hiring front the experienced brokers that we target for acquisition or recruiting are very select in terms of which markets we have what need and what product type we have what need It is those needs and avoiding overlap with our existing capacity in a market that drives the recruiting strategy. it is those needs and avoiding overlap with our existing capacity in a market that drives the recruiting strategy It is a very market-by-market, property-type-by-property-type effort. it is a very market-by-market property-type-by-property-type effort It takes a long time because you have to develop relationships with those individuals. it takes a long time because you have to develop relationships with those individuals They have to get to know the platform over time. they have to get to know the platform over time Many of them are with other brands where they may not be maximizing their potential. many of them are with other brands where they may not be maximizing their potential Frankly, that's the reason that a number of them have joined IPA and Marcus & Millichap over the last five years. Gotcha. Okay. That's super helpful. Curious about the conversations you're having with some of your customers. I know that many of them have really been on the sidelines the last several years. It does seem like some of them are now returning to the markets. Are you getting a sense that they've either, A, just accepted the new pricing dynamic that's in the market, and B, are you seeing them begin to feel a little bit more constructive about transaction in this backdrop? Yes and yes. We're seeing more motivation to put property on the market because of the reality that there is no Fed miracle. Frankly, that's the reason that a number of them have joined IPA and Marcus & Millichap over the last five years. frankly that's the reason that a number of them have joined ipa and marcus & millichap over the last five years Gotcha. gotcha Okay. okay That's super helpful. that's super helpful Curious about the conversations you're having with some of your customers. curious about the conversations you're having with some of your customers I know that many of them have really been on the sidelines the last several years. i know that many of them have really been on the sidelines the last several years It does seem like some of them are now returning to the markets. it does seem like some of them are now returning to the markets Are you getting a sense that they've either, A, just accepted the new pricing dynamic that's in the market, and B, are you seeing them begin to feel a little bit more constructive about transaction in this backdrop? are you getting a sense that they've either a just accepted the new pricing dynamic that's in the market and b are you seeing them begin to feel a little bit more constructive about transaction in this backdrop Yes and yes. yes and yes We're seeing more motivation to put property on the market because of the reality that there is no Fed miracle. we're seeing more motivation to put property on the market because of the reality that there is no fed miracle Many of our private clients over the last year and a half were expecting a much more dramatic drop in interest rates, the evidence for which was not there. We have been very consistent in our analysis of the market where we did not believe interest rates would go back down significantly, and they have not. That realization is now creating more motivation as the first thing. The second is more and more of our private clients that did not have a reason to sell are now facing reasons to sell because of loan maturities, maybe some operational issues, and death, divorce, partnership breakups, and all the other private client motivations. We are seeing motivation also pick up due to that reason. Most importantly, though, Mitch, is a combination of moderately better interest rates. We have seen lender spreads come in, which is favorable. Many of our private clients over the last year and a half were expecting a much more dramatic drop in interest rates, the evidence for which was not there. many of our private clients over the last year and a half were expecting a much more dramatic drop in interest rates the evidence for which was not there We have been very consistent in our analysis of the market where we did not believe interest rates would go back down significantly, and they have not. we have been very consistent in our analysis of the market where we did not believe interest rates would go back down significantly and they have not That realization is now creating more motivation as the first thing. that realization is now creating more motivation as the first thing The second is more and more of our private clients that did not have a reason to sell are now facing reasons to sell because of loan maturities, maybe some operational issues, and death, divorce, partnership breakups, and all the other private client motivations. the second is more and more of our private clients that did not have a reason to sell are now facing reasons to sell because of loan maturities maybe some operational issues and death divorce partnership breakups and all the other private client motivations We are seeing motivation also pick up due to that reason. we are seeing motivation also pick up due to that reason Most importantly, though, Mitch, is a combination of moderately better interest rates. most importantly though mitch is a combination of moderately better interest rates We have seen lender spreads come in, which is favorable. we have seen lender spreads come in which is favorable Price adjustments is the primary reason there is now more alignment in the market where we had a lot of unsuccessful listings on the market over the last 18 months due to unrealistic pricing. Frankly, for us, there was a process of price discovery because there was so much moving around in the marketplace. It was hard to tell where the market really was. You had to put product out to market the best you could with great underwriting and see what the market response was going to be. The number of listings that are now basically aging or becoming unsellable at the expected price of the seller is dropping, which is telling us that the market is finding that realignment. More and more of our deals are having less significant price adjustments, and fewer are falling out of contract. Price adjustments is the primary reason there is now more alignment in the market where we had a lot of unsuccessful listings on the market over the last 18 months due to unrealistic pricing. price adjustments is the primary reason there is now more alignment in the market where we had a lot of unsuccessful listings on the market over the last 18 months due to unrealistic pricing Frankly, for us, there was a process of price discovery because there was so much moving around in the marketplace. frankly for us there was a process of price discovery because there was so much moving around in the marketplace It was hard to tell where the market really was. it was hard to tell where the market really was You had to put product out to market the best you could with great underwriting and see what the market response was going to be. you had to put product out to market the best you could with great underwriting and see what the market response was going to be The number of listings that are now basically aging or becoming unsellable at the expected price of the seller is dropping, which is telling us that the market is finding that realignment. the number of listings that are now basically aging or becoming unsellable at the expected price of the seller is dropping which is telling us that the market is finding that realignment More and more of our deals are having less significant price adjustments, and fewer are falling out of contract. more and more of our deals are having less significant price adjustments and fewer are falling out of contract All of which tells us that this alignment in price expectation is starting to happen. Is it there all the way? Absolutely not. We still have a ways to go. There's still plenty of owners that believe their assets are worth more than they actually are based on real numbers, and especially year one and year two operations, which is where we're finding the most friction between buyers and sellers. All of which tells us that this alignment in price expectation is starting to happen. all of which tells us that this alignment in price expectation is starting to happen Is it there all the way? is it there all the way Absolutely not. absolutely not We still have a ways to go. we still have a ways to go There's still plenty of owners that believe their assets are worth more than they actually are based on real numbers, and especially year one and year two operations, which is where we're finding the most friction between buyers and sellers. there's still plenty of owners that believe their assets are worth more than they actually are based on real numbers and especially year one and year two operations which is where we're finding the most friction between buyers and sellers

Speaker 1: Great. Last one for me is I checked your financials to see when was the last time you had a similar level of revenues. And you were extremely more profitable back then. I'm curious, and I really appreciate Steve's discussion around some of the legal reserve and some of the platform scale. What's the new magic number to get back to producing the type of profitability that you did before? Great. great Last one for me is I checked your financials to see when was the last time you had a similar level of revenues. last one for me is i checked your financials to see when was the last time you had a similar level of revenues And you were extremely more profitable back then. and you were extremely more profitable back then I'm curious, and I really appreciate Steve's discussion around some of the legal reserve and some of the platform scale. i'm curious and i really appreciate steve's discussion around some of the legal reserve and some of the platform scale What's the new magic number to get back to producing the type of profitability that you did before? what's the new magic number to get back to producing the type of profitability that you did before Obviously, you've had cost of living adjustments and numerous issues that may have changed in your business from four or five years ago. I'm just curious, how do you become a bit more scalable and start to see a little bit greater improvement in bottom line when you start producing, I don't know, 200 plus in terms of revenues per quarter? Obviously, you've had cost of living adjustments and numerous issues that may have changed in your business from four or five years ago. obviously you've had cost of living adjustments and numerous issues that may have changed in your business from four or five years ago I'm just curious, how do you become a bit more scalable and start to see a little bit greater improvement in bottom line when you start producing, I don't know, 200 plus in terms of revenues per quarter? i'm just curious how do you become a bit more scalable and start to see a little bit greater improvement in bottom line when you start producing i don't know 200 plus in terms of revenues per quarter

Speaker 5: Mitch, this is Hessam. Let me share some comments on that one, and then I'll turn it over to Steve. The most important difference over the last, let's say, six, seven years of our operating structure is the fact that we have invested capital in talent acquisition, talent retention, and essentially talent development at levels that the company hadn't engaged in prior to this period. As a result of that, we have more experienced market leaders that have joined the company from the outside. Mitch, this is Hessam. mitch this is hessam Let me share some comments on that one, and then I'll turn it over to Steve. let me share some comments on that one and then i'll turn it over to steve The most important difference over the last, let's say, six, seven years of our operating structure is the fact that we have invested capital in talent acquisition, talent retention, and essentially talent development at levels that the company hadn't engaged in prior to this period. the most important difference over the last let's say six seven years of our operating structure is the fact that we have invested capital in talent acquisition talent retention and essentially talent development at levels that the company hadn't engaged in prior to this period As a result of that, we have more experienced market leaders that have joined the company from the outside. as a result of that we have more experienced market leaders that have joined the company from the outside Retention of our top-level producers has been stellar, and we have invested in their careers by bringing them on or keeping them at Marcus & Millichap over the long term. As you know, all of those kinds of long-term agreements have performance thresholds, have safety nets for the company's ultimate margin of protection over the term of an agreement. That capital that's been invested is actually being amortized on an ongoing straight-line basis at a time when all of that talent is facing a disrupted marketplace that has not been functioning. Therefore, their normal, just long-term average revenue production capability has been significantly hampered. You have an additional expense line of a non-cash item in the amortization of the capital that has been put out in getting this amazing talent pool retained and added to our company. Retention of our top-level producers has been stellar, and we have invested in their careers by bringing them on or keeping them at Marcus & Millichap over the long term. retention of our top-level producers has been stellar and we have invested in their careers by bringing them on or keeping them at marcus & millichap over the long term As you know, all of those kinds of long-term agreements have performance thresholds, have safety nets for the company's ultimate margin of protection over the term of an agreement. as you know all of those kinds of long-term agreements have performance thresholds have safety nets for the company's ultimate margin of protection over the term of an agreement That capital that's been invested is actually being amortized on an ongoing straight-line basis at a time when all of that talent is facing a disrupted marketplace that has not been functioning. that capital that's been invested is actually being amortized on an ongoing straight-line basis at a time when all of that talent is facing a disrupted marketplace that has not been functioning Therefore, their normal, just long-term average revenue production capability has been significantly hampered. therefore their normal just long-term average revenue production capability has been significantly hampered You have an additional expense line of a non-cash item in the amortization of the capital that has been put out in getting this amazing talent pool retained and added to our company. you have an additional expense line of a non-cash item in the amortization of the capital that has been put out in getting this amazing talent pool retained and added to our company Yet the revenue component from all that talent has been significantly held back. As that starts to change, what has been a drag should become an operating leverage for us. In terms of the comparison of cost structure, that's probably the largest item, and it's a non-cash item, as you know. Other investments in the platform do include a much bigger commitment to technology than we have implemented over the last five years than previously to when I became CEO because, frankly, the company needed to move a lot faster and be a lot more nimble on things like a CRM system, on things like automated matching of buyers and sellers to our website. A lot of it was really sprung out of the pandemic because we pivoted and took major leaps forward in internal automation. Yet the revenue component from all that talent has been significantly held back. yet the revenue component from all that talent has been significantly held back As that starts to change, what has been a drag should become an operating leverage for us. as that starts to change what has been a drag should become an operating leverage for us In terms of the comparison of cost structure, that's probably the largest item, and it's a non-cash item, as you know. in terms of the comparison of cost structure that's probably the largest item and it's a non-cash item as you know Other investments in the platform do include a much bigger commitment to technology than we have implemented over the last five years than previously to when I became CEO because, frankly, the company needed to move a lot faster and be a lot more nimble on things like a CRM system, on things like automated matching of buyers and sellers to our website. other investments in the platform do include a much bigger commitment to technology than we have implemented over the last five years than previously to when i became ceo because frankly the company needed to move a lot faster and be a lot more nimble on things like a crm system on things like automated matching of buyers and sellers to our website A lot of it was really sprung out of the pandemic because we pivoted and took major leaps forward in internal automation. a lot of it was really sprung out of the pandemic because we pivoted and took major leaps forward in internal automation A lot of automation we now offer to our clients through MyMMI, which is a major investment in a platform where client buyers in particular can tell us what they're looking for. The matching of their investment parameters to our fresh inventory is an amazing sort of mechanism for bringing efficiency to both our clients and to our salesforce. Those are some key elements of why the expense structure has changed. We're building the firm for a much larger revenue base than where we are today. Because of the talent that's been brought on board and retained and these investments, we really believe in a normal market operating environment, we'll be able to achieve that leverage. I just wanted to give that context, but let me turn it over to Steve. A lot of automation we now offer to our clients through MyMMI, which is a major investment in a platform where client buyers in particular can tell us what they're looking for. a lot of automation we now offer to our clients through mymmi which is a major investment in a platform where client buyers in particular can tell us what they're looking for The matching of their investment parameters to our fresh inventory is an amazing sort of mechanism for bringing efficiency to both our clients and to our salesforce. the matching of their investment parameters to our fresh inventory is an amazing sort of mechanism for bringing efficiency to both our clients and to our salesforce Those are some key elements of why the expense structure has changed. those are some key elements of why the expense structure has changed We're building the firm for a much larger revenue base than where we are today. we're building the firm for a much larger revenue base than where we are today Because of the talent that's been brought on board and retained and these investments, we really believe in a normal market operating environment, we'll be able to achieve that leverage. because of the talent that's been brought on board and retained and these investments we really believe in a normal market operating environment we'll be able to achieve that leverage I just wanted to give that context, but let me turn it over to Steve. i just wanted to give that context but let me turn it over to steve

Speaker 3: That's pretty broad context. I guess a couple of additional points I would make and specific to your question, Mitch, that significant leverage, you're starting to see it happen at this revenue level. We're just shy of $200 million in this quarter. You can kind of do the math that sands the legal reserve what results would have been. We are kind of at that inflection point where you really see an acceleration of profitability, perhaps not all the way back to where we were at comparable revenue levels six, seven, eight years ago for reasons Hessam mentioned. This is the inflection point. One additional point, the investments in not only retention and recruiting of those senior agents, the technology as well that Hessam mentioned, but central services where we will also gain additional leverage by adding more value and therefore connectivity to the firm with our producers. Just a couple of additional points to tack on there. That's pretty broad context. that's pretty broad context I guess a couple of additional points I would make and specific to your question, Mitch, that significant leverage, you're starting to see it happen at this revenue level. i guess a couple of additional points i would make and specific to your question mitch that significant leverage you're starting to see it happen at this revenue level We're just shy of $200 million in this quarter. we're just shy of $200 million in this quarter You can kind of do the math that sands the legal reserve what results would have been. you can kind of do the math that sands the legal reserve what results would have been We are kind of at that inflection point where you really see an acceleration of profitability, perhaps not all the way back to where we were at comparable revenue levels six, seven, eight years ago for reasons Hessam mentioned. we are kind of at that inflection point where you really see an acceleration of profitability perhaps not all the way back to where we were at comparable revenue levels six seven eight years ago for reasons hessam mentioned This is the inflection point. this is the inflection point One additional point, the investments in not only retention and recruiting of those senior agents, the technology as well that Hessam mentioned, but central services where we will also gain additional leverage by adding more value and therefore connectivity to the firm with our producers. one additional point the investments in not only retention and recruiting of those senior agents the technology as well that hessam mentioned but central services where we will also gain additional leverage by adding more value and therefore connectivity to the firm with our producers Just a couple of additional points to tack on there. just a couple of additional points to tack on there

Speaker 1: Perfect. Thank you, guys. Perfect. perfect Thank you, guys. thank you guys

Speaker 3: Thank you, Mitch. Thank you, Mitch. thank you mitch

Speaker 6: Our next question is from Blaine Heck with Wells. Our next question is from Blaine Heck with Wells. our next question is from blaine heck with wells

Speaker 4: Great. Thanks. Hessam, you mentioned the banks and credit unions expanding lending, which is clearly a positive for the transaction market. I am wondering if you can give some context around the scale of that expansion and how you feel about their willingness to lend today, especially on smaller transactions, just relative to their activity maybe last year and relative to a more normalized level of activity in a functional transaction market. Great. great Thanks. thanks Hessam, you mentioned the banks and credit unions expanding lending, which is clearly a positive for the transaction market. hessam you mentioned the banks and credit unions expanding lending which is clearly a positive for the transaction market I am wondering if you can give some context around the scale of that expansion and how you feel about their willingness to lend today, especially on smaller transactions, just relative to their activity maybe last year and relative to a more normalized level of activity in a functional transaction market. i am wondering if you can give some context around the scale of that expansion and how you feel about their willingness to lend today especially on smaller transactions just relative to their activity maybe last year and relative to a more normalized level of activity in a functional transaction market

Speaker 5: Happy to, Blaine. There is a marked difference from even a year ago in just the number of lenders at any given time willing to give us quotes on certain assets, number one. Happy to, Blaine. happy to blaine There is a marked difference from even a year ago in just the number of lenders at any given time willing to give us quotes on certain assets, number one. there is a marked difference from even a year ago in just the number of lenders at any given time willing to give us quotes on certain assets number one Number two, with quotes coming back so out of market about a year ago, a good number of lender quotes were just not usable. If you contrast that to where we are today, we have more lenders signaling to us that they're back in the market. The quotes that are coming back are a lot closer to consummating a transaction than they were even a year ago. The loan-to-values are improving. Part of that is lender spreads having come in. Probably the most important change is that it seems like what was clogging up the banking system in terms of loans that had to be extended, loans that needed workouts, and so on has largely been addressed or there are plans to address them. Fewer lenders appear to be clogged up versus a year ago. Number two, with quotes coming back so out of market about a year ago, a good number of lender quotes were just not usable. number two with quotes coming back so out of market about a year ago a good number of lender quotes were just not usable If you contrast that to where we are today, we have more lenders signaling to us that they're back in the market. if you contrast that to where we are today we have more lenders signaling to us that they're back in the market The quotes that are coming back are a lot closer to consummating a transaction than they were even a year ago. the quotes that are coming back are a lot closer to consummating a transaction than they were even a year ago The loan-to-values are improving. the loan-to-values are improving Part of that is lender spreads having come in. part of that is lender spreads having come in Probably the most important change is that it seems like what was clogging up the banking system in terms of loans that had to be extended, loans that needed workouts, and so on has largely been addressed or there are plans to address them. probably the most important change is that it seems like what was clogging up the banking system in terms of loans that had to be extended loans that needed workouts and so on has largely been addressed or there are plans to address them Fewer lenders appear to be clogged up versus a year ago. fewer lenders appear to be clogged up versus a year ago It's taken our team of 100 or so originators across the country that are technologically connected to each other on a collaborative basis where we have real-time information sharing on what lenders are quoting at what levels based on specific loans that are being requested or mandates that we have. That information sharing is another reason we're able to move faster in securing the right financing for each of our clients. In terms of the composition of where the capital is coming from for our financing, something close to 50% is now being funded by banks and credit unions. That percentage hasn't changed a whole lot from a year ago, but the time that it's taking and the number of lenders you had to knock on doors with a year ago is where the improvement has been. It's taken our team of 100 or so originators across the country that are technologically connected to each other on a collaborative basis where we have real-time information sharing on what lenders are quoting at what levels based on specific loans that are being requested or mandates that we have. it's taken our team of 100 or so originators across the country that are technologically connected to each other on a collaborative basis where we have real-time information sharing on what lenders are quoting at what levels based on specific loans that are being requested or mandates that we have That information sharing is another reason we're able to move faster in securing the right financing for each of our clients. that information sharing is another reason we're able to move faster in securing the right financing for each of our clients In terms of the composition of where the capital is coming from for our financing, something close to 50% is now being funded by banks and credit unions. in terms of the composition of where the capital is coming from for our financing something close to 50% is now being funded by banks and credit unions That percentage hasn't changed a whole lot from a year ago, but the time that it's taking and the number of lenders you had to knock on doors with a year ago is where the improvement has been. that percentage hasn't changed a whole lot from a year ago but the time that it's taking and the number of lenders you had to knock on doors with a year ago is where the improvement has been It's taken less time to secure loans from banks and credit unions. We're seeing that also predominantly from the regional banks. A lot of regional banks were out of the market a year ago that are back in the market, which is for us as a local private client provider, that regional bank connectivity has been significantly important over the history of the firm. It's improving. It's taken less time to secure loans from banks and credit unions. it's taken less time to secure loans from banks and credit unions We're seeing that also predominantly from the regional banks. we're seeing that also predominantly from the regional banks A lot of regional banks were out of the market a year ago that are back in the market, which is for us as a local private client provider, that regional bank connectivity has been significantly important over the history of the firm. a lot of regional banks were out of the market a year ago that are back in the market which is for us as a local private client provider that regional bank connectivity has been significantly important over the history of the firm It's improving. it's improving

Speaker 4: Great. That's great color and seems like a marked improvement over the last year. I guess to the second part of the question, when you compare the activity today to maybe what you saw in pre-pandemic periods, are we all the way back? Are we halfway back? How would you compare the activity versus kind of optimal capital efficiency? Great. great That's great color and seems like a marked improvement over the last year. that's great color and seems like a marked improvement over the last year I guess to the second part of the question, when you compare the activity today to maybe what you saw in pre-pandemic periods, are we all the way back? i guess to the second part of the question when you compare the activity today to maybe what you saw in pre-pandemic periods are we all the way back Are we halfway back? are we halfway back How would you compare the activity versus kind of optimal capital efficiency? how would you compare the activity versus kind of optimal capital efficiency

Speaker 5: On our overall basis, we believe the market is still somewhere around 15%-20% below normal as a whole. If you look at various price points and property types, the real answer is in that level of detail. For example, if you look at Southern California, or if you look at other regions like Texas, some markets are a lot closer to the velocity in what we consider a normal period. We used 2014 to 2019 as the last sort of five-year period of a normal, less choppy environment. The Texas markets are a lot closer to that normal than, let's say, the California markets are. Larger apartments are still well below their normalized five-year average pre-pandemic, as are small apartments and single-tenant net lease. I would say that small apartments and single-tenant net lease are about 20%-25% below where that average trading in a normal environment should fall. On our overall basis, we believe the market is still somewhere around 15%-20% below normal as a whole. on our overall basis we believe the market is still somewhere around 15%-20% below normal as a whole If you look at various price points and property types, the real answer is in that level of detail. if you look at various price points and property types the real answer is in that level of detail For example, if you look at Southern California, or if you look at other regions like Texas, some markets are a lot closer to the velocity in what we consider a normal period. for example if you look at southern california or if you look at other regions like texas some markets are a lot closer to the velocity in what we consider a normal period We used 2014 to 2019 as the last sort of five-year period of a normal, less choppy environment. we used 2014 to 2019 as the last sort of five-year period of a normal less choppy environment The Texas markets are a lot closer to that normal than, let's say, the California markets are. the texas markets are a lot closer to that normal than let's say the california markets are Larger apartments are still well below their normalized five-year average pre-pandemic, as are small apartments and single-tenant net lease. larger apartments are still well below their normalized five-year average pre-pandemic as are small apartments and single-tenant net lease I would say that small apartments and single-tenant net lease are about 20%-25% below where that average trading in a normal environment should fall. i would say that small apartments and single-tenant net lease are about 20%-25% below where that average trading in a normal environment should fall

Speaker 4: Got it. Very helpful. Switching gears, can you talk a little bit more about the auction business? I do not think we have discussed that in very good detail in past quarters. Just how large you see that segment growing in the next few years and maybe touch on any differences in the fees you generate from that business versus your more typical brokerage business? Got it. got it Very helpful. very helpful Switching gears, can you talk a little bit more about the auction business? switching gears can you talk a little bit more about the auction business I do not think we have discussed that in very good detail in past quarters. i do not think we have discussed that in very good detail in past quarters Just how large you see that segment growing in the next few years and maybe touch on any differences in the fees you generate from that business versus your more typical brokerage business? just how large you see that segment growing in the next few years and maybe touch on any differences in the fees you generate from that business versus your more typical brokerage business

Speaker 5: Absolutely. First of all, it goes back to specialization and expertise. We built the capabilities that are now in place organically by bringing on auction specialists that had significant experience. Shortly after we knew that there was a real market for it, both internally in terms of the collaboration and externally, we brought on Jim Palmer as the executive in charge. That goes back to our philosophy that you have to have management that has had practical experience in the niche. Absolutely. absolutely First of all, it goes back to specialization and expertise. first of all it goes back to specialization and expertise We built the capabilities that are now in place organically by bringing on auction specialists that had significant experience. we built the capabilities that are now in place organically by bringing on auction specialists that had significant experience Shortly after we knew that there was a real market for it, both internally in terms of the collaboration and externally, we brought on Jim Palmer as the executive in charge. shortly after we knew that there was a real market for it both internally in terms of the collaboration and externally we brought on jim palmer as the executive in charge That goes back to our philosophy that you have to have management that has had practical experience in the niche. that goes back to our philosophy that you have to have management that has had practical experience in the niche Jim certainly brings that with his years and years of involvement in the auction business. The combination of auction specialists, producers that are dedicated to the auction business, that's all they do, strategically located in various regions under the direction of a dedicated executive with experience, Jim Palmer is the combination that has made this very successful for us. One of the benefits is that for our investment salesforce that is out there, especially in a disrupted market with conventional marketing, and as we've discussed and I made comments on just earlier on this call, the response to listings, aging listings, and listings that were not movable in a conventional way over the past, let's say, 24 months, we've found that more and more of them are good candidates for marketing through an auction platform. Jim certainly brings that with his years and years of involvement in the auction business. jim certainly brings that with his years and years of involvement in the auction business The combination of auction specialists, producers that are dedicated to the auction business, that's all they do, strategically located in various regions under the direction of a dedicated executive with experience, Jim Palmer is the combination that has made this very successful for us. the combination of auction specialists producers that are dedicated to the auction business that's all they do strategically located in various regions under the direction of a dedicated executive with experience jim palmer is the combination that has made this very successful for us One of the benefits is that for our investment salesforce that is out there, especially in a disrupted market with conventional marketing, and as we've discussed and I made comments on just earlier on this call, the response to listings, aging listings, and listings that were not movable in a conventional way over the past, let's say, 24 months, we've found that more and more of them are good candidates for marketing through an auction platform. one of the benefits is that for our investment salesforce that is out there especially in a disrupted market with conventional marketing and as we've discussed and i made comments on just earlier on this call the response to listings aging listings and listings that were not movable in a conventional way over the past let's say 24 months we've found that more and more of them are good candidates for marketing through an auction platform The auction platform obviously has the benefit of having pre-qualified bidders where we know that they're financially capable and committed to executing transactions. As we've not only been able to find the right niche in executing the auction model, the benefit of the internal collaboration is that we collect a brokerage service fee for the seller, and then there are the auction-related fees on top of that and a buyer premium that is added. It is a win-win for the client, and it is multiple fee generation opportunities for the firm. The auction platform obviously has the benefit of having pre-qualified bidders where we know that they're financially capable and committed to executing transactions. the auction platform obviously has the benefit of having pre-qualified bidders where we know that they're financially capable and committed to executing transactions As we've not only been able to find the right niche in executing the auction model, the benefit of the internal collaboration is that we collect a brokerage service fee for the seller, and then there are the auction-related fees on top of that and a buyer premium that is added. as we've not only been able to find the right niche in executing the auction model the benefit of the internal collaboration is that we collect a brokerage service fee for the seller and then there are the auction-related fees on top of that and a buyer premium that is added It is a win-win for the client, and it is multiple fee generation opportunities for the firm. it is a win-win for the client and it is multiple fee generation opportunities for the firm

Speaker 4: Got it. That is very helpful. Last one for me. With respect to the litigation, was this a one-time event, or do you expect some ongoing headwinds? Maybe you can just give some color on the nature of the litigation. Is this related to ongoing segments of your business such that there could be more coming or just a more nuanced situation? Got it. That is very helpful. got it. that is very helpful Last one for me. last one for me With respect to the litigation, was this a one-time event, or do you expect some ongoing headwinds? with respect to the litigation was this a one-time event or do you expect some ongoing headwinds Maybe you can just give some color on the nature of the litigation. maybe you can just give some color on the nature of the litigation Is this related to ongoing segments of your business such that there could be more coming or just a more nuanced situation? is this related to ongoing segments of your business such that there could be more coming or just a more nuanced situation

Speaker 3: Yes. Blaine, I'll take that. First of all, I'll refer you and everyone to the 10-Q that will be on file with the SEC later today for some additional context. In addition to that, I'll say that we do anywhere from 8,000 to 10,000 transactions a year. So inevitably, from time to time, disputes of varying nature are going to arise, most of which go away in the normal course of business. A very small number of those actually go to trial. This matter, unfortunately, which involves a disputed disclosure-related claim, actually did go to trial. It certainly is an outlier. We believe the verdict which went against us was rendered in error. Therefore, we have very strong grounds for appeal. Yes. yes Blaine, I'll take that. blaine i'll take that First of all, I'll refer you and everyone to the 10-Q that will be on file with the SEC later today for some additional context. first of all i'll refer you and everyone to the 10-q that will be on file with the sec later today for some additional context In addition to that, I'll say that we do anywhere from 8,000 to 10,000 transactions a year. in addition to that i'll say that we do anywhere from 8,000 to 10,000 transactions a year So inevitably, from time to time, disputes of varying nature are going to arise, most of which go away in the normal course of business. so inevitably from time to time disputes of varying nature are going to arise most of which go away in the normal course of business A very small number of those actually go to trial. a very small number of those actually go to trial This matter, unfortunately, which involves a disputed disclosure-related claim, actually did go to trial. this matter unfortunately which involves a disputed disclosure-related claim actually did go to trial It certainly is an outlier. it certainly is an outlier We believe the verdict which went against us was rendered in error. we believe the verdict which went against us was rendered in error Therefore, we have very strong grounds for appeal. therefore we have very strong grounds for appeal We intend to exhaust all our legal avenues to have the award reduced or reversed entirely. No, it is not an indication of any greater pattern or specific segment of the business. It is an extreme outlier, not an indication of any greater issue. With respect to the amount, just based on the information that we have got available and our assessment at this time, we felt that was the appropriate amount to reserve. We intend to exhaust all our legal avenues to have the award reduced or reversed entirely. we intend to exhaust all our legal avenues to have the award reduced or reversed entirely No, it is not an indication of any greater pattern or specific segment of the business. It is an extreme outlier, not an indication of any greater issue. no it is not an indication of any greater pattern or specific segment of the business. it is an extreme outlier not an indication of any greater issue With respect to the amount, just based on the information that we have got available and our assessment at this time, we felt that was the appropriate amount to reserve. with respect to the amount just based on the information that we have got available and our assessment at this time we felt that was the appropriate amount to reserve

Speaker 6: All right. Great. Appreciate that, Color. Thanks, guys. All right. all right Great. great Appreciate that, Color. appreciate that color Thanks, guys. thanks guys Thank you. There are no further questions at this time. I would like to hand the floor back over to Hessam Nadji for any closing comments. Thank you. thank you There are no further questions at this time. I would like to hand the floor back over to Hessam Nadji for any closing comments. there are no further questions at this time. i would like to hand the floor back over to hessam nadji for any closing comments

Speaker 5: Thank you, Operator. Thank you, everyone, for joining the call. We look forward to seeing a lot of you on the road and having you back on our next earnings call. This call is adjourned. This concludes today's conference. Thank you, Operator. thank you operator Thank you, everyone, for joining the call. thank you everyone for joining the call We look forward to seeing a lot of you on the road and having you back on our next earnings call. we look forward to seeing a lot of you on the road and having you back on our next earnings call This call is adjourned. this call is adjourned This concludes today's conference. this concludes today's conference

Speaker 6: You may disconnect your lines at this time. Thank you for your participation. You may disconnect your lines at this time. you may disconnect your lines at this time Thank you for your participation. thank you for your participation