WEBVTT - Marcus & Millichap's Nadji on Q2 Earnings, Real Estate (Audio)

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<v Speaker 1>Global business news twenty four hours a day at Bloomberg

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<v Speaker 1>This is a Bloomberg Business Flash from Bloomberg World Headquarters.

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<v Speaker 1>I'm Charlie Pelotondal. The SMP NEZDAK halls surging at or

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<v Speaker 1>near the best level of the day, and we're brought

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<v Speaker 1>at n r i A dot net. Now let's head

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<v Speaker 1>right over to the first word breaking news desk for

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<v Speaker 1>today's afternoon call. Here she is Sasha the Money. Good afternoon, Charlie.

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<v Speaker 1>As you mentioned, the main US averages are holding strong

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<v Speaker 1>in the green heading into the weekend. Small cap six

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<v Speaker 1>hundred up at one point five percent, US tenure yield

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<v Speaker 1>up at five point three percent. Eight out of ten

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<v Speaker 1>SMP sectors are higher, led by financials. Utilities led to

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<v Speaker 1>the downside down one point three percent. Dow transfer It's

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<v Speaker 1>rise a hundred and forty three points, nasdag Bio takes

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<v Speaker 1>a little changed, and the VIX is down by eight

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<v Speaker 1>point nine percent. Dow Leaders to the upside include Mark JP, JP,

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<v Speaker 1>Morgan Chase, and Goldman Sachs. Losers include Verizon Communications, Procter

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<v Speaker 1>and Gamble, and Coca Cola Bristol Myers. Squib plunged as

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<v Speaker 1>much as eighteen percent today, most since two thousand and

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<v Speaker 1>two after non small cell lung cancer trial of up

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<v Speaker 1>Divo didn't meet endpoint. EO G resources up as much

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<v Speaker 1>as seven point eight percent after the company said it

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<v Speaker 1>plans to boost drilling without spending more. Live from the

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<v Speaker 1>First Word Breaking news desk. I'm Sasha Damuni Charlie. Alrighty,

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<v Speaker 1>thank you very much, Sasha Damony into year Live breaking

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<v Speaker 1>news over your Bloomberg Tip Squawk s q U a

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<v Speaker 1>w K on your terminal. I'm Charlie Pellett. That's a

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<v Speaker 1>Bloomberg business flash. You're listening to Taking stock with Kathleen

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<v Speaker 1>and Pim Fox on Bloomberg Radio. The shares of Marcus

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<v Speaker 1>and Millichat they are hire today by more than five

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<v Speaker 1>percent after reporting quarterly results that exceeded analysts estimates. Here

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<v Speaker 1>to tell us more. As the President and the chief

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<v Speaker 1>executive of Marcus and Millichap, Hassan Naji Hassan, thank you

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<v Speaker 1>very much for being with us. Sam thanks for having

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<v Speaker 1>me on the program. All right, let's begin by taking

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<v Speaker 1>a look at the thirty three billion dollar real estate

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<v Speaker 1>financing company that is Marcus and Millichap. Tell us a

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<v Speaker 1>little bit about the business in the last quarter. We'll

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<v Speaker 1>get to the next quarter in a second, because I

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<v Speaker 1>know you've got some cautionary thoughts about that. Sure, Just

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<v Speaker 1>to give some context from the commercial real estate investment marketplace,

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<v Speaker 1>UH really is dominated by private investors of all commercial

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<v Speaker 1>property sales in the United States, and the last year

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<v Speaker 1>have have been in the one to ten million dollar

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<v Speaker 1>really the microcap segment that are dominated by high network individuals,

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<v Speaker 1>small partnerships, and then local investors. Our company specializes in

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<v Speaker 1>brokering these assets and where the largest firm in the

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<v Speaker 1>United States with about eight offices and specialists who focus

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<v Speaker 1>only on this specialized niche UH. And we have some

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<v Speaker 1>larger clients, institutional clients that do the larger transaction and

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<v Speaker 1>they make up the other sevent of the business. So

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<v Speaker 1>for US investor sentiment and the longer term tendencies for

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<v Speaker 1>private investors to have personal drivers like death, the worst

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<v Speaker 1>partnership breakups, and other financial aspects of their lives becomes

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<v Speaker 1>a more important ingredient than than just the economic trends

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<v Speaker 1>or quarterly swings. Uh So, the what where the market

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<v Speaker 1>has been over the past few years has been in

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<v Speaker 1>a very rapid recovery post the financial crisis. Of course,

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<v Speaker 1>commercial reality yields, which are in the five seven percent range,

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<v Speaker 1>are still attracting a lot of capital to the sector.

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<v Speaker 1>And uh this time around on like other cycles, commercial

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<v Speaker 1>realty is not being over built. Uh The the discipline

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<v Speaker 1>we've seen in the marketplace, both imposed by lenders and

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<v Speaker 1>by developers compared to other cycles, has really kept the

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<v Speaker 1>market very, very healthy. Now, having said that, the market

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<v Speaker 1>is in a transition from this rapid growth that I

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<v Speaker 1>just talked about over the last five years in sales

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<v Speaker 1>velocity and dramatic improvement in vacancies, dramatic improvement in rent

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<v Speaker 1>into a more of a slow growth environment just because

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<v Speaker 1>number one, the pricing has gone up quite a bit.

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<v Speaker 1>Number two, there has been a lot of psychological effects

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<v Speaker 1>in this year so far, in the first half of

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<v Speaker 1>the year that have created some caution among investors. So

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<v Speaker 1>shales so far this year in the marketplace have been

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<v Speaker 1>relatively flat compared to the rapid growth that I talked

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<v Speaker 1>about it over the past few years, and for us,

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<v Speaker 1>our firm is really focused on market share increases and

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<v Speaker 1>market coverage and growing by headcount and productivity. And that's

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<v Speaker 1>why we were able to exceed the market's performance by

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<v Speaker 1>showing a nine percent revenue game over the first half

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<v Speaker 1>off and about a four percent earnings game. And that's

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<v Speaker 1>that's sort of the perspective one where we are and

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<v Speaker 1>where the market is. Well, we're just looking at your

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<v Speaker 1>to date highlights for the company's sales volume right now

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<v Speaker 1>up about sixtent transaction closings higher by six correct, Yeah,

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<v Speaker 1>So I was just gonna say revenue by transaction size

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<v Speaker 1>as well. You've got a nice sweet spot sweet spot

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<v Speaker 1>of the of the market exactly. We're so well aligned

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<v Speaker 1>with that of sales that was in the one to

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<v Speaker 1>ten million dollar range. Uh, and we're the dominant brand

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<v Speaker 1>with a lot of room to grow in that segment.

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<v Speaker 1>And that's what's really encouraging for us in terms of

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<v Speaker 1>our long term plans. Looking in the short term, there

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<v Speaker 1>is a lot of caution in the marketplace. Lenders are

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<v Speaker 1>being very careful and therefore transactions are taking longer to market,

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<v Speaker 1>longer to close, and even though that affects the short

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<v Speaker 1>term sales velocity and slows everything down over the long term.

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<v Speaker 1>We think that's constructive because is it's eliminating or let's say,

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<v Speaker 1>at least reducing the risk of overbuilding, and it's reducing

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<v Speaker 1>the risk of over leveraging, which are really the two

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<v Speaker 1>ingredients that typically disrupt good expansion cycle for commercial real estate. Well,

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<v Speaker 1>I note that for example, occupancies have been rising as

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<v Speaker 1>well as construction trends. They remain favorable for multi family, retail,

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<v Speaker 1>office as well as industrial exactly, tell us a little

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<v Speaker 1>bit about commercial real estate yields. Are they still compelling? Well, Pam,

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<v Speaker 1>that's the that's the bottom line is that in this

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<v Speaker 1>low interest rate, low yield environment, when you look around

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<v Speaker 1>alternative investments and where where investors can look for some

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<v Speaker 1>reliable yield commercial real estate depending on the quality and

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<v Speaker 1>depending on the market. Of course, it's a broad statement,

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<v Speaker 1>but the averages show of five to seven percent yield

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<v Speaker 1>going in yield on the asset class. Now, if you're

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<v Speaker 1>appetite for risk is higher, and you can invest in

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<v Speaker 1>let's say, a hotel property or a shopping center that

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<v Speaker 1>can be turned around with we tenanting and some work

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<v Speaker 1>that you can do to add value to it. Those

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<v Speaker 1>yields can be much higher than this general range if

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<v Speaker 1>your appetite for risk is not so strong and you'd

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<v Speaker 1>rather have more of a of a lower risk income yield. Uh.

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<v Speaker 1>There's plenty of appts, particularly apartments, and a market where

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<v Speaker 1>the yields are in the three to four present range,

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<v Speaker 1>but there's hardly any product being built, so there's a

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<v Speaker 1>very little or supply risk. We gotta we gotta leave

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<v Speaker 1>it there. I'm sorry, has some Naji. He's the president,

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<v Speaker 1>the chief executive of Marcus and Millichap. The shares are

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<v Speaker 1>higher by more than five percent. This is Bloomberg coming

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<v Speaker 1>up on taking stock. We're going to take stock of

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<v Speaker 1>the campaign for president, more on Hillary Clinton and Donald

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<v Speaker 1>Trump as he unveils his economic team. That's next