Latest / Bloomberg Intelligence / Marcus & Millichap's Nadji on Q2 Earnings, Real Estate (Audio)

Transcript

Marcus & Millichap's Nadji on Q2 Earnings, Real Estate (Audio) · Bloomberg Intelligence

• 0:03
  Speaker 1: Global business news twenty four hours a day at Bloomberg
• 0:06
  Speaker 1: dot com, the radio plus mobile LAP and on your radio.
• 0:10
  Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters.
• 0:14
  Speaker 1: I'm Charlie Pelotondal. The SMP NEZDAK halls surging at or
• 0:18
  Speaker 1: near the best level of the day, and we're brought
• 0:20
  Speaker 1: to you by National Realty Providers of one hundred percent
• 0:24
  Speaker 1: satisfaction guaranteed New York City Realty the investments see them
• 0:28
  Speaker 1: at n r i A dot net. Now let's head
• 0:31
  Speaker 1: right over to the first word breaking news desk for
• 0:33
  Speaker 1: today's afternoon call. Here she is Sasha the Money. Good afternoon, Charlie.
• 0:39
  Speaker 1: As you mentioned, the main US averages are holding strong
• 0:42
  Speaker 1: in the green heading into the weekend. Small cap six
• 0:45
  Speaker 1: hundred up at one point five percent, US tenure yield
• 0:49
  Speaker 1: up at five point three percent. Eight out of ten
• 0:52
  Speaker 1: SMP sectors are higher, led by financials. Utilities led to
• 0:56
  Speaker 1: the downside down one point three percent. Dow transfer It's
• 1:00
  Speaker 1: rise a hundred and forty three points, nasdag Bio takes
• 1:03
  Speaker 1: a little changed, and the VIX is down by eight
• 1:05
  Speaker 1: point nine percent. Dow Leaders to the upside include Mark JP, JP,
• 1:11
  Speaker 1: Morgan Chase, and Goldman Sachs. Losers include Verizon Communications, Procter
• 1:16
  Speaker 1: and Gamble, and Coca Cola Bristol Myers. Squib plunged as
• 1:20
  Speaker 1: much as eighteen percent today, most since two thousand and
• 1:23
  Speaker 1: two after non small cell lung cancer trial of up
• 1:26
  Speaker 1: Divo didn't meet endpoint. EO G resources up as much
• 1:30
  Speaker 1: as seven point eight percent after the company said it
• 1:32
  Speaker 1: plans to boost drilling without spending more. Live from the
• 1:36
  Speaker 1: First Word Breaking news desk. I'm Sasha Damuni Charlie. Alrighty,
• 1:39
  Speaker 1: thank you very much, Sasha Damony into year Live breaking
• 1:42
  Speaker 1: news over your Bloomberg Tip Squawk s q U a
• 1:46
  Speaker 1: w K on your terminal. I'm Charlie Pellett. That's a
• 1:49
  Speaker 1: Bloomberg business flash. You're listening to Taking stock with Kathleen
• 1:54
  Speaker 1: and Pim Fox on Bloomberg Radio. The shares of Marcus
• 1:58
  Speaker 1: and Millichat they are hire today by more than five
• 2:02
  Speaker 1: percent after reporting quarterly results that exceeded analysts estimates. Here
• 2:06
  Speaker 1: to tell us more. As the President and the chief
• 2:08
  Speaker 1: executive of Marcus and Millichap, Hassan Naji Hassan, thank you
• 2:13
  Speaker 1: very much for being with us. Sam thanks for having
• 2:16
  Speaker 1: me on the program. All right, let's begin by taking
• 2:18
  Speaker 1: a look at the thirty three billion dollar real estate
• 2:23
  Speaker 1: financing company that is Marcus and Millichap. Tell us a
• 2:26
  Speaker 1: little bit about the business in the last quarter. We'll
• 2:29
  Speaker 1: get to the next quarter in a second, because I
• 2:30
  Speaker 1: know you've got some cautionary thoughts about that. Sure, Just
• 2:35
  Speaker 1: to give some context from the commercial real estate investment marketplace,
• 2:41
  Speaker 1: UH really is dominated by private investors of all commercial
• 2:46
  Speaker 1: property sales in the United States, and the last year
• 2:49
  Speaker 1: have have been in the one to ten million dollar
• 2:52
  Speaker 1: really the microcap segment that are dominated by high network individuals,
• 2:57
  Speaker 1: small partnerships, and then local investors. Our company specializes in
• 3:01
  Speaker 1: brokering these assets and where the largest firm in the
• 3:05
  Speaker 1: United States with about eight offices and specialists who focus
• 3:09
  Speaker 1: only on this specialized niche UH. And we have some
• 3:13
  Speaker 1: larger clients, institutional clients that do the larger transaction and
• 3:16
  Speaker 1: they make up the other sevent of the business. So
• 3:19
  Speaker 1: for US investor sentiment and the longer term tendencies for
• 3:25
  Speaker 1: private investors to have personal drivers like death, the worst
• 3:28
  Speaker 1: partnership breakups, and other financial aspects of their lives becomes
• 3:33
  Speaker 1: a more important ingredient than than just the economic trends
• 3:37
  Speaker 1: or quarterly swings. Uh So, the what where the market
• 3:42
  Speaker 1: has been over the past few years has been in
• 3:43
  Speaker 1: a very rapid recovery post the financial crisis. Of course,
• 3:47
  Speaker 1: commercial reality yields, which are in the five seven percent range,
• 3:51
  Speaker 1: are still attracting a lot of capital to the sector.
• 3:54
  Speaker 1: And uh this time around on like other cycles, commercial
• 3:58
  Speaker 1: realty is not being over built. Uh The the discipline
• 4:02
  Speaker 1: we've seen in the marketplace, both imposed by lenders and
• 4:05
  Speaker 1: by developers compared to other cycles, has really kept the
• 4:09
  Speaker 1: market very, very healthy. Now, having said that, the market
• 4:12
  Speaker 1: is in a transition from this rapid growth that I
• 4:14
  Speaker 1: just talked about over the last five years in sales
• 4:16
  Speaker 1: velocity and dramatic improvement in vacancies, dramatic improvement in rent
• 4:22
  Speaker 1: into a more of a slow growth environment just because
• 4:26
  Speaker 1: number one, the pricing has gone up quite a bit.
• 4:29
  Speaker 1: Number two, there has been a lot of psychological effects
• 4:33
  Speaker 1: in this year so far, in the first half of
• 4:34
  Speaker 1: the year that have created some caution among investors. So
• 4:38
  Speaker 1: shales so far this year in the marketplace have been
• 4:41
  Speaker 1: relatively flat compared to the rapid growth that I talked
• 4:44
  Speaker 1: about it over the past few years, and for us,
• 4:46
  Speaker 1: our firm is really focused on market share increases and
• 4:49
  Speaker 1: market coverage and growing by headcount and productivity. And that's
• 4:53
  Speaker 1: why we were able to exceed the market's performance by
• 4:57
  Speaker 1: showing a nine percent revenue game over the first half
• 5:00
  Speaker 1: off and about a four percent earnings game. And that's
• 5:04
  Speaker 1: that's sort of the perspective one where we are and
• 5:06
  Speaker 1: where the market is. Well, we're just looking at your
• 5:08
  Speaker 1: to date highlights for the company's sales volume right now
• 5:11
  Speaker 1: up about sixtent transaction closings higher by six correct, Yeah,
• 5:19
  Speaker 1: So I was just gonna say revenue by transaction size
• 5:23
  Speaker 1: as well. You've got a nice sweet spot sweet spot
• 5:26
  Speaker 1: of the of the market exactly. We're so well aligned
• 5:31
  Speaker 1: with that of sales that was in the one to
• 5:34
  Speaker 1: ten million dollar range. Uh, and we're the dominant brand
• 5:37
  Speaker 1: with a lot of room to grow in that segment.
• 5:40
  Speaker 1: And that's what's really encouraging for us in terms of
• 5:42
  Speaker 1: our long term plans. Looking in the short term, there
• 5:45
  Speaker 1: is a lot of caution in the marketplace. Lenders are
• 5:47
  Speaker 1: being very careful and therefore transactions are taking longer to market,
• 5:51
  Speaker 1: longer to close, and even though that affects the short
• 5:54
  Speaker 1: term sales velocity and slows everything down over the long term.
• 5:58
  Speaker 1: We think that's constructive because is it's eliminating or let's say,
• 6:02
  Speaker 1: at least reducing the risk of overbuilding, and it's reducing
• 6:06
  Speaker 1: the risk of over leveraging, which are really the two
• 6:09
  Speaker 1: ingredients that typically disrupt good expansion cycle for commercial real estate. Well,
• 6:15
  Speaker 1: I note that for example, occupancies have been rising as
• 6:18
  Speaker 1: well as construction trends. They remain favorable for multi family, retail,
• 6:22
  Speaker 1: office as well as industrial exactly, tell us a little
• 6:27
  Speaker 1: bit about commercial real estate yields. Are they still compelling? Well, Pam,
• 6:33
  Speaker 1: that's the that's the bottom line is that in this
• 6:36
  Speaker 1: low interest rate, low yield environment, when you look around
• 6:39
  Speaker 1: alternative investments and where where investors can look for some
• 6:44
  Speaker 1: reliable yield commercial real estate depending on the quality and
• 6:47
  Speaker 1: depending on the market. Of course, it's a broad statement,
• 6:50
  Speaker 1: but the averages show of five to seven percent yield
• 6:55
  Speaker 1: going in yield on the asset class. Now, if you're
• 6:59
  Speaker 1: appetite for risk is higher, and you can invest in
• 7:02
  Speaker 1: let's say, a hotel property or a shopping center that
• 7:04
  Speaker 1: can be turned around with we tenanting and some work
• 7:07
  Speaker 1: that you can do to add value to it. Those
• 7:10
  Speaker 1: yields can be much higher than this general range if
• 7:14
  Speaker 1: your appetite for risk is not so strong and you'd
• 7:17
  Speaker 1: rather have more of a of a lower risk income yield. Uh.
• 7:22
  Speaker 1: There's plenty of appts, particularly apartments, and a market where
• 7:25
  Speaker 1: the yields are in the three to four present range,
• 7:27
  Speaker 1: but there's hardly any product being built, so there's a
• 7:30
  Speaker 1: very little or supply risk. We gotta we gotta leave
• 7:34
  Speaker 1: it there. I'm sorry, has some Naji. He's the president,
• 7:37
  Speaker 1: the chief executive of Marcus and Millichap. The shares are
• 7:40
  Speaker 1: higher by more than five percent. This is Bloomberg coming
• 7:46
  Speaker 1: up on taking stock. We're going to take stock of
• 7:48
  Speaker 1: the campaign for president, more on Hillary Clinton and Donald
• 7:53
  Speaker 1: Trump as he unveils his economic team. That's next