Marcus & Millichap Inc (MMI) 2016 Q4 法說會逐字稿

Greetings and welcome to Marcus & Millichap's fourth-quarter 2016 earnings conference call.

(Operator Instructions).

As a reminder, this conference is being recorded. I would now like to turn the conference over to Ms. Evelyn Infurna. Thank you, Ms. Infurna. You may now begin.

Thank you. Good afternoon and welcome to Marcus & Millichap's year-end 2016 earnings conference call. With us today are President and Chief Executive Officer, Hessam Nadji; and Chief Financial Officer, Marty Louie.

Before I turn the call over to Management, please remember that our prepared remarks and responses to questions may contain forward-looking statements. Words such as may, will, expect, believe, estimate, anticipate, goal and variations of these words and similar expressions are intended to identify forward-looking statements.

Actual results could 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 conditions, including recent conditions in global markets; the Company's ability to retain and attract transactional 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 filings including an annual report on form 10-K, which was filed with the SEC on March 15, 2016.

Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can make no assurance that these expectations will be attained. The Company undertakes no obligation to update any forward-looking statements whether as a result of new information, future events, or otherwise.

In addition, certain of the financial information presented on the call represents non-GAAP financial measures. The Company's earnings release, which was issued this afternoon and is available on the Company's website, represents reconciliations to the appropriate GAAP measure and explains why the Company believes such non-GAAP measures are useful to investors.

Finally this conference call is being webcast. The webcast link is available on the investor relations section of the website at www.marcusmillichap.com, along with the slide presentation you may reference during your prepared remarks.

With that, it is now my pleasure to turn the call over to Mr. Hessam Nadji. Hessam?

Thank you, Evelyn. On behalf of the entire Marcus & Millichap team, good afternoon, everyone, and thank you for joining our 2016 year-end earnings call. 2016 was characterized by flowing sales and heightened uncertainty in the marketplace which challenge MMI's financial performance, particularly in the final quarter.

By staying laser-focused on helping our clients through a changing environment, we once again increased market share and strengthened the Company's long-term growth prospects through key platform investments and by expanding our salesforce. After a robust fixed-year recovery, investment sales in the markets were flat to moderately lower throughout most of the year but this transition was exacerbated into a sharp decline in the fourth quarter. The unexpected jump in interest rates following the presidential election was the primary cause.

In addition, a wait-and-see stance among many investors also emerged in anticipation of tax reform, regulatory easing and economic proposals by the new administration. These plans to boost growth should eventually help prolong the economic expansion and generate more demand for real estate. However, uncertainty around the measures along with a widened bid ask spread or added headwinds that continue to persist into 2017.

Clarity on the proposed government policies and a recalibration on fire seller price expectation should bring investors off the sidelines and spur more sales activity. Beyond these current headwinds, the latest data still point to healthy property fundamentals and lack of over-leveraging in the cycle as key drivers for still active albeit slower real estate investment sales market.

With this backdrop, MMI grew revenues by 4.1%, increased sales volume by 11.8% to a record $42.3 billion and group transactions by approximately 3% to nearly 9,000. We achieved net income of $64.6 million compared to $66.3 million in 2015 or a decline of 2.6%, primarily due to investments in our infrastructure, proprietary technology as well as expanded business development initiatives for our brokers. We believe strongly that these investments which we outlined going into 2016 and echoed throughout the year will support long-term growth and competitive advantages.

Our earnings were also impacted by a higher commission payout as our senior brokers accounted for a higher proportion of revenue in a more challenging market. For the year MMI added 8% to its salesforce which now stands at a record and positions us for further market share growth.

In addressing our fourth-quarter results let me first review a few critical data points. While the market was expecting a gradual increase in interest rates in the second half of 2016, between November 9 and December 31 the 10-year treasury yield jumped by as much as 75 basis points. As a result we saw the bid ask spread, lender tightening and extended transaction timelines throughout the first nine months of the year become much more pronounced, causing the repricing in re-underwriting of many pending transactions and active listings. As a result we experienced an increase in deal cancellations and longer closing delays.

Preliminary industry estimates point to a 15% drop in market transactions and sales volume during the final quarter of 2016. In contrast, market sales in the fourth quarter of 2015 registered year-over-year growth of 11% and volume grew 15% over the fourth quarter of 2014.

The post-election jump in interest rates was especially hard on smaller private client transactions which typically use higher leverage. As we've stated many times in the past, over the long run sales in the $1 million to $10 million private client market segment are less volatile than higher-priced assets, thanks to death or partnership changes and other personal circumstances. However, in any given period particularly with an unexpected and sizable jump in interest rates and market uncertainties, private investor sentiment, price and risk tolerance, can be affected as we observed in the fourth quarter of 2016.

Last but not least we pointed out on our third-quarter 2016 earnings call for MMI the fourth quarter of 2015 had outside growth of nearly 18% of revenue and 15% growth in transactions, making comparisons particularly challenging.

Fourth quarter revenue was down 6.9% from the fourth quarter 2015 and the quarter ended in sales volume of nearly $11 billion on over 2,300 transactions. Sales volume and transaction accounts were down during the quarter by 70 basis point and 6% respectively, indicating meaningful market share gains in contrast to the estimated 15% decline in market sales I mentioned earlier.

Let me just take a moment to acknowledge the hard work and expertise required of our team to close over 2,300 transactions on behalf of our clients during the quarter given the rapid change in interest rates and in many cases re-negotiating among the parties and having to requalify transactions for financing. While the extra work needed to close transactions in the fourth quarter reduced productivity toward new business development, we were able to successfully meet the vast majority of our clients' transactional needs.

Our product line market segment, which are transactions between $1 million to $10 million, once again delivered nearly 70% of our brokerage commissions and continues to be the foundation of our business. Revenue for the segment grew 1.9% in the year but declined 9.6% for the quarter due to the factors I shared earlier. Again this was against a very difficult comparison in the fourth quarter of 2015 which posted private client revenue growth of nearly 30%.

Brokerage revenues on the sale of properties valued at $20 million and above increased 32% to $97 million with the fourth-quarter increasing 15% on a year-over-year basis. This is a testament of our senior agent and IPA division's abilities to effectively service our private and institutional clients in a changing market environment. It is also reflective of a growing number of private clients who are consolidating their portfolios into larger assets and institutional clients utilizing our platform to access private capital.

Our specialty brokerage division also continued to gain ground last year with an overall transaction increase of 6.7% and volume gain of 19%. We saw particular strength in seniors housing, self-storage, single tenant lease and hospitality.

Our financing division at NMCC saw loan volume growth of 4.5% for the year to just over $5 billion and transaction increase of 3% to 1,650 transactions. These results were hampered by the drop in activity during the fourth quarter especially among affordable and tax multifamily financings. The jump in interest-rate and expectations of tax reform had a particularly adverse effect on these transactions.

Expansion of NMCC remains one of our key growth opportunities. To this end we have been working on expanded our network of capital sources over the past year and announced a correspondent relationship with ReadyCap in the third quarter of last year. ReadyCap is a GSE lender specializing in small balance multifamily loans and although still in its early stages, our relationship has been well received and is starting to generate transactions.

I am also happy to announce another proprietary preferred first [responder] relationship with PGIM Real Estate Finance, the commercial mortgage business of Prudential Financial. This program is specifically designed to increase our access to lending options in the middle market and larger balance multifamily transactions.

PGIM offers one of the most comprehensive set of real estate finance products including GSE debt for market rate and affordable housing, FHA, conduit and credentials general count. A formal announcement will be made shortly.

These correspondent relationships are designed to provide more options our clients and added deal control for a loan originators. Both of these relationships also provide dedicated resources that are highly responsive with competitive pricing for Marcus & Millichap clients.

Let me now address the four pillars that impact our business which include the economy, real estate supply and demand, capital markets, and investment sales. The economy is creating jobs at a modest but consistent pace, which we believe is a sustainable. It is not likely to accelerate to some degree assuming infrastructure spending and tax reforms come to fruition.

On the supply demand front you the overall balance in the market appears sustainable with positive rent growth. Construction is clearly increasing across various property types. However, with the exception of high-end apartments in the top 10 most active metros, overbuilding is not likely in the foreseeable future.

We are seeing softness in luxury apartments in select metros, but the sector as a whole is still performing well. The older workhorse housing stock that comprise the majority of the market and our sales in particular is seeing high occupancy and strong rate growth.

Capital markets the circular have maintained ample liquidity levels for both debt and equity but caution is the order. Lenders are active in the marketplace and competitive but have a more conservative stance on underwriting and buyer qualification.

The Fed is signaling a more aggressive position on rising rates as inflation gathers momentum. As we have shared before we believe an orderly rise in interest-rate balanced with strong job growth should not be disruptive to the market. In fact rising interest rates coupled with the eventual policy clarity I mentioned earlier could provide further motivation for many investors to come off silent.

Finally the slowing trend investment sales will likely remain exaggerated for the first half of 2017 due to headwinds I outlined earlier. But again eventual clarity on various policies should be a catalyst for increased activity. Despite the overall trend toward a more tempered market environment after record years, it is critical that we keep a perspective on the size of the market especially as related to MMI's long-term growth prospects.

In 2016, there were an estimated 52,000 trades with 83% in the $1 million to $10 million private client segment. Even in this growing market, the size and fragmentation of the marketplace provides ample room for additional share gains for our Company. As with other market transitions throughout our 46 year history, our priority is to increase our client outreach and help them formulate and execute the best strategy.

We are also focused on expansion and strategic metros, additional hiring advancing our training programs, and updating our sales force deployment for better market coverage. We continue to invest in the right platform improvements while effectively managing other costs. We are confident that MMI's platform and brand will continue to gain market share in an evolving commercial real estate transaction environment and look forward to keeping you updated on our progress throughout 2017.

I will now turn the call over to Marty to discuss our results in more detail. Marty?

Thanks, Hessam. I will be discussing our fourth quarter 2016 and year-end results in greater detail. Total revenues in the fourth quarter were $189 million compared to $203 million in the prior year. As Hessam mentioned earlier, this was against an outside fourth quarter of 2015 comparison where we saw revenues increased 18%.

The decrease during this quarter was due to a decline in all of our market segments on a year-over-year basis with the exception of our larger transaction real estate brokerage business which saw 15% growth. Total revenues for 2016 grew 4.1% to $718 million, primarily driven by increases in our real estate brokerage commissions which comprised 92% of our revenues or $662 million for the year.

Driving our revenue growth was the increase in average transaction size, average commissions per transaction, and the number of executed deals. Our agents executed nearly 6,500 brokerage transactions for the year compared to just over 6,300 during 2015 for an increase of approximately 2.3%. We ended the year with a total of 1,737 professionals for a net addition of 130.

Overall, we executed 2,309 transactions for the fourth quarter of 2016, down 6.1% from the prior year. Total transactions for the year increased 3.2% for 2016 despite an overall declining transaction market. This improvement came on top of 2015's strong growth in transaction of nearly 14% which we have emphasized as a tough comparison.

Sales volume for the full-year increased by 11.8% to $42.3 million. Revenue from financing fees generated by NMCC see grew by 1.2% to $12.7 million for the quarter and by 2.1% to $43.4 million for the year and accounting for approximately 7% of total revenues.

NMCC's revenues during the fourth quarter was particular challenged by the drop in affordable and tax credit multifamily transactions. Other revenues which is comprised primarily of consulting and advisory fees along with referral fees from other real estate brokers was down both during the quarter and for the full-year by approximately 15%. Note that this revenue stream only contributes 2% towards the Company's total revenue.

Total operating expenses were $161 million for the quarter compared to $169 million for 2015, for a reduction of 4.7%. The lower cost in the fourth quarter was primarily due to a 6.2% decline in cost of services as a result of lower revenues on a year-over-year basis. As a reminder, cost of services as primary variable commissions paid to the Company's investment sales professionals and compensation related to financing activities.

Cost of services during the fourth quarter as a percent of total revenues rose by 50 basis points to 64.3% compared to last year. The increase was primarily due to the proportion of larger transactions closed by our more senior agents who are typically compensated at higher commission rates.

SG&A for the quarter decreased to $38.4 million compared to $38.6 million for the same period last year. The decreases was primarily due to lower Management performance-based compensation offset by increased investments towards improving our infrastructure platform and our agents' business development. To expand on this, a large portion of our investments went towards improving and expanding our offices in key strategic markets which we have identified as having opportunities for growth.

Rather than opening up new offices, we believe the most effective way to increase shares to strategically deploy additional agents into these key markets that have existing MMI offices. As such leases in these locations such as Manhattan, Palo Alto, San Diego, Newport Beach, Atlanta, Denver, just to name a few were renewed with expanded footprints. These larger offices which were designed to promote collaboration, communication and workplace productivity have all been well received by our sales professionals, clients, and employees.

In addition to strategic office expansions we also focused our investments towards replacement of proprietary information systems with web-based mobile technology with new and improved institutional quality output for our clients while improving the efficiency for our agents. Marcus & Millichap research products and services were also enhanced to keep us as the leading source of market intelligence for our clients. While these investments are pressuring our margins, these initiatives support our long-term growth and have been very well received internally and by our clients.

On a full-year basis, total operating expenses which include cost of services, SG&A and to a lesser extent depreciation and amortization increased 6.4% ending the year at $611 million compared to $574 million in 2015. This increase is consistent with what we have messaged throughout the year. For the quarter, net income was $17.2 million compared to $19.9 million in 2015 and for the year net income decreased by approximately 2.6% to $64.6 million.

Adjusted EBITDA was $31.3 million during the quarter compared to $35.2 million in 2015. For the year adjusted EBITDA decreased by 4.7% to $118 million. Our adjusted EBITDA margin of 16.5% for the year reflects both topline as well as expense pressures and overall slowing transaction market throughout the year.

Based on the current market conditions, our margins will continue to be pressured during 2017. However, we believe expense leveraging will take place starting in late 2017 and 2018.

From a balance sheet perspective, Marcus & Millichap continues to be well positioned to grow its business organically and to pursue selected acquisitions. Our liquidity levels are very healthy, ending the year with cash and cash equivalents and core cash investments of approximately $261 million.

The senior Management team continues to explore avenues for external growth as well as returning capital alternatives given our liquidity levels and our continued strong cash flow generation. However, as we have said in the past our strong balance sheet affords us tremendous flexibility and advantage as we look for strategic opportunities to increase shareholder value.

Before closing, I would like to point out a number of key items and highlights which may have an impact on our 2017 results. First, the first quarter of 2017 will face another challenging comparison given brokerage revenue growth of nearly 15% in the first quarter of 2016. In addition, expenses for the first quarter are typically higher due to our agent awards and recognition program based on their prior year performance.

Second, the strategic initiatives that we outlined in 2016 will continue in 2017 given their importance to our long-term growth. Third, in recent quarters we have made significant inroads in penetrating the larger transaction market which tend to have high variability from quarter to quarter. And lastly in comparison to the first few months of 2016, we are facing a more challenging market environment with slowing sales.

I would like to now open up the call for Q&A. Operator?

Okay. Thank you.

(Operator Instructions).

Brad Burke, Goldman Sachs.

Hey, good afternoon, guys. So I wanted to ask about the pressure they saw the fourth quarter. Do have a sense of how much of that was related to the spike we saw in interest rates versus policy uncertainty? Because it is unlikely we're going to see interest rate spike everything quarter? My guess is that we will see policy uncertainty remain for some time.

Brad, good afternoon. I agree with your assessment. The interest rate spike really did have an effect on transactions that were underway. But at the same time, the added headwinds of the uncertainty relating policies and so on is pretty serious.

We are hearing from our clients that are really waiting to hear more direction and more clarity on what all of those things could mean to the economy and to real estate. So for the fourth quarter, I agree with your assessment. But on an ongoing basis, we're still feeling quite a bit of a headwind from that uncertainty.

Is the reason that the private client segment is more dramatically impacted I saw the press release that higher debt ratios are a factor but are there any reasons your see more strength in the larger transactions segment?

Well, we really saw kind of an unusual complement of factors affecting the private client in the fourth quarter, and that was the fact that interest rates had been extremely low for an extended period of time, cap rates were at a record low, and when you talk about the lower price prices, top $10 million of course, especially the top $5 million, a 75-basis point movement in the interest rate has a profound effect with loan-to-value's in the 65% to 75% range.

And remember the private client is affected with the personal wealth decisions and very direct investment decisions that affect their personal finances. On the institutional side of course, interest rates matter, yields matter. They have hurdles that they have to hit, as well.

But when you look at the typical $20 million, $30 million and above transactions on the institutional side, those have longer values of 50% to 60% and are less immediate interest rate sensitive in terms of a go, no go investment decision and effect on pricing.

Okay. I appreciate that. And last one for me, Marty, you touched on the balance sheet. It looks like you have almost $300 million of cash and marketable securities, so just how you are thinking about the magnitude that you need to maintain for cash and marketable securities, just given the nature of your business? And can you help us think about your timing on potentially either deploying that capital for external growth or returning capital shareholders?

Hello, Brad. Sure. We're constantly evaluating our cash balances, but the thing is that we are looking at a couple of things. One, the current operations, capital needs for the operations, but also evaluating opportunistic acquisitions, who are actively looking at various scenarios. But we do understand the level of our cash balances and continue to address it with our Board.

Thank you very much.

Thanks, Brad.

Thank you. Mitch Germain, JMP Group.

Second good afternoon, everyone. So Hessam, you talked about the challenging backdrop in Q4. And I am assuming a lot of your brokers are spending a lot of time keeping deals alive, right? So how much did that impact your forward pipeline?

Good afternoon, Mitch. It affected our forward pipeline quite a bit in that the time and energy it took to basically redo transactions that have already quote, been done already, and have to bring the parties back together to several minor renegotiations in many cases we requalifying for the financing, keeping the lender at the table, keeping the buyer and seller at the table. It was an unexpended and amount of time and energy into transactions that were pretty much underway anyway.

So it had a pretty important effect on their productivity on new business development.

Got you. And then I know that, Marty, you've said in the past that business is becoming a little less seasonal. But how should we consider seasonality playing out?

I think what you need to do is listen back to what Hessam said in regards to where the market is. Preliminary estimates is that going into Q1 we are seeing a 15% negative decrease in the market and our goal is always to slightly beat the market and gain share. So that is one way to look at us.

And then as well as I said in the past in terms of seasonality the first quarter, it typically ranges between 17% to 20% of the total year is probably going to be in kind of the middle of that if not a little bit better. So that is kind of how you can see how the year plays out.

And I am curious about your hiring 130, I think is the number you guys gave, how much of that breakdown between experienced and entry-level?

So I will jump in on that one, Mitch. About roughly 30%, 25% to 30% of that hiring was experienced professionals that have had real estate experience, and really the key factor for us is that the market adjustments in the past. What is really a point for us is the continuing focus on the broader market opportunity.

I cited some statistics with 52,000 transactions last year, 83% in that core $1 million to $10 million business. Looking beyond the current adjustment that is going on in the market place and headwinds that we have talked about, we do believe that gaining more share and positioning the Company for ongoing growth is very important.

So we are not overreacting to what we're seeing in the market place at this point by slowing hiring down, including the experienced agent hiring. That has been a very point strategy for the past couple of years and we are continuing to focus on it.

Is the experience hiring reflective in how we should be thinking about cost of services, I.e. experienced people, higher payouts, so your cost of services will get a little less leverage going forward?

Maybe to a very minor extent. Number one in general, number two, remember that most of our focus is the vast majority of her experience hiring focus is not on top level teams that require really a classic acquisition. They are mid-tier professionals that join because of the benefits of our platform.

Therefore even though they do have a little bit higher splits because they are experienced level, they are not really being acquired per say. And in those cases where we do have an acquisition formula in place, those are very much tied to performance hurdles and revenue growth threshold and so on. So we are continuing to take a very conservative stance at the cost of growth.

Got you. I know Peter has got one more for us. Thanks.

Hello guys. Just one for me, just given the focus on the technology upgrades and accounting for these increased cost from the growing footprint, the research investment, how should we view G&A going into 2017? Or continuing through? Thanks.

Yes. In terms of SG&A, typically Q1 tends to be 10% higher than Q4 because some of these award recognition program that we have. So typically Q1 going into Q1 is 10% higher compared to Q4 and for the rest of the year we estimate SG&A in totally going to be in the $180 million to $185 million range. And typically for the remaining three quarters, they are all pretty much consistent with each other.

Great. Thanks so much.

Thank you. Josh Lamers, William Blair.

Thanks. Good afternoon, gentlemen.

Hello, Josh.

A couple of broad-based questions here. Turning first to an MMCC looking out the last couple of years it looks as though the percentage of transactions there as a percent of overall transactions for the Company has been rather stagnant.

Just wondering if looking ahead to 2017, 2018 given some of the comments about focusing effort on that and growing MMCC, if we should expect a percentage of finance transactions to be about in line with what it has been historically with brokerage transactions, or whether you should start to see an increase.

Great question. Looking backwards first, the key focus for us over the past couple of years for MMCC was to really improve the quality of the professionals, the infrastructure of MMCC and so the focus was really on internal improvements. And the business unit has been going very nicely, but pretty much along the same pace as our overall business.

In 2017 and beyond, we are looking to accelerate that. It is not going to happen overnight. But there are two or three different initiatives going on that are very point related to MMCC. First of all it's our focus on more experienced people. We have made a dramatic shift in the training of more experienced people just in the last - really in the last 12 months.

And that has not quite shown up in the numbers yet, and it probably will not until later in 2017 going into 2018, just because of the transition that it takes. And it is more focus going forward in our hiring.

The second thing is that from a service offering perspective, the correspondent relationships that I described earlier, ReadyCap on the small loan balance program, the Prudential relationship on the middle market in larger transactions, those are the kind of strategic moves that we're executing to basically expand our service offerings. And so the broadening of the model, the broadening of the tools that are available to our originators, and the way that we can integrate better with our investment sales people is something that is fairly new, and therefore going forward we would expect better results in terms of the growth rate then you look back over the last two years.

Okay. Thank you. And maybe just as a follow-on to that, what are maybe some of the primary reasons that someone selling or buying a property would not utilize the services of the capital core?

Well, there is really no reason that they would not, other than the fact that a lot of our clients historically have had relationships with other mortgage brokers. Those relationships tend to be long-term and they are rather difficult to dislodge. A lot of our clients have their go-to person.

But over time, as our investment sales team begins to introduce their MMCC partner in the same office, and as a partner becomes more experienced, more qualified and has a bigger book of business, which creates more confidence, these inter-office relationships are becoming more and more integrated. And that is really the way that we have positioned MMCC internally.

Externally, we are marketing MMCC as a competitive intermediary for the best financing to the market place. So they are focused also in developing business directly and on their own with their own marketing is also enhancing or basically improving. And so it just goes back to that relationship with both the borrower and in-house with our investment sales team.

Thanks. That is really helpful. Just one last quick one for me based on the market share comments at the beginning of the press release: any thoughts on where you would like, or where you hope to see market share go within the coming years?

Well, we have outlined market share growth by product type over the last couple of years and our overall 8.3% share in the $1 million to $10 million marketplace is nowhere near saturation. Just to give you an example which I've shared in the past, the apartment front, which is, was our largest business segment, our national market share is roughly 13%.

Our top 10 offices have an average market share of 25%. So looking at what is being accomplished by our leading offices, we are using the benchmark to basically inspire and execute a market share growth expansion plan for all of our offices. So the potential to get up to 20%, 25% market share in apartments alone has already been proven.

And that is where we are basically moving the Company. By property type. But I will say as it went I emphasize this, market share does not happen overnight. You have to hire the right people. You have to train them. You have to deploy them to the right components of the submarket in each Metro.

So it is a gradual process. We made tremendous progress in market share over the last couple of years. But it is gradual. And I just want to emphasize that.

All right. Thank you. Very helpful.

Thanks, Josh.

Thank you.

(Operator Instructions).

Peter Christiansen, Citigroup.

Thank you, gentlemen. Glad to be part of the mix. First question, given the current environment, should we think that you still need headcount growth to meet, to continue market share gains, or is there some element of attrition by your competitors?

Hello, Peter. Well, if we were to only react to the current market environment, the real immediate, let's say, next 3 to 6 month we would be making a mistake. And I am very passionate about the fact that there is -- the market that we operate in is so vast and so fragmented. As I shared before, the top 10 brokers, including ourselves have a 24% market share in a market that accounts for 83% of 52,000 transactions. It is a significant market opportunity for us.

So yes, there is no doubt that what we are experience in right now is very challenging, the headwinds are serious. But we have seen market adjustments before. We have seen market recalibration before. We have seen the classic price expectation taking time on the seller side, and the buyer expectation to basically have to adjust based on the fact that the market is still very healthy.

All of these classic things that we have experienced over 46 years are at play now, and they can't really deter us from pursuing the broader market opportunity. So yes, we could gain more market share with the current sales force that we have.

They are very capable, we're training more and more of them. But on top of that if we do not add in a diversified fashion so that we do not over saturate a particular market with too many professionals in one product type, and really pursue the expansion opportunities and let's say the office market, multi tenant retail, and many markets where our apartment sales force could still grow, if we do not do those things, then we will fall behind. And we're not going to do that. And that is why we are seeing a very committed to our hiring goal.

Thanks. That is helpful. As it relates to the toughness that we saw in Q4, I am assuming that some deals fell through.

Of some of those was it more because of failure to requalify under the financing, or is it more related to issues with the terms of the investment? Can you just give us a sense characterization of why some deals sell through?

Sure. On the lending site, lenders are very much at the table. And they are very, very competitive. They do want to put capital to work. But when you have the 75 basis point movement in interest rates that we talked about, the way an appraiser or lender is going to view the adjusted value versus -- and require more proceeds more equity from a buyer -- versus the seller's expectation on having to adjust that price, or the buyers expectation of having to step up, is where the gap basically occurred.

And in this market environment where we are not in a recession, contrary to that the economy is actually growing. We're still adding jobs at a very nice pace. Occupancies are healthy, cash flows are healthy. So the overall, if you will, distress in the market is nonexistent. The sellers that we found unwilling to make the price adjustment basically couldn't come to terms of the fact that a discount was necessary in order to make the deal happen.

A lot of deals have been priced to perfection, so there was not a lot of margin if any in many of these transactions. Remember the cap rates have been at a historical low, and so there has not because of the fact that there is no discretion in the marketplace, there was not the willingness to discount the assets.

Now because of the fact that conditions are changing because of the fact that interest rates are going up, I go back to my comments about the classic adjustment both in terms of the seller's expectations on pricing of the psychology that goes with that and the buyer's expectations. These things just have to have time to basically come together, and more data points, and that's why the uncertainly related to tax reform is a significant factor right now.

I guess relating to that, the assumption is that we should get some more clarity some point late Spring and then I guess into the early Fall. Do think that those on the sideline have a timeline around getting that clarity and is there a potential that if something were to slip that they would still go forward, or are they is it there isn't much of a countdown on their and?

Peter, it is very dangerous to speculate at about level like this, and we are talking about very general trends. There are so many nuances in every person's decision-making and every asset and its performance. I cannot really make a general statement to that.

Okay. Well, thank you.

Thank you, Peter.

Thank you. Jake Romani, KBW.

Thanks for taking the question. Just wondering if you give a bit more color on the difference in growth rate you saw between the large deal size and your other business lines or channels?

Do you think that deal timeline -- presumably it takes longer to close a large transaction -- do you think that played into a factor, and in the first quarter do you expect the large transaction group to more closely resemble the pace of volume that you're seeing in the private client group and the other channels? Thank you.

Sure. Your comment is accurate that the deal timeline did play a role and where the larger deals closing in the fourth quarter, plus the fact that as I mentioned earlier the effect of the interest rate spike was much more minimal on the larger transactions.

I do not want to underplay the fact that interest rates increasing affects all client categories from the largest institutions to the smallest private clients. It clearly does.

But when you look at loan-to-value ratios of 50% to 60%, it is just not as profound on a $3 million or $4 million transaction that makes up the bread and butter of the Company's core business. So there were some differences there.

I cannot give you guidance on the first quarter. But I will tell you that if you look at the last couple of years, growth rate that we have achieved through various initiatives, whether it is expansion of our IPA division that is focused more on institutional investors and major private investors and experienced senior-level Markus & Millichap agents doing larger transactions, the growth rates in the last couple of years have been exceptional.

And it would be unwise to expect those kinds of break-neck paces to continue going forward. It is part of our growth plan. We are very committed to making sure that our larger account segment continues to grow. It is very important for our attention from a career development of our agent and client retention.

I do want to emphasize that a lot of our private clients now look to consolidate smaller assets in their portfolio into one or two larger assets and that gives us a very import competitive advantage in bringing the private capital buyer to our institutional client. So it is an important part of our strategy. But as the growth rates of the past especially several quarters have been quite exceptional.

And just a follow-up, you disclosed that dollar volume is about 34%. Is the multifamily sector -- does the other segment, which is about 16%, does that include condo? Thanks for taking the questions.

I am sorry. I could not hear does that include what?

Condos. Condo buildings. Condo developments.

I see. We do not sell individual condos. That is not part of our specialty. And so all of our multifamily market rate investments are basically rental property.

Okay. Thanks very much.

Thank you.

Thank you. There are no further questions in queue at this time. I would like to turn the conference back over to management for closing remarks.

Thank you operator and thank you for joining our call. We appreciate your attendance and the great questions that were asked and we look forward to having you on our first-quarter 2017 call. Thank you very much.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.