Thank you, Jacques. Good morning, and welcome to our fourth quarter and year end 2025 earnings call. I am pleased to report MMI’s continued recovery from one of the most complex and prolonged market disruptions on record with 2025 revenue growth of 8.5% and adjusted EBITDA improving to $25,000,000 compared to $9,000,000 in 2024. The fourth quarter particularly showed the strength of our resolve and execution as we set out to beat the exceptional 2024 fourth quarter which had been propelled by a significant drop in interest rates. Despite entering 2025 without the benefit of lower interest rates, I am proud to report that we beat the tough comp by 2% on the top line and significantly improved profitability.
We drove these results through elevated client outreach, tapping our extended lender network, and taking advantage of key market improvements despite the absence of lower interest rates. A larger than expected resurrection and closing of deals that had been delayed or canceled early in the quarter and a lift in urgency among our private clients deciding to take advantage of bonus depreciation by year end were key factors in the late stage rally. Although the bonus depreciation provision of the new tax law does not phase out, its advantage became a stronger motivating factor in getting deals closed in the final period of the year.
I am also pleased to report that 2025 marked the strongest growth in our salesforce in seven years with nearly 100 net additions of brokerage and financing professionals. Various initiatives to combat the unusual pandemic and post-pandemic forces that had elevated our new agent dropout rate culminated in this critical return to growth. The additions include a steady cadre of experienced individuals and teams that continue to choose MMI as the ideal platform for taking their career to the next level. We are very encouraged by last year’s hiring results and a strong candidate pipeline going into 2026. Throughout 2025, we maintained our market leadership position by transaction count, completing nearly 9,000 transactions totaling over $50,000,000,000 in volume.
This translates to more than 35 transactions per business day, reinforcing a consistent expansion of client relationships and enabling our team to move capital across markets and property types. Looking back, three key factors impacted our performance in 2025, all of which also bode well for the outlook in 2026. First, capital markets and investor sentiment improved particularly in the second half of the year after recovering from the initial shock of Liberation Day. Despite a cautious Federal Reserve that lowered rates at a much slower pace than anticipated, lender spreads compressed by 75 to 100 basis points and loan-to-value ratios expanded.
Many lenders have repaired balance sheets, restructured, and/or resolved a large portion of maturities, and have more capacity as transaction volume has picked up. Second, momentum in our private client and middle market segments picked up last year, as prices finally began to adjust and regional banks and credit unions became more active. MMI’s $1 to $20,000,000 transaction count and revenue each grew 12% as we started to reestablish our traditional advantage in these segments. This part of the market not only comprises the vast majority of commercial property stock and transactions, but it is also poised for more activity as a narrowing bid-ask spread releases pent-up supply from sellers who previously were hanging on to assets.
Third, our financing business continues a strong trajectory with revenue up 23% in 2025, after growing 26% in 2024. This solid pace is the result of our expanded cadre of experienced financing professionals and the team’s ability to access over 420 separate lenders last year. Our team of nearly 100 finance professionals is interconnected through our proprietary technology which is integrated with our expansive lender relationships. This tech-enabled combination secures the most optimal financing options available in the marketplace. MMCC and IPA Capital Markets closed over 1,600 transactions for a volume of nearly $12,000,000,000 which includes a $2,300,000,000 portion placed with Fannie Mae and Freddie Mac, primarily through our strategic alliance with M&T Bank.
Agency financing has been one of the fastest growing segments of our business thanks to the talent acquisition and rapidly growing collaboration we have managed to pull off between our finance professionals and our sales teams. The only segment that was off last year was our larger transactions valued at $20,000,000 or more which declined by 13%. This is primarily driven by a tough comparison to 2024 when our institutional segment led the recovery with a 28% revenue increase including an 88% surge in 2024. Institutional apartment sales, which showed strength in 2024, eased as the acute flight to safety limited the buyer pool for lower tier assets and secondary markets.
While our IPA division is well positioned to continue expanding in the institutional arena, some volatility is to be expected as a number of metros grapple with oversupply. The ripple effect of high vacancies, particularly for multifamily in these metros, is leading to a rise in underperforming assets that are not yet priced to clear the market. In summary, we are pleased with the significant improvement in the company’s key metrics; however, we are laser focused on driving further momentum in the pace of recovery and capturing the substantial growth runway ahead of us.
We enter 2026 with greater clarity on the path to achieving this thanks to a largely recalibrated marketplace and our unwavering conviction in our client value proposition. Building on that strengthening position, we remain disciplined in our approach to strategic investments while maintaining prudent cost controls. The investments we have made over the past several years in talent retention and acquisition, technology, infrastructure, and branding are beginning to show leverage as the revenue tide turns. As I have mentioned on previous calls, the expensing of capital investments has been an outsized drag on earnings since the start of the market disruption in 2023, given the hampered revenue production of the past few years.
As market conditions and broker productivity improve, so will the production level of the talent pools we have retained and added to over the past several years. As a critical part of our technology strategy to leverage AI and drive efficiency, the company’s centralized back office and marketing center called Brokerage Transaction Services, or BTS, is intensifying its reliance on third-party services at a lower cost while we also begin to leverage various AI applications to our benefit. These efforts are concentrated in financial analysis, document generation, underwriting, and lead scoring. All of these efforts are showing promising results but need significant advancement in the AI capacity and the use of historical data mining for accuracy and scalability.
Hessam Nadji: We expect and fully embrace the opportunity that AI has opened for massive efficiency in virtually all aspects of property analysis, underwriting, client targeting, and outreach. An era of higher throughput at a much lower cost is emerging, and our goal is to lead this tremendous productivity gain over time. However, we do not expect AI to disintermediate the function of a value-added broker given the expertise, building-by-building nuances, and buyer-seller relationships that ultimately drive the commercial real estate industry. In our view, the broker of the future will be armed with an array of additional analytics, with more efficiency in a way that will help clients create value.
At the same time, value-added offerings such as our auction services and loan sales division continue to gain traction, generating direct incremental revenue and increasing sales and financing opportunities through collaboration with our sales force. Looking ahead, we enter 2026 with greater optimism driven by several positive market fundamentals. Interest rates, while still elevated, have stabilized, which provides a more predictable valuation benchmark. Simply stated, values have to adjust to the new normal in the cost of debt, and they are doing so. The price corrections over the past three years combined with a major pullback in new construction are creating compelling investment opportunities, especially on a replacement cost basis.
Cap rates are up 85 to 110 basis points on average since 2022, and prices are down roughly 20% on average. This, combined with lower all-in interest rates driven largely by lower lender spreads, should further bolster investor demand and capital flows in 2026. Despite expectations of a more accommodative Federal Reserve, inflation pressures and trade-related variables would likely limit the Fed’s ability to significantly lower rates. While the labor market is slowing faster than expected, the incoming Fed chair will most likely face the same obstacles to lowering rates. Nevertheless, we expect last year’s transaction market improvements to continue as time narrows the bid-ask spread and facilitates the sale of many delayed trades.
2026 is a milestone year for all of us at MMI as we celebrate the company’s 55-year anniversary. Many aspects of the company’s culture that retain and attract the best of the best in brokerage, financing, management, and support functions find their cornerstones in the company’s founding principles that still drive us today. These include bringing efficiency and value, liquidity, and certainty to an otherwise fragmented market, measuring our success by our clients’ results, and creating long-term and rewarding careers for all team members at Marcus & Millichap, Inc. As we mark this important milestone, all eyes are on the future and our quest to lead in an ever-changing industry.
Our multi-pronged growth strategy includes expanding our leadership in the private client market, further penetrating the institutional segment through IPA, and accelerating the scaling of our financing, auction, loan sales, and client advisory services. Given our disciplined approach to acquisitions, recent attempts to acquire additional financing boutiques, appraisal and valuation firms, and complementary adjunct businesses such as investment management and cost segregation have not yet come to fruition. However, they will in time as the company is committed to providing an array of additional services that align with our dominance in investment brokerage and finance. Our ultimate goal is to enhance our offerings to a client base we have come to know extremely well throughout the years.
Powering this vision is MMI’s stellar balance sheet with nearly $400,000,000 in cash, reinforcing our ample purchasing power for strategic acquisitions, which we continue to pursue. Most recently, we have engaged in multiple large-scale explorations that would enable us to expand our financing business more rapidly. We are proud to have balanced strong liquidity and purchasing power with a consistent return of capital to shareholders, with $47,000,000 provided in dividends and share repurchases executed in 2025. As we look to the future, we are excited about a new real estate cycle and the vast opportunities ahead for expanding our market presence and revenue diversification to enhance long-term value. I will now turn the call over to Steven F.
DeGennaro for more details on our results. Steve?
Steven F. DeGennaro: Thank you, Hessam. Total revenue for the fourth quarter was $244,000,000, an increase of 2% compared to $240,000,000 for the same period in the prior year. As Hessam mentioned, year-over-year comparisons in Q4 are against an exceptionally strong fourth quarter last year. For the full year, total revenue was $755,000,000, up 8.5% compared to $696,000,000 last year. Breaking down revenue by segment, real estate brokerage commissions for the fourth quarter were $205,000,000, moderately exceeding last year’s tough comp and accounting for 84% of quarterly revenue. We completed 1,902 brokerage transactions with a total volume of $11,800,000,000 for the quarter.
While transaction dollar volume was lower by 4%, transaction deal count was up by more than 9% over last year, and the average commission rate was 1.7%. The relative increase in private client transactions contributed to a 7% decrease in the average fee per transaction given the higher mix of smaller deals. For the full year 2025, revenue from real estate brokerage commissions was $633,000,000 compared to $590,000,000 last year, an increase of 7%. We completed a total of 6,038 brokerage transactions, up 11%, with total volume of $35,000,000,000, up 3.5% compared to prior year. For the year, average transaction size was $5,800,000 compared to $6,200,000 in the prior year, reflecting the pickup in private client activity.
Within brokerage for the quarter, our core private client business accounted for 65% of brokerage revenue, or $133,000,000, up from 59% and $120,000,000 in the same period last year. Private client transactions grew 13% in volume and 10% in transaction count. For the full year, private client contributed 64% of brokerage revenue, or $406,000,000, versus 62% and $366,000,000, an 11% increase in revenue year over year. For the fourth quarter, middle market and larger transaction segments together accounted for 31% of brokerage revenue at $65,000,000 compared to 38% and $77,000,000 last year.
The year-over-year change in revenue is attributed to a decline in transactions and dollar volume in these segments of 8%–14%, respectively, and is largely a result of fewer large transactions. Large transactions significantly outpaced the market last year, creating a very tough year-on-year comp. For the full year, middle market and larger transaction segments combined represented 32% of brokerage revenue, or $200,000,000, compared to 34% and $203,000,000 last year. Revenue from our financing business was $33,000,000 during the fourth quarter, up 6% year over year from $31,000,000 last year. The growth reflects an 8% increase in transaction volume totaling $3,700,000,000 across 507 financing transactions, which was a 19% increase year over year.
The average origination fee was down nominally due to an increase in larger deals closed in the quarter. For the full year, financing revenue was $104,000,000, a 23% increase compared to last year. This growth was driven by a 33% rise in transaction count totaling $11,900,000,000 in volume, a notable increase of 31% year over year. Our overall performance reflects the continued momentum and progress in scaling of our finance platform and success in recruiting talented producers over the past several years. Other revenue, primarily from leasing, consulting, and advisory fees, was $5,000,000 in the fourth quarter, compared to $6,000,000 in the same period last year.
For the full year, other revenue totaled $19,000,000 compared to $22,000,000 in the prior year. Turning now to expenses. Total operating expenses for the fourth quarter were $229,000,000, a 2% decrease from last year on higher revenue, demonstrating our continued focus on operational efficiency. For the full year, operating expenses were $769,000,000, up 5.5% over 2024 though lower than our revenue growth rate of 8.5%. Cost of services for the quarter was $155,000,000, or 63.3% of revenue, compared to 63.2% last year. For the full year, cost of services totaled $470,000,000, or 62.3% of revenue, up slightly from 62% last year.
SG&A expense for the quarter was $71,000,000, or 29% of revenue, compared to $76,000,000 in the same period last year, a decline of 7%. For the full year, SG&A totaled $286,000,000, or 38% of revenue, an improvement compared to 40% of revenue in the prior year. Our ongoing expense discipline is aimed at enhancing operating efficiency and leverage and improving profitability. For the fourth quarter, net income was $13,000,000, or $0.34 earnings per share. This compares to net income of $8,500,000, or $0.22 per share in the prior year, a significant EPS improvement of 55% year over year.
For the full year, net loss was $1,900,000, or $0.05 per share, which, as a reminder, includes a $0.08 per share charge for a legal reserve we took in the third quarter. This compares to a net loss of $12,400,000, or $0.32 per share in the prior year. The improvement in operating results in the year marks a meaningful inflection point signaling renewed momentum across the business. Regarding the legal matter we disclosed with Q3 earnings, there is no material update to report. We remain fully committed to pursuing relief through the appeal process. Adjusted EBITDA for the fourth quarter was $25,000,000, up 39% compared to $18,000,000 in the same period last year.
Full year adjusted EBITDA was $25,000,000 compared to $9,000,000 in the prior year. Adjusted EBITDA for the full year would have been $8,000,000 higher if not for the legal reserve recorded in the third quarter, which highlights 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 $398,000,000 in cash, cash equivalents, and marketable securities, a $17,000,000 increase over last quarter. The growth in cash was achieved while also returning $29,000,000 to shareholders during the quarter through a $10,000,000 dividend paid in October and $19,000,000 share repurchases, underscoring the strength of our cash generation as well as our disciplined capital allocation approach.
Earlier this week, we announced that our Board declared a semi-annual dividend of $0.25 per share, or approximately $10,000,000, payable on 04/03/2026, to shareholders of record on 03/13/2026. During the year, we repurchased shares totaling $27,000,000 at a weighted average price of $28.77 per share. Since inception of our dividend and share repurchase programs nearly four years ago, we have returned approximately $217,000,000 in capital to shareholders. Looking ahead to 2026, we see several positive catalysts for our business, which Hessam summarized. First quarter revenue is expected to follow the usual seasonality trend and be sequentially lower than Q4.
While we are encouraged by the prospect of continued momentum in the new year, our cautiously optimistic outlook is tempered by ongoing macroeconomic and geopolitical uncertainties that could moderate the pace of transaction activity. Cost of services for the first quarter should follow the annual reset and be in the range of 60% to 61% of revenue. SG&A for the first quarter should reflect an increase year over year in absolute dollars consistent with higher agent support tied to improved revenue performance in 2025 and continued investments in technology and central services to support our sales producers.
As for taxes, the effective tax rate for the quarter and the year is expected to be in the range of 50% to 60%. We remain committed to our balanced capital allocation strategy, which includes investing in technology and talent, pursuing strategic acquisitions, and returning capital to shareholders. Our strong balance sheet provides us with significant flexibility to pursue these objectives while maintaining our competitive position. With that, Operator, we can now open the call for Q&A.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Blaine Matthew Heck with Wells Fargo. Please proceed with your question.
Blaine Matthew Heck: Great, thanks. Good morning. Hessam, as you alluded to, the broker group has been under a lot of pressure this week driven by concerns about AI displacement within the business and impacting the CRE sector more broadly. You talked about some of the changes that you guys have already made. But looking forward, I guess, which segments of your business could be impacted, whether that is certain deal sizes or business units. Do you think your focus on the private client group gives you guys more or less protection from AI disruption?
Hessam Nadji: Good morning, Blaine. Good to have you on the call. I was just on CNBC a few hours ago on this very topic because it is getting a lot of media attention, especially as it has impacted the commercial real estate services segment in the last 48 hours or so. And my view, and I think that of many in the industry, is that AI is here to stay. And there are almost countless ways that AI is going to improve the manual processes that are so labor intensive in our business, whether it is underwriting, data gathering, data parsing, document generation, and really all the production-related components of our business, which is significant.
If you think about the number of times a broker needs an asset analysis, a submarket analysis, a metro analysis, even before first meeting with a client, even before they have really gotten to know the client, the need to be educated in that first interaction itself creates a tremendous amount of labor and we are excited about finding scalable ways for AI to make that process a lot more efficient and a lot less costly, frankly, so that we can reallocate capital to other ways that the company can advance forward and more R&D as well as improving our margins. That is a given. The big question mark is what happens in, you know, the second wave of AI.
I believe right now we are in the first wave of really this initial level of replacing a lot of manual tasks and labor-intensive tasks. The second wave is more interpretive, in my view, and that is where the intelligence that would be expected from AI would start to have a gray area with the expertise and the personal experience and interpretation skill set of a good broker. In commercial real estate, trying to scale that interpretive capability of AI becomes a lot more challenging because the data is disorganized. You have to have micro historical data to feed to the AI.
That is not a cookie cutter across various markets, not a cookie cutter across various asset types, and therefore, the notion that, you know, even in ways that the for-sale housing market, the residential housing market is far easier to commoditize in terms of analyzing or digitizing the valuation models or the buyer-seller matches that you can do for the for-sale housing market are very hard to transfer over in a cookie cutter fashion to commercial real estate.
And one commentary I made on CNBC when I was on it a few hours ago is that you can build the exact same asset, exact same size, features, and characteristics and open for business on the exact same day across the street from each other, and 10 years later, from an investment perspective, those could be entirely different cap rates, entirely different NOIs, based on the way that they are managed, the capital improvements, and so on. So that is where the complexity of just how much interpretive power can be extracted from AI given its reliance on accurate data and the learning that the algorithms would have to do.
To answer your question, I do believe that the notion of fee pressure because of the commoditization of the data is going to be out there for a while. I think every disruption that we can think of in the last 20 years which initially was perceived to threaten intermediary value-add work and brokerage value-add work has actually helped the brokerage business. Think about it. This is deja vu for me, being in the thick of the inception of the Internet and Marcus & Millichap, Inc. really being on the forefront of embracing the Internet and embracing electronic portals because we thought it would actually enhance our value proposition and not destroy it.
We were one of the founding investors in LoopNet in the late 1990s, for example. So this goes back a while for us. And we take it very seriously from the standpoint of evaluating the threat to our value proposition and at the same time really focusing on the ways we can take advantage of it. You could argue, Blaine, that a single-tenant net lease that is far easier to underwrite—people say that—but even single-tenant net lease requires really good underwriting. By the way, you have to go look at the real estate.
It is not really a bond, but closer to a bond than, let us say, a shopping center or an office building or even a multifamily rental building. And those easier-to-underwrite and more homogenous assets could get further down the road of being impacted by AI and requiring less of the broker touch. However, I go back to, and this is another thing we discussed on air hours ago, I go back to the relationship component, the due diligence component, and the art of keeping the buyer, the seller, and the lender into a deal from a psychological perspective.
The art of managing the vendors that are on the critical path of removing contingencies or due diligence, I do not think robots are going to go around and do that anytime soon. So I really believe that we are headed for the next generation of reinventing the broker as we went through in the early 2000s because of the Internet and because of digitization of information availability. But I think it is going to make us better, and it is going to make the industry more selective and focus on the talent of the individual in their interpretive and people skills rather than commodity data gathering. Sorry for the long-winded answer, but I am very passionate about this one.
Blaine Matthew Heck: No, that is very helpful for perspective and well said. Shifting gears, you guys had very strong growth in broker count this quarter. I guess a few questions around that. First, was this something that you had visibility into given your recruitment efforts? Were you expecting that level of growth this quarter? Or was there something that drove a surprise to the upside? Second, are there any specific specialties you targeted in that growth? You have been hiring more experienced brokers that can handle larger transactions, but I would have expected a larger average deal size this quarter if that was the case.
And then just third, how should we think about your plans to grow headcount as we look forward into 2026?
Hessam Nadji: Very important topic, as you know, and we have messaged multiple times we have been under so much pressure because of the disruption created by the pandemic into our multi-decade tested system and really almost a unique feature of the company in the way that we have been successful in attracting new talent with no experience, training them, supporting them into becoming market leaders, that has driven the company for so long up until 02/2020. And that whole component of our system was badly disrupted because of the pandemic and then the market volatility that ensued, just elevating the dropout rates of the individuals that we hired really from 2020 on.
First, because the market was shut down and the in-person training was not possible. And then because the market had such a huge run and then a big crash. So that volatility makes it very hard to train new people into the business. And we made a concerted effort over the last three years to increase the channels of bringing in talent, qualifying the talent. Not only have we increased the inflow of candidates, we have really upgraded the filtering of those candidates, whether it is campus recruiting, whether it is our internship program that we have more than doubled in size and organized with a very specific curriculum across the country, the expansion of the William A.
Millichap Fellowship Program, all of which have been very successful. We started those three years ago. So it takes time for all these kinds of initiatives to produce tangible results. Everything in the business has a bit of a lag time, which is frustrating but a reality. And we did have visibility to it going into 2025. Senior management felt very strongly that the underpinnings had time to get laid and work, and it was time for us to expect better actual tangible results in 2025. It became a major focus for our local market leaders that run our offices and our division leaders, our chief revenue officers, and all the way to myself.
So we began to build a stronger candidate pool with proper standards of bringing in talent. The experienced talent that joined in 2025 usually would face a bit of a transition from whatever brand they came from. We do not expect them to repeat their three- or four-year or five-year average immediately when they get here. There is normally a six- to nine-month transition time before they rebuild the pipeline with us. So that is probably why you were questioning whether that cadre of the new salesforce additions would have already brought some business with them. I believe that we are going to see some of that in 2026 as a benefit of the experienced folks we hired in 2025.
Going into the new year, we are not letting up on any of the initiatives we put into place in order to produce the results we produced in 2025. Our expectations are very high going into the year just as they were in 2025. And if anything, our systems expansion of our recruiting team, which is under new leadership, are all going to help maintain the momentum.
Operator: Okay. Great.
Blaine Matthew Heck: Very comprehensive. Thank you. Last question. You mentioned continuing to explore strategic transactions. I wanted to see whether you think this latest market disruption and fear over AI displacement might bring about some opportunities for lower cost acquisitions and how you are thinking about the risk-reward of the external growth given the current concerns over disintermediation from AI? Has anything changed with respect to your appetite for add-ons or maybe the profile of those potential expansion opportunities?
Hessam Nadji: Nothing has deterred our strategy for attracting new talent, attracting boutiques, and regional firms that I believe would thrive within the MMI platform. The introduction of AI as more of a business factor enhances that. It does not, in my mind or as part of our strategy, diminish it at all. And I did want to really summarize for all of our shareholders and our analysts the attempts that we have made to diversify the platform going into 2022 and 2023. And those include companies that we looked at in the appraisal and valuation business, cost segregation business, even investment management was explored with a couple of opportunities that had come up.
And the common theme that I have shared before was that going into 2023 and 2024, there was so much near-term uncertainty. And there was some on our part in being able to forecast the first two or three years of a performance of an acquired target. And there was so much reliance in both the valuation and the terms of the target companies on guaranteed value upfront that became the biggest obstacle that we felt very uncomfortable with in some of the deals that we looked at, given the near-term market uncertainty. As that fades, and we really believe it has faded, and as I mentioned and Steve mentioned in his commentary, we are more optimistic about 2026.
As the market gets closer and closer to an operating environment that we would consider fairly normal, our confidence would be higher in that the first few years of an acquisition become somewhat more predictable than 2023, 2024, and 2025 certainly were. And in retrospect, Blaine, I will have to say that the decision to pass on the vast majority of those deals was the right thing to do, knowing what has transpired and, frankly, tracking them and still being in touch and knowing how they fared. So I think we did our job in terms of being diligent with our shareholders’ capital.
But the desire to diversify this platform in a way that is value-add to our existing salesforce and the core customer base we have already gotten so close to is very much there. If anything, it is more energized as the market certainty and clarity returns.
Blaine Matthew Heck: Great. Thanks so much. I will leave it there.
Hessam Nadji: Great talking to you, Blaine.
Operator: Our next question comes from the line of Mitch Germain with Citizens. Please proceed with your question.
Mitch Germain: Yeah. Good morning, guys. Just following up on the M&A question. Is it just market uncertainty? Or has it also been a function of either price or a cultural fit that has prevented some of these transactions from getting over the finish line?
Hessam Nadji: Hi, Mitch. I will take that one. Steve could add some comments as well. Really, all three. Culture has been the least problematic because we already do a lot of due diligence upfront as to who we want to approach that we feel is like-minded and would have compatible cultures. We really have not gotten too far down the road with a lot of targets that did not have a good culture. There is only one I can think of a meaningful size where we had to get to know them and get to know their culture, and that became in and of itself, as well as a major gap in valuation expectations and then terms, a big hurdle.
We just could not get our heads around, even if you can get the numbers result. But the bid-ask spread has been wide from our standpoint. There are others who are more aggressive and maybe more willing to take risks back in 2023–2024, and we were not, on a case-by-case basis. And then, as I mentioned, the gap in terms of guaranteed value versus earn-out. We are very focused on bringing on talent that wants to be a part of MMI for at least seven to ten years or longer. And we are not really looking to become somebody’s retirement plan.
And what we face is a big challenge, Mitch, I think you are very familiar with this based on our previous conversations, is that the vast majority of our targets are boutiques and regional firms that have one or two founders that started a brokerage group or a team that became somewhat of a company. And those founders, having had some decades behind them, are not really the revenue producers in most of the cases. And their current revenue producers would not participate in an acquisition from a capital event perspective. It is like, what are you really paying for?
And in our fragmented core business, the pool of targets of any size that have a diverse revenue—kind of a, you know, stream, sources of revenue stream—are fairly rare to find. That is why our experienced producer recruiting has been much more successful. But, again, we have organized ourselves in a way where we are targeting specific spaces, specific companies, and specific groups, whether it falls under experienced professional recruiting or a quasi acquisition. Steve, anything?
Steven F. DeGennaro: Super helpful. Yeah. Mitch, that is exactly where I was gonna go. The guarantee and not wanting to be, you know, a founder’s retirement plan, that is certainly a very real factor in the brokerage business, perhaps a little bit less so in some of these adjacent spaces, but still it is a strong consideration that has kept us from consummating a handful of these deals.
Mitch Germain: Thank you. Are you able to—have you been able to increase your cross-sell from your financing division into your brokerage? You know, where does that stand today?
Hessam Nadji: Yes. That is a definite yes. The best example is in our IPA Capital Markets segment, where we brought in a very experienced finance professional, teamed them up with some of our most experienced sales teams. The one case that I can think of right away is our IPA Capital Markets for multifamily, where we brought in the Eisenhower Financial Group in 2022 and paired them up with our top five or seven IPA sales teams across the country. And their collaboration and joint efforts in winning business and serving the clients for both the investment sales component and financing, and then in some cases, refinancing of other properties, has been very successful in a short amount of time.
Other examples include another IPA Capital Markets team we brought on board in New York that has collaborated with a number of our investment sales teams. Our loan sales division, Mission Capital, is actively either responding to leads that our sales force uncovers by talking to lenders or the other way around.
And I am also happy to say that within our auction business, the channel that auction has opened both for aging inventory that is not effectively selling through conventional marketing and now can be put on an auction platform—and frankly, our head of auction would say that is too limiting of how the auction channel can be helpful to a seller even in the front end of deciding to market an asset, the right asset, that is—so both of those types of scenarios are now creating cross-selling between auction, loan sales, and our conventional finance division and our sales.
Mitch Germain: Got you. How do you envision 2026 performance with regards to—obviously, the market has been fairly unstable, and it appears that outside of this whole AI noise that has been impacting the share price, the market itself going into 2026, it appears that allocations are increasing, people have accepted a new pricing paradigm. It definitely seems like there is a little bit less volatility. So do you think that will begin to resonate in the financial performance of MMI, particularly in the early part of the year?
It has been a little bit of a, you know, kind of unstable start where you are kind of starting at a deficit in earnings and then in the fourth quarter working your way back up. Do you think that some of those losses are going to begin to narrow now that the environment stabilized a bit?
Hessam Nadji: Here is how I will respond to the question, Mitch. I will say that going into the early stages of 2026 is the best start of a calendar year since 2022. I will definitely say that. Because the factors that you mentioned have all occurred. In the resetting of the prices, the acceptance that a Fed miracle is not around the corner to bring interest rates way back down and basically be the Hail Mary for the pressure on values reversing after the Fed increased rates by 500 basis points. All those kinds of processes that take the market a couple of years to process and recalibrate are for the most part behind us.
That is not to say that 2026 or the current environment is a normal operating environment. We still have a bid-ask spread. We still have very fickle investor sentiment where the cautiousness because of the unexpected events of 2025, i.e., Liberation Day and the tariff effect, the six-week shock to the capital markets that we absorbed last week, has a lot of our clients asking themselves, what is around the corner? What else could happen? And the fact that interest rates have been sticky around the 4% yield on the 10-year Treasury has not been all that constructive.
We really do not see a surge in activity and a big boost in investor sentiment unless the 10-year gets closer to 3.5%. And so expecting it to be range bound around that 4% and expecting this sort of measured incremental improvement in market sentiment and therefore activity is, I think, reasonable for 2026. Certainly not a hockey stick where we can declare the end of uncertainty and announce the beginning of certainty, because there are still just these lingering tentacles of what has happened because of the Fed action, because of the inflation pressure, and still price discovery.
Mitch, there are multiple markets where we are just beginning to see the level of distress—what I will call situational distress, not systemic big portfolios being sold off by lenders at big discounts—but actual individual assets, small portfolios, with situational distress where the property was purchased with very aggressive financing, very aggressive underwriting, and that did not materialize in the near term, and the loan is terming out or a longer-term loan is maturing. Those assets only rescue capital, or they have to be sold at a significantly lower price than they traded last time.
And our team is actively working with countless owners on working out those situations that are not yet translating into immediate transactions but will in the next 12 to 18 months. So it is not a smooth, normalized environment. There is still a lot of troubleshooting. Deals are taking longer. Our marketing timelines have not come in that much. And what we benefited from is just increasing our exclusive inventory through a lot more focus on being out talking to clients and really trying to make a market.
So a lot of the incremental improvement, which we are frustrated with because it should be even better, is coming from the fact that most of it was created by sweat and blood, not so much a hockey stick relief type of a trend in the marketplace.
Steven F. DeGennaro: Yeah, and I will just add, Mitch, that, as we have talked about, there is a certain amount of fixed costs that are embedded into our business model—loan amortization on capital to attract and retain producers—but as the revenue grows, it only really takes even modest revenue growth before you start seeing operating leverage flow down through our financials. That is not a forecast of any sort, but just a reminder that as revenue starts to recover, as the market starts to recover, revenue follows. The impact on our operating income has a pretty solid flow-through.
Operator: Thank you. We have no further questions at this time. Hessam Nadji, I would like to turn the floor back over to you for closing comments.
Hessam Nadji: Thank you, Operator, and thank you, everybody, for participating on our call. Thank you for the questions, Blaine and Mitch. We look forward to seeing a lot of you on the road. This concludes our fourth quarter call, and we look forward to having you on the next earnings call. The call is adjourned.
Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
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Marcus & Millichap MMI Q4 2025 Earnings Transcript was originally published by The Motley Fool
