Executive Summary / Key Takeaways

• Strategic Resilience Amidst Disruption: Marcus & Millichap has demonstrated remarkable resilience through a prolonged market downturn, leveraging a "remain on offense" strategy by making targeted investments in talent, technology, and diversified service lines, positioning it for strong performance in the anticipated commercial real estate (CRE) recovery.
• Technological Edge and Operational Efficiency: MMI is actively integrating AI and advanced analytics into its operations, modernizing production support and client targeting. This technological differentiation aims to enhance sales force productivity, lower costs, and improve deal execution speed, providing a competitive moat against rivals.
• Balanced Growth Across Market Segments: While historically strong in the fragmented private client market, MMI is strategically expanding its presence in larger institutional transactions through its IPA division and growing its financing and ancillary services like auctions and loan sales, diversifying revenue streams and capturing broader market opportunities.
• Fortress Balance Sheet and Shareholder Returns: With no debt and a robust cash position, MMI maintains significant financial flexibility. The company is committed to a balanced capital allocation strategy, returning substantial capital to shareholders through dividends and share repurchases while retaining ample buying power for strategic acquisitions.
• Outlook for Gradual Recovery: Management anticipates a gradual, albeit potentially choppy, market recovery in 2025, driven by price discovery, easing lending conditions, diminishing oversupply risks in key property types, and favorable tax policies. MMI's strategic investments are poised to drive operating leverage and market share gains as transactional activity normalizes.

The Enduring Foundation: MMI's Specialized Approach in a Shifting Landscape

Marcus & Millichap, Inc. ($MMI) stands as a prominent real estate services firm, specializing in commercial real estate investment sales, financing, research, and advisory services across over 80 offices in the United States and Canada. Founded in 1971, MMI's journey to its current public entity status, formalized with its 2013 IPO, has been marked by a consistent focus on serving a diverse client base, from private investors to large institutions. This deep-rooted history has shaped its core strategy: a specialized, client-centric approach that emphasizes local market expertise and robust relationship building.

The commercial real estate industry, a cyclical beast, has recently endured a prolonged period of disruption. Higher and volatile interest rates, tightened underwriting standards, and a persistent bid-ask spread have challenged transaction volumes across the board. Despite these headwinds, MMI has adopted a proactive "remain on offense" strategy, making strategic investments that are now beginning to yield results as the market shows nascent signs of recovery. This approach differentiates MMI from competitors who may have retrenched more significantly, positioning the company to capitalize on pent-up demand and evolving market dynamics.

Technological Moats: AI and Analytics Driving Efficiency

MMI's competitive edge is increasingly sharpened by its commitment to technological differentiation and innovation. The company is actively modernizing its production support through the adoption of artificial intelligence (AI) and centralized resources. This strategic integration aims to lower costs over time while significantly improving the speed and output of its operations. These investments are pivotal in next-generation analytics, back-office production, and the application of AI in client targeting systems.

For instance, MMI's collaboration with Archer, an AI-oriented startup, exemplifies its forward-thinking approach. Archer acts as a data consolidator and platform for modeling net operating incomes (NOI) and property/submarket profiles. This technology is designed to make MMI's underwriting, broker opinions of value, and client probability assessments much more efficient. The tangible benefits are clear: enhanced sales force productivity, more precise market insights, and a streamlined deal execution process. For investors, this technological roadmap translates into a stronger competitive moat, potentially leading to better financial performance through improved margins and a more robust market position in a data-driven industry.

Segment Performance and Strategic Expansion

MMI operates within a single reportable segment, Commercial Real Estate Services, but its revenue streams are diversified across brokerage, financing, and other ancillary services. In the second quarter of 2025, total revenue reached $172.3 million, an 8.8% increase year-over-year. This growth was primarily fueled by a 4.4% rise in real estate brokerage commissions to $141.4 million and an impressive 43.5% surge in financing fees to $26.3 million.

The private client brokerage business, MMI's traditional stronghold, demonstrated significant momentum in Q2 2025, with revenue growing 10.3% and transaction count up 12%. This segment, which contributed 66% of brokerage revenue, benefited from expanded client outreach, improved price discovery, and a gradually improving lending environment for smaller deals. Conversely, revenue from larger transactions ($20 million and above) saw a nearly 12% decline in Q2 2025. This was attributed to a temporary pause by some institutional clients following initial tariff announcements and a tough comparison against MMI's outsized growth in this segment over the past year, which averaged 38% year-over-year growth compared to the overall market's 27.5% (RCA).

MMI's financing arm, Marcus & Millichap Capital Corporation (MMCC), and its Institutional Property Advisors (IPA) Capital Markets Group, have been instrumental in the recent growth. The 43.5% increase in financing fees in Q2 2025 was driven by new additions to the IPA Capital Markets team, their ability to execute larger transactions, and a strengthening integration between financing and investment sales. This is particularly evident in IPA's multifamily teams, which have seen sizable gains in agency debt origination. The company's auction division is also emerging as a new revenue stream, having sold 273 transactions over the past 12 months, capturing 27% of all commercially auctioned assets in the U.S. This complementary business is being aggressively expanded with experienced specialists and sales force education.

Financial Health and Capital Allocation Discipline

MMI maintains a robust financial position, characterized by a fortress balance sheet with no debt and $333 million in cash, cash equivalents, and marketable securities as of June 30, 2025. This strong liquidity provides significant flexibility for strategic investments and shareholder returns.

The company's capital allocation strategy is balanced, encompassing investments in technology, talent, strategic acquisitions, and returning capital to shareholders.

In the six months ended June 30, 2025, MMI repurchased 242,821 shares for $7.4 million at an average cost of $30.47 per share, with $63.6 million remaining under the current authorization. The Board also declared a semi-annual dividend of $0.25 per share on July 31, 2025, payable in October. Over the past three years, MMI has returned a total of $190 million to shareholders through these programs. While the company reported a net loss of $11.0 million in Q2 2025 and $15.5 million for the six months ended June 30, 2025, largely due to strategic investments and a tax methodology change, its Adjusted EBITDA for Q2 2025 was $1.5 million, reflecting underlying operational performance. The change in tax methodology to the discrete method in Q2 2025 resulted in an outsized tax expense of $7.3 million for the quarter, but the effective tax rate for the six months ended June 30, 2025, was 12.5%.

Competitive Landscape: Niche Strength Against Giants

MMI operates in a highly competitive real estate services industry, facing direct competition from global giants like CBRE Group (CBRE), Jones Lang LaSalle (JLL), Cushman & Wakefield (CWK), and Colliers International (CIGI). While these larger firms offer broader service portfolios and extensive global networks, MMI differentiates itself through its specialized focus and client-centric model, particularly in the fragmented private client market. MMI has consistently been the top commercial real estate investment broker in the U.S. by transaction count for over 15 years, closing 7,800 transactions in 2024.

MMI's technological investments, particularly in AI and centralized support, aim to enhance its operational efficiency and client service delivery, allowing it to compete effectively against rivals who may have broader but less specialized tech capabilities. For instance, MMI's focused approach in mid-market deals can offer greater efficiency in client interactions compared to CBRE's global scale. While JLL emphasizes sustainable tech and innovation, MMI's targeted AI applications in underwriting and client targeting provide a distinct advantage in its core segments. MMI's auction division, holding 27% of the U.S. commercial auctioned assets, also carves out a significant niche, demonstrating its ability to innovate and capture market share in specialized areas.

However, MMI's smaller scale compared to its larger, diversified competitors presents a vulnerability, potentially leading to higher operational costs in some areas and limiting its broader market reach. While MMI's revenue growth rates are steady, larger competitors often exhibit stronger profitability margins and efficiency metrics due to their scale and diversified revenue streams. MMI's strategic response involves leveraging its specialized expertise and strong client relationships to foster loyalty and steady growth, while selectively pursuing tuck-in acquisitions and strategic alliances to expand its capabilities without compromising its focused identity.

Outlook and Risks: A Gradual Path to Recovery

Management remains cautiously optimistic for a gradual market recovery, anticipating continued transactional activity improvement in 2025. The "worst of the tariff-driven volatility" is believed to be behind the company, with investor sentiment and capital markets stabilizing. Key tailwinds include the recently passed tax package, which offers favorable provisions like the preservation of 1031 exchanges and 100% bonus depreciation, and a resilient broader economy. A slowdown in the labor market and retail sales could also prompt Federal Reserve rate cuts, further stimulating activity.

MMI is encouraged by improvements in marketing timelines and a record volume of exclusive inventory, signaling a potential increase in sales force productivity, which has been a drag on performance due to pricing uncertainty and extended closing timelines. Construction starts are declining significantly in 2025 and 2026, particularly benefiting multifamily and industrial sectors by reducing oversupply risks. Demand for most property types remains solid, with apartment absorption at a 30-year high and retail occupancies at 15-year best levels.

Despite this positive outlook, significant risks persist. Recession risk remains elevated, and inflation is a top concern, exacerbated by new tariffs and political threats to Federal Reserve independence. Interest rate volatility continues to impact real estate pricing and investor sentiment. The company's sales force productivity remains vulnerable to market choppiness, and talent retention/acquisition challenges persist due to competitive labor markets. While MMI's strong balance sheet mitigates some risks, the M&A valuation gap could limit external growth opportunities. Management's Q3 2025 guidance projects cost of services to be sequentially higher as revenue builds, with SG&A relatively flat, and tax expense between $500,000 and $1 million.

Conclusion

Marcus & Millichap is strategically positioned to capitalize on the anticipated recovery in the commercial real estate market, leveraging its specialized expertise, client-centric model, and a robust balance sheet. The company's proactive investments in AI-driven technology and operational efficiencies are enhancing its competitive standing, particularly in its core private client segment and expanding larger transaction and financing services. While macroeconomic uncertainties and interest rate volatility present ongoing challenges, MMI's disciplined capital allocation, commitment to talent, and diversified growth initiatives underscore a compelling investment thesis. As market clarity emerges and transactional volumes normalize, MMI's foundational strengths and strategic foresight are expected to drive significant operating leverage and sustained shareholder value.