CRE Cycle Still Has More “Runway,” Says Marcus & Millichap CEO Hessam Nadji

It’s been one year since Hessam Nadji took the helm at national brokerage firm Marcus & Millichap, and it’s been quite a busy period. Nadji’s one-year anniversary comes just as the commercial real estate industry finds itself in a period of regulatory and economic uncertainty and declining investment sales activity.

But Nadji has been through a few market cycles by now. He joined the firm as vice president of research in 1996, and helped Marcus & Millichap grow to being an investment advisory practice in addition to a brokerage services provider. He then rose to chief marketing officer, with responsibility for expanding the Marcus & Millichap brand, before ultimately being appointed CEO in April 2016. As chief marketing officer, Nadji launched the firm’s Institutional Property Advisers division and prepared the company for its 2013 IPO.

NREI spoke with Nadji about his work over the past year, his next steps in growing Marcus & Millichap and how the firm is navigating the current market environment. Here is an edited transcript of the interview:

NREI: How would you describe your first year at the helm of Marcus & Millichap? What were the biggest challenges you faced in the CEO role?

Hessam Nadji: It has been an incredible year. My biggest frustration is that there’s only 24 hours in a day. We have an aggressive long-term growth agenda in a large and fragmented market and our team is charged up to grow smartly, strategically. In the immediate term, the market is facing some headwinds and uncertainty related to tax reform and economic stimuli promised by the new administration, so there is a bit of a pause in the market until we see some clarity on these. We continue to hire and train agents, invest in new technology and support systems and essentially build toward the long-term.

NREI: What, if any, were the first significant changes you made as CEO?

Hessam Nadji: The most important things we’ve done since April of 2016, when Marcus & Millichap’s new leadership team was formed, including myself as CEO and Mitch LaBar, a company veteran, as COO, were:

We have streamlined the management team, including expanded responsibility for our best managers who now oversee synergistic divisions, which include seven to -nine offices on average.

We held a series of broker forums, client forums and traveled to offices throughout the country to get a fresh idea of what is happening among our sales force, what they wanted and needed. We also used direct feedback from clients to zero in on market challenges and opportunities and set our priorities for developing new tools and improving the company accordingly.

We have brought in fresh thinking and talent through a number of experienced brokers we have hired, and a new head of technology. We’ve added to our research products and expanded our branding by further partnering with key industry groups in each product line. For example, we have an extensive and growing presence at ICSC to support our retail division and NMHC is a key partner that we support for the betterment of the apartment industry. We are deeply involved with NAIOP as part of our office/industrial strategy, and the same goes for hospitality, seniors housing, student housing, self-storage and so on. Our brand is growing rapidly through these efforts and, most importantly, we are facilitating face time between our sales teams and decision makers.

Our investment in technology upgrades focuses on the productivity of our sales force and enabling better outreach to clients. We’ve spent time and energy upgrading our electronic marketing platform by partnering with Constant Contact at an enterprise level. The second major step involved in modernizing one of our key in-house proprietary applications is our introduction of a web-based, mobile system called Mnet-Offering that automates the process of compiling market information, financial analysis and property information, including images, into client proposals and marketing packages. The feedback on time saving and quality of output has been great. Last but not least, we are upgrading our technology infrastructure, connecting our 80 offices with updated tools for video conferencing, streaming and data sharing.

NREI: What are your long-term goals for the firm’s growth and expansion?

Hessam Nadji: Long-term, we are expanding Marcus & Millichap as a platform to service both private clients and institutional investors. We are [well-established] in the private client segment, which typically consists of smaller properties valued at under $10 million. This market segment is vast, [but] very fragmented, with the top 10 brokerage companies, including us, accounting for 24 percent share of transactions that occur. This gives us room to expand our private client market share, which is still our biggest growth opportunity. At the same time, we launched a special division of the company about five years ago called Institutional Property Advisors to cater to large institutional investors. This has been well-received by the marketplace because we are able to bring relatively unknown, private investors to institutional-quality assets. Being public for three years has helped to increase our profile, and the awareness of our company is helping us [expose our] brand to larger clients and attract more experienced brokers. Last but not least, we continue to grow our financing division, Marcus & Millichap Capital Corp. (MMCC).

NREI: Could you tell us more about MMCC?

Hessam Nadji: MMCC now has approximately 100 financing specialists. We recently announced correspondent relationships with ReadyCap for small-balance multifamily loans and PGIM (the financing arm of Prudential) for mid-market and larger multifamily financing solutions. These partners’ access to agency debt and a host of other capabilities are now being offered by our team to [our] clients. That is just one example of the types of initiatives we have launched to augment client services and grow the company.

NREI: How would you describe the current economic landscape as it relates to commercial real estate?

Hessam Nadji: The market has had an intense run-up in sales activity and values over the last five years, and that type of velocity is hard to maintain. We are seeing some pause as I mentioned earlier, as investors are asking: “What will tax reform look like?” Given that real estate fundamentals are very healthy and there is no distress in the market, sellers have been reluctant to discount assets while buyers are looking for lower prices to accommodate higher perceived risk. I would expect that over the next few months buyers and sellers will recalibrate expectations, especially if there is clarity on tax reform and infrastructure spending. That alone could result in higher activity. But with no evidence of a recession around the corner and steady job growth, I expect this cycle to have more runway economically and within the real estate sector.

NREI: Where in the cycle are we right now?

Hessam Nadji: We are now in year seven of the expansion, and the average expansion since 1950 has lasted five and a half years. By that measure, we are overdue for a recession. But average job growth annually has been 1.7 percent in this cycle. That compares to the average 3.0-percent job growth cycles since 1950. We’ve benefited from a slower pace, which doesn’t overheat the economy. We are starting to see wage growth and inflation pick up and the Fed moving to keep inflation in check. This points to ongoing strength. It’s not a boom, but more of the “steady as she goes” scenario.

NREI: Have you made any preparations in case of a real estate downturn?

Hessam Nadji: For us, it’s all about building for the long-term, sticking it out with our clients and taking care of their needs through the ups and downs of the market. We stay close to them, keep them informed and provide the investment options that fit their needs. A lot of investors are opting for different product types that offer higher yields or geographic markets. Our job is to expand their investment options and maximize their value. Cycles come and go, but relationships endure.

NREI: Please tell us your thoughts on the role of technology in the commercial real estate business. How have you incorporated technological innovation into the day-to-day operations at Marcus & Millichap?

Hessam Nadji: If you look at how the industry has evolved over time, the traditional sales process in the brokerage business has been significantly changed by technology, market research and modern practices in what makes a broker more productive. Data is no longer “the magic,” like it was 20 or even 10 years ago. Interpretation of real-time events and anticipation of how consumer preferences, and, therefore, investor demands, are going to change is now the magic of good brokerage. And let’s not underestimate the power of a broker’s relationships and client trust, which still govern the real estate business. Data, technology, and analytics have merged with the art of service and proactive client care, and that is what our company is all about. As an example of incorporating technological innovation into the day-to-day, we recently launched MNet-Offering, as I mentioned earlier, which is a proprietary web-based application designed to support sales agents in the creation of electronic and print materials, chiefly, offering memorandums and asset valuations that are critical to help clients in the investment decision-making process. MNet-Offering is one of several initiatives underway to enhance our brokerage tools, agent support and client services. Since our entire business model was built on information sharing, technology has played a big role for us and that is still the case. But it also takes a certain culture, an understanding among our team as to the true value of information sharing for the benefit of our clients.