It seems that almost every week, news comes out about another major commercial real estate brokerage firm planning cuts to its workforce. The layoffs aren’t that surprising, given the current economic landscape and what the latest market reports show about commercial real estate deals and lending, which have plummeted in the third quarter. As the pace of transactions has ground to a halt, brokerage firms’ revenues have taken a hit. That’s led a lot of companies to implement cost-cutting measures, including layoffs.
In the third quarter of this year, JLL spent more than $9 million paying out severance to laid-off employees. Other brokerage giants, CBRE and Cushman & Wakefield, said they are planning rounds of layoffs, which have, in turn, led many of the youngest members of the industry to look at different roles in the industry. Other large firms like Newmark and Colliers have also reported decreased sales and lending activity recently but have not yet publicly mentioned cutting staff. Meanwhile, Marcus & Millichap, though not immune to the slowdown of deal activity and waning revenue, is working on adding more brokers to its ranks, company executives said in the firm’s recent earnings call.
Marcus & Millichap CEO Hessam Nadji said his firm’s average sales force count for the quarter was down six percent year-over-year, driven primarily by attrition in the newer ranks. He pointed to fluctuations caused by the pandemic over the last two years and the return of market headwinds as what’s causing the “volatile” environment. “This is making the development of new professionals more difficult,” Nadji said. “As I mentioned last quarter, the competitive labor market has also been an unusual barrier to hiring new talent compared to past cycles.”
Based in Calabasas, California, Marcus & Millichap is one of the largest commercial real estate brokerage firms in the country, with more than 80 offices in the U.S. and Canada. The company’s core services are real estate sales, financing, research, and advisory services. Early on in the pandemic, the firm was one of many brokerages that made big cuts to their workforces. In a May 2020 public filing, the company said it planned to lay off 20 percent of its workforce as it went through restructuring, which was reportedly about 175 employees out of a total workforce of 877.
However, that round of layoffs did not impact brokers (who are technically independent contractors) but instead salaried staff at the firm. While company leaders have not mentioned layoffs this year, they did say they will take a hard look at expenses and will look to prioritize costs and investments that it makes. “MMI has the benefit and power of a strong balance sheet to maximize growth opportunities through the market disruption,” Nadji said in the call. “We added $30 million to our cash reserves just in the third quarter.”
Despite a broker count that is now 9 percent below its highest level seen in early 2021 at the company, Marcus & Millichap has been faring well compared to national industry averages. Nadji pointed out that total commercial real estate transactions in the U.S. fell by an estimated 24 percent in Q3 year-over-year, with dollar volume declining 15 percent in the quarter. He contrasted those figures with his own company’s numbers, which showed brokerage deals off by 8.6 percent and dollar volume increasing by 9 percent.
Of the 179 open positions currently listed on Marcus & Millichap’s Glassdoor page, 110 are commercial real estate agent roles under the “sales” category. Nadji said the company has various ongoing initiatives to build back its sales brokerage staff. One of those initiatives is an expanded sales internship program. The firm also has partnerships with industry groups like CREW and offers fellowships through its William A. Millichap Fellowship Program, a two-year training and development program for young real estate professionals. The fellowship takes the concept of an internship where a new person is teamed up with a mentor, or a new person is mentored by a regional manager, Nadji said in an interview.
The company has also partnered with Project Destined, a non-profit that aims to help minority youth become real estate owners and stakeholders in their communities. “Our commitment to swim against the tide is unwavering in that we believe passionately that the importance of hiring and training and enculturating new talent should be as much of a priority as it’s ever been for us in our entire history,” Nadji said during the call when asked about the company’s sliding broker ranks.
Nadji, who has been CEO of Marcus & Millichap since 2016, is a media-savvy leader who serves an almost ambassador-like role for the firm and the commercial real estate sector as a whole in his frequent appearances on news programs like CNBC and at industry conferences. His experience growing the company’s national brand as its former head of marketing certainly helped. He was quick to say that the company’s hiring and training practices are an important part of how the 51-year-old company has become what it is today and that the combination of record-low unemployment, and competitive base salaries for college graduates, will normalize at some point.
“We don’t know exactly when, we didn’t know exactly when the phenomenon really showed up after the pandemic, but it will not deter our strategy and commitment to organic growth,” Nadji said, adding that the company is checking the usual boxes of recruiting at career fair and college fairs, as well as looking at professionals with sales experience in different industries. “We are continuing to pursue all of those strategies, improving it through technology and digital marketing and more targeted advertising. The results aren’t showing up just because the conditions around the market haven’t changed yet.”
Brokerage firms have beefed up recruiting programs and initiatives throughout the pandemic, as the ongoing labor shortage has led to much more competition for talent among industries across the spectrum, including commercial real estate. While it’s difficult to parse out which brokerage firms pay the highest salaries, according to at least one survey, pay is on the rise overall. Aside from recruitment programs themselves, Marcus & Millichap has recently diversified its offerings and services, which could be a differentiator for brokers shopping around for the best offer. The company launched an auction platform earlier this year and hired two specialists in online auctions from CBRE to lead the new service.
Marcus & Millichap also added a loan sales division and upgraded its technology offerings. One of those upgrades was the rollout of this past quarter of the MyMMI platform. The tool allows investors to save searches of the firm’s inventory, personalize their research content and sign up for company-hosted events. Whether that’s enough to entice brokers to join their ranks is yet to be seen, but Nadji remains confident, saying in a recent interview that the firm’s strategy is driven in part by its continued talent acquisition. “We are fortunate to have a leading market position in a very large and fragmented industry, particularly in the private investor segment,” he said.
How the commercial real estate market will fare as the beginning of the year draws ever closer is one of the biggest questions on the minds of real estate professionals. Many analysts expect a recession next year, some in the first half of the year and other in the second, and others expect a short downturn with a relatively mild impact overall. Brokerage firms will likely continue to tighten up on spending and cut back where they can and where it makes sense, and that could mean more broker layoffs in the meantime. As Marcus & Millichap’s Nadji continues to be both an optimistic leader and brand ambassador, the firm’s offensive approach in hiring could be a smart move. Actively bringing on more brokers—and talented ones at that—instead of shrinking their ranks could have the effect of landing more deals and market share for the company while not having to lose more staff.
