MARCUS & MILLICHAP (MMI) Q4 2017 Earnings Conference Call Transcript

MARCUS & MILLICHAP ((MMI 2.40%)
Q4 2017 Earnings Conference Call
March 8, 2018 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Marcus & Millichap Fourth-Quarter 2017 Earnings Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions].

As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Evelyn Infurna, managing director of investor relations. Ms. Infurna, you may begin.

Evelyn Infurna -- Managing Director of Investor Relations

Thank you. Good afternoon and welcome to Marcus & Millichap's Fourth-Quarter 2017 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 market conditions, 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 public filings including its annual report on Form 10-K, which will be filed with the Securities and Exchange Commission on March 16, 2018. Although the company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can make no assurance that its expectations will be attained. The company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

In addition, certain of the financial information presented on this call represents non-GAAP financial measures. The company's earnings release and earnings conference call presentation, which was issued this afternoon, is available on the company's website, presents reconciliations to the appropriate GAAP measures and explanations of 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 our website, www.marcusmillichap.com, along with a slide presentation you may reference during the prepared remarks. With that, it is now my pleasure to turn the call over to Hessam.

Hessam Nadji -- President and Chief Executive Officer

Thank you, Evelyn. On behalf of the Marcus & Millichap team, good afternoon, everyone, and thank you for joining our fourth-quarter 2017 earnings call. 2017 was a challenging year in the marketplace and for us as we helped our clients navigate through a widened bid-ask spread and uncertainty related to tax reform. This tested our results in overcoming a slower sales environment while staying the course on critical investments in the Marcus & Millichap platform which we believe are essential to the company's long-term growth.

The expanded client outreach and marketing initiatives we implemented after the market disruption in the fourth quarter of 2016 resulted in steady improvement in our revenue trendline throughout 2017. These efforts culminated in revenue growth of 7.2% in the fourth quarter, compared to a revenue decline of 6.9% in the prior year. We once again grew our private-client market share and extended our leadership in this vital segment. Our financing revenue grew by 23% in the fourth quarter and 14.3% for the year, and we saw an increase in advisory and consulting fees as more clients sought our expertise on asset, market, and recapitalization strategy.

Most importantly, we entered 2018 with more positive leading indicators, particularly as related to our inventory and pipeline. Let me state that these positive trends are a result of our internal initiatives as opposed to any measurable upturn in market activity. While these developments are encouraging, let me also reiterate that achieving higher growth rates and financial results for our shareholders while continually positioning the company for long-term competitiveness encapsulates management's entire focus. Of course, the biggest news was the passage of the new tax legislation, the anticipation of which pushed many investors to the sidelines, particularly private investors.

Favorable commercial real estate tax provisions were retained in the new law, including the 1031 tax-deferred exchange, the mortgage interest deduction, and depreciation. Lower corporate taxes are also expected to boost earnings and investment in facility, equipment, and growth strategies, all of which should help extend job creation and the economic expansion.For our primary client base, the passage of the tax law provides more clarity since they now know its basic framework. There has clearly been an uptick in investor sentiment since the law passed but at the same time, there is a residual confusion regarding certain aspects of the law that still need answers. The most common questions center on pass-through entities and depreciation of certain asset-specific provision.

It may take time for Congress to provide clarity on these issues and for investors to subsequently absorb them. Meanwhile, interest rates are up 40 basis points since the passage of the new tax law, which is anticipated to have a stimulative effect on the economy. This effect, coupled with a tight labor market and rising wages, may introduce inflation and further rate increases. Consequently, we expect that a rise in real estate trading volume will be gradual as the marketplace digests these factors.

In the long run, we believe lower taxes and moderately higher inflation are both supportive of commercial real estate investments and new capital formation.As a side note to illustrate the need for clarity and direction, on January 11 we held a special webcast addressing the new tax law and the 2018 market outlook for our clients. We had over 10,000 investors registered for the webcast within a week of its announcement, and countless individual follow-ups since. Having several thousand clients on our market overview is not unusual, but 10,000 was clearly a record and additional broadcasts are planned throughout 2018, given the need for more information. This highlights the power of the Marcus & Millichap brand market reach and our ability to provide guidance for our clients through market changes, which has been a cornerstone of ours for 47 years.I will now turn to some internal metrics to give you more color on our operations.

Last year private-client transactions grew by 2.3%, in contrast to an estimated average decline of 3% to 5% in market sales throughout the year. We believe this to be indicative of additional market-share gains for MMI, which we now estimate to be at nearly 9%, by far the highest in the industry. The private-client segment, once again, accounted for an estimated 84% of transactions in the marketplace. In our view, a rising share represents a long-term relationship with more investors, whose need for investment, financing, and advisory services will continue to grow.

I'm also happy to report solid growth in our office and industrial private-client sales, as part of our ongoing diversification strategy. Revenue from our larger transactions rose 5.1% in the quarter, on top of the 15.1% increase in the prior year. For the year, revenue in this segment declined by 11%, particularly due to weakness in the first half of 2017 and an outside gain of 32% in 2016. While sales in larger assets are more variable, increased presence throughout the spectrums of asset value and investors is an important part of our long-term strategy.

This is critical to the retention of our maturing agents and ever-expanding investment horizon of our client. Our specialty executives work in helping our team service larger accounts and recent recruiting of highly experienced property specialists are examples of progress in this supplemental strategy to our core private-client business.As I reported earlier, our financing revenue grew by 23% in the fourth quarter and 14.3% for the year. We saw a resurgence in purchase-related financing in the fourth quarter compared to previous quarters in the year, when refinancing took center stage among our clients. These results were driven by our expanded lender relationships and focus on reshaping of our team with more experienced financing professionals.

The financing headcount reduction last year was part of this strategy. We are excited about the growth opportunities ahead of MMCC and I want to take a moment to acknowledge the hard work and commitment of Bill Hughes, who started the division for us in 1996. Bill recently announced his transition into retirement and we have begun the process of selecting his successor. Bill, with his wealth of knowledge and deep relationships, will continue his role as a division head until his replacement is announced and will be an advisor to us for some time after that.Last year, our investment sales force grew by 89 professionals, or 5.4%, which is in line with our target of 80 to 90 on the investment broker-side and 10 to 20 financing professionals, which I addressed earlier.

While we believe the overall goal of 100 total additions per year is achievable, we are being even more selective in this market environment. Given the necessary adjustments, our hiring trends over the next several quarters are likely to be somewhat more volatile. Our increased hiring of experienced brokers showed solid progress last year, and we continue to attract professionals who recognize the value of our platform and support system. Looking ahead, we project the economic expansion continuing this year, with job growth remaining in the 2 million range, a healthy level that can generate plenty of demand for commercial real estate across the board.

We also expect property fundamentals to remain healthy with overbuilding limited to luxury apartments, hotels, and self-storage in specific metros. We see no major factors disrupting the supply demand balance for the industry in the foreseeable future.On the capital markets front, the increase in interest rates to a four-year high is pressuring the already widened bid-ask spread in the marketplace. Investors are reconciling the benefits of the new tax law with a higher cost of debt. The outlook on pricing and sales velocity largely depends on inflation readings and the Fed's reaction over the next few months.

We see plenty of liquidity and competition among lenders, but underwriting remains tight. Disciplined lending in this expansion has prevented over-leveraging, which is one of the main reasons the cycle has more runway. On the equity side, we see ample appetite for deploying capital into real estate, and realistically priced assets continue to generate multiple offers. However, as I explained earlier, the alignment of buyers' and sellers' expectations will take some time.

Before I turn the call over to Marty, I would like to brief you on our capital allocation plan, which we updated as part of our year-end assessment of the company. Our balance sheet remains a point of strength, as we continue to generate healthy levels of free cash flow. From a reserve point of view, we believe it is important for us to retain sufficient capital in four key areas. First, to comfortably satisfy obligations, including liability related to deferred broker and employee compensation.

Secondly, to invest in infrastructure, brokerage-support systems, and proprietary tools that enhance our platform. Third, to be well-positioned defensively and offensively in the event of an unexpected and significant market downturn, and lastly, to execute accretive acquisitions of companies, brokers, and teams. After updating our plans and accounting for a lower tax rate going forward, we expect to generate more capital than these areas require. As such, we are currently working with our board to determine the appropriate scope and vehicles for returning capital to shareholders through dividends and a potential share buyback.

We are keenly aware of the importance of balancing our tradition of keeping the company strong through financial safeguards while maximizing shareholder return and look forward to sharing the next steps in the next few months.On the M&A front, as we have previously shared with you, we are seeing more reasonable valuation expectations and have increased our dialogue with potential targets. We are encouraged by some of the opportunities but remain vigilant when it comes to underwriting with reasonable growth assumptions, given the maturing real estate cycle.I will now turn the call over to Marty to discuss our results in more detail. Marty?

Martin E. Louie -- Senior Vice President and Chief Financial Officer

Thanks, Hessam. I'll be discussing our fourth-quarter 2017 and full-year results in greater detail. Total revenues in the fourth quarter were $203 million, up 7.2% year over year, due to gains across all of our business lines. Revenue from real estate brokerage commissions, which accounted for 87.4% of our revenue, grew 2.7%, to $177 million.

While our private-client business slightly declined to $116 million during the fourth quarter, the number of transactions actually increased by nearly 1%, which points to continued market-share gains. Our larger-transaction market segment performed well, growing year over year by 5.1% for the fourth quarter, to $26.6 million, despite facing a tough year-over-year comparison, which saw the segment grow 15.1% last year. For 2017, total revenues increased slightly, to $720 million, largely driven by the growth in financing fees and other revenues. This is a slight decrease of 1.9% in real estate brokerage commissions to $649 million.As we have discussed throughout the year, uncertainty has kept many investors on the sidelines, resulting in a slowdown in market sales.

This was the primary factor impacting the private-client market, which accounts for the vast majority of our revenues. Overall, we executed 2,443 transactions in the fourth quarter, up 5.8% from the prior year. For 2017, the total number of transactions executed by our agents was consistent with the prior year, at just under 9,000. The total sales volume for the quarter increased 12.1% year over year, to $12.3 billion, and $42.2 billion for the full year.

As a reminder, larger transactions for real estate brokerage, which are more variable, had outsized revenue growth of 32% in 2016 and experienced an 11% decline in 2017. We are encouraged by the results in the fourth quarter in a more challenging market environment and our ability to increase our private-client market share by an estimated 50 basis points for the year. Revenue from financing fees grew an impressive 22.6%, to $15.5 million for the quarter. The increase was driven primarily by growth in financing purchase transactions.

For the year, financing revenues grew a healthy 14.3%, to $49.7 million, or nearly 7% of total revenue. This was driven by strong refinancing activities during the first half of the year, as many investors decided to recap their investments due to the widened bid-ask spread and market uncertainty, while the second half of the year experienced an increase in the number of financing purchase transactions. Other revenues, which is comprised primarily of consulting and advisory fees, grew to $9.9 million in the fourth quarter. This includes fees associated with the previous sale of a $400 million project.

The growth in this area is a result of our agents providing consulting and advisory assistance to our clients during times of market shifts and/or uncertainties.Total operating expenses, which include the cost of services, SG&A, and, to a lesser extent, depreciation and amortization for the fourth quarter, were $175 million, compared to $161 million during the prior year. Cost of services increased by 8.3% year over year, to $132 million, due to the increase in larger transactions over the fourth quarter of 2016. As a percent of total revenues, cost of services increased 70 basis points, to 65%, which is reflective of our senior agents. These agents are generally on higher commission splits and closed a greater number of deals during the quarter, particularly larger transactions.

As a reminder, this expense is primarily comprised of commissions paid to the company's investment sales professionals and compensations related to financing activities. For the quarter, SG&A was up 10.1% year over year, to $42 million, due to sales and marketing expenses, lease renewals, expansion of offices in key strategic metros, investments in proprietary technology, brokerage-support systems, compensation-related costs, as well as stock-based compensation. These increases were partially offset by a reduction in legal cost and other various accruals.On a full-year basis, total operating expenses increased by 2.1%, ending the year at $624 million, compared to $611 million in 2016. This increase is consistent with what we have messaged throughout the year and reflects our ongoing focus on investing in those areas that will have long-term competitive advantages for the company and support future growth, while tightly managing cost in other areas.

For the fourth quarter of 2017, net income was $8.5 million, or $0.22 per share, compared to $17.2 million, or $0.44 per share in 2016, which includes one-time tax charge. For the year, net income increased to $51.5 million, or $1.32 per share. It's important to note that these numbers include a one-time charge in the amount of $11.6 million due to the remeasurement of our deferred-tax assets as a result of the enactment of the Tax Cuts and Jobs Act. Excluding the one-time charge, net income for the fourth quarter would have been $20.1 million, or $0.52 per share basic and $0.51 per share diluted.

For the year, net income would have been $63.2 million, or $1.62 per share basic and diluted. Also included in our adjusted net income was the net windfall tax benefit that we mentioned during our third-quarter earnings call. As a reminder, the company adopted a new accounting pronouncement that required any net windfall tax benefits to be recorded as a discrete item against the company's tax provision. This windfall tax benefit was recorded in the additional paid-in capital, in the previous years.

These windfalls arise from the difference in the grant date price and vesting date price of non-broker restricted stock units, deferred stock units, and restricted stock awards. The company recognized approximately $2.7 million in net windfall tax benefits in the fourth quarter of 2017. This equated to an additional $0.07 to the company's basic and diluted EPS.By comparison, in the fourth quarter of 2016, the company recorded $2.5 million of windfall tax benefits directly to APEC. In 2018, the company expects to realize windfall tax benefits from divesting of RSUs, DSUs, and RSAs, primarily from those that were issued in connection with the company's IPO and vest during the fourth quarter.

Adjusted EBITDA increased by 2.7%, to $32 million during the quarter. For the year, adjusted EBITDA declined by 5.6%, to $112 million. Our adjusted EBITDA margin for the fourth quarter decreased 70 basis points, to 50.8%, while the year's EBITDA margin contracted 100 basis points, to 15.5%. This was a function of higher expenses in upgrading our tools, support systems, and giving us room for growth in key markets, as we've been sharing with you throughout the year.

We expect expense leveraging to resume this year, as we've completed most of the investments we have discussed in the past. We will continue to invest strategically in our platform infrastructure and technology [Inaudible] our agents with appropriate tools and level of support they need to grow their businesses. Accordingly, we expect to grow in SG&A to be –- the growth in SG&A to be slightly lower than revenue growth.As Hessam referred to earlier, numerous favorable commercial real estate tax provisions were retained in the new tax law. However, there are still many holes that Congress needs to address.

Combined with higher interest rates, investors will require time to determine how these changes will affect their investment strategies. As such, we believe that growth this year in the investment-sales market will be gradual and may take time to materialize. As we have indicated in the past, our goal is to continue expanding our market share, growing our sales force, and expanding our financing business. The combination of our improved net leading indicators, expense leveraging combined with revenue growth should help drive adjusted EBITDA margin expansion in 2018.From a balance-sheet perspective, Marcus & Millichap continues to be well-positioned to grow its business organically and to pursue selective acquisitions.

Our liquidity levels are very healthy, ending the year with approximately $311 million in cash, cash-equivalents, and core cash investments. We believe the strength of our balance sheet, especially in a maturing cycle, will be a major advantage for MMI as we continue to seek ways to augment our organic growth. As Hessam mentioned earlier, we are also determining the appropriate scope and vehicle for returning capital to our shareholders. Before closing, I'd like to point out a number of key items and highlights, which may have an impact on our 2018 results.

Despite achieving two consecutive quarters of revenue growth, we continue to face market headwinds, as summarized earlier in the call. We believe our ability to grow revenue and continue to take market share is correlated with the steps we have taken over the last year to invest in our systems, infrastructure, and our team. Secondly, it has only been a little more than two months since the new tax law was passed. While we expect it to be a net positive for our business, our clients, and the industry, we have not seen a noticeable number of investors move off the sidelines, as of yet.

They continue to evaluate and assess the expected impact of the intricacies of this a new law. Third, we estimate our corporate tax rate to fall to approximately between 25.5% and 27.5%, from nearly 40% in prior years. In addition, 2018 will be the last year we would recognize a large net windfall tax benefit, as the last tranche of equity provided at the IPO will be vesting in the fourth quarter of 2018. We will provide more information about the impact this will have on earnings during our third-quarter call.

Finally, the comparable for larger transactions during the first quarter will be easier, given last year's large decline in this market segment. Recall that larger transactions remain susceptible to variability from quarter to quarter, despite the significant inroads we have made in this segment over the past few years. [Inaudible] I'll open the call for a Q&A. Operator?

Questions and Answers:

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. The first question comes from Mitch Germain of JMP Securities.

Please go ahead.

Mitch Germain -- JMP Securities -- Managing Director

Good evening. How are you?

Hessam Nadji -- President and Chief Executive Officer

Hi, Mitch. Great, how are you doing?

Mitch Germain -- JMP Securities -- Managing Director

I'm great. I'm great. So just want to make sure, I can clarify that -- can you – the consulting fee that you guys recorded in the quarter, some of it – how should I think about it? All of it is in other revenue, or some of it's in the other revenue, some of it's in the brokerage revenue? And maybe just kind of talk about the background on that fee?

Hessam Nadji -- President and Chief Executive Officer

Sure. First of all, in the whole category of other revenue, which is predominantly consulting and advisory services, you have to remember those are generated by really the same client base we do our brokerage and financing business. So it's not really a different business line, if you will, just a different type of business with our same client base. In that particular period, we had one fee that was related to a project that had actually been filled a while back, but there were some additional fees related to that sale that were collected and were best categorized under other instead of sales during the fourth quarter.

Mitch Germain -- JMP Securities -- Managing Director

OK. You said, you referenced it was the $400 million -- it was the senior housing portfolio, correct?

Hessam Nadji -- President and Chief Executive Officer

No, it was a different portfolio of a single-tenant lease product. And it had already closed some time ago, but this was a residual fee related to that sale.

Mitch Germain -- JMP Securities -- Managing Director

Gotcha. And just remind me, Marty, what's in the other-income expense line? I saw that's grown a little quarter over quarter. Is that related to the cash balance rise? I mean, how should I think about that line item?

Yes, it's definitely related to the cash balance. We have some foreign exchange items in there as well. And deferred comp gains.

OK. When I think about the business in general, you guys talked about making those investments in sales and marketing materials, given the volatility, post-election. Should I be thinking that maybe some of that increase in G&A, or overhead, that you guys experienced in, I think it was a 10% or so rise, in 2018 --- the increase won't be as significant, considering that the marketing materials kind of disappear from the story relative to how much you guys spent last year? How should I think about the expense side of the equation?

Hessam Nadji -- President and Chief Executive Officer

Well, you're absolutely right, Mitch, in that there was a catch-up effect, if you will, on some of the projects that we wanted to invest in in both 2016 and 2017 and the bulk of those new projects and new investments have been completed. A lot of the expense items aren't going to go away, but you are right in that the rate of growth related to those kinds of things will be a lot less.

Mitch Germain -- JMP Securities -- Managing Director

Great. Hessam, you talked about uncertainty, and again, talking about election heading into this year and then at the end of last year, tax reform. In talking to some of your customers, I know you talked about having 10,000 or so people chiming into your call. How would you consider, how the sentiment is across your customers base? I mean, I think you referenced – pipelines are growing, things seem stable, yet, there's still some uncertainty.

I mean, how do you think they're kind of feeling level of constructiveness in terms of kind of where we stood maybe six months or 12 months ago?

Hessam Nadji -- President and Chief Executive Officer

Sure, the sentiment has definitely improved since the passage of the tax law, in that people are looking more favorably at the economic outlook, for sure. They are looking favorably on the way that the real estate came out of the tax-reform process. But in the backdrop of a market that doesn't have any distress -- cash flows are strong, occupancy is strong, and there is really no problem to solve, if you will -- in the marketplace even the clients that we interact with all the time, they really would like to trade, whether it's sell one asset and exchange into another asset, or these usual trading that we normally experience, are hesitant to do so until there is more clarity on the specifics of the tax reform. As Marty said, it's only been a couple of months.

We need some more answers for some questions that are out there regarding really the flow-through entities and deductions that apply there and some of the other provisions in the tax code. So the desire to want to transact is there, the capital that's on the sideline that is looking at assets is definitely there. Sentiment has definitely improved, but in terms of any pulling of the trigger in a meaningfully higher level than a year ago right now, we're not seeing it yet, but we believe with these additional clarities that will come. Now, at the same time, you've got this interest rate-movement component added into the mix and the marketplace is just trying to digest all of this.

The biggest difference for us is that, as you said, Mitch, in Q4 of 2016, we had this market dislocation and a disruption that we didn't have in Q4 of 2017, but in Q4 of 2017, we still have the hesitancy and the headwind that we have been kind of saddled with since the election. And it's our own initiatives outreach to more clients, more marketing initiatives, fine-tuning our training, and so on, that's resulted in a little bit of a positive trend on our pipelines and our inventory.

Mitch Germain -- JMP Securities -- Managing Director

Gotcha. Last one for me. Can I read from your comments that you're going to be taking a bit of a moderate approach to hiring? Is that the way that we should be thinking about kind of the net adds on the year?

Hessam Nadji -- President and Chief Executive Officer

Yeah, two things happened. We've seen this many times through various cycles. When the market adjusts to a different environment than a rapidly rising market, like we saw from 2011 through let's say 2015, a brand new agent's ramp-up time gets stretched, the amount of training that you have to do for them to kind of make it through their first couple of deals and then grow from there gets stretched. Therefore, they need more financial wherewithal to withstand their longer runway of getting going in the business, apprenticeships and internships become more important, and then for newer agents, that have joined us, as you know, we are a very effective hiring company when it comes to new agents and training them.

A lot of them, that make it through for the first six months or for the first year or 18 months and so on, have a more difficult time in this kind of a market environment getting to the next stage. So it becomes a little bit more decisive to say a larger percentage of them probably aren't going to make it and therefore let's transition them out of the company. So it gets more selective on both the incoming hire and also in terms of maybe shortening the timelines on some of the folks that are unlikely to make it, because of the change in the market environment.

Mitch Germain -- JMP Securities -- Managing Director

Great, that's helpful. Thank you.

Hessam Nadji -- President and Chief Executive Officer

Thank you.

Operator

The next question comes from Peter Christiansen of Citibank. Please go ahead.

Peter Christiansen -- Citi -- Vice President

Thank you. Hi, guys.

Hessam Nadji -- President and Chief Executive Officer

Hi, Peter.

Peter Christiansen -- Citi -- Vice President

Hi. So I guess the comments are kind of mixed in terms of the market, you guys –- you have strong property fundamentals that are going on. A couple -- confusion after the tax reform, some interest rate changes. I was just wondering you can give us some context, maybe on a sequential basis as the year-over-year is tough, but how has time on market or inventory or the bid-ask spread kind of changed, particularly as we had this jump in interest rates?

Hessam Nadji -- President and Chief Executive Officer

Sure, we're seeing pretty stable metrics when it comes to time on the market, maybe just a tiny bit of stretch in the last 60 days, but nothing dramatic. We're seeing steady readings on our [Inaudible] transactions and we're seeing a very stable number of offers on what we believe are reasonably priced assets, in fact, those assets are moving off the shelves fairly quickly, and we get multiple offers on them. What the –- the change in the marketplace, if you will, really began in 2016. So if you look at all those readings, they're up from where they were in let's say 2013 through 2015, but they've been fairly stable, except for Q4 of 2016 and Q1 of 2017, because we really did have a market disruption in those two quarters.

Since then they've kind of settled back down. The hesitancy is more about on the list side, whether an owner is now at a point where they would like to pull the trigger and list the property. We are seeing some loosening on that front, but then that's where the price-expectation gap, which is, still in the marketplace, not only widening any further, but it's still holding pretty steadily, so that's where the price-expectation gap comes in, and our job is to really educate the seller on what is the real market for their asset and what are their other alternative investments in order to pull the trigger. And so that bid-ask spread is still the main culprit for a slowdown in velocity.

Peter Christiansen -- Citi -- Vice President

You had a pretty impressive year in terms of market-share growth. I guess if we look outside of the top 10, some of the smaller players out there, are you seeing any consolidation at the lower end, the smaller end? And if so, are you seeing any opportunities on the M&A side to scale up with perhaps some assets at the lower end that are performing not as well, given they don't have the strength of the platform?

Hessam Nadji -- President and Chief Executive Officer

We are definitely seeing hiring opportunity of experienced professionals that are with smaller companies, as our platform that becomes a lot more valuable, especially because of all the tools and the things that we have in place to help people through whatever market conditions may throw at us. So on the individual hiring and the team hiring, without a doubt, we are seeing opportunities there and we'll [Inaudible] success there, as I mentioned in my formal remarks. On the acquisition of companies side, your point is very well-made, in that the vast majority of players in our core business, whether it's private-client investment brokerage or financing, there are small- to mid-sized groups that act and function as companies. We are definitely looking for some opportunities to acquire some of those.

Peter Christiansen -- Citi -- Vice President

And you guys did a great job blocking and tackling this year, given the volatility in the market, a lot with some of your events switching to more auction-type of events and stuff like that. Can you remind us, that was really something that kind of took place, I guess, midyear and is there any way you could quantify what the benefit was on the year? I'm just trying to figure out what the attribution would be between that and I guess a normal status quo kind of thing?

Hessam Nadji -- President and Chief Executive Officer

Sure, we really went on board with the idea that we needed to increase our market outreach, starting in Q4 of 2016. Very quickly, after we saw the interest rate movement and all the things that were happening in the fourth quarter of 2016. So we came into the year announcing additional events, where we could feature listings and investment opportunities across the country. One of the biggest advantages of our platform is the agility because we have a managed the sales force and we have managers in every local market.

Very quickly, we can basically gear them toward certain actions that need to be taken to increase client contact and increase really the exposure of inventory to different types of investment. I'll give you an example: the events that we had scheduled throughout the year really were kind of repositioned to make sure that we're showing higher-cap-rate inventory from places like the Midwest or Texas and secondary and tertiary markets to the coastal buyers, where we know so many of our clients are looking for a higher yield, but they're not being able to find that in the local market. Where we have over 40% of our business actually get executed with buyers that come out of area, this is the kind of example of being able to shift very quickly and engage in a campaign, which pretty much ran, not just through mid-year, we're really started in spring of 2017 and so on. And that resulted in countless offers on that kind of inventory, resulted in numerous transactions.

I don't have an exact number to give you as to what came out of that process. But it is a part of -– it's part of what we do. And another add-on for us was to make sure that we attend and take a very important part in some offshore investor symposiums, one in Shanghai in particular, that ended up being a very good vehicle for us to expose our inventory to foreign private-client investors.

Peter Christiansen -- Citi -- Vice President

Is there any sense of what percentage of your transactions are from foreign investors?

Hessam Nadji -- President and Chief Executive Officer

For us, it's probably in the low-single digits, maybe mid-single digits and it really is market-specific. In markets like Southern California, south Florida, New York, and Chicago it plays a larger role. But it's really not a significant part of our business as a whole.

Peter Christiansen -- Citi -- Vice President

Thank you, very helpful.

Hessam Nadji -- President and Chief Executive Officer

Thank you, Peter.

Operator

The next question comes from Stephen Sheldon of William Blair. Please go ahead, sir.

Stephen Sheldon -- William Blair and Company -- Analyst

Hi, thanks for taking my question. I guess just first within the private capital market business, you saw a decline slightly for the quarter and year. And I know you gave some color on 2018 expectation. But have you seen any change I guess in conversations over the last few months just given the deduction for pass-through income that was included in the reform package?

Hessam Nadji -- President and Chief Executive Officer

Hi. If you can clarify your question, is it change in terms of sentiment or change in terms of strategy? Give me a little more before I can answer.

Stephen Sheldon -- William Blair and Company -- Analyst

More related to sentiment.

Hessam Nadji -- President and Chief Executive Officer

OK, gotcha. The sentiment has definitely been affected in a positive way. I mean, there's just more excitement, there's more enthusiasm, people believe that the lower taxes going to help the economy and real estate. The fact that the key provisions for real estate stayed intact, whether it's the interest deduction, whether it's depreciation, whether it's the 1031 exchange mechanism, all that is very, very helpful to the business.

Plus with the lower tax rate on pass-through entities once our clients can get some answers, and their tax advisors can get some answers and we've had situations where the client is asking the same question of two different tax advisors and they're getting two different answers. So those are the kinds of wrinkles if you will in a very well laid roadway that needs to be ironed out. We believe it's just a matter of time before they do. But the energy to do more in real estate is definitely there.

Stephen Sheldon -- William Blair and Company -- Analyst

OK, got it. That's helpful. For the consulting revenue you saw in the quarter related to large transactions, did a lot of that fee revenue flow through to the bottom line? I guess I'm wondering how much of an impact that may have had on margins in the quarter?

Hessam Nadji -- President and Chief Executive Officer

Well, I think you're referring to the other revenue category, which is predominately consulting and advisory services. Remember those fees are generated by our agents who are on whatever their split is with the company. So they're treated as brokerage revenues are, or financing, if it's a financing professional that does a consulting assignment or an advisory fee. But our splits with our team does not change based on the type of business they bring.

Stephen Sheldon -- William Blair and Company -- Analyst

And should we expect I guess a more normalized level of consulting and advisory revenue if we look through 2018?

Hessam Nadji -- President and Chief Executive Officer

Yes. It's a lumpy category in that it really ebbs and flows with whatever opportunities come up for us based on client need. But what's really important is my earlier comment that these are our clients. We're doing business with them.

We're selling things for them. We're helping them buy things. And there are times when especially larger accounts, institutional investors, portfolio investors, really don't know what to do yet. And or they need recapitalization, restructuring of ownership or other slightly different services than the traditional sale, and were still there, we're still there with our capabilities, with our research, with our expertise, and certainly with our relationships, so that we capture that revenue.

But it is lumpy.

Stephen Sheldon -- William Blair and Company -- Analyst

Got it. Thanks.

Operator

The next question comes from Blaine Heck with Wells Fargo. Please go ahead, sir.

Blaine Heck -- Wells Fargo Securities -- Analyst

Thanks. Good afternoon. In your remarks, Hessam, a couple of times you've talked about the bid-ask spread you guys are seeing in the market. Can you just expand a little bit on that and has it widened recently and are you seeing that it's affecting kind of large transactions versus smaller transactions or one sector over another, or is it pretty consistent across the board?

Hessam Nadji -- President and Chief Executive Officer

Sure. We're seeing the widest gap in the product types that you would view as the highest-risk product types. So in the most recent months, I would say seniors housing and hotels have seen the highest bid-ask spread, more recently because of all the negative press, frankly overblown press, press that we've been out there trying to counter with good educational information sharing on multitenant retail, which is getting a little bit of throwing the baby out for the bathwater because of all the buzz around e-commerce and all that. Those three product types are seeing perhaps the widest and I would say maybe widened in the last three or four months.

And the most stable assets, apartments, manufactured housing, are seeing the least. On the apartment side, which is an important part of our business and single-tenant at lease side, it's more about whether the seller is ready to sell, and what their investment alternatives are. What do they want to exchange into? And that's where there has been –- because of the price appreciation over the past few years and very healthy occupancies and cash flows -- there is less motivation right this minute until we get more clarity on the tax side and until interest rates hopefully stabilize a bit.

Blaine Heck -- Wells Fargo Securities -- Analyst

Got it, that's helpful. And it seems as though the industrial-transaction market has held up better than some other sectors. So how do you guys think about growing there? Is there anything specific that kept you guys largely out of the industrial-transaction market or is it just kind of a matter of building the team in that sector?

Hessam Nadji -- President and Chief Executive Officer

Well, first of all, you're absolutely right, industrial is the hottest sector right now. In fact, if you were to look at the transaction market, and you took out industrial in the way we count the percent change in velocity and our market-share gains, and so on, industrial has been up year over year while other product types have been down more year over year. So the overall market slowdown would be more pronounced if you excluded industrial because it is that the hottest sector and showing additional velocity. For us, it has not been a major product type really for two reasons.

One, industrial has a very large component of owner-user ownership profile, there are a lot of small- to mid-size manufacturing or distribution companies own their own facilities. And so it's not really viewed as an investment vehicle, cash-flow type of investment vehicle for the type of investor we typically serve. And the other side of it is that there's such a diversity in the base of industrial space -- you have some very large assets and then very small incubator space and smaller assets. It is definitely a growth area for us.

But it's not a growth area for us in every metro. There is about 13 metros that we've identified as the most conducive to our type of investment brokerage and our kind of client profile where we're hiring, training, and deploying for industrial and having some very good success, by the way, it's a very small base of our revenue, as you know, right now, but it was one of the highest-growth components for us in 2017, as was the office sector. And that's due not so much because the office market is doing anything different than apartments or retail. But for us it's a matter of having hired more people in the last two years, having improved our training the last couple of years, and having put more emphasis on office and industrial as part of our revenue diversification.

We view it as a growth opportunity for sure.

Blaine Heck -- Wells Fargo Securities -- Analyst

All right. Makes sense. Last one from me. Hessam, you talked about buybacks.

How do you think about the possibility of share buybacks given that you guys have kind of a relatively small market cap compared to some of your peers, so I guess what are your thoughts on balancing the desire to grow the business and have liquidity in the stock, versus returning capital and maybe taking advantage of what could be maybe temporary price dislocation in the stock?

Hessam Nadji -- President and Chief Executive Officer

Well as I mentioned in my comments, we don't have the specific plans finalized yet, but we're actively looking at the best mechanism and the best magnitude of returning some capital to our shareholders. Mainly because now we're in a position as a company, the public company, to be able to explore that. So whether buybacks are practical or not and what size, it's too early for me to comment.

Blaine Heck -- Wells Fargo Securities -- Analyst

OK, fair enough. Thanks, guys.

Hessam Nadji -- President and Chief Executive Officer

Thank you.

Operator

There are no further questions at this time. I now would like to turn the floor back over to Hessam Nadji for any closing comments.

Hessam Nadji -- President and Chief Executive Officer

Thank you very much, operator. Let me just thank all of you for joining our call. Let me acknowledge the hard work of our team in helping our clients through a market change and let me thank our shareholders for their confidence in us. We're looking forward to having you on our next conference call.

Thank you very much.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Duration: 41 minutes

Call Participants:

Evelyn Infurna -- Managing Director of Investor Relations

Hessam Nadji -- President and Chief Executive Officer

Martin E. Louie -- Senior Vice President and Chief Financial Officer

Mitch Germain -- JMP Securities -- Managing Director

Peter Christiansen -- Citi -- Vice President

Stephen Sheldon -- William Blair and Company -- Analyst

Blaine Heck -- Wells Fargo Securities -- Analyst

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