FEATURE ARTICLE, MAY 2008

MARCUS & MILLICHAP REACHES ACROSS HEARTLAND
The national investment sales corporation continues to expand its business in the Midwest.
Kevin Jeselnik

“Marcus & Millichap is still in a major expansion mode in the Midwest, after opening offices in St. Louis and Oak Brook last year,” explains Greg Moyer, the group managing director that oversees the Midwestern offices of Marcus & Millichap Real Estate Investment Services. Considering the current state of the economy and the recent slowdown in commercial real estate transaction velocity, most firms have not been able to claim that they are in an expansion mode.

“We have the largest investment sales force in the Midwest,” Moyer explains. “The firm’s platform isn’t the only means by which we have been able to grow. Our ability to strategically hire very skilled brokers with local expertise, and provide them with the tools to create a national market for otherwise traditional locally owned real estate, has assisted in our expansion.”

Currently, Marcus & Millichap has 16 offices in the Midwest: Central Illinois; Chicago; Chicago Downtown; Oak Brook, Illinois; Cincinnati; Columbus, Ohio; Detroit; Grand Rapids, Michigan; Indianapolis; Kansas City; Louisville, Kentucky; Milwaukee, Madison, Wisconsin; Minneapolis, Omaha, Nebraska; and St. Louis.

Marcus & Millichap began its expansion in earnest in the mid-1990s. Following the opening of the Milwaukee office in 1993, Moyer opened the Indianapolis office in late 1996 with the transfer of an agent from the Chicago office. Today, the Indianapolis office has grown to a force of 15 investment specialists.

In a way, the Midwest has been somewhat protected by the volatility in the investment sales and capital markets that has severely impacted other regions of the Unites States. Both private and institutional investors can still acquire investment-grade properties with relatively high cap rates, stable NOI and the promise of a long-term income stream in the Midwest. The larger Midwest markets are less affected by the economic challenges. Marcus & Millichap’s offices in smaller Heartland markets, such as Omaha and Madison, have relied on new business development to buoy themselves against reduced investment and lending activity.

“In the current market, these offices have had to move quickly to identify the new buyer and the new buyer pool, as well as the active lenders,” says Matthew Fitzgerald, regional manager of the Milwaukee office. “Once the new players have been identified, the next task was to incorporate their new buying and lending criteria into the firm’s marketing plans. This is especially important now because market conditions have changed so much. The marketing techniques of last year identify only the buyers of last year, and using those sets of skills will not enable deals to be closed in this market. New buyers are operators that anticipate holding their assets for a longer period of time, which will ensure solid NOI growth and a steady income stream.”

The ability to offer investors diversity in terms of property types has been instrumental to the firm’s success in the Midwest, explains John Przybyla, regional manager of the Chicago Downtown office, which opened its doors in 2003.

“Our investment specialists are not just focused on apartments or retail sales; there is an excellent mix of services that we offer to our clients,” he says.

This diversity has been a catalyst to the firm’s growth in the Midwest. While market conditions may falter in certain property types during an economic downturn, the firm relies on other property types to bolster it, including industrial, student housing and seniors housing properties. Heartland Real Estate Business has spoken to several Marcus & Millichap professionals from the company’s Midwest offices about the state of commercial real estate in their markets.

Revving It Up in the Motor City

In 1998, one of Michigan’s top real estate professionals, Steven Chaben, called Moyer with an interest in leading the Detroit office. Initially, the Detroit office opened with no brokers, but within a year it had expanded to 18 professionals. Now, the office boasts 38 investment specialists under Chaben’s leadership.

“Despite the recent economic downturn, the Detroit office continues to prosper in the current market,” Chaben says. “Investors are still interested in investment real estate in Detroit and throughout southwestern Michigan, even thought the automobile industry has suffered during the past 3 years. It is an excellent time to grow and develop valuable client relationships.”

Bustling Business in the Buckeye State

After establishing a solid presence in Lower Michigan, Marcus & Millichap opened offices in major markets throughout Ohio. Offices in Columbus and Cincinnati first started doing business in 1999, and the Cleveland office came online in 2004. Since early 2006, Michael Glass has managed the Cleveland office.

“With respect to the current economic downturn and the slowdown in sales velocity, Cleveland real estate market conditions — and market conditions across the Midwest — have not suffered as seriously as some of the other regions of the country, such as California, New York and the Eastern Seaboard,” Glass says. “Therefore, the economic struggles and decrease in sales velocity have not been as dramatic here.

“While velocity has dropped, Marcus & Millichap’s agents have been very skillful at creating and maintaining value for their client base,” he adds. “With cap rates for all property types still relatively high compared to other national markets, the Cleveland office has thrived and bolstered the firm during this current slowdown in the cycle.”

In fact, three of the largest property sales in the Midwest in 2007 closed in Ohio: the $46.7 million sale of Elizabeth Place, a medical office building in Dayton; the $35.56 million sale of Northpoint Apartments in Euclid; and the $32 million sale of Oakwood Estates in Olmstead Township. Euclid and Olmstead Township are suburbs of Cleveland.

Kansas City Stands Out

Marcus & Millichap opened its Kansas City office in 2005, under the leadership of Gary Lucas, senior vice president and managing director of Marcus & Millichap and regional manager of the Kansas City office.

“Marcus & Millichap is the only real estate services firm dedicated solely to the investment sales market in the entire region,” Lucas notes.

The greater Kansas City metro has not been affected by current economic conditions as significantly as other parts of the nation.

“It is a fairly steady market — never way up or way down,” Lucas says. “Demographics and job supply remain stable. Investors from the coasts, primarily California, are scarcer in Kansas City, which contributes to the market’s steadiness.

“The retail sector remains active, and in the multifamily market, there are multiple offers on apartments in the $5 million to $20 million range. There has not been any erosion in rent growth,” Lucas adds. “Overall, deals in contract continue to move toward closing, evidence of the Kansas City market’s slow-but-steady condition.”

Warming Up in Minnesota

Moving farther north, the firm’s Minneapolis office opened in February 2006 with one agent and one agent-in-training. In just 2 years, the office has taken advantage of Marcus & Millichap’s national platform to expand to 25 investment specialists. Much like its Midwest counterparts, the current economic downturn hasn’t dramatically impacted the Minneapolis office.

“Many properties are going under contract with multiple offers, indicating that there is still buyer demand for solid investments,” says Solomon Poretsky of the Minneapolis office.

No Blues for St. Louis

Jeffrey Algatt, regional manager, opened the St. Louis office in early 2007. The office currently houses 20 investment specialists, and could grow to accommodate 35 investments sales professionals.

“Marcus & Millichap delivers a unique real estate investment exchange, offering sellers the best access to qualified buyers in St. Louis and across the country, and expanding investment options for buyers in all major property types and locations nationwide,” Algatt says. “The St. Louis office remains successful during these troubled economic times, because value-added brokerage goes beyond capturing a share of market velocity — it generates velocity.

“The industry is not just about delivering data — it is about assessment and development of a strategy with the client,” he adds. “The biggest risk in today’s environment is not having a strategy.”

The St. Louis office’s primary market is the St. Louis MSA, central and southern Illinois, and the state of Missouri — however, the office plans to expand its expertise to owners in neighboring states, principally south and west.

Most Recent Addition

The most recent office that opened in the Midwest is in Oak Brook, Illinois, which opened in April 2007 with 12 brokers and five staff members. Less than 1 year later, the office consists of 25 brokers, seven sales intern program candidates and eight staff members.

The idea that there is more to selling real estate than just having a license may be especially true during times when the market is experiencing a downturn and velocity has slowed, much like the current market. In such times, Marcus & Millichap’s Oak Brook agents have found that there is opportunity within confusion. This is because astute investors can capitalize and profit when complacent or uninformed investors remain on the sidelines.

“The top agents in the Oak Brook office have seen little to no reduction in their production pipelines and, in some cases, are actually busier than they were before the downturn,” says Tim Rios, regional manager. “Team members specializes in a product type and within a set geographical area so that they can provide real expertise.

“Real estate investing is always executed at a micro level after careful consideration of macro-level trends; it is founded upon the belief that there is no such thing as a ‘good’ or ‘bad’ time to invest,” Rios explains. “Sound investment strategy is about identifying the right submarkets and properties within the context of current market conditions.”

Each of Marcus & Millichap’s offices have adopted and executed this mantra, which has broadened the company’s credibility and attributed to its success in the Midwest.

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