Greetings, and welcome to the Marcus & Millichap's first quarter 2022 earnings conference call. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Tom Shearer. Thank you. You may begin.
Thank you. Good morning, and welcome to Marcus & Millichap's first quarter 2022 earnings conference call. With us today are President and Chief Executive Officer, Hessam Nadji, and Chief Financial Officer, Steve DeGennaro. Before I turn the call over to management, please remember their prepared remarks in 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 can differ materially from those implied by the 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 filed with the Securities and Exchange Commission on March 1, 2022. 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 financial information presented on this call represent non-GAAP financial measures. The company's earnings release, which was issued this morning and is available on the company's website, represents a reconciliation to the appropriate GAAP measures and explains why the company believes such non-GAAP measures are useful to investors. This conference is being webcast. The webcast link is available on the Investor Relations section of our website at www.marcusmillichap.com, along with the slide presentation you may reference during the prepared remarks. With that, it is my pleasure to turn the call over to CEO, Hessam Nadji.
Thank you, Tom. On behalf of the entire Marcus & Millichap team, good morning and welcome to our first quarter 2022 earnings call. We're proud to report a record first quarter and the third-best overall quarter in our 51-year history. Our team delivered revenue of $319 million, adjusted EBITDA of $52 million, and net income of $33 million in the first three months of the year. Revenue increased 74%, while net income grew 118% over our previous record first quarter in 2021. We registered healthy year-over-year revenue growth in all market segments, including our private client business, which increased 53%, middle market and larger transactions, which were up a combined 134%, and in our financing business, MMCC, which showed an increase of 48%.
These strong across-the-board results once again demonstrate contributions from elevated client outreach initiatives, investments in proprietary technology, retention and productivity of our tenured professionals, and the addition of many experienced producers and teams. Our nine acquisitions since 2018 have also integrated into the company very well and have a healthy growth trajectory. At the same time, favorable market conditions and the urgency to transact continue to foster strong trading volumes. Improving or already high occupancy levels above average rent growth in most property types and the anticipation of rising interest rates are key drivers behind the market momentum. Our extensive geographic and product type coverage enabled us to help a record number of investors execute through the full spectrum of risk-reward and investment options within commercial real estate.
We achieved strong sales increases among the best performing lowest risk assets, namely multifamily, single tenant, and necessity retail, as well as industrial. On the other end, recovery segments including self-storage, shopping centers, hospitality, and even office sales set new first quarter records for the company. We're clearly demonstrating our ability to help investors move capital across product types and markets and bridging private capital with institutional quality assets through our IPA division. These factors enabled MMI to outpace the overall market in the first quarter. Brokerage transactions grew 35% for us year-over-year compared to an estimated market improvement of 20% over the first quarter of 2021 based on preliminary data provided by RCA. Our brokered sales volume grew 94% to a first quarter record of $17 billion, thanks to the significant increase in our larger transactions.
The company's financing division, MMCC, saw strong results as our tenured originators registered another quarter of growth, while recently added teams and firms also made significant contributions. We are starting to see the benefits of bolt-on financing for our major multifamily sale. This is a result of our strategic alliance with M&T Bank announced last year and the addition of Eisendrath Finance Group, a leading major multifamily capital markets team, which we announced in January. Investments in the productivity of our financing team are on track, including technology, underwriting and analytical support personnel, and integration with our investment sales force. On the headcount front, as expected and messaged over the past 18 months, the residual effects of the pandemic, including limited in-person interactions, are resulting in a higher than average fallout of newer professionals.
The competitive employment market has added another layer of complexity for hiring new talent in the current environment. We're starting to see the benefits of a return to in-person recruiting, in-person training, and development sessions, and have launched several initiatives to attract new candidates. Let me also point to our continued success in attracting complementary experienced individuals and teams strategically pursued to avoid overlap with our existing producers. This strategy is augmenting our traditional organic growth, creating client synergies, and contributing to incremental revenue growth. I'm also happy to report healthy readings on key internal metrics going into the second quarter, including steady marketing timelines, low ratio of dead transactions, and pipeline growth over the same period last year. We're also seeing more inventory come to market as many sellers look to redeploy capital and take advantage of strong buyer demand.
As we look forward from a market perspective, despite recent increases in interest rates and the current inflationary environment, underlying real estate fundamentals continue to look favorable. We're seeing sustainable above-trend rent growth in many sectors and recovery rent growth in others, as well as a record level of capital seeking higher relative returns. To illustrate my point about rent growth trends, apartment rents on a national basis were up 17.3% year-over-year, and absorption came in at 110,000 units in the first quarter compared to a long-term first quarter average of 89,000 units. The overall shortage of housing and record home prices, which will become even less affordable as interest rates increase, will continue to support well above average apartment occupancies and rents in most markets.
Of course, dynamics differ by property type, but virtually every segment has key drivers that are attracting capital. Major factors in the near term outlook will be the pace of additional interest rate increases, recession concerns, and the degree to which a broad bid-ask spread may emerge in the marketplace. While these may be risks for the coming quarters, rising replacement costs still compelling commercial real estate yields and tax advantages bode well for an active trading environment. Let's not forget that commercial real estate is widely viewed as an inflation hedge, which is another key advantage for our sector. We closely monitor all economic factors in the changing market environment as we advise our clients on pricing expectations, underwriting assumptions, and the lending environment on a real-time basis.
Internally, we're messaging to our sales force the need to be proactive and vigilant on the work needed to bring buyers, sellers, and lenders together. Our focus on strategies that foster long-term growth is unwavering. This includes the ongoing emphasis on hiring experienced complementary producers, acquisition of synergistic firms, and platform investments to make MMI ever more competitive for our clients and our sales force. To this point, we recently announced the addition of an industry-leading team of specialists in the commercial property auction segment. We view this as another marketing channel for select assets and situations, and the strategy is already adding value for our sales force and clients through some closed transactions. We're also encouraged by our ongoing dialogue with a number of target firms and groups which we hope to add to the Marcus & Millichap platform.
Our balance sheet continues to be a point of strength as we pursue these key growth strategies as our top capital allocation priority. We're also pleased with our recent initiation of a dividend program and remain focused on creating long-term shareholder value. With that, I will turn the call over to Steve for more details on the quarter. Steve?
Thank you, Hessam. As mentioned, we are pleased to have delivered a strong quarter with significant year-over-year growth in revenue and earnings. Diving into the details beyond the headline numbers, real estate brokerage commissions for the first quarter accounted for 90% of our total revenues, or $287 million, an increase of 76% year-over-year. This represents transaction volume of $17 billion across 2,137 deals, and year-over-year increases of 94% and 35% respectively. Seventeen billion dollars in quarterly volume is the second highest in our history. Larger deals help drive average deal size to more than $8 million per transaction, up from $5.6 million a year ago.
Within brokerage, our core private client business accounted for 56% of revenue for the quarter, or $161 million, which was a 53% increase compared to the first quarter of 2021. In the quarter, our middle market and larger transaction segments together accounted for 42% of total brokerage revenue at $120 million, an increase of 134% over last year. Across the two segments, multifamily, self-storage, and retail were the leading growth drivers. We believe there is ample room for future growth through share gains in our core private client segment, as well as the larger transactions market. Moving on to our financing division, MMCC, revenues were $26 million in the first quarter, an increase of 48% year-over-year.
Fees from refinancing, which accounted for 52% of loan originations for the quarter, increased by 32% over prior year. Overall financing transactions accounted for $2.7 billion of volume across 520 deals, representing year-over-year increases of 65% and 5% respectively. The impact of larger transactions is also evident in this financing business. As we have messaged before, MMCC remains a key growth area where we have invested in infrastructure, technology, lender relationships and talent acquisition to support its continued expansion. Other revenues, comprised primarily of consulting and advisory fees along with referral fees, were $6 million for the quarter, up 83% compared to the first quarter last year.
For the first quarter, total operating expenses were $275 million, an increase of 68% year-over-year, but less than the 74% revenue growth during the quarter. Cost of services was $197 million, or 61.6% of total revenue, 230 basis points higher than the first quarter of 2021. As with the start of each new year, commission levels reset for our sales and financing professionals. However, due to higher production levels year-over-year, revenue thresholds were reached much earlier this year. SG&A in the quarter was up 44% year-over-year to $75 million, primarily due to returning of baseline expenses, including in-person events and sales support costs.
However, as a percentage of revenue, SG&A was 23.3% for the quarter compared to 28.1% last year, demonstrating the significant leverage we delivered in the period. We expect costs to continue to ramp on an absolute basis as we return to pre-pandemic operations and activities. At the same time, we continue to watch expenses very closely with a major focus on support staff productivity. For the quarter, we generated $0.81 of earnings per diluted share compared to $0.37 in the first quarter of 2021. Adjusted EBITDA was $52 million, or 16.2% of total revenue, compared to $26 million, or 14% in the prior year. Our tax rate was 26.4% for the quarter compared to 28.8% last year, with the decrease primarily due to increased profitability in our Canadian operations.
Moving to the balance sheet, we remain in a stellar position with $588 million in cash equivalents and marketable securities, which is an increase of $165 million over last year. As a reminder, in February this year, we announced that the board approved both a semiannual regular dividend and a special dividend, both of which were paid on April 4. Returning capital to shareholders is an integral part of our comprehensive capital allocation strategy that prioritizes growing our platform, investing in technology, recruiting and retaining top producers, and enhancing our training programs. Additionally, we continue to pursue accretive M&A opportunities, including those that grow our core brokerage and financing businesses and evaluate complementary business lines that support client needs.
Heading into the second quarter, our key business metrics had positive trends, particularly our deal pipeline, which continues to show healthy year-over-year growth. Cost of services for the second quarter of 2022 should follow the historical trend and increase sequentially throughout the rest of the year as our sales professionals achieve higher commission thresholds. SG&A for the second quarter should also increase sequentially, commensurate with revenue growth and come in at a similar percentage of revenue to Q2 of last year. We expect our full year tax rate to be in the 25.5%-27.5% range. As market dynamics shift due to higher interest rates and the potential for slower economic growth, we remain focused on executing for our clients, pursuing our internal expansion strategies, and achieving long-term growth.
With that, we can now open up the call for Q&A. Operator?
At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.
Great, thanks. Good morning. Hessam, I wanted to ask about a statement that went out in the press release, and I think you reiterated here on the call. You commented on an increased equity rotation across property types and geographic markets as investors, you know, reposition their portfolios in response to the changing market conditions out there. You know, I was hoping you could just elaborate on that a little bit more. I think you talked about some of the sectors in your prepared remarks, but you know, where are you seeing the most significant changes and which property types and geographies are the biggest winners and losers in this recent rotation?
Sure. Hi, Blaine. Great to have you on the call. The most profound source of capital that seems to really be focused on the rotation is apartment equity going into single tenant net lease, going into opportunistic retail, and even some recovery sectors like hospitality, and even office. We have seen that in the past. It's been a steady part of the 1031 exchange market, but in the last 12-18 months, we've seen an increase in that particular volume. At the same time, we're seeing additional property types benefit from this capital migration. Even the office sector is seeing some rotation.
The fact that investors can now look at an economic recovery that's been very broad-based, occupancy recovery that's pretty much positive for every sector out there, has brought more confidence in rolling equity into different property types, and in the case of the execution of the 1031 exchange provision, deferring capital gains taxes. We see that continuing as we speak, and there's a lot of momentum in the market because of that, again, as I mentioned earlier, particularly in the single tenant net lease segment.
Okay, great. Just as a follow-up, you know, any geographies in particular that you think are either benefiting or it's to the detriment in this rotation?
Yeah. The one trend that we have been tracking is the capital coming from the higher priced markets such as, New York, California, and some of the other markets that have benefited from a very, high degree of appreciation over the long term. As we've seen the migration to, the Sun Belt, Florida, Texas, Arizona, Nevada have been beneficiaries of the exchange capital and overall trading volumes going up following the population migration, job migration, and so on. That's not to say that the coastal markets, especially, New York and San Francisco, Los Angeles and even Seattle are not seeing recovery.
If anything, because some of these growth markets led the recovery and the coastal more urban markets lagged, they now have a little bit more runway in front of them in terms of job creation, occupancy recovery, and rent growth.
Got it. That's great. Great color. Just switching gears. On the strength in the investment sales volume that you guys saw in the first quarter, you know, how much of that first quarter activity do you think is attributable to investors getting out in front of potential interest rate increases or inflation concerns? If it's a sizable amount of the activity, should we be expecting a slowdown at all as we look forward into the second or third quarters, or do you think it's sustainable in the near term?
Blaine, I don't know if it's accurate to say that it's the primary driver of the increased sales volume and activity in the marketplace. I would definitely say it's an important factor, but there are a number of different drivers behind the increase in volume. Of course, the economic recovery, the improved fundamentals, tremendous rent growth. I do believe that the urgency to lock in interest rates, go ahead and make your decision to sell, go ahead and make your decision to buy ahead of additional anticipated interest rate increases has been a positive force in the market or a tailwind. The more important question in my mind going forward really has been how will the increased cost of debt impact the pricing equation and the bid-ask spread equation?
Of course, with a 140 basis point increase in the 10-year Treasury so far this year, you would expect that to become a factor, and it certainly has in the dialogue. What we're seeing, though, is that any pricing pressure or bid-ask pressure has been really limited to select property types and markets that have really seen white-hot trading trends and a lot of appreciation. Far, the modest price adjustments that have been justified have come fairly quickly because a lot of those sellers have had tremendous appreciation and have other reasons, business reasons, liquidity reasons, taken advantage of the rotation of capital reasons to go ahead and adjust their price expectation and have an effective strike price and move on.
As the market continues into the year and interest rates increase, that's the key factor that we're watching. The offset really is what I've mentioned on my remarks, and you also mentioned, is this tremendous rent growth. Rent growth cannot be underestimated, whether it's multifamily because of its stability and high occupancies, but also in the recovery segments. That is a significant offset.
Got it. That's very helpful. Last question from me. Can you talk a little bit about your acquisition plan for 2022? What can you tell us about the current pipeline or potential investment opportunities on the horizon? And whether you have any investments in mind that cater to specific sectors within real estate or specific markets as you've seen that rotation, or will it be more focused on the financing side as we've seen recently? Tied to that, have you seen any break in pricing for potential acquisitions as this, you know, market volatility has increased?
Sure. Our strategy hasn't changed since the last quarter earnings call or even before that in that we have always targeted complementary coverage in larger transactions or growing our institutional practice, IPA, growing finance coverage in many metros where we hadn't had representation through a qualified finance expert, expansion into office and industrial as a way to diversify our revenue and of course shopping centers another growth area for us. That's always been the driver of how we targeted folks in property segments as well as various metros. None of that has changed. At the same time, we're looking at opportunities within hospitality to expand.
We're talking to some teams that fit the profile that I just described in multiple markets and boutique firms on both the financing side of the equation as well as the broker side of the equation. What's been happening around us really in the last 6 weeks or so on interest rates and the market volatility concerns really hasn't affected any of our strategy or frankly, the attitude of the target firms because there is an expectation that fundamentals are healthy, and we may have some volatility because of what's going on around us. When you look at both the business fundamentals and the capital markets fundamentals with a financial system that's in really good shape, banks are very well capitalized. It's nothing like 2008, 2009 or the expectations of some sort of a distressed marketplace.
There is a bit of a bid-ask expectation gap when it comes to our acquisitions, but that's always been the case. For us, it's the emphasis on the value of the platform. Now that we've had some experience with acquisitions, being able to showcase the results both for the target firms that have joined us and for us, which have been very, very positive, as I mentioned in my comments, and just building on that. People really aren't joining us just for the valuation or the capital event. They're much more focused on long-term growth and how they can do better for their clients because they're part of Marcus & Millichap.
Great. Thanks, Hessam.
Thanks, Blaine.
We have reached the end of the question and answer session. I'll now turn the call back over to Hessam Nadji for closing remarks.
Thank you, operator, and thank all of you for joining our earnings call. We'll be out on the road. We look forward to seeing some of you and, having you back on our next earnings call. Thanks, and the call is adjourned.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.