Q3 2021 Walker & Dunlop Inc Earnings Call
<unk> a year ago Apprise performed 97 appraisals in Q3 and grew that to 665 appraisals in Q3 this year up 586%.
We expect the price to be a great standalone business.
But also see significant opportunities to use this valuation tool to make our lending and property sales businesses more competitive.
The acquisition of Alliant capital, which is expected to close later this month is a wonderful move for WMD.
We will immediately become the sixth largest syndicator of low income housing tax credits in the United States and.
In a market leader in the affordable housing industry.
With expertise in lending development and tax credits syndication.
We have been a large affordable housing lender for years, having originated $8 billion of affordable housing loans in the first three quarters of 2021.
To establish an affordable housing powerhouse with the combination of Alliant and Walker and Dunlop.
We have asked Sheri Thompson, who has had tremendous success scaling our HUD business to run our affordable lending platform and partner with Alliance CEO, Sean Horowitz to match Wmd's lending capabilities with alliance tax credits syndication capabilities to bring unified and comprehensive capital solutions to.
Our clients.
Our transaction volume revenue growth and profitability in Q3 are reflective of the team. We have built the brand we have developed and the technology we have implemented.
We have diversified and scale of <unk> to a point, where our biggest competitors are the world's largest banks and services organizations.
Yet, we only have 200 people with over $1 million of revenue per employee.
So as we scale our lending business, we will continue to take share from the big banks, which dominate the small loan market.
We'll continue to gain share in that brokerage and property sales from our large services firms.
And yet underlying Walker and Dunlop somatic growth and profitability is our $114 billion servicing portfolio that kicks off cash very much like costars data subscription business.
And if our emerging digital businesses of small balance lending and appraisals continue to scale, we will dis intermediate the incumbent lenders and service providers.
What should be evident is the <unk> sits at the crossroads of finance and service with incredible people, a great brand and innovative technology and.
And we plan to take advantage of that positioning.
I will now turn the call over to Steve to discuss our financial results in more detail Steve.
Thank you Willy and good morning, everyone.
Our third quarter financial results further demonstrate the diversification of our platform and our team's ability to successfully meet our clients' needs with our broad capabilities and differentiated people brand and technology strategies.
Investor appetite for commercial real estate assets, particularly multifamily continues unabated and our team executed extremely well within a strong market environment to deliver third quarter total transaction volume of $18 5 billion.
Up 120% from Q3 of 'twenty.
In the third quarter, not only did we closed record debt brokerage and property sales volumes, but we also saw Fannie Mae and Freddie Mac returned to the market in a big way.
Which enabled us to provide our multifamily clients with attractive GSE financing options and originated nearly $6 billion of GSE loans.
As shown on slide six.
Year to date transaction volume of $41 billion was up 53% over the same period last year.
Reflecting our ability to leverage <unk> strong brand broad capital solutions and innovative data analytic tools to attract new clients and grow volumes amidst the backdrop of the strong market recovery, we have seen throughout 2021.
We generated near record total revenues of $346 million in Q3, bringing total revenues to $852 million for the first three quarters of the year, an increase of 16% over the first three quarters of 2020.
Origination fees property sales brokerage fees and cash servicing fees were $228 million in the quarter, an increase of 51% over Q3 of last year driven by the strong growth in transaction volume and a significant amount of mortgage servicing rights. We recorded in 2020 that are now translating into cash servicing fees.
Yes.
As you can see on this slide.
The servicing portfolio continues to grow and in the third quarter at 114 billion and with a weighted average servicing fee of $24 six basis points.
The growth in our cash revenue streams drove adjusted EBITDA to $72 million in Q3 and $200 million for the three quarters of 2021 of.
About 60% and 27% respectively over the same periods last year.
At the same time revenues from recording mortgage servicing rights increased 15% from Q3 to 20 and 45% from the previous quarter of this year due to the jump in GSE originations. This Q2, all of which will drive growth in our future cash servicing fees.
Personnel as a percentage of revenues was 49% for the quarter up from 46% in Q3, 'twenty, but down slightly compared to 50% in Q2 'twenty one despite a sequential increase in commissions expense.
Year to date personnel as a percentage of revenues of 48% reflects the continued significant investments, we're making in new business initiatives technology.
Capabilities and our emerging business areas on our path to achieving our drive to 'twenty five objectives, all of which should propel revenue growth and margin expansion in future years.
During Q3, we also recorded one time professional fee expenses of $2 $9 million related to the Alliant transaction.
Which reduced our third quarter operating margin of four percentage points to 27%, bringing year to date operating margin to 28%.
Finally, Q3 return on equity was 22%, bringing our ROE to 20% for the first nine months of the year within our annual target range of 19% to 22%.
Our $114 billion servicing portfolio continues to perform extremely well we.
We have no pandemic related defaults and believe that the fundamentals underpinning the multifamily industry, including continued healthy rent growth figures should support continued strong credit performance of the portfolio.
During the third quarter, we recorded additional provision for credit losses of $1 $3 million driven solely by growth in the at risk portfolio.
Yeah.
At the end of August we announced that we entered into a definitive agreement to acquire Alliant capital and its affiliates.
Under the terms of our acquisition agreement, we will acquire Alliant at a total enterprise value of $696 million.
The purchase consideration will be a combination of cash.
Assumption of certain of alliance that.
$90 million of WD common stock and the potential for another $100 million of cash tied to an earn out over the next four years.
Based on our projected closing in mid November 2021 Alliance that will have an outstanding balance of $145 million, which.
Which will make the cash portion of the purchase price paid at closing $361 million.
We have commitments in place to refinance our senior secured term loan.
$600 million.
Subject to closing the Alliant transaction.
We will use the proceeds to repay our existing $292 million term loan and to fund the cash portion of the Alliant acquisition.
The debt raise which was the first ever software based leveraged loan to hit the market.
Was well oversubscribed and priced at a spread of 225 over one month term silver plus a 10 basis point credit spread adjustments with.
With a floor of 50 basis points and original issue discount of 99, and three quarters well inside of the initial price stock.
The strong interest in the debt and excellent execution is a testament to the strength of our business model and track record as a company since first entering the debt markets in 2013.
We are targeting to close the Alliant transaction later this month.
Based on a mid November closing, we expect the transaction to have a positive but immaterial impact on fourth quarter diluted earnings per share.
While the majority of the costs associated with the transaction were recognized in the third quarter, we do expect to incur additional integration and closing costs in Q4.
Including a onetime write off of deferred issuance costs related to our existing term loan of approximately $2 $7 million, which will offset a portion of the net income expected from align in Q4.
As outlined on slide eight in 2022, we expect aligned to generate $90 million to $100 million of revenues and 45% to 60 of diluted earnings per share.
This EPS estimate includes the costs associated with both the incremental debt service payments from the $600 million term loan and the assumed securitization debt from alliance.
We expect to land will generate approximately $60 million of adjusted EBITDA in 2022.
Providing a meaningful boost to the strong adjusted EBITDA growth, we are seeing from our core business.
These estimates do not include synergies that we expect to realize from new opportunities to refinance or sell the underlying properties and alliance bonds.
For the full year, we are on track to deliver operating margin and return on equity within our annual target ranges.
We are also affirming our expectation for flat to 5% growth in diluted earnings per share.
As reflected in our 27% year to date growth in adjusted EBITDA, We are well on track to achieve our annual goal of double digit growth.
The surge in adjusted EBITDA, we have seen in 2021 is indicative of the strong performance of the cash generated in areas of our business, which are also expected to be the high growth areas over the next several years.
In mid October.
<unk> released the 2022 GSE scorecard.
Which increased the multifamily lending caps for Fannie Mae and Freddie Mac to a combined 156 billion.
From $140 billion in 2021, and 11% increase in total lending capacity.
By 2021, 50% of the Gse's volume must be mission, driven financing on affordable units, which aligns directly with the strategic rationale behind our acquisition of alliance.
The scorecard issued by FHFA acting director Sandra Thompson is positive for multifamily and that it recognizes the forecast for an increase in the size of the multifamily financing market in 2022.
The MBA is projecting that the multifamily market will grow from $360 billion last year.
$409 billion this year.
Our estimate for 2022 was released in August and puts the market at $421 billion.
However, just last week, Freddie Mac issued their own forecast that project the multifamily finance market at $476 billion in 2022.
This is significantly higher than the MBA forecast and consistent with expectations for continued increases in property values and NOI next year.
Year to date in 2021, we have maintained our leading presence in the multifamily market due to our originations with both the gse's as well as life insurance companies banks debt funds and other providers of capital to the multifamily industry.
156 billion for the GSE is a significant lending capacity that provides us with the opportunity to increase our GSE lending in 2022, while the overall growth in the market, who will provide additional tailwind for growing our overall financing volumes.
We ended the quarter with $318 million of cash on the balance sheet. During Q3, we closed the acquisition of dominant associates and continue to actively invest in people brand and technology <unk>.
Including the soon to be announced the rollout of our new automated small balance lending platform.
Yesterday, our board of directors approved a quarterly dividend of <unk> 50 per share payable to shareholders of record as of November 19 2021.
After closing the acquisition of Alliant during the fourth quarter, we expect to have somewhere between 275 and $300 million of cash on the balance sheet.
At the same time, our profitable business model continues to generate strong cash flows supporting the ongoing growth of our dividend over time, and giving us financial flexibility to pursue additional strategic investments that align with our drive to 25 strategy.
We feel very good about our current financial position and our ability to continue generating strong financial results. Our investors expect as we're able to make meaningful progress towards our long term objectives.
Thank you for your time this morning, I'll now turn the call back over to Willie.
Thank you Steve.
I think it's appropriate to look at <unk> growth and development.
As a public company in three phases.
Gaining scale from 2010 to 2015.
Diversifying from 2015 to 2020 and going digital from 2020 to 2025.
When we went public in 2010 as a small family on mortgage Finance company.
The success of our business rests on leveraging our partnerships with Fannie Mae Freddie Mac and HUD to gain scale in the multifamily lending arena.
As you can see on this slide.
During that period of scaling the platform from 2010 to 2015, we grew revenues from $122 million to $468 million.
EBITDA to $124 million and gain the scale and financial success to begin diversifying.
In 2015, we began investing heavily in our debt brokerage platform by acquiring small brokerage firms and hiring brokerage talent across the country. We also entered the multifamily property sales business with the acquisition of Engler financial.
As you can see here the results of the diversification stage were incredible more than doubling revenues from $468 million to $1 1 billion and driving EBITDA up to $216 million.
So having successfully scaled and diversified our business, we now enter the digital era.
The financial drivers of the digital era are spelled out in our drive to 'twenty five business plan and include taking revenues up to $2 billion and EBITDA to over $500 million.
But what exactly does digital mean in the commercial real estate finance and services industry.
We had 203 bankers and brokers at Walker and Dunlop in Q3 of 2020.
And increased that number by less than 10% to 222 today.
Due to the market recovery and use of technology total transaction volume grew by over 100%.
From $8 billion in Q3 of last year to $18 billion in Q3 of this year.
Nothing beats, a strong macro environment, but it is clear we are doing more business with existing and new clients due to our use of technology.
The proof point, we have used over the past six quarters is the number of new customers technology has helped us acquire and how many refinancings are new loans, which are largely identified by our technology, rather than simply financing refinancing existing loans in our portfolio.
And in Q3 2020, the proof points are that 27% of our total transaction volume was done with new clients to Walker and Dunlop and.
And 76% of our refinancings, where new loans to our portfolio.
We can't win and execute this business without fantastic bankers and brokers, but our existing technology continues to generate dramatic transaction volume and revenue growth.
Beyond growing our existing debt and property sales businesses by seamlessly integrating our people brand and technology, we will grow our digitally enabled businesses of small loans and appraisals.
Today, we have national platforms to originate and underwrite small loans and appraisals using significant amounts of technology to find underwrite and close transactions faster and more efficiently than the competition.
These businesses have the ability to scale fast and generate high operating margins, which will significantly contribute to achieving the drive to 'twenty five.
We continue to invest in people brand and technology to scale, our existing financing and servicing businesses along with our new digital businesses. We will soon close on the acquisition of alliance, which brings TWD $14 billion in assets under management.
Our scaled tax credits indicator and 120 talented professionals with deep expertise in the affordable housing industry.
Alliant will be integrated rapidly to combine their tax credit syndication expertise with wmds affordable debt capabilities.
We will also take WD significant investment in technology, and make alliant more efficient and insightful to their clients.
To fund the Atlanta transaction as Steve mentioned, we will refinance our term loan.
I want to thank Steve and his team for their incredible work on what will be the first ever sulfur based leverage loans.
The success of the offering allowed us to drive down pricing and is truly a groundbreaking achievement by our team and partners at J P. Morgan.
Our brand continues to expand in lock step with our success with.
The Walker webcast has accumulated $2 6 million total views and on average over 54000 people are watching it weekly.
We recently hit record total views on one webcast with Peter Linneman at 114000 views with several other guests exceeding 100000.
The huge success of the webcast has propelled our brand across channels contributing to a 48% year over year increase in media hits in the third quarter alone.
Positioning Walker and Dunlop is a thought leader in the industry differentiates us in the market and helps grow our brand and business.
I would like to thank all my Walker knob colleagues for another fantastic quarter and all your amazing work, we're extremely well positioned to continue executing on the drive 25 investing in people brand and technology.
Continuing to build a company that isn't just a specialty finance company isn't just our real estate services firm.
But as a technology enabled enterprise focused on providing capital and solutions to our clients faster and more efficiently than the competition.
I want to thank everyone for joining us this morning, and I'll now ask <unk> to open the lines for any questions.
Alright, now open for questions.
Both times you have a question please.
China right there on your computer please cross to Raytheon icon at the bottom of your webcast screen.
Our first question is coming from Henry Coffey of Wedbush Securities.
Yes, good morning, and congratulations on an amazing quarter.
I guess I don't quite know where to begin since so many things seem to be working in the right direction.
But when you look at the Alliant transaction and you look at the competitive marketplace there.
How how many of your quote large players in that space bring to the table, both the ability to do tax tax related investing and origination.
How common is that to have that that combination.
There are a couple of people in the market Henry.
Who do that but.
But we have a lot of confidence that the combination of alliant and WNBA will make our.
Proposition of our offering into the market extremely compelling and.
If you look at the list of just the tax indicators.
I think if I showed it to you you probably would identify all 10 names on it but if I if I showed it to the average person walking down the street they might know too.
And so it's a very fragmented market. It does not have large players in it and as we have successfully done in the multifamily loan space in lending space.
We already have that league table, Henry kind of if you will stuck to the wall and as we have done very successfully in other businesses. We look at the league tables, we look at our market share and we start to March it up and so alliant as the sixth largest tax credit syndicator in the country has a whopping 3% market share of total Cindy.
<unk> so the ability for us to go from 3% to 6% to 9% and do in that space. What we've done in the multifamily lending space is exactly what we plan to do so it's fair to say that there are other teams out there.
That might work their way to WD.
As happened in the multifamily business.
But load business.
Just one quick thing on that Henry which I would just add is that if you look at the explosive growth in our investment sales business.
That is all due to the team that we have built over the last five years and going out and getting the very best people. We have very clearly hit a tipping point, there where the very best multifamily investment sales brokers in the country are joining Walker and Dunlop platform because they see it as the very best in.
Our country. It took a long time to build up that reputation and obviously, we hope we will have the similar type of success in this line of business.
And then as Youre looking at the brokerage business.
How much of the activity was outside of the core multifamily.
Segment and how much of it was just multifamily.
That's a good question, Steve do you have the percentage breakout of multi versus non multi capital markets. Yes, I don't have that in front of me Willie but anecdotally. This was a very strong quarter for multifamily.
Henry historically, we've been 80% to 85% of our debt financing volume as multi and I E.
This quarters.
Within that within that range.
We follow the residential market of course as do many of my colleagues.
That market has its own cyclical characteristics. It sounds like from just looking at the forecast. The 22 was another up year.
What is what in your mind is driving that and how does that impact your outlook for 2022.
So I.
I think one of the interesting things Henry Au probably watch.
Costar and what I found to be very interesting about costars quarter.
Was that look their core data business continues to chug, along and they obviously dominate the commercial real estate data space, but where they showed weakness was in apartments dot com.
And the reason they showed a weakness in apartments dot com, it's because all the apartment buildings in the United States, our fault and so owners of those buildings don't need to advertise on apartments Dot com and that then led costar to bring down their Q4 expectations on apartments Dot com.
Think that is emblematic of <unk> is look at the multifamily Reits and their Q3 rent.
Rent increases in many instances of 11 12, 13% quarter over quarter.
The fundamentals of the multifamily market are extremely strong right now.
There is supply that is going to be coming online over the next 12 months, but right now the dynamics of that or is that there are far more renters looking for a place to live and there are available apartments that is driving rents up.
That is driving apartments dot com listings down.
And it is setting up for a very <unk>.
Active 2022 as it relates to aggregate origination volumes as Steve mentioned, there is quite a difference between what.
The mortgage bankers Association and Freddie Mac's most recent projection for the 2022 multifamily financing market, but first of all anything over $400 billion is a huge market.
But adding another $30 billion on the top of the MBA estimate, which is what Freddie did last week.
Just shows the.
The growth and opportunity there and I would say, it's very important to remember that for Walker and Dunlop.
Extremely strong positioning with Fannie and Freddie and HUD.
As we all know Q1 and Q2 of this year, Fannie and Freddie were not nearly as significant players in the market as other sources of capital and as everyone saw in Walker and Dunlop financials, we were able to take that other capital and put it to work in the multifamily industry and so while we have a great scorecard for Fannie and Freddie for.
2022, we also have an incredible team across the country that has access to lots of other capital that will fill that gap between what Fannie Freddie and HUD can do and what the market is getting demand in 2022.
Great well, thank you for answering my questions and congrats on a great quarter. Thanks Henry.
Our next question will be coming from Jade Rahmani R. K B W.
Thank you very much I'm curious about your thoughts on what's driving cap rate compression in the multifamily space.
Capital.
Just straight up capital Jade it's not.
As Peter Linneman has said many times on both the Walker webcast as well as in his published work.
He has done decades of research that say that everyone thinks the cap rates are tied to interest rates. They are not they are tied to capital flows and right now what we're seeing in the multifamily market is an unprecedented amount of capital flows.
There is a huge amount of equity capital trying to get deployed into multifamily right now.
And we're seeing buyer after buyer.
Take down very large acquisitions all cash.
Were right now and we just awarded a deal.
Here in Denver, It's a 300 is going to sell for a 315 $320 million and it's going to go down all cash.
And so there is a huge amount of cash in the market a huge amount of equity capital and that is what's driving cap rates.
And do you think that for 2022, the outlook for growth and transaction volumes. Overall is still robust do you expect growth over 2021 for the market.
There is nothing that we are seeing that says that we would not see growth in 2022 over 2021, given the dynamics of the market right now.
Just on the inflation and labor constraints as well as supply chain any impacts you're seeing on your business. Some thoughts that come to mind is potential wage inflation potential staffing constraints and also supply chain impacts that could impact deals you do.
With real estate developers or perhaps on the bridge lending side, those transitional capital improvement projects.
So I had a long debate with one of them walk or NAS Board members yesterday at our board meeting about inflation.
My view that it's more transitory then permanent and his view that it is here and is staying for a long time.
I have to say after chairman Powell.
Did his press conference yesterday, saying he ran dates as transitory position I had a fun time showing that to my board member who still didn't believe it.
Jade look you know more than I do as it relates to the fundamentals of the data and what the outlook is as it relates to inflationary pressures we have been.
Pretty consistent at saying that rates will stay relatively low for as far as we can see.
And that is just due to a.
A yield starved world, where sovereign debt real sovereign debt yields are still negative around the globe and people view.
U S sovereign debt is a great place to be investing and while we've obviously seen the two year move up significantly and the spread between the two year and the 10 year tightened over the past several weeks, we're still sitting in the mid $1 <unk> to $1 60 range on the 10 year and as you know from a historic standpoint, that's still incredibly cheap <unk>.
<unk>.
And so I think we will continue to see a huge amount of transaction volume and I think we will continue to see commercial real estate as something of a safe Haven for global capital. If you think about investing in multifamily you asked the question about cap rates, yes cap rates are low but cap rates right now you can.
Still by a multifamily property you can put positive leverage on that multifamily property.
<unk>.
Still carry that property and have the opportunity to have two things happen, one push rents and to potentially sell it at a tighter cap rate than you bought it.
And so those two variables are making commercial real estate in the United States, and most particularly multifamily and exceedingly attractive <unk>.
Market for global capital to invest which that is driving those capital flows and that is driving cap rates down.
Okay. And then lastly is somewhat related is just on the margin side I've been impressed by with all the growth in the non GSE businesses that margins have come in extremely strong.
For example.
We look at adjusted EBITDA margins came in at 28, 2%, which would be industry, leading compared to commercial real estate brokers and we are expecting 27%.
Post the closing of Zelman and the pending alliance deal.
Do you anticipate margins to remain relatively.
Consistent do you think that there is potential operating leverage how are you thinking about the margin outlook.
I'll turn this over to Steve in a second I'll just give you some really quick thoughts on it.
The first one is I appreciate you pointing out the health of our margins, particularly versus the competitive set.
I would reinforce the fact that we are only 200 people at Walker and Dunlop going head to head against companies that are many many multiples the size of our platform and one of the reasons why I think investors should have great confidence in <unk> as it relates to maintaining both growth as well as profitability.
Is that we start from a very small base and have the opportunity to invest in people and technology to grow our market share versus all of our big competitors that have lots of people and as they implement technology. The outcome of that is a it's very challenging to get existing humans to change.
The way that Theyre doing what theyre doing and to use the technology and the other is as efficiencies come they will be challenge, we're having to lay off human capital.
So I feel that they're sitting there with lots of people and lots of brand and lower margins. We have fewer people were applying more technology and we have the opportunity to grow and take market share. So I'd much rather be sitting where we are than they are and I think that our growth and margins will be reflective about that Steve you want to dive into that question a little bit deeper on your thoughts on overall.
Maintaining our margins, yes, thanks Willy.
Thanks, and good morning, Jade I would echo, what Willie said and add to that.
Near term Jade I wouldn't expect.
A significant change from a margin standpoint I think.
As you know, we're continuing to make investments in growing the business.
Adding alliant is I think actually a positive.
The tax credits syndication business has a relatively high EBITDA margin business.
<unk>.
But to willies point as we as we continue to make those investments in technology and drive efficiencies in the organization.
Over over time and I think this is.
<unk> laid out in our five year plan as I would expect margins to expand from from here over the long run but in the in the near term I wouldn't expect much change.
Thank you very much.
Youre welcome.
Thanks, Joe.
Next question comes from Steve Delaney of JMP.
Steve or cricket.
Sure.
You hear me now, yes, fantastic good morning, Willy and Steve Congrats on a spin my congrats too as the others have on a fantastic quarter.
We've been seeing in.
The direct lenders earnings reports everybody talks about an extremely healthy by Brent market out there.
Sorry, broadly all property types, especially in multifamily and your comments.
You mentioned interim lending and that's not an area that you.
<unk>.
Spoken about.
Much in the last several quarters. So I'm just curious when you look at that are you seeing opportunities on a direct or joint venture basis or do you just see that as a brokered product that you're directing.
Those bridge opportunities more more to debt funds or are others banks.
Sure, Steve and good morning, and great to have you on the call.
So we mentioned it because it's grown dramatically from 2020, when we basically pulled back in that space.
Almost completely just because of concerns about the credit markets during the pandemic and so as I think you recall, we have a joint venture with Blackstone to do.
Bridge loans in the multifamily space.
That joint venture is doing a huge amount of business and it's been a fantastic joint venture I'm not I'm not a huge fan of joint ventures and of all the joint ventures, we've ever done that one is a true success.
And it's great to see the volume we're doing there I think the other thing to keep in mind Steve is this.
There are as you know a huge number of debt funds trying to do both interim as well as permanent financing in the multifamily space today, we have been exceedingly disciplined from a credit standpoint in that product. If you will to not be doing 80% LTV loans that are.
Two year floaters on.
New entrants to the multifamily borrowing market if you will.
And so the I just looked at the largest borrowers in our interim lending program and they are to a person or largest GSE borrowers. These are large institutional borrowers who need a bridge loan because they took down our asset and are waiting to raise the LP equity.
There are some transitional reason on why they are going to take it down and stabilize it and then put permanent debt on it but I won't go to actual names, but take my word for it it's big institutions that are using that product from Walker and Dunlop and so I feel really good that it's not what I would characterize as looking at some of our competitors go.
<unk> high leverage with sort of smaller operators, where I think you can run into some problems on bridge lending. These are established borrowers and lower leverage deals that we're doing.
And it has been a huge value proposition for our origination teams to be able to offer that product to their borrowers on if you will transitional transactions.
Well, it's good to hear because it is somewhat of a frothy market and one.
That raises.
That rising tide lifts all ships.
No concern on the fringe, we're going to see some problems as you suggest.
And then the one quick thing I'd add there Steve is just that many of our competitors. Our CLO. All this paper we are not.
So the CLO market seizes up to any degree and there's a lot that's going to sit on balance sheets.
And so I'm not predicting that the CLO market freezes up anytime soon I'm, just saying that the way. We're originating these loans were either holding them on Walker and Dunlop balance sheet are there going into the joint venture with Blackstone.
And so our funding mechanism here is far more stable than many of the competitors out there that are using the CLO markets to sell the paper, yes. Good point.
My follow up question would be on the.
The 11% increase in the caps.
The GSE cap spot from FHFA.
I think obviously given the market it had to go up.
And it sounds ample but then we have to caution ourselves that 50% of that must be affordable.
So I'm wondering if we're not going to get into a situation where.
Freddie and Fannie fill up.
On the.
The large one.
Segment there.
Borrowers are going to have to look elsewhere, and whether thats the privates, the MBS market or whatever it would seem to me that the GSE.
FHFA may be more flexible on the affordable.
Market demand, but.
Your thoughts on whether the FHFA would consider increasing the caps mid year, if there was.
Tremendous demand.
And whether that any increase might benefit the larger market as well. Thanks.
Sure Steve So two quick things on that one is if we didn't have other capital sources to do our business and if all of our business was done with the big what I call brass and glass owner developers in major cities that are doing a class multifamily I think what you just outlined would be a REIT.
Concerning scenario the bottom line on it is is that <unk> has lots of other capital solutions to meet the needs of the brass and glass borrowers and the second thing to it is that thats not our traditional client base, nor the types of properties that we fund as I mentioned in my comments, we've done $8 billion of affordable lending in 2020.
<unk> alone.
Alone just this year.
And so the affordable space is a space that we've done a tremendous amount of lending in and so as the as.
The taps on them on the Gse's are focused increasingly on affordable a we have a client base. That's focus there b, we have a very strong track record and see we just made the largest acquisition in our company's history to partner and bring alliant into Walker <unk> Dunlop to further attack the affordable industry.
And you have to keep in mind. The fact that Alliant has partnerships and all of their developments with every major affordable developer and owner in the country. So not only is alliant great to us that we have all the deal flow that Elias has its going to come out that we will either be able to refinance or sell but beyond that theyre going.
To introduce us to a whole client base, many of whom we've never met before and so clear.
Clearly, we want as much flexibility for the agencies as possible to continue to meet all the needs of the market not just the affordable part of the market, but with that said and expanded overall cap.
With the percentage that they have focused on affordability I think plays very well into Walker and Dunlop and our strengths and our client base.
And as you pursue Europe portable initiatives are you are you.
Doing any work to try to explore the single family rental market or the build to rent market apart.
Apart from agency type execution it very.
Very much so we have a dedicated team on <unk> I will tell you that having zelman at Walker and Dunlop has been a huge help to us as it relates to all the research that they are doing in both single family <unk> BFR as well as multifamily to be able to if you will analyze these two markets.
Has.
Come together.
As you well know Steve of the single family market and the multifamily market has basically been two different worlds forever to.
To give you an example of that at Fannie Mae as you can imagine I have personal relationships with tens of people hundreds of people on the multifamily side and other than the CEO of Fannie Mae I know almost nobody on the single family side is that kind of bifurcated.
<unk> brings these two worlds together it brings <unk> from the single family side, and <unk> space and it brings lots of multifamily developers into the <unk> space and so the melding of these two worlds. This is really exciting and to have the relationships and research that.
Gentlemen has developed over so many years has been a real value add there and then our team is doing deal flow and research that I know for a fact from a number of very very large players in this space.
Very very innovative and at a level that is far above the competition.
So very pleased with what we're seeing in the <unk> space and the amount of financing we are doing there.
And by the way and by the way just one quick thing. We're also doing sales in the <unk> space. So the team we have here in Denver, they're listing of BFR asset right now.
And so we are also in the multi in the in the investment sales space in the BFR.
In that in that vertical if you will.
I appreciate the comments everyone stay well.
Thanks, Steve.
Thanks, Steve we have no further questions at this time I'll turn the call back over to Murray for closing remarks.
Great.
I appreciate the questions from the analysts I appreciate everyone joining us today as I think it was.
Henry who said his words amazing quarter.
Really great work by everyone on the WD team.
Thrilled at all of the momentum we have gained the strategy we've put in place and the execution, we're getting against that strategy.
Steve Thanks to you and your team Kelsey. Thanks to you great team both of you in California for our board meetings and strategy meetings. This week and I wish everyone. On this call a very very happy Thursday, and great end of the week and thanks again for joining US. This morning have a great one.
Thanks Al.