Walker & Dunlop Inc. Q1 2023 Earnings Call

Speaker 1: 9 billion was down 46% year over year, compared to 74% decline in the broader market as reported by CoStar. It's important to note as we review quarter over quarter numbers that the Federal Reserve began its tightening cycle at the very end of Q1 2022.

Speaker 1: making it the final quarter of the post-pandemic easy money cycle. Q1 total revenue was $239 million down 25% and diluted earnings per share were 79 cents down 63% from Q1 of 2022. Please remember that that Q1 2022 number

Speaker 1: included a one-time gain triggered by the GFI acquisition that contributed 92 spends to our EPS of $2.12.

Speaker 1: Yet despite dramatically lower transaction volumes due to market conditions, along with revenues and EPS, are adjusted core EPS, a metric we introduced last quarter that strips out large non-cash revenues and expenses to give investors better insight into our current income statement.

Speaker 1: was up 10% versus Q1 2022, and adjusted even DA was up 9% to $68 million. I want to underscore this point. In a quarter of our transaction volumes were down 47% from the previous year. We grew adjusted core EPS by 10%.

Speaker 1: and adjusted EBITDA by 9% thanks to our servicing and asset management businesses that generate significant and consistent revenues.

Speaker 1: Due to dramatically lower transaction volumes across the industry and at Walker & Dunlop, in mid-April we realized we right-sized our business and reduced headcount by 110 employees, or 8%.

Speaker 1: With this action and other cost-cutting measures, the grade will outline in a moment. We have significantly reduced operating expenses to a level where we can withstand transaction volumes similar to Q1 for the rest of 2023. That is clearly not our hope. And as I will outline in a moment.

Speaker 1: We see plenty of potential upside. But for now, we had to take the hard step of right sizing our company and saying goodbye to a group of valuable colleagues who contributed a great deal to our past success.

Speaker 1: We remain focused on achieving our drive to 25 business plan, which has always been highly ambitious, even before the current market dislocation. Yet Walker and Dunlop established its first five-year stretch business plan in 2007, and when the great financial crisis hit, every indicator told us the five-year plan was off the table.

Speaker 1: We remain focused, grow our counter-sipical lending relationships to Canymetti, Freddie Mack, and HUD, and achieve every element of our five-year plan in 2012. We see a similar opportunity today by focusing on operational excellence and cost containment and then leaping forward as the market heals.

Speaker 1: Where is their potential upside?

Speaker 1: The recent banking crisis pulled banks out of the commercial real estate lending market almost immediately. Fannie Mae and Freddie Mac's multifamily lending volumes have increased significantly since then. Should these volumes be sustained throughout the year as the largest GSE lender in the country in 2022

Speaker 1: W&D's GSE volumes will be significantly higher than what we are currently forecasting.

Speaker 1: Thanks pulling back from commercial estate lending in an effort to build more liquid balance sheets has broader implications than just increasing GSE lending.

Speaker 1: Nearly 40% of the $4.5 trillion of total commercial mortgage debt outstanding today sits on bank balance sheets.

Speaker 1: If banks pull back 5-10% in commercial real estate lending, it could create the need for $225-450 billion of new capital from life insurance companies, CMBS securitizations, or private debt funds raised by registered investment advisors like Walker & Dunlop.

Speaker 1: Not only does Walker & Dunlop have the fund management business to raise and manage this type of capital, but we also have the distribution network with over 220 bankers and brokers across the country to deploy it.

Speaker 1: In addition to the capital raising opportunities that the bank pullback presents, there is also a long-term growth opportunity for our Get Brokerage business. Banks have direct relationships with their commercial real estate customers, which means the significant portion of the $1.7 trillion.

Speaker 1: of commercial real estate loans on bank balance sheets today was originated without a mortgage broker. The role of our debt brokers becomes more important than ever in a capital-constrained market as borrowers need a broker's expertise to look broadly across the market for the most competitive capital source.

Speaker 1: In the short term, there is no doubt that a lack of liquidity to the broader market will put pressure on our debt brokerage business.

Speaker 1: But over time, these opportunities could be a significant driver of growth in our broker volumes. There's plenty of concern about commercial real estate exposure on bank balance sheets, particularly as it relates to office loans. Walker & Dunlop has zero credit risk on any office loan or any asset class outside of multi-family. Our ad risk...

Speaker 1: multifamily servicing portfolio continues to be exceedingly healthy as evidenced by the benefit for credit losses we recognized in Q1. From our experience it would take a dramatic increase in the unemployment rate to impact multifamily and fundamentals broadly. The unemployment rate today sits at 3.5 percent.

Speaker 1: And while the Federal Reserve is trying to cool employment and raise unemployment to 5.5%

Speaker 1: Even that elevated level is dramatically below the 9.5% unemployment rate reached in 2009 during the Great Financial Crisis.

Speaker 1: After 9.5% unemployment in 2009, Walker & Dunlop's at-risk portfolio reached 1.64% of loan 60 days delinquent in Q2 of 2010.

Speaker 1: And as the economy healed in 2010 and 2011, loans got current and the total losses to our portfolio after the great financial crisis in 9.5% unemployment was a cumulative 16 basis points. This is not to say there will not be multifamily loan defaults.

Speaker 1: We are already seeing defaults in other lenders portfolios on poorly acquired and financed properties from the past several years, but given current employment levels and the ability for the Fed to start cutting rates should the economy falter. We are currently not concerned about broad credit losses in our multifamily portfolio.

Speaker 1: Housing affordability is a real concern.

Speaker 1: As the average entry-level monthly payments for an existing home increase 32% in 2022, nearly tripling the prior record increase of 13% in 2013, according to Zellman Associates.

Speaker 1: Stretched affordability has been fueled by 2020 to sharp rise and mortgage rates on top of recent years home price growth, challenging future home ownership, likely keeping residents in rental housing longer.

Speaker 1: Walker and Don Lopsack was an acquisition of a client, one of the largest affordable housing owners and tax credit syndicators in the nation at the end of 2021 was very well timed.

Speaker 1: Alliance Financial Performance is terrific, and W&D's capabilities and brand in the affordable housing industry are greatly enhanced due to alignment. Stoeman is another recent acquisition that has performed exceedingly well.

Speaker 1: Zelman's research on all sectors of housing continues to grow its subscription base and make Walker & Dunlop increasingly insightful on single-family, build-for-rent, and multifamily. And as Greg will detail in a moment, Zelman's Investment Banking Division had a strong Q1 and sets W&D up well to expand our investment banking capabilities.

Speaker 1: 2020 as is our small balance lending business.

Speaker 1: Yet, thanks pulling back from commercial estate lending has a dramatic impact on the small balance space. Thanks to Dominate, the small multi-family lending space, and any pullback presents a significant opportunity for a walker and a down-lops small-balance lending business.

Speaker 1: I'll now turn the call over to Greg to discuss our Q1 financial performance and 2023 financial outlook in detail, and then I'll come back with some thoughts about what we see ahead. Greg?

Speaker 2: Thank you, Willie. Thank you. Good morning, everyone.

Speaker 2: As Willie discussed, challenging conditions in the commercial real estate market persisted in 2023, putting pressure on our first quarter transaction volumes, revenues, and earnings.

Speaker 2: The LIDAD-EPS was 79 cents per share, down from $2.12 per share in the year ago quarter.

Speaker 2: As a reminder, the first quarter of 2022 included a $40 million benefit due to the revaluation of our appraisal business upon closing the acquisition of GFI.

Speaker 2: This boosted tall revenues and added 92 cents per share to dilute the PPS in the year no quarter.

Speaker 2: Importantly, adjusted core EPS, which eliminates the large swings that can occur from non-cast revenues and expenses and acquisition-related activity, through to $1.17 per share of this quarter, up 10% over last year.

Speaker 2: As we have consistently seen through the volatility over the last year, our servicing and asset management businesses continue to generate durable and growing cash revenues, which in combination with our variable expense structure, has enabled us to consistently generate healthy adjusted EBITDA.

Speaker 2: Our S-GRO and interest earnings have also benefited from the rapid increase in interest rates over the last 12 months and offset some of the declines in transaction volumes.

Speaker 2: As a result, despite transaction volumes declining 47%, our Q1 adjusted EBITDA was $68 million, and now crawling 9%.

Speaker 2: Adjusted to be able to also benefit from the performance of a Lyinth Encelement, which contributed $33 million of primarily cash revenues during the quarter.

Speaker 2: Notably, gentlemen close the largest investment banking transaction in a TISRI this quarter, providing an attractive upside to the consistent subscription revenue streams that come with its research business.

Speaker 2: We remain focused on adding multi-family investment banking capabilities to complement Delman's existing single-family expertise so that we will be well positioned to take advantage of M&A and other capital markets transactions that arise as the commercial real estate transaction market recovers. Our first quarter operating margin was 14% and return on equity was 6%.

Speaker 2: both below our target ranges, but not unexpected given the decline in transaction activity.

Speaker 2: For the past several quarters, we have been focused on reducing expenses to maximize our operating margins. And in mid-April, we reduced our head count by over 100 employees in reaction to lower than anticipated volumes and continued uncertainty in the commercial real estate transaction market.

Speaker 2: As a result of this reduction, we will incur $3 million expense and expect the savings from the action to largely offset that charge in the second quarter of 2023 with the full benefit of the savings realized in the third and fourth quarters.

Speaker 2: As a result of the cost cutting we have implemented, we eliminated $15 million of annual controllable GNA cost coming into this year and reduced annual personnel related costs by $25 million after the head count reduction in April .

Speaker 2: These were necessary steps to improve our operating leverage in response to a challenging and evolving commercial real estate services plans key. Turning now to slide six in our three seconds.

Speaker 2: Total revenues for our capital market segment, which includes our transaction-related businesses for down 38% to $104 million. Driven almost entirely by the 47% decline in transaction volumes.

Speaker 2: The supply capital to the commercial real estate market remains constrained, and our first quarter-debt broker to originations were affected most, declining 58% to $2.4 billion.

Speaker 2: Until capital begins to confidently flow again, our brokered volumes will remain impacted. A lack of liquidity and higher interest rates is also putting downward pressure on commercial real estate asset values and causing clients that would otherwise be sellers to hold onto their assets.

Speaker 2: Our Q1 property sales volumes outperform the market, but still decline 46% to $1.9 billion. Agency volumes of $2.5 billion were also slow this quarter, but Fannie Mae, Freddie Mackinhead had a real opportunity to supply significant counter-cyclical capital while liquidity remains constrained, and we are very well positioned as their largest partner. The sharp decline in transaction activity during the first quarter impacted the financial performance of the segment.

Speaker 2: which can be seen in the year-ever year declines in adjusted EBITDA and earnings.

Speaker 2: The first quarter is traditionally a slower quarter of activity for this segment, and the macroeconomic challenges we are facing slowed it down even further.

Speaker 2: Adjust the EBITDA earnings for our capital market segment will improve this capital and confidence return to the commercial real estate market

Speaker 2: And more than ever before, our clients are drawing on the expertise of bankers and brokers to navigate the challenging market conditions. And our team continues to deliver significant value on every transaction across the finish line.

Speaker 2: The servicing and asset management, or SAM segment, includes our servicing activities in asset management business, both of which produce stable recurring revenue streams.

Speaker 2: As a result, this segment is largely insulated from the transaction related volatility reflected in the financial results of our capital market segment.

Speaker 2: Sam Reben is increased 25% Euro for you to $133 million due to growth in servicing fees and escrow earnings.

Speaker 2: Also included in our SAM segment is the impact of forecasted losses on our adverse portfolio.

Speaker 2: We are in the process of collecting year-end financial statements for all of our loans. And although that process is ongoing, the weighted average debt service coverage ratio remains above two times thus far. Importantly, the book continues to perform exceptionally well, and we have only seven basis points of defaulted loans in the at-risk portfolio at March 31st. During the first quarter, we performed our annual update to the CISA loss factor.

Speaker 2: A 10-year look back at our historical losses that is used in our loan loss reserve calculation. We updated the calculation with 2023 data, a year of near zero losses, and the loss factor declined from 1.2 basis points to 0.6 basis points as a year with relatively few higher losses fell out of the 10-year look back period. Importantly, our methodology also includes a forward-looking adjustment called the forecast period, which takes into account current economic conditions. We continue to apply an upward adjustment to the forecast period, currently four times greater than our historical loss factor.

Speaker 2: to reflect the challenging macroeconomic conditions which partially offset the overall reduction to our allowance from updating the historical loss factor.

Speaker 2: The update to our CISO methodology combined with the exceptionally strong credit fundamentals underpinning our at risk portfolio resulted in a net benefit of 11Million dollars in the 1st quarter of 2023 compared to a benefit of 9.4Million dollars in Q1 last year.

Speaker 2: Our corporate segment represents the corporate DNA of our business.

Speaker 2: which includes the majority of our fixed overhead expenses and an allocation of our corporate debt expense.

Speaker 2: In the first quarter of 2022, other revenues for this segment included the one-time $40 million dollar game resulting from the GFI acquisition.

Speaker 2: causing the majority of the decline in total revenues for this segment.

Speaker 2: On a consolidated basis, interest expense on corporate debt totaled $15.3 million in line with the annual estimate of $50 million to $60 million that we gave on our last earnings call. Neither of those items impact just the EBITDA for this segment.

Speaker 2: So the $6 million improvement in adjusted EBITDA is driven partially by the cost-saving measures we put in place two quarters ago and partially by an improvement in interest earnings on our corporate cash balances and pledge security portfolio.

Speaker 2: Forecasting transaction activity within today's rapidly changing market is extremely difficult.

Speaker 2: Higher rates and constrained liquidity continue to impact our business and commercial real estate transaction activity.

Speaker 2: We do not have clarity on whether markets will recover in the back half of the year, so we are revising our guidance for 2023 as shown on slide 9 to provide a range for our key financial metrics.

Speaker 2: The low end of our range reflects Q1 macroeconomic conditions persisting, causing death brokerage and property sales transaction millions to remain near Q1 levels for the rest of the year.

Speaker 2: This downside scenario would result in a 35% year-over-year decline in diluted EPS, an operating margin in the mid-teens, and an ROE in the high single digits.

Speaker 2: Our servicing and asset management revenues are not impacted by sustained declines and transaction activity and will continue to provide stability to our revenues and overall financial results.

Speaker 2: As a result, our adjusted EBITDA and adjusted core EPS would decline by no more than 10% year over year in this severe downside scenario.

Speaker 2: The upper end of our range reflects our original guidance that was based on the stabilization of interest rates and the recovery of the transaction markets in the latter half of the year.

Speaker 2: The Fed actions yesterday were certainly step in that direction, but the timing and extent of the recovery remains uncertain.

Speaker 2: Our property sales team is outperforming our competitors, and our debt brokerage group will continue to add value for our clients. Importantly, the GSEs are providing liquidity to the multifamily market today, and given the pullback in other capital sources, the GSEs are providing liquidity to the multifamily market today,

Speaker 2: If these conditions are sustained, the GSCs are likely to lend to their full caps, giving us a path to achieving the upper end of our range.

Speaker 2: conditions are sustained the GSCs are likely to lend to their full caps, giving us a path to achieving the upper end of our range. Flat diluted EPS.

Speaker 2: a low 20% operating margin, a low teens return on equity, and double digit growth in adjusted EBITDA and adjusted core EPS.

Speaker 2: Turning to capital allocation, we ended Q1 with $188 million of cash after paying corporate taxes, company bonuses, earn out installments, and our dividend during the quarter.

Speaker 2: We not only maintain a strong, liquidity position, we are also generating a healthy amount of cash from our core businesses, as reflected by the growth and adjusted EBITDA.

Speaker 2: Importantly, as historical investments on our balance sheet mature in the coming quarters, such as our interim loan portfolio.

Speaker 2: We will retain that cast to further strengthen our cast position. We will continue to allocate capital to our shareholders and yesterday. Our Board of Directors approved, accordingly, given into 63 cents per share. They able to share holders of record as of May 18th. Consistent with last quarter's dividend.

Speaker 2: We view the dividend as an important part of our value proposition to investors and maintaining the dividend at its current level reflects our confidence in our business model and our ability to manage through the current conditions impacting the commercial real estate sector. One month into the second quarter of 2023, the commercial real estate industry continues to face a challenging rate environment.

Speaker 2: concerns over credit fundamentals of non-multifamily assets, and speculation around the long-term impacts of the banking crisis.

Speaker 2: Despite all these unknowns today, we remain focused on our long-term financial and operational goals.

Speaker 2: We feel very good about the team we have in place, the value we provide to our clients, and our ability to manage through the current obstacles to deliver long term value to our shareholders.

Speaker 2: Thank you for your time this morning. I will now turn the call back over to Will.

Speaker 1: Thank you, Greg. The 25 basis point increase in the Fed funds rate yesterday was anticipated. Chairman Powell's commentary that a pause is forthcoming is welcome news.

Speaker 1: This is still restrictive monetary policy, but is the first sign that there may be an end to the Fed's tightening cycle since it began in March of last year. We remain extremely focused on operational excellence, cost containment, and winning every piece of business we can.

Speaker 1: Walker and Dunlop is known for operational excellence. Our margins have been industry leading since we run public in 2010.

Speaker 1: And our Net Promoter Score of 95 reflects amazing client satisfaction with our operations and service.

Speaker 1: The awake can always do better. Our recent account reduction presents career opportunities for our remaining team members, and also the opportunity to use more technology.

Speaker 1: We put Steve Theobald in the position of Chief Operating Officer to drive efficiencies and coordination across Walker and Dunlop, and his team is doing just that.

Speaker 1: It is during challenging times like these when everything is questioned, analyzed, and hopefully made better. With regard to cost containment, great just explained in detail are cost reduction efforts.

Speaker 1: Yet we need to be careful not to be penny wise and pound foolish. We continue to invest in our client relationships.

Speaker 1: We continue to invest in technology. And we continue to invest in our employees, such as not cutting our wellness program, that is 100% focused on employee mental and physical health. We continue to invest in our employees.

Speaker 1: Yet we are delaying our all company meeting from 2023 until 2024, even though we see the value of pulling people together to share experiences and our common identity as W&Ders.

Speaker 1: But that is why I have met with our team members in Bethesda, Denver, Atlanta, Los Angeles, and Irvine in only the last week and will continue to travel the country to meet with our team, thank them for all they do for our customers every day, and ensure that the amazing culture that makes W&D so unique.

Speaker 1: only grows during these challenging times. Finally, we are extremely focused on winning every piece of business we possibly can. Clearly, our scale with Fannie Mae and Freddie Mac is extremely beneficial to winning business.

Speaker 1: With a limited number of lenders with access to GSE capital and they're only being one number one our Debt capital markets team led by Don King is taking advantage of our market position and winning all we can

Speaker 1: Our multi-family property sales business volumes were dramatically down in Q1, yet the number of valuations and broker opinions of value that Chris Mickelson and his team generated were as busy as any quarter ever.

Speaker 1: That investment of time and effort should pay dividends when the transaction markets resume. As I mentioned earlier in the call, it is our expectation our debt capital markets group will become more relevant to the market than ever, given the pullback by banks. But finding financing today, keeps kids healthy and will ensure their ordinary taxation.

Speaker 1: particularly for non-multi-family assets such as office and retail, is extremely difficult.

Speaker 1: Every broker on our debt capital markets team is part of the largest GSE lender in the country and they are actively selling that execution. Our HUD business continues to struggle from a volume standpoint primarily due to HUD inefficiencies, but we are working closely with HUD to help them deploy more capital and meet borrowers needs, particularly for multifamily construction loans given the pullback by banks.

Speaker 1: I mentioned earlier the pullback in need for appraisals due to lower transaction volumes.

Speaker 1: as well as the uptick in volume and our small balance lending business due to the bank pullback. Finally, Alliance and Zelman to great acquisitions continue to generate stable revenues and earnings and present wonderful growth opportunities for W&D in affordable housing and investment banking. We have an incredibly powerful business model that

Speaker 1: and we see a huge opportunity for growth across the business when the market stabilizes.

Speaker 1: I'm fortunate and honored to have 20 years of experience at Walker & Dunlop and 15 as this great company CEO .

Speaker 1: Our president, Howard Smith, has over 40 years of experience at Walker & Dunlop.

Speaker 1: No day, week, year, or cycle is ever the same.

Speaker 1: Yet during challenging times, experience matters.

Speaker 1: Howard and I sat in his office the day the GSEs were taken into conservatorship by the federal government in 2008 and didn't have a clue what the future held.

Speaker 1: It turned out pretty good for Walker and Delo. Hower and I talk the day the world shut down to the COVID pandemic. And then again, the day that the federal government made for abearance available to every loan guaranteed by Fanny, Freddie and HUD.

Speaker 1: We didn't have a clue what the future held, but it turned out pretty good for Walker and Del Lov.

Speaker 1: So while we don't know what will happen tomorrow or how quickly the market heals or further deteriorates, we do know what will invariably happen.

Speaker 1: Rates will stabilize, cap rates will stabilize, investors will transact again, and Walker & Dunlop will benefit tremendously due to our people, brand, and technology. That we know, and that is what we are managing towards each and every day. I'd like to finish by backing up to the financial metrics I mentioned at the top of the call.

Speaker 1: We saw transaction volumes drop 47% in Q1 over Q1-22, and yet we still grew adjusted core EPS by 10% and adjusted EBITDA by 9%.

Speaker 1: We have a fantastic core business model that allows us to continue investing in our clients, people, brand and technology during challenging markets. And with any luck.

Speaker 1: and a ton of hard work, we will grow from here and return to the type of growth and financial performance that investors have come to expect from Walker & Dunlop.

Speaker 1: Many thanks to all of you for your time this morning. And finally, I'd like to thank our incredible team for all their hard work. Kelsey, I'll now open the line for questions.

Speaker 3: So, why is that open for questions? At this time, if you have a question on the phone, please press star 9. Or if you're on your computer, please click the raise hand icon at the bottom of your screen.

Speaker 3: Our first question comes from Jay Grummani of KVW.

Speaker 4: KVW. Okay.

Speaker 1: Thank you very much for taking the questions. I was impressed by the resiliency of credit performance across the bank space. We're seeing increased seasonal reserves across the commercial mortgage read space, similar trends as well as a spike in loans on non-accrual yet W&D if I read correctly has just three loans that are in default across.

Speaker 1: 125 billion of servicing. Can you talk to the multifamily credit trends? I know in the past you've given debt service coverage ratio on the Fannie Mae at risk book. I think that's around two times. What are you expecting in terms of credit and how's the performance held up? So, good morning, Jayden. Thanks for joining us. As you accurately state,

Speaker 1: of that. All of the loans in the portfolio were underwritten with a 125 debt service coverage ratio. Our client basis is...

Speaker 1: All of the loans in the portfolio were underwritten with a 125 debt service coverage ratio, our client basis is...

sort of if you will cherry clients as you could possibly find and that has you know many of our competitors had the opportunity and did dive into lending with debt funds, doing CLOs, holding a lot of bridge exposure on their balance sheet, etc.

know very well have had fantastic revenue growth. Could we have grown revenues and earnings a little bit faster during the pro-cyclical times? Of course, but we decided not to and obviously today we benefit from that discipline. And I would just say you know we we we locked a 120 million dollar Fannie Mae five-year fixed-rate deal yesterday.

and it had a 125 debt service cover and it was a whopping 53% loan to value loan. That's the discipline that has been implemented by the agencies and that Walker Nolop has been a very active participant in lending in that fashion, in that manner. Would that client have liked more than 53% leverage? I'm certain of it.

But that's where we go and that's what makes the servicing portfolio so healthy.

As it relates to the debt service coverage ratio on the at-risk portfolio, do you have that number approximately? Yes. Greg mentioned it in passing, Jayde. We're still pulling together year-end financials so we don't have an update from our September . The last number we gave on that was over two times in September . So far we're through over 50% of our financial analysis.

significant financing that we were working on to take a floating rate loan and turn it into a fixed rate loan. And the borrower went out and priced new three-year caps and rather than doing the conversion from float to fix, they decided to just buy a three-year cap and move forward. It's a very well capitalized client who could go and do that.

While there are clearly some clients who are feeling the pain of having to fund cap costs, to their view, exorbitant numbers given where caps were priced only a year ago, so far it's not a crisis. There are special servicers who have been willing to talk to clients about making making those choices.

neither agency seems to be terribly concerned about that issue today. And just last question would be on capitalization and the reason I ask is in this environment of uncertainty. How are you feeling about the balance sheet liquidity, about leverage, access to financing, and also counterparty risk if there's any regional bank exposure on that front?

So, look, I think we have a very healthy cash position. We're generating liquidity. I think our just to be with the growth shows that. We're confident in our business model and how we're managing this. We do have some, as I mentioned in my remarks. Some assets that are maturing that will add some cash here over the coming quarters. We'll harvest that I think no concerns there.

Our banks are, we speak with them routinely. They're large national banks that fund our business. We have no issues there from an overall liquidity perspective. And then from a regional banking perspective, we spent a lot of time over the last month, month and a half on that.

At this point, all of our cash, the corporate capital that we hold is with large national banks, many of the money centers where we hold it in a fiduciary capacity. We've tried to limit that exposure to no more than the FDIC insured amount. So I don't.

see any material concerns there. There are obviously some customers that want to hold their cash with smaller banks and we're just working with them to make sure they're on top of what's going on out there as the sector is changing rapidly. But at this point, there are no concerns on our end.

Thanks for taking the questions. Yeah, thank you.

of Whitebush Securities.

Good morning, everyone. So my first question, does the low end of the updated guidance assume a steady state from 1 to 23 in terms of liquidity? Or is the expectation in that low end that it would get worse from here, either from a liquidity standpoint and or transaction standpoint?

It's essentially Jay, a pretty steady state from Q1 forward. I think as Willie mentioned, the GSEs are starting to be a bigger part of the market. But as we finished Q1 and really thought about speaking to you all today, we had to take a hard look at what it would look like if the Q1 conditions persisted and that's where we tried to...

and the GSE business. I guess right now what's most actionable given where liquidity is and opportunities for walk and demo up to the grow business?

So, um, first of all, thanks for joining us.

Clearly, being the largest agency lender in the country, we have real scale there, we have real brand there, and we have the best bankers in the country. Fannie Mae just put out their annual top banker list and their top ten bankers across the entire industry, four of the ten were Walker and Millard bankers. Nobody else had more than one.

So we've got an incredible platform, an incredible brand and market share there. And as Greg just said, fortunately we are seeing the agencies back in the market to a distinct degree from where they were in Q1. So that's clearly...

opportunity number one and we're blessed to have both the access to and also scale with the agencies that we have. The second is both our debt brokerage businesses as well as our property brokerages businesses are trying to win every single deal and clearly clients have needs.

There are some clients who are selling multifamily to raise capital for other commercial asset exposure, and therefore we're seeing some sales there on the multifamily side. And as Greg pointed out, our multifamily investment sales volumes were down significantly less than the broader market in Q1. And I'm quite confident that given the strength of our.

brokers across the country that we will continue to outperform the overall market and pick up a lot as that market heals. On the debt brokerage side, it's challenging. Half of the capital that we put out in Q1 was bank capital.

And as I said, my prepared marks, banks have pulled back precipitously. But there's also been $70 billion of private capital raised focused on commercial role state in the last six or 12 months. I was meeting with a large institutional investor yesterday, who has had every private debt opportunity on commercial role state walks through their office.

And it's a huge opportunity for private capital once it gets raised and once we get to, if you will, clearing levels. Many people are waiting for some capitulation as it relates to what is actual, you know, what is the rate you should be lending at and what are the terms and what's the value of the actual asset. But it's great alluded to we've been waiting for the Fed to say we're going to.

And then the SPL side of things, Jay is super.

opportunistic, if you will. If you look at the top 15 small balance lenders in the country.

13 to the 15 are banks. And 11 of the 15 are regional and local banks. JPM and Wells Fargo are the two big ones in there, but all the others, there are a lot of the ones who are in the headlines today as it relates to having real trouble or going away. And so for us being one of the two non-bank lenders to that list.

There's a really great opportunity for us to step into that market and pick up market share.

And behind all of that is just you know making sure that we continue to do what we're doing and then also raising that private capital so that our bankers and brokers have capital at Walker and don't want they can use to meet our clients needs.

Great. And then stay on small balance lending for a second. Willie, I can't remember. Did you give the actual dollar value opportunity you think is out there with maybe with those 15 banks or with the market in general, what type of dollars are we talking about? So we did a billion of SBL last year and we're trying to grow that business doing five billion on an annual basis.

and the opportunity is right in front of us. It's never been a wider landscape J for us to go after, given the pullback by banks and that that space is dominated by banks. And the issue with it is those borrowers.

don't necessarily go out and go to industry conferences or know who Walker and Dunlop or CBRE are. They go to their local branch office of either Wells Fargo, JPM, or PacWest and say, hey, I need a small balanced loan for the multifamily property that I own.

The NBA data on that is that there's just around $600 billion of total multi-family debt on bank balance sheet. So I think that gives you a sense of the total addressable market that we're talking about here.

Okay, 600 billion total multifamily does, but that's everything. Small balance, large balance. Sorry, Jay, just to be specific, that's all multifamily loans, not just small loans. Got it.

And then the last question I have, Willie, when you talked about the $225 billion to $450 billion range of CRD debt on bank balance sheets, what's the difference between the high end and the low end there? Could you break that out a little bit more for me? Yeah, I know, Jay, I was just trying to, so there are a couple things there. There's 1.7...

the need for that much capital that you just referenced. So that $250,000,000 is just that pullback, if you will. The bottom line is two things. One, you could easily say that the market won't need that much capital because values have come down. And therefore, the market doesn't need another 5% or 10% because values have come down. And therefore, you don't need to.

will, that capital has to come from somewhere. And we think that that's a great opportunity for life insurance companies, CMBS, as well as private capital.

And the bottom line is all of those numbers are so huge that for W&D that has an emerging asset management business, we go out and raise a billion dollars, three billion dollars, five billion dollars in debt funds to meet that need. That is a massive opportunity for us that has a very significant financial impact on W&D.

Okay, very helpful. Thank you, Willie. Thank you. Thank you, Jay. We now have a follow-up question from Jay Romani of KBW. Thanks. I wanted to ask about competition on the brokerage level in the multifamily space.

A lot of brokers in the commercial real estate sector are going to be suffering from a lack of business and the office issues could be secular in nature.

I think CBRE expects it to take twice as long for values to recover in office. So, you know as those brokers have a lack of business, they may be looking to more resilient sectors like multifamily. Do you expect an increase in competition? And how do you think about WD's competitive positioning therein?

So, Jade, I guess, first of all, brokers.

can't really switch asset classes in that way. It's very siloed in the extent that the best multi-family investment sales teams do multi-family, the best industrial investment sales team do industrial, and the best office do office. So while there are some that play across asset classes.

mostly people are focused on one asset class. The second thing I would say is that one of our competitors took on a very significant office sales team last quarter and I'm not exactly sure what kind of volumes they underwrote to make that investment, but I would only say that I'm happy that we didn't make a big investment on office investment sales.

at this time in the cycle. And then the final thing I'd say is Chris McElson's gone about building the very, very best investment sales team in the country because he got to build it from ground up. We acquired Angler back in 2015, which was in one office, Atlanta-based investment sales team, and we built it from there and built.

built the very best teams in every MSA in the country other than two Seattle and Phoenix. And so to have that kind of a national platform that has been for all practical purposes hand picked, I think positions us, it's the reason we grew so fast.

We went from less than a billion dollars to 20 billion dollars of annual investment sales over a six year period. And so I think we're exceedingly well positioned there. And obviously it's a competitive market. Obviously we go up against very, very talented and scaled teams with great brands. We go up against very, very talented and scaled teams with great brands.

but we feel very good about where we're positioned there. And also the fact that we're only focused on multi-family. Great, thanks very much. Sure. That's just time. And if you have no further questions, so I will turn this call back to Willie for closing remarks.

Great. Thank you to all of you who joined us today. Hope you have a fantastic Thursday and I would reiterate my thanks to the WMD team for all you do every day. Have a great one everyone. Thank you.