Q4 2024 Walker & Dunlop Inc Earnings Call
This morning, we posted our earnings release and presentation to the Investor Relations section of our website Www Dot Walker Dunlop Dot com. These slides serve as a reference point for some of what we're in Grad will touch on during the call. Please also note that bill referenced non-GAAP financial metrics adjusted EBITDA and adjusted core EPS. During the course of this call. Please refer to.
The appendix of the earnings presentation for a reconciliation of these non-GAAP financial metrics investors are urged to carefully read the forward looking statements language in our earnings release statements made on this call, which are not historical facts may be deemed forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 forward looking statements describe our current.
<unk> actual results may differ materially.
And a lot of is under no obligation to update or alter our forward looking statements, whether as a result of new information future events or otherwise and we just refer expressly disclaim any obligation to do so.
More detailed information about risk factors can be found in our annual and quarterly reports filed with the SEC I'll now turn the call over to Willie.
Willie: Thank you Kelsey and good morning, everyone.
Willie: We ended 2024 with strikes.
Willie: Clothing $13.4 billion of total transaction volume up 45% year over year.
Willie: Diluted earnings per share of $1.32 up 42% from Q4 2023 agent.
Willie: Agency loan originations totaled $4.9 billion in the quarter pushing revenues for mortgage servicing rights up 62% from Q4 'twenty three.
Willie: Q4, adjusted EBITDA was $95 million up 8% year over year, and adjusted core EPS was $1.34 down 6% from last year.
Willie: A strong finish to the year helped us close a significant gap to our annual financial targets. After an exceedingly slow start to the year.
Willie: Bringing full year diluted EPS to $3 19 flat.
Willie: Flat from 2023, adjusted core EPS to $4.97 up 6% and adjusted EBITDA to a record level of $329 million up 9% from 2023.
Willie: The challenging macro economic background drop and typically challenging competitive landscape. These results are a testament to the talent teamwork and tenacity of the Walker and Dunlop team.
Willie: As shown on slide four Q4 total transaction volume included $3 $2 billion of Fannie Mae lending up 91% from Q4, 'twenty three and a very welcome surge in lending activity from our largest financial partner.
Willie: Walker and Dunlop once again finished the year as Fannie Mae's largest us partner.
Willie: Honor, we have now won for the past six consecutive years.
Willie: Grew our Freddie Mac loan originations in the quarter by 19% to $1 $6 billion and finished the year originating $5 $2 billion of loans with Freddie Mac.
Speaker Change: Yes, they are for fourth largest opt to go lending partner in 2024.
Speaker Change: The GSA is continue to play an extremely important role in the multifamily financing market and Walker and Dunlop team focus on partnerships with the Gse's have allowed us to remain at the top of the league tables for the past decade.
Speaker Change: We will continue to invest in these businesses by hiring and retaining the very best bankers and our industry improve.
Speaker Change: Improving the processes and systems, we use to underwrite and fund loans.
Speaker Change: And to integrate all of the products and service offerings Walker and Dunlop is built to bring one stop shopping to our clients across the country.
Speaker Change: We closed $3 $5 billion of property sales transactions in Q4 up 20% year over year and a very strong finish to the year given that rates moved up 90 basis points. After the feds rate cut announcement in September.
Speaker Change: Our team did a spectacular job holding deals together as rates and client expectation shifted throughout the quarter.
Speaker Change: For the full year, our property sales team sold $9.8 billion of multifamily properties across the United States up 11% from 2023, and a great accomplishment on the year after only selling to $7 billion of properties in the first half of the year.
Speaker Change: We held our team together throughout the downturn to be able to capture deal flow when markets return.
Speaker Change: And our investment sales team's efforts in the back half of 'twenty four were fantastic and set us up very well for 2025 and beyond.
Speaker Change: We began 2024 with the federal reserve foreshadowing multiple rate cuts at the short end of the curve that would likely to bring down the cost of borrowing and commercial real estate significantly.
Speaker Change: You have to rate cuts didn't materialize in the first half of the year and when they did the long bottoms surged.
Speaker Change: Throughout the year. The WNBA team remained focused at our clients' needs and grew total transaction volume from $6 $4 billion in Q1 to $8 $4 billion in Q2 to 11 $6 billion in Q3 to $13 $4 billion in Q4 Wheeler.
Speaker Change: We love this consistent quarter by quarter growth in transaction volumes as the market began to transact again after the rate increase shocks of 2022 and 2023.
Speaker Change: We ended the year with average production per banker broker of $172 million up $35 million per banker broker from 2023, yet still $12 million less than the $184 million average bank or broker production prior to the pandemic in 2019.
Speaker Change: Given the strength of the WD brand expanded service offering and investments in people brand and technology, who have made since 2019. This metric should continue marching upward as the macro fundamentals to commercial real estate in Peru and transaction volumes grow.
Speaker Change: Point of reference coming out of the pandemic when transaction activity was at its peak our average total transaction volume per bank or broker was $311 million.
Speaker Change: Walker and Dunlop operates in an enormous industry with an extremely large total addressable market and it's up to us our team to grow transaction volumes revenues and earnings in 2025 and beyond.
Speaker Change: Our technology enabled appraisal and small balance lending businesses did extremely well in Q4 and throughout 2024.
Speaker Change: Surprise more than doubled quarterly revenues from $2 4 million in Q1 to $4 9 million in Q4 for total 2024 revenues of $13 $3 million up 43% year over year.
Speaker Change: We achieved significant efficiencies with regard to data processing and appraisal turn times throughout the year and are poised for strong growth from this business in 2025.
Similarly, our small balance lending business grew total revenues by 20% in 2024 and ended the year as the number four small balance sheet lender in the country.
Speaker Change: The prize and STL, where startup businesses only a few years ago.
Speaker Change: And if both established the people processes and technology to scale dramatically in the coming years and as they do we will migrate the data processes and technology from these businesses to our scaled capital markets servicing and asset management businesses.
Speaker Change: Before I turn the call over to Greg to run through our quarterly and annual financial results.
Greg: To focus for a moment on the challenges we have faced over the past two years and the steps we were taking to move forward from here.
Greg: Walker and Dunlop is credit track record is one of the very best in the commercial real estate industry.
Greg: When I joined Walker and Dunlop, we honestly couldn't afford to take credit losses.
Greg: And as we have scaled the company over the past two decades, we have maintained an impeccable credit culture, which has included thorough training investments in and implementation of new systems.
Greg: And a generally conservative approach to credit risk.
Greg: During the pandemic due to changes in workflows and post pandemic due to the sheer volume of business. We made mistakes that have caused us to buy back several loans from the Gse's we.
Greg: We take these buybacks extremely seriously and have implemented new process controls and technology to protect against them happening again, we.
Greg: We have also decided to create a new special asset management group led by seasoned Walker and Dunlop executive Erinn perilous to work out these loans and recover as much value as we possibly can over the coming years.
Greg: I'll now turn the call over to Greg to talk through our financial results in more detail before I return to discuss our outlook for 2025 and beyond Greg.
Greg: Thank you Willy and good morning, everyone.
Greg: Our last call we spoke about the signs of a commercial real estate transaction market recovery and the momentum we highlighted carried into the fourth quarter, leading to the most active transaction market in two years.
Greg: Transaction activity drove year over year and sequential growth in nearly every area of our business, including our highest quarterly diluted earnings per share since the great tightening began in 2022.
Greg: With our strong fourth quarter, we ended the year closing total transaction volume of $40 billion up 21% over 2003.
Greg: Growth in origination fees and MSR revenues combined with our scaled servicing and asset management platform drove 7% growth in total revenues this year to $1 $1 billion.
Diluted earnings per share was $3 19 status for 2024 up slightly from 2023, while.
While we ended the year just below our annual target range recall that through June diluted EPS was down 37% from the first half of 2023 due to interest rate volatility.
Speaker Change: Ill start to the year for the GSE.
Speaker Change: Our execution over the second half of the year highlights the earnings power of the WP platform with transaction volumes recover.
Speaker Change: The strong finish to the year from a capital markets business combined with the consistent revenues from our servicing and asset management business brought annual adjusted EBITDA to $329 million.
Speaker Change: Record for Walker and Dunlop.
Speaker Change: 9% over last year.
Speaker Change: Finally, adjusted core EPS totaled $4 97 per share.
Speaker Change: 6% over 2023.
Speaker Change: Our segment reporting offers insight into how our business has contributed to our financial performance. This quarter due to a number of unique transactions, particularly in our servicing and asset management segment is.
Speaker Change: These are even more helpful than under fully understanding our financial success.
Speaker Change: Starting with our capital market segment as Willy mentioned the recovery in the transaction market in the back half of the year drove significant improvement in the financial performance of our capital market segment as shown on slide seven.
Speaker Change: Transaction volumes grew 45% year over year led by a 56% improvement in debt financing volume and a 20% improvement in property sales activity.
Speaker Change: Segment revenue surged, 40% to $181 million, while expenses grew only 23%.
Speaker Change: As a result operating margins for the segment improved significantly and net income increased 131% to $40 million, while adjusted EBITDA grew to $4 million for the loss of $2 million in the year ago fourth quarter.
Speaker Change: We invested heavily throughout the great tightening to keep our capital markets team in place and this quarter's results validate that strategy and underscore the performance. We expect from this team as the market grows over the coming quarters and years.
Speaker Change: Our servicing and asset management or Sam segment generated strong quarterly revenues totaled $157 million up 13% year over year as shown on slide eight.
Speaker Change: Our servicing portfolio ended the year at $135 billion.
Speaker Change: Generating servicing fees in the quarter of $83 million up 4% year over year.
Speaker Change: License fees and other interest income of $40 million were down just 1% year over year as increases in escrow balances offset decreases in short term interest rates.
Speaker Change: Total net income for this segment was up 7% from a year ago fourth quarter at $37 million, while adjusted EBITDA increased 12% to $124 million.
Speaker Change: During the quarter never salary several unique items in the same segment that impacted our financial results as shown on slide nine.
Speaker Change: First over the course of the year, we estimate the value of realization revenues from the disposition of assets and our affordable housing in the investment portfolio.
Speaker Change: With a final true up recognized in the fourth quarter.
Speaker Change: This year, we did not meet our realization goals due to the slow sales market and as a result, we recognized a $13 million downward adjustment from Natura as shown in the first column on slide nine.
Speaker Change: Property dispositions and realization revenues are all these market dependent and this adjustment is neither surprising nor concerning.
Speaker Change: Given market conditions this year.
Speaker Change: Second.
Speaker Change: During the quarter, we entered into a contract to sell a portfolio of assets, including interest held by a part of the business known as Walker <unk> Dunlop affordable preservation.
Speaker Change: <unk> IP that were acquired as part of the Alliant transaction.
Speaker Change: The sale of one of the assets closed during the fourth quarter generating $11 million of income from operations and $21 million of adjusted EBITDA.
Speaker Change: As shown in the second column of this fund.
Speaker Change: The remaining assets are expected to close in the first half of 2025 as various consents I received.
Speaker Change: WD AAP operate as a general partner of affordable and workforce housing assets with the goal of preserving and extending the affordability of the assets.
Speaker Change: After operating WD since 2021, we reached the decision that the business was not a long term strategic growth opportunity due to the amount of capital required to scale the business.
Speaker Change: The overall return profile of the investments.
Speaker Change: We were able to place the assets with a buyer that carry <unk> mission.
This was a discrete decision to realize a healthy return on this portfolio.
Speaker Change: Actually the part of the business that was no longer part of our long term plans.
Speaker Change: No way a reflection of our dedication to the affordable sector.
Speaker Change: Our broader affordable business.
Speaker Change: Next with respect to credit during Q4, we finalized agreements with Fannie Mae to repurchase two loans that we highlighted in our last earnings call.
Speaker Change: As shown in the third column on slide nine we recognized $4 million of provision related expenses due to valuation declines at our repurchased assets as.
Speaker Change: As well as an additional $8 million of other expenses associated with the repurchases, including immediate repairs and maintenance.
Speaker Change: We have now repurchased five loans from the Gse's within original principal balance of $87 million.
Speaker Change: And recorded $24 million of provision and repurchase related expenses associated with the deals this year.
Speaker Change: We take these repurchases and the mistakes that led to them very seriously.
Speaker Change: In response to those mistakes and the statistic added fraud schemes. We uncovered we made significant changes to our underwriting and quality control processes and recently received feedback from both Fannie Mae and Freddie Mac that our actions are setting the standard amongst us and optical vendors.
Speaker Change: While the financial impact of these repurchases as the media.
Speaker Change: We're taking a long term approach to the value of these assets and established a dedicated team to manage and recoup as much of the value as we can in the coming years.
Speaker Change: While we reposition these assets they will be reflected as real estate owned on our balance sheet.
Speaker Change: As such we will not be marketing the valuation allowance to market as we have during 2024.
Speaker Change: We will take additional expenses associated with operating the assets, while we hold them.
Speaker Change: With respect to our broader at risk portfolio, we oversee nearly 3000 assets in that portfolio and we have an exceptional track record of taking credit risk.
Speaker Change: At the end of the year, we had only six defaults in the portfolio compared to seven in Q3, totaling just $42 million or seven basis points of the portfolio.
Speaker Change: Consequently, we feel very good about the fundamentals of the portfolio and our $28 million risk sharing allowance.
Speaker Change: The final unique item during the quarter was a $16 million benefit from a downward adjustment to the estimated fair value of acquisition related earn out liabilities that impacted both our capital markets and Sam segments. This quarter.
Speaker Change: And in the fourth column on slide nine.
Speaker Change: We underwrite acquisitions based off of historical performance and forward projections and typically structure earn out hurdles to reward outperformance, while protecting our downside risk.
Speaker Change: Great tightening has been challenging and the adjustment to our expected earn out liabilities is an example of that performance based structure protecting our downside as intended.
Speaker Change: In total before items I've, just described had limited impact on our consolidated financial results this quarter.
Speaker Change: The overall impact was a net benefit of $2 million of income from operations or <unk> per diluted share and the transactions also contributed $14 million to a record adjusted EBITDA This year.
Speaker Change: Driven by the sale of a portfolio of assets.
Speaker Change: The point being that our performance this quarter clearly demonstrates the earnings power of the core business.
Speaker Change: While $13 billion of quarterly transactions as a strong start to the recovery. We know that we have a team on the field capable of delivering even stronger results and when combined with our durable recurring revenues, we have the opportunity to outperform as this recovery takes shape.
Speaker Change: We ended the year with $279 million of cash on our balance sheet. The stability of our cash earnings let our board of directors to increase our quarterly dividend for the seventh consecutive year to 67 per share a 3% increase and a 15% compound compound annual growth rate since it was initiated in 2018.
Speaker Change: It is a testament to our business model and we continue increasing our dividend despite the challenging market conditions over the last several years.
Our business model also allowed us to reduce the weighted average cost of our debt over the last 12 months as our cash generation during the downturn demonstrated our strength as a borrower.
Speaker Change: We feel very good about our capital position today, but we are constantly evaluating ways to capitalize on opportunities in the public debt markets to position our balance sheet effectively and.
Speaker Change: And we are keeping a close eye on the debt markets with credit spreads near historical lows.
Speaker Change: We entered 2025 optimistic the commercial real estate market is on the path to recovery and while there are uncertainties like stubborn inflation. The long term path of interest rates and a change in the presidential administration, a few things are clear.
Speaker Change: The underlying fundamentals of the multifamily sector are undeniably strong.
Speaker Change: A large portion of the record new supply in 2024 was absorbed and in most markets nationwide there is rent growth.
Speaker Change: Dry powder with both investors and lenders is abundant and poised for deployment.
Speaker Change: Finally, there is general acceptance of higher for longer among our clients.
Speaker Change: So we expect the market to grow in 2025, but remained choppy from quarter to quarter with the first quarter inevitably slowing down compared to the fourth quarter.
Speaker Change: Whatever shape that recovery takes we expect the primary driver of our growth in 2025 to be a further rebound in transaction activity and with that we will see growth in our cash origination fees from transaction volumes, but also our noncash MSR earnings from higher agency lending volumes.
Speaker Change: We also expect our interest earnings on our corporate cash and escrow deposits to decrease in 2025 as those revenues are tied to short term rates that have already been lowered by the fed.
Speaker Change: Consequently growth in diluted earnings per share will outpace growth in adjusted EBITDA and adjusted core EPS as our revenue mix shifts towards the capital market segment and away from the sand segment.
Speaker Change: As a result as shown on slide 10, our full year guidance for diluted earnings per share is growth in the high single digits to double digits in 2025, while growth in adjusted EBITDA and adjusted core EPS will be flat to up in the high single digits.
Speaker Change: Which would again demonstrate the stability of our cash generation after just reporting a record year for adjusted EBITDA.
Speaker Change: Our team worked tirelessly in 2024 to meet our clients' needs and deliver solid financial results to our shareholders and I am confident that we will build on that momentum into 2025.
Speaker Change: Thank you for your time today I'll now turn the call back over to William.
William: Thank you Greg.
Speaker Change: As Greg just explained our business model teamwork and market presence allowed us to grow and deliver strong financial results in a challenging market in 2024.
Speaker Change: As we embark on 2025, we are both excited and get somewhat cautious in our analysis and predictions for the coming year.
Speaker Change: And while we will try to give as much color and insight into what we are seeing in the market. Today. We're also conscious of two facts.
Speaker Change: For all of our best planning and prognosticating the market will move in unpredictable ways and second regardless of what that future brands. We have the team and business model to continue competing on delivering exceptional shareholder returns going forward.
Speaker Change: It is our vacate base case assumption the transaction volumes yet.
Speaker Change: Debt financing equity placement investment sales appraisals research tax credits syndication et cetera, all grow in 2025, after two and a half years of muted activity.
Speaker Change: There was almost $1 trillion of commercial real estate debt that matures in 2025, yet how much of that number gets refinanced versus extended into 2026.
Speaker Change: To be a major factor on whether we see big growth or modest growth and debt financing volumes. This year.
Speaker Change: The mortgage bankers Association published their commercial real estate financing volume forecast. This morning projecting growth of 16% in 2025 and 22% in 2026.
Speaker Change: There is an enormous amount of equity capital looking to be deployed into the commercial real estate industry.
Speaker Change: Currently there is a bid ask spread between sellers and buyers that is constraining deal activity.
Speaker Change: Interest rates have settled in around four 5%, yet even with the general acceptance of higher for longer some commercial real estate owners and developers seem to still hold out hope that rates will come down, causing them to delay refinancings and acquisitions.
Speaker Change: So where we find ourselves today is with an extremely exciting macro backdrop of commercial real estate being one of the few global asset classes that isn't at peak or Overvalue stable.
Speaker Change: Stabilized interest rates, our need for investors to sell by or refinance simply due to the maturity of their funds or asset level financings and yet caution due to higher interest rates lower values in the macro economy that feels wildly unpredictable.
Speaker Change: The macro drivers in commercial real estate are so big and so real that they will drive the market dramatically. The question right now is when.
Speaker Change: The WD platform is extremely well positioned to meet the market needs today and over the next several years our.
Speaker Change: Our debt equity and sales capabilities go head to head with the world's largest and most sophisticated lenders and service organizations and wins consistently.
Speaker Change: And because of the talents of our bankers and brokers the technology systems and procedures, we use to process transactions the customer service, we deliver on every transaction. The brand we have built and the unique corporate culture that drives WMD everyday.
Speaker Change: <unk> has grown and evolved from a small family owned firm into one of the largest commercial real estate finance and services companies in the world. It is important to keep in mind, how we have evolved and where that evolution positions us today.
Speaker Change: We started as a local firm then went regional then went national and are now embarking internationally with.
Speaker Change: We began as a brokerage firm taking no principal risk on loans and have expanded into taking risk on debt than equity and now properties.
Speaker Change: We began selling one product that to our customers and now sell debt equity hard asset research investment banking asset management and appraisals.
Speaker Change: Throughout the evolution of <unk> scale and product offering the marketplace huge value on those who control capital developers and owners, who have brought institutional capital to the market.
Speaker Change: Over the past 15 years, the growth and expansion of private equity and credit in the United States has been astounding.
Speaker Change: And while there are many players in both the private equity and private credit markets.
Speaker Change: The Mega private equity firms are raising capital and expanding their platforms far faster than the competition.
Speaker Change: And while they are seemingly one the capital aggregation battle. They are now faced with a capital deployment challenge.
Speaker Change: Where and how they can invest vast sums of capital to meet their investors need.
Speaker Change: What we have built at Walker and Dunlop is a scaled capital deployment platform.
Speaker Change: We take tens of billions of dollars every year and deploy it into the commercial real estate through our work valuing selling and financing properties.
Speaker Change: So the challenge and a huge opportunity for W. Indeed is how we leverage our client relationships valuation capabilities and transaction expertise to continue generating alpha for our investors partners and clients.
Speaker Change: We must continue partnering with the world's largest capital providers to feed them investment opportunities and deploy the capital they have so successfully raised.
Speaker Change: We recently announced the expansion of our capital markets business in three significant ways.
Speaker Change: First in Q4, we announced the expansion of our investment sales capabilities into the hospitality sector.
Speaker Change: A terrific team and are already seeing great connectivity between our hospitality sales and financing teams.
Speaker Change: In January we hired an exceptional affordable housing team with deep affordable housing client relationships and expertise.
Speaker Change: As we continue to build out our affordable platform that now includes financing sales equity and tax credits syndication.
Speaker Change: Specced, our affordable transaction volumes and our brand in this important area of the multifamily market to benefit greatly.
Speaker Change: Finally last week, we announced our expansion into Europe with the hiring of a very talented London based finance team.
Speaker Change: This move into Europe is very exciting for several reasons.
Speaker Change: After growing WMD it'd be one of the largest commercial real estate financial services companies in the United States, we have the scale and client base to expand beyond our borders.
Speaker Change: Second while Europe is currently under a tremendous amount of pressure due to limited growth and technological advancement.
Speaker Change: The European commercial real estate market is vast and presents a huge opportunity for continued <unk> growth.
Speaker Change: Third as the U S economy continues to attract foreign capital, having connectivity into European Middle Eastern and Asian investors is exceedingly important.
Speaker Change: Walker and Dunlop is London office will be both the hub of our European operations and a bridge to the Middle East and Asia as we both work for clients in those geographies and Shepherd their investment dollars into the U S market.
Speaker Change: <unk> should expect further investment by WMD to broaden our offerings across all commercial real estate asset classes and expansion abroad first in Europe, and then in other geographies.
Speaker Change: We are now in the last year by five year growth plan called the drive the 25, which includes growing our debt and property sales volumes scaling our servicing and asset management businesses and establishing our newer businesses of small balance lending appraisals and investment banking.
Speaker Change: We said on this call last year, the great tightening and subsequent market disruption set us off course from achieving to drive 25 volume and financial targets.
Speaker Change: Wmd's durable income streams from servicing and asset management allowed us to continue investing in our people and strategy of scaling our existing businesses and adding new innovative technology focused businesses.
Speaker Change: We are now beginning to formulate our next five year bold highly ambitious business plan that we will outline a year from now.
Speaker Change: For now we remain focused on achieving as much of the drive to 'twenty five as possible as we know it is the right long term strategic direction for our business.
Speaker Change: I would like to sincerely. Thank every member of the Walker and Dunlop team, who work so hard in 2024 to meet our clients' needs and generate strong financial results in a challenging market and.
Speaker Change: And I'd like to thank our shareholders, who continue to believe in our long term vision for this company.
Speaker Change: That ends our prepared remarks for this morning, and I'd like to now ask the operator to open the line for questions.
Speaker Change: Thank you he would like to ask a question. Please signal by pressing star one on your telephone keypad, Gary joining us today using a speaker phone. Please make sure. Your mute function is turned off to allow us to increase our equipment again. It has to start Keith celebrated digit wanted to have a question or comment.
Speaker Change: We'll pause for just a moment.
Speaker Change: We will take your first question from Jade Rahmani from K B W.
Speaker Change: Thank you very much.
Speaker Change: Our strategic question would be do you see opportunities to more formally aligned with.
Speaker Change: An alternative asset manager and their insurance subsidiaries, perhaps through joint venture or partnership.
Speaker Change: To help you know.
Speaker Change: Drive, they're asset needs and increase fee revenue for WD.
Jade Rahmani: Good morning, Jade, Thanks for joining us I'm sure.
Speaker Change: There are.
Speaker Change: Plenty of firms that we have partnered with in the past and work with every single day and as you know we have been scaling our asset management business.
Speaker Change: Over the past several years and feel very confident we can continue to do that on our own.
Speaker Change: But.
Partnership is always a potential.
Speaker Change: And the low income housing tax credit syndication business W. D affordable housing.
Speaker Change: Can you give an update on the outlook for that overall business.
Speaker Change: Away from the W. D E P. Our exit.
Speaker Change: Just wanted to see your thoughts of the core what was alliance.
Speaker Change: You know their business and how you're viewing the outlet there.
Speaker Change: Sure Jamie.
Jamie: We made some management changes at the end of Q3.
Speaker Change: But we've been very.
Jamie: Pleased with and seeing the team react too.
Jamie: Has.
Jamie: All of us having great confidence in the continued.
Jamie: Growth of that business.
Jamie: And I would say that theres plenty of talk in.
Jamie: In Washington, right now as it relates to low income housing tax credits and their importance.
Jamie: Two the affordable housing industry and.
Jamie: So either the maintaining or expansion of the logitech.
Jamie: Budget allocation.
Jamie: Would be important to the continued growth of that business and as I mentioned in my comments.
Jamie: He brought a cross a extremely.
Jamie: Capable affordable housing team that has an incredible track record in the market and so adding that team to our existing team.
Jamie: The continued integration of the Alliant.
Jamie: Business into Walker and Dunlop all has us feeling very good about our affordable strategy and.
Jamie: We put together.
Speaker Change: Thank you very much.
Jamie: Thank you.
As a reminder that is the start Keith followed by the digit one if you have a question or comment.
Steve DeLaney: Your next from Steve Delaney from citizens JMP.
Steve DeLaney: Good morning, and congratulations on a strong close to 2024 and another dividend hike.
Steve DeLaney: Really the.
Steve DeLaney: Fannie Mae and brokerage businesses, obviously jump jump off the page standing out in the fourth quarter is the big drivers.
Steve DeLaney: On the Fannie business.
Steve DeLaney: Was it was it one or two mega deals in there or are you just seeing.
Steve DeLaney: Fannie being broadly more aggressive when it is.
Steve DeLaney: Pricing relative to Freddie Mac.
Steve DeLaney: Whitestone much about concentration in band it.
Steve DeLaney: The question. Thank you.
Steve DeLaney: Sure, Steve and good morning, and thanks for joining us.
Speaker Change: Sure. It was it was it was standard deal flow.
Speaker Change: So it was not a single large transaction or from my recollection quite honestly anything of any real scale. So it was it was very good flow business.
Speaker Change: I will tell you that the average servicing fee, although we don't disclose the average servicing fee was actually down in the quarter, which would be somewhat counterintuitive.
Speaker Change: Given that it was a very large volume of flow business. Typically you would have reduced servicing fees on having done a number of large transactions.
But as we have seen in the past when rates move up.
Speaker Change: Guarantee fees and servicing fees get squeezed. So it's not that surprising that in a quarter, where we were trying to make deals work that servicing fees were under pressure.
Speaker Change: We had seen servicing fees starts to return to normal earlier in the year on very depressed volume so to be perfectly direct about it will take higher volumes and a little bit lower servicing fees any day, but that was the dynamic in Q4 as it relates to our Fannie business I think the other piece to it.
Speaker Change: Is that both agencies, Steve in the back half of the year looked at where they were in the first half of the year and said, we got to get we got to get back into the market. Unfortunately, both of them came back in.
Speaker Change: And as you know Freddie Mac finished the year doing close to $65 billion on a $70 billion cap Fannie Mae only did 55 billion on a $70 billion cap.
Speaker Change: Fortunately the regulator raised their caps for 2025 from $70 billion to $73 billion each.
Speaker Change: And so they both have plenty of opportunity in 2025 to increase origination volumes.
Speaker Change: Okay.
Speaker Change: With all you have done in the last couple of years in terms of capabilities and bringing teams in would you say that as you sit today the business. The WD business model is now essentially complete or are there other.
Speaker Change: Important capabilities that you'd like to add on that you don't have today.
Speaker Change: You're making me feel old Stephen asking that question, because you and I have been on these calls very very long period of time.
Speaker Change: Okay.
Speaker Change: No not at all.
Speaker Change: Good.
Speaker Change: I think you know me I think you know me and you know this firm well enough to know that we're never we're never satisfied we never standing still on thing we've done it.
Speaker Change: Look the competitive landscape that we compete in every day.
Speaker Change: <unk> evolved dramatically just in the last 14 years, as Walker and Dunlop and a publicly traded company and as I tried to outline in the call in my prepared remarks.
Speaker Change: The breadth and scale of the enterprise that we have created over that period of time has allowed us to remain extremely competitive against some of the world's largest financial services and real estate services companies.
Speaker Change: <unk>.
Speaker Change: So while we feel extremely well positioned today, we are by no means complete.
Speaker Change: The service offerings that the scaled commercial real estate services firms offer.
Speaker Change: The brands. They carry are a huge competitive force every single day, the balance sheets and financial wherewithal.
Speaker Change: Large banks and financial services institutions that we compete with are a huge competitive factor every single day and so I think that what we have been able to do is stay very focused on the parts of the market, where we compete make sure that we have the very very best team and customer service.
Speaker Change: Is that we can put forward and as I said, we we win.
Speaker Change: But that comes from that focus it comes from the team.
Speaker Change: And it certainly <unk> has never been a macro play many of the companies. We compete against are macro place their big if the market is moving positively move positively if the market goes down they move down we have tried to be.
Speaker Change: Somewhat of the union, the Yang or the or the zig when others Zag.
Speaker Change: I will say our total shareholder return in 2024 was disappointed Wheeler.
Speaker Change: We lagged in 2024 versus the competition.
Speaker Change: And our investors have my commitment and our team's commitment to continue to focus compete and outperform going forward.
Speaker Change: And that's due to the investments we've made and the positioning of the firm today.
Speaker Change: I appreciate the additional comments Willy and all the best for 2025.
Willy: Thanks, Steve.
Willy: Well hear next from Jay Mccanless from Wedbush.
Jay Mccanless: Hey, good morning, everyone.
So I just wanted to touch on the comment you made in the prepared remarks about clients are accepting the higher rates and looking looking to still do deals.
Jay Mccanless: It's probably a loaded question but.
Jay Mccanless: Is extend and pretend done.
Speaker Change: I know you talked about it in your comments Willy but.
Speaker Change: If clients really are having to deal with higher rates are we finally going to see some assets and especially some problem assets get worked out and turned over this year.
Speaker Change: Jay.
Your question is a very good one.
Speaker Change: Hey.
Speaker Change: It's a hard one to give a broad.
General response to.
Speaker Change: What we are seeing is.
Speaker Change: That.
Speaker Change: Many borrowers who have floating rate debt on that asset.
Speaker Change: Would like to swap that debt into a fixed rate loan, but in many instances cannot because it would require a cash in refinancing and so what we find ourselves confronted with daily.
Speaker Change: His clients of Walker, and Dunlop, saying I'd like to refinance its existing financing, it's either terming or I just don't like the overall floating interest rate on it we go to underwrite a fixed rate loan.
Speaker Change: Find that to be able to do a fixed rate loan and bring down the effective cost of borrowing which is going to require a recapitalization from the equity side.
Speaker Change: The client will say I don't want to go back to my L. P and ask for a capital call on this asset and they will either stick with the existing financing or they will put the property up for sale. If they happen to have a realized gain on the value of the asset we saw a lot of that at the end of 2020.
Speaker Change: Four and we're seeing that continue into 2025.
Speaker Change: To your specific question as it relates to does that then caused distress in the markets.
Speaker Change: You cannot look at the amount of both equity capital and debt capital that is out in the market today and say that distressed opportunities don't have the opportunity to be worked out that.
Speaker Change: That may well result in certain investors certain owners, taking a loss on the property, but what that doesn't allow for is any broad scale distress as it relates to overall market movement. So what I would think will happen quite a bit in 'twenty five is that the clock will run out on certain.
Speaker Change: <unk>.
Speaker Change: Either fund life or asset level financings and the ability to extend into the future won't present itself as I said in my prepared remarks, how much of the outstanding maturities actually get called in 'twenty five versus extended into the future.
Speaker Change: We'll make a difference between whether this is an enormous debt refinancing market or whether it is a moderate debt refinancing market as I put forth in the mortgage bankers Association predictions for 2025.
Speaker Change: I think the most important thing from a Walker and Dunlop standpoint is to make sure that we are there with our clients to help them work through any of these situations whether that means they just wanted to do a straight out refinancing whether they have to do a cash and refinancing whether they want to sell the asset or they want to bring in new partners to reoccupy the asset.
Speaker Change: Thank you for that Willie.
Speaker Change: The second question I had last call you talked about.
Speaker Change: Possible timeline for the GSE is coming out maybe like 2026 27.
Speaker Change: As to your thoughts on that process.
Speaker Change:
Speaker Change: Yeah for a second.
Speaker Change:
Speaker Change: Look the new HUD Secretary mentioned last week that.
Speaker Change: The privatization of Fannie Mae and Freddie Mac.
Speaker Change: Should be on the radar screen in and focused on.
Speaker Change: The President Trump has mentioned the same during the campaign to my knowledge is not mentioned it subsequent to his inauguration.
Speaker Change: And the Treasury Secretary was asked during his confirmation hearings about the privatization of Fannie Mae and Freddie Mac. So the topic is clearly on the table.
Speaker Change: The real question will be is it an issue they focus on in 2025.
Speaker Change: As a potential offset to the tax bill and either continued.
Speaker Change: <unk> of the tax cuts and jobs Act.
Speaker Change: Or new tax cuts that president Trump would like that are implemented and using the privatization of Fannie and Freddie as an offset.
Speaker Change: To those tax cuts if it stays related to the tax bill it probably gets on the fast track and get very focused on in 2025 and that would be both very interesting and exciting because were it tied to the tax bill there would be a lot of political will.
Speaker Change: Try and getting it done.
Speaker Change: If it misses the twenty-five window and being related to paired with the tax bill It turned back to the old debate as it relates to Fannie and Freddie were taken into conservatorship should they stay in the federal government should they be spun back out.
Speaker Change: They spun back out what are their footprint when they get spun back out is an explicit guarantee as an implicit guarantee doesn't go administrative action does it go legislative action et cetera et cetera.
Speaker Change: So we're at to Miss the window on the tax Bill.
Speaker Change: I would lower my odd that's something actually gets done with Fannie and Freddie just because we've seen this happen before you're into the midterm elections in 2026, and it's a very complicated difficult issue to get either consensus on Capitol Hill or the political we.
Speaker Change: Well inside of the west wing to get something like that gun.
Speaker Change: But if it stays on the radar screen for 2025 in conjunction with the tax.
Speaker Change: Bill.
Speaker Change: I think it could be very exciting and very interesting to see how it evolves.
Speaker Change: Alright, Thank you that will be one one more for me.
Speaker Change: So I didn't hear you guys are expanding into hospitality, maybe give us a thumbnail of how you're thinking about that market and especially with what that one point with some overcapacity there would love to get your thoughts on that one and thank you for taking all my questions.
Speaker Change: Sure Jay.
Speaker Change: Looked at that.
Speaker Change: What we have seen in our multifamily business.
Speaker Change: That we were one of the largest multifamily lenders in the United States and back in 2015, we decided to move into multifamily investment sales and with the acquisition of Engler financial and under the Great leadership of Chris Nicholson, we have seen that firm come into Walker and Dunlop and.
Speaker Change: <unk> tremendously.
Speaker Change: B and incredible.
Speaker Change: Both standalone business.
Speaker Change: A business that has enhanced our relationship with multifamily owner operators and developers tremendously.
Speaker Change: It also allowed for the timing of investment sales and the financing on a scale that we quite honestly never projected.
Speaker Change: We have a much much higher rate of tying our financing to the investment sale than we ever projected when we entered this business to start with so what we have and one of the other things for people to remember in all of that is the following if you look at the agency League tables, Fannie and Freddie.
Speaker Change: A decade ago their league tables had a number of large banks at the top of the league tables, because they were big partners to the agencies and they did a lot of multifamily financing you look at the league tables today in the tops of the league tables are only filled with broad finance.
Speaker Change: Our real estate services firms, such as Walker and Dunlop such as CBRE that have the combination of investment sales tied in with financing and.
Speaker Change: So that's been the competitive landscape today, where you can go to the client and provide them with one stop shopping if you will.
Speaker Change: And so as a result of that we look at that example in multifamily and we say we need to do that in hospitality, we need to do that in retail so bringing on the hospitality investment sales team in Q4 was a very significant move for us to move to another vertical.
Speaker Change: Interestingly Jay there are a very large number of investors in multifamily who also happen to be investors in hospitality and so if you look at the existing client relationships with Walker and Dunlop has.
Speaker Change: From a multifamily both investment sales and financing standpoint.
Speaker Change: Many of them also had been borrowers of Walker and Dunlop on the hospitality side and now we've just added in the investment sales capability.
Speaker Change: The hospitality market.
Speaker Change: As it relates to the underlying macro fundamentals of hospitality as you well know.
Speaker Change: Leisure hospitality has been an extremely strong asset class post pandemic.
Speaker Change: Urban hospitality not so much clearly there are certain urban assets that have done exceedingly well, but there are also some urban centers I can just poke at San Francisco for a moment that have a lot of distressed.
Speaker Change: Core hospitality assets that are very much struggled since the pandemic due to.
Speaker Change: Few people coming back to work and some people traveling to those major urban centers.
Speaker Change: Look there is a huge opportunity in that market for Walker and Dunlop too.
Speaker Change: To grow and we feel like we have hired a fantastic team to spearhead those efforts.
Speaker Change: I said in my prepared remarks, we will continue to add both to our hospitality investment sales capabilities as well as focus on adding investment sales capabilities into other commercial real estate asset classes.
Speaker Change: Sounds great. Thanks, guys appreciate it.
Jay Mccanless: Thank you Jay.
Speaker Change: At this time I would like to give a final reminder, that it is the start Keith followed by the digit wanted to see if a question or comment.
Speaker Change: Well hear next from a follow up from Jade Rahmani from K B W.
Jade Rahmani: Thank you very much I was wondering if you could give an update in terms of what youre seeing from Fannie Mae volumes. So far this year and also just looking at your historical mix between Fannie and Freddie you know I think there could be a decent opportunity to grow Friday.
Speaker Change: Do you agree with that.
Speaker Change: Yeah.
Speaker Change: So jade.
Speaker Change: No no.
Speaker Change: Well, no we don't sort of give mid quarter.
Speaker Change: Volume guidance or what we're seeing generally speaking both agencies have started the year in typical fashion. If you will get done with the previous year.
Speaker Change: Refocus on what's coming ahead and go to conferences in January to meet with partners and clients and then sort of get back to work. So.
Speaker Change: Nothing to report on there as it relates to either Fannie or Freddie or their outlook for 2025.
Speaker Change: And as it relates to Freddie Mac.
Speaker Change: I mentioned in our prepared remarks, we came in fourth with Freddie Mac in 2024 that was a.
Speaker Change: A very solid year for us, but as you know very well we fell one ranking point in the rankings, we were very close to the number three Freddie Mac off they go.
Speaker Change: Partner in 2024, but.
Speaker Change: One of our other large competitors jumped ahead of us.
Speaker Change: That's disappointing we're very focused on climbing back up in the league tables and to your point there is.
Speaker Change: There's a huge opportunity as I mentioned previously Freddie Mac, the $10 billion more.
Speaker Change: Multifamily lending in 2024, then Fannie Mae.
Speaker Change: And so as a result of that we clearly would like to do more with Freddie Mac and we'd love to move not only back to where we were last year as number three but higher on the Freddie Mac League tables.
Speaker Change: And so we have the team we have the relationship with Freddie Mac and we clearly have the client base to do just that its up to our team to go and do it.
Speaker Change: Thanks, a lot.
Jade Rahmani: Thank you Jade.
Speaker Change: And at this time there are no additional color. Thank you I'd like to turn the conference back over to Mr. Walker for any additional closing remarks. Mr. Walker. Please go ahead.
Speaker Change: Thank you very much as I said at the end of the call want to congratulate and thank the WNBA team for all they did in 2024 to mitigate this is just that it was.
Speaker Change: Thank you to kelcey in general from an IRR standpoint for all your work in this earning season and thank you Greg for your prepared remarks and exceptional work at WMD.
Speaker Change: That concludes the call for today and thank you everyone for joining us.
Speaker Change: That does conclude today's teleconference. We thank you all for your participation you may now disconnect.
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