Top Finance Officer Says Acquisition of Investment Sales Platform ‘Initial step’ in Structure a Scaled, National Investment Sales Platform
Under CEO Willy Walker, Walker & & Dunlop has actually gotten a financial investment sales platform he calls a ‘1st step’ in building a scaled, national financial investment sales platform to its robust multifamily finance business.
Besides the family name, the Walker & & Dunlop company that Willy Walker took part 2003 bears little resemblance to the much bigger and increasingly multifaceted company he heads today.
At the time, the company was a 66-year-old, second-generation family company that had simply 47 employees in one workplace in Washington, DC. Today, Walker & & Dunlop is coming off record first quarter revenues with net income of $21.3 million, a 198 % boost from very first quarter 2014 earnings. The firm has more than 450 experts in 23 cities nationwide.
This year, the commercial real estate finance business is making its boldest diversification step yet, including a financial investment sales platform by purchasing controlling interest in Engler Financial Group LLC (EFG).
From 2012 through 2014, Engler finished $2.2 billion in investment sales through 51 transactions. Since the firm’s starting in 2003, Engler has worked on $10 billion of multifamily investment sales deals.
That sort of development and growth is exactly what Willy Walker brought to the firm when he ended up being the executive vice president and chief running officer of Walker & & Dunlop. He has actually acted as the president of Walker & & Dunlop since January 2005 and added the chief executive title in January 2007.
Share with Your Followers on Twitter
Walker, who held a number of senior management positions at TeleTech, including president of the company’s European and Latin American divisions, prior to joining Walker & & Dunlop, said it was never ever his intent to join his successful however little household company. However Walker stated he ultimately concerned recognize that having the opportunity to take the reins and direct a little, long-established business into something larger can be more fulfilling than being a small part of a larger early-stage business.
In recognition of his success, Walker won the Ernst & & Young “Business owner of the Year” award for Financial Services in the Washington Region in 2011.
Having a tech and private equity background, Walker’s value to Walker & & Dunlop had not been going to be on handling the loan origination procedure and underwriting loans. His focus has been strategic– how to grow the company and create partnerships.
The Great Economic downturn was a turning point for Walker. He had actually thought about selling Walker & & Dunlop in 2007, but when a prospective offer broke down after the monetary crisis hit, he decided to go all in and directed the company to pursue distressed financial investment chances. In 2009, Walker & & Dunlop got Column Financial from Credit Suisse.
Even as the office home mortgage market imploded in the summer of 2007, the business did brisk business, positioning more than $1 billion worth of loans in 2007, mostly with life insurance coverage business and banks. And it has actually only grown since. Loan origination volume in the very first quarter of this year totaled $4.3 billion.
Walker agreed to field a few concerns with CoStar News on his objectives for the brand-new Walker & & Dunlop financial investment sales platform and the current outlook in the commercial mortgage arena.
Q: We’re remaining to see a big volume of multifamily property sales today. Is the Engler Financial Group acquisition initially more about getting some of that company while the marketplace is still hot? Or is it more about boosting your CRE financing business? Where will the early benefit originated from?
WALKER: I see the acquisition of EFG as the initial step in a long-lasting technique to construct a scaled, national investment sales platform. Acquisition markets are extremely active right now, and the Engler acquisition will certainly permit Walker & & Dunlop to benefit even more from the high sales volumes.
But the core factor for the acquisition is to make Walker & & Dunlop more strategic to our clients. When a property owner thinks about selling or refinancing a building, they search for a sales evaluation as well as a refinancing choice. Having a Walker & & Dunlop investment sales choice will certainly widen our significance to our clients.
Q: What is the breakdown by percentage of originations for property acquisitions vs. refinancings? Have percentages been moving one method or the other over the past 2 years approximately? And could the acquisition of Engler alter these percentages significantly?
Historically, more of W&D’s financing activity has actually been refinancings instead of acquisitions. In 2014 and through the first quarter of 2015, those numbers were closer to 50/50. With the huge volume of refinancings over the next 3 years, it is tough to believe that refinancings won’t continue to be the significant motorist of funding activity.
However with big portfolios of multifamily buildings being traded today, and the brand name and reputation W&D has for financing multifamily buildings, we could continue to have quarters like Q1.
Q: What prepares do you have for Engler and on exactly what timespan? Do those strategies consist of additional future brokerage acquisitions?
Our decision to get EFG was purposeful– we wished to obtain a platform with a comparable culture and client method as W&D that we could purchase then develop it out throughout the nation. We stated on our earnings call that we hoped to be in 3 brand-new major cities by the end of 2015. Will we get other investment sales firms? Maybe, but the focus now is on building naturally.
Q: Home markets can’t remain hot permanently and there are those that say the multifamily cycle may be due for a slump. How does the acquisition of multifamily brokerage firm aid position Walker & & Dunlop for expansion into structuring financing options for other building types that may be on the rise, such as workplace and commercial for example?
Our strength in multifamily financing is plainly why EFG saw Walker & & Dunlop as a fantastic business to partner with. (However) as we expand our multifamily financial investment sales platform, it is only natural that we would look to expand into other commercial real estate possession classes.
Q: It stays an extremely competitive loaning environment. You and your rivals remain to post quarter to quarter development. At what point does that competitors begin to whittle out some of the players? Do you see added chances for acquisitions similar to those you carried out last fall with Johnson Capital?
From 2004 to 2007, we enjoyed the huge get bigger. Although we had really successful years throughout that period, it was exceedingly difficult to compete with the large nationwide brand names. And it was that experience that made us concentrate on structure scale and a national brand from 2009-2014.
Today we have the national platform and brand, and I think we are clearly benefitting from it. Will there be chances for other acquisitions? Maybe, however just like with W&D from 2004-2007, all boats rise with an increasing tide. So although some smaller sized firms may want to sell to obtain the scale and brand name we have, it is extremely unlikely that there will be distressed chances, until the next cycle hits.
Q: Exactly what challenges and opportunities does the CMBS maturity wave offer Walker & & Dunlop? We have actually seen estimates that just about 14 % of $280 billion CMBS loans developing in between now and 2018 are tied to multifamily. There seems more opportunities in workplace and retail CMBS loaning, which makes up an estimated 63 %.
We have actually scaled our financial obligation brokerage platform, our balance sheet loaning operation, and introduced our CMBS channel to provide capital to all commercial asset classes. Our market management position in multifamily financing offers us with a terrific chance to continue growing and acquiring market share, as our first quarter 2015 outcomes show.
Finally, the only office possession class with refinancing volume development in 2018 and 2019 is multifamily, due to the GSEs lending in 2008 and 2009. So we expect to benefit over the next a number of years as the refinancing wave strikes across all building types, as well as be well positioned in 2018 and 2019 when multifamily is the name of the game.
Q: We asked you this the last time we held a Q&A with you 3 years earlier. At that time, there seemed strong momentum to reform Fannie Mae’s and Freddie Mac’s functions in funding the country’s real estate. That momentum seems to have actually dissipated with the recovery. So, we’ll ask once more: What effect will financial regulatory reform and the future of Fannie Mae, Freddie Mac and other GSEs have on your business?
It is difficult to see any real action being handled real estate finance reform until after the 2016 election. And afterwards, only if one celebration manages your house, Senate and White Home. There appears to be little political will anywhere to deal with such an intricate issue as housing finance reform and the GSEs.