Furthering the positive signs for equity flows, Blackstone’s BREIT had the lowest redemption requests in March of the past 23 months and was able to meet all redemption requests for the second consecutive month. As the largest non-traded REIT pivots from net seller to net buyer, it will spur transactions that have been absent from the market for the past several quarters. At the beginning of the year, we structured our senior management team, promoting Kris Mikkelsen and Don King to run our Capital Markets business, Sheri Thompson to run our Affordable Lending business and Alison Williams to run our Small Balance Lending, all reporting to me. I am both pleased and extremely excited to see how these senior leaders have not only jumped into their new leadership roles, but have driven increased collaboration across W&D.
And it is very evident as I meet with clients that our small company touch and feel, combined with our large company capabilities, is winning. W&D sits in a unique position in the market, where we go head to head with the large banks and service companies that have tens, if not hundreds of thousands of employees, and then the smaller boutique companies that don’t have the recurring revenue streams that we have to continue investing in their people, brand and technology during challenging markets. This market dynamic presents a huge opportunity for W&D to differentiate ourselves and continue gaining market share. Our long-term growth strategy, The Drive to ’25, continues to underpin the way we manage our business through up and down markets.
We continue to focus on achieving our ambitious goals, knowing that the strategy is the right one for our business over the long term and will enable us to return to our track record of growth and outperformance. I’d like to thank our team for their continued hard work and for everything they do every day to meet our clients’ needs, win against the competition and grow W&D’s brand in the market. Thank you for your time this morning. I will now turn the call over to the operator to open the line for any questions.
Operator: [Operator Instructions] We’ll go first to Jade Rahmani with KBW.
Jade Rahmani: Thank you very much. When you look at the landscape, do you see any interesting market share gain opportunities? It’s clear that the banks are going to pull back in commercial real estate lending and W&D is a specialist in multifamily, a creator of credit products, interest-earning assets, could potentially increase its market share in the business. Where do you see the biggest opportunities for that?
Willy Walker: Good morning, Jade, and thanks for joining us. The first thing is, obviously, to maintain our leadership position with the GSEs, given their role in the market and given the mortgage servicing rights that we generate when we originate loans at the GSEs. So after a slow Q1, as I just said, and as Greg just said, pipeline looks good for Q2 and we’re seeing them step into the market more. HUD had a slow start to the year and HUD’s one of those businesses that, quite honestly, the amount of time it takes to get a loan done at HUD, you can’t really look at that on a quarterly basis. But we’ve got a fantastic team and we are seeing people start to put shovels in the ground to develop assets that will deliver in two or three years.
If you look at the numbers, Jade, as it relates to deliveries in 2024, where you’re still having a significant amount of multifamily deliveries into the high-growth markets, there’s a significant step-down from 500,000 to 600,000 units to somewhere between 200,000 and 300,000 units that are projected to deliver in ’26 and ’27 right now. And so people are seeing that opportunity, and as construction costs have come down, are starting to put shovels into the ground to build and deliver new product in a couple of years from now. And then, as we just discussed, as it relates to our Capital Markets business, we’ve, generally speaking, been somewhere around 8% to 10% of total multifamily lending volume in the country. On the broader, overall, capital markets number all CRE lending, we’ve got about a 2% market share.
So as you see the other asset classes that need capital, the ability for our debt brokerage team to place capital on office, retail, hospitality and industrial is enormous. And so, there’s the real opportunity for us to pick up market share in that broader Capital Markets business. And then finally, if you look at Investment Sales, as I just said, we’ve never been busier as it relates to working with our clients to show them what the value of their assets are. The hope is that we’re not doing that from a sort of, let’s just appraise what the value is and return that number to our investors, but that the appraisals and BOVs that we’re doing is getting people ready to actually transact. But it was a slow start to the year from the Investment Sales side across the market.
But given the team that we’ve invested in and what I consider to be the very best multifamily Investment Sales platform in the country, we have a real opportunity to continue to move up in the lead tables there.
Jade Rahmani: Thanks for that. On the credit side, still remains benign. Did have an uptick. What trends are you seeing, maybe on a forward-looking basis on the credit? Seems like you’re not concerned, but would hope for a comment on that.
Willy Walker: Greg went through in great detail the loans that we both repurchased, as well as a very small delinquency number relative to the size of the portfolio. As he also underscored, 92% of our at-risk portfolio is fixed-rate loans. And I also pointed out that the agencies and we have very few maturities in 2024. That’s all good from a credit standpoint. It obviously puts a lot of — it puts the onus on our origination team to go outside of Walker & Dunlop’s portfolio and find new loans. But investors have to remember, Walker & Dunlop, when I joined this firm in 2003, we had a $5 billion servicing portfolio. So the growth from $5 billion to $132 billion has been going out and essentially stealing deal flow from the competition.
And as I said in my prepared remarks, over 75% of our Q1 loan originations were new loans to Walker & Dunlop. We have a track record of doing that and we’ll continue to do that. So we got to go out and find new loans to put into the portfolio, but we have very little refinancing risk in the portfolio today. I think they sense that rates are higher for longer, Jade, people are getting used to it. It’s going to cause some problems in the CLO market. I think that a lot of people have been sitting there looking at the CLO market, waiting for rates to come down that might save the deal. Those deals that have CLO debt on them are either hitting the wall, where they’re going to become a foreclosure or they’re getting recapitalized. The thing we have consistently seen in the multifamily space is that there is fresh equity capital to step in and buy assets at a discount.
The question is how much is the seller willing to discount the property? And I think the sense that we’re in a higher for longer rate environment says that people are sort of coming to grips with that, not hoping that rates are going to bail out the deal. And they either have to go find new equity to come into the property or give up the property and let new ownership come in and take it over. But very, very, very distinct from post-GFC, where you didn’t have the equity capital ready to step in and play, nor in some instances, the debt capital. Today, there is a huge amount of equity capital looking to jump into the market at any kind of discount to current values.
Jade Rahmani: Thanks for taking the questions.
Willy Walker: Thank you.
Operator: We’ll go next to Steve DeLaney with Citizens JMP.
Steve DeLaney: Good morning, Willy and team. Thanks for taking the question. Willy, you commented about the GSEs, and I think I don’t want to misquote you, but your view that they would work very hard to try to meet their $70 billion goal this year. To get there – Steve.
Willy Walker: Hi, Steve, let me just jump in on that. What Greg said was it is our expectation that they repeat ’23 volumes in ’24, which says that right now our expectations is the two of them come in somewhere in the mid-50s and not at that $70 billion number. Boy, would we love for them to get to that $70 billion number? But what we’re essentially saying is we’re parroting what they told us in Q1, which is they told us in Q1, we think ’24 will be a redo of ’23. And in our last earnings call, I said I was a little bit surprised by them telling us that given the volume of refinancing out there that they could step into. The Fannie Mae DUS conference is going on this week. I know they are very focused on trying to deploy as much capital as they can and be a very significant market participant.
And so that’s all encouraging words. If you look at the volume in Q1 that both we and they did, you have to sit there and say they’re on track right now to do a repeat of ’23 in ’24. But if we see a pickup in activity into end of Q2, Q3, Q4, they very much have the ability to get to their caps of $70 billion. But right now, we’re not seeing that in the pipeline.
Steve DeLaney: Got it. Thank you very much for clarifying that.
Willy Walker: Yes.
Steve DeLaney: What I found interesting is expanding their basket. Do they have the administrative flexibility without having to go to Congress or anything, within the FHFA and the GSE, do they have the internal flexibility to modify their LTVs, the DSCRs? Can they broaden the basket, if you will, to try to put more money out to serve the market?
Willy Walker: Sure. So let me just give you a couple of quick examples on that. They do. The first is, on that lease-up example that I gave. Could they drop down the lease percentage or units occupied number to be able to step in earlier on lease-up deals? They can. And I’ve spoken directly with the regulator about that very — that opportunity that sits there. The other is that a lot of banks want to move collateral off of their balance sheets. And so Freddie has a program called the Q Series, which allows them to go and securitize tools of multifamily loans that are sitting on bank balance sheets. Fannie could do that if they wanted to. They aren’t today. And there’s a little bit of a difference there in the sense that the K Series is a — it’s a pooled asset securitization model, whereas the DUS program is a single asset mortgage-backed security model.
But with that said, Fannie could also mimic what Freddie is doing to try and provide liquidity to the banking sector right now if they want to move collateral off their balance sheets and get it securitized. Those are two examples. But there are other areas. Preferred equity, for instance, we can put preferred equity today with ease onto Freddie Mac financings. Fannie’s a little bit more challenging to put preferred equity onto them. So both agencies have the ability to be more entrepreneurial, to then deploy capital. That preferred equity, Steve, is super important. If you’ve got a debt fund loan that was SOFR plus 300, it’s now at 8.5%. You can swap into a fixed rate agency execution in the high 5s, low 6s, depending on where the 10-year is.
And — but you can’t do that at current leverage levels. So we sit there and look at a loan that had a debt service — is it a 90% LTV loan? We’re only lending at 65% LTV with the agencies. So how do you fill that gap? You fill that gap either with common equity or with preferred equity. And so, working with us to be able to do preferred equity, and Walker & Dunlop has a fund with a very large sovereign wealth fund to put preferred equity into agency deals. That’s the type of thing that will allow borrowers to work out some of the problems that exist today and get a structure that works for them in the long term.
Steve DeLaney: Can you comment on how large the fund — the pref equity relationship is?
Willy Walker: Our pref equity relationship?
Steve DeLaney: Yes.
Willy Walker: Sure. Our first separate account that we did with that investor was $250 million. We deployed that very quickly, and we are right now refreshing that fund with that large investor.
Steve DeLaney: Okay, thanks. Just one quick follow-up. Bridge lending. You’ve been involved. Your comments about the banks obviously pulling back there. There’s just a huge supply. We see it with the public commercial mortgage REITs. Vantage 2021, 2022 bridge loans. Nothing’s getting done and turned in three years. Everything is having to be extended. Terms, obviously, are becoming more favorable to lenders. Do you see WD increasing your bridge lending to take advantage of some of those opportunities when they’re properly recapitalized, whether it’s with the existing borrower or with a new borrower coming in? So could we see more bridge loan directly on WD’s balance sheet or within your joint venture that you have?
Willy Walker: So the joint venture that we have, as you know, Steve, has not been very active. And I would tell you that that is more to do with our partner not really wanting to put more capital out right now than it is Walker & Dunlop wanting to put capital out. As it relates to our balance sheet, I would put forth to you that Greg has been extremely good and extremely protective of the capital that we have at Walker & Dunlop to both continue to invest in bringing on production talent at a time when we believe that bringing on production talent is extremely important to continue to invest in the platform, investing in some of the funds that we’re raising at Walker & Dunlop Investment Partners, and then maintaining a very healthy cash position, as he just said, which is over $200 million coming out of Q2 — excuse me, coming out of Q1.
And so I would tell you that loading up the balance sheet with bridge loans right now is clearly not our strategic focus. And at the same time, when we have important strategic deals to get done, us either doing the bridge loan or investing in the bridge loan with a third-party is an important thing for us to be able to do. It’s why we have capital on our balance sheet and we have a history of doing just that. So it’s strategic more than it is programmatic, if that makes sense.
