Walker & Dunlop Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

Key Takeaways

  • Walker & Dunlop expects bank pullback to present long-term growth opportunities for its debt brokerage business as borrowers seek brokers to navigate constrained capital markets.
  • In Q1, adjusted core EPS grew 10% to $1.17 and adjusted EBITDA rose 9% to $68 million despite a 47% decline in transaction volumes, bolstered by its servicing business and contributions from Alliant and Zelman acquisitions.
  • Multifamily credit fundamentals remain robust with a 3.5% unemployment rate, CECL loss factor cut in half to 0.6 bps, and an $11 million benefit from credit loss reserves in Q1, signaling strong portfolio performance.
  • The company revised 2023 guidance outlining a downside scenario where EPS could drop 35% year-over-year and operating margin falls to the mid-teens if first-quarter conditions persist.
  • Walker & Dunlop approved a quarterly dividend of $0.63 per share, maintaining its payout to reflect confidence in its business model and liquidity position.
AI Generated. May Contain Errors.
Earnings Conference Call
Walker & Dunlop Q1 2023
00:00 / 00:00

There are 5 speakers on the call.

Operator

Not only does Walker and 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. In addition to the capital raising opportunities that the bank pullback presents, There is also a long term growth opportunity for our debt brokerage business. Banks have direct relationships with their commercial real estate customers, which means that a significant portion of the $1,700,000,000,000 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. 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.

Operator

But over time, these opportunities could be a significant driver of growth in our brokered volumes. There's plenty of concern about commercial real estate exposure on bank balance sheets, were exceeding healthy as evidenced by the benefit for credit losses we recognized in Q1. From our experience, it was a dramatic increase in the unemployment rate impact multi claim fundamentals broadly. The unemployment rate sits at 3.5% and while reserve is trying to cool employment and raise unemployment to 5.5%, even that elevated level is radically below the 9.4% unemployment reached 2,009 during the pandemic. After 9.5% unemployment in 2,009, Wanda Knolloff's address portfolio will reach 1.64% of loans 60 days delinquent in Q2 of 2010.

Operator

And as the economy healed into 2011, loans got current and total losses to our portfolio after the great financial crisis and 9.5 percent unemployment was a cumulative 16 basis points. This is not a there will not be multifamily loan defaults. We've already seen 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 we are currently concerned about broad credit losses in our multifamily portfolio. Housing affordability is a real concern as the average entry level monthly payments for an existing home increased 32% in 2,002, nearly tripling the record increase of 13% within 2013 according to Zelle and Associates.

Operator

Stretched affordability has been fueled by 2022 sharp mortgage rates on top of recent home price growth challenging future home ownership likely keeping residents in rental housing longer. Walker and Dunlop's acquisition of Alliant, one of the largest affordable housing owners and tax credit syndicators in the nation at the end of 2021 was very well timed. Alliant financial performance is terrific. WMD's capabilities and brand in the affordable housing industry are greatly enhanced due to Alliant. Zelman is another recent acquisition that has performed exceedingly well.

Operator

Zelman's research on all sectors of housing continues to grow its subscription base and they've done a lot 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 and D up well with ample capacity capability in the commercial market in the next cycle. Finally, we continue to integrate the technology required with GFI into our appraisals and small balance lending businesses. As transition lines have fallen so has the need for surprises behind for 2,000,000 as above all balanced lending, yet banks' point has a dramatic impact on the small base. Banks dominate the small multifamily lending space and any pullback persists in the vicinity for Walker and Dunlop's small balance sheet business.

Operator

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

Speaker 1

Good morning, everyone. As Willie discussed, challenging conditions in the commercial real estate market persisted in Q3, including press for first quarter trends, revenues and earnings. EPS was $0.79 per share and $2.12 per share in the year ago quarter. As a reminder, the Q1 2022 included a $40,000,000 benefit due to the revaluation of our appraisal business upon closing the acquisition of GFI. This boosted revenues and added $0.92 per share to diluted EPS in the year ago quarter.

Speaker 1

Importantly, adjusted core EPS, which eliminates the large swings that can occur from non cash revenues and expenses acquisition related activity grew to $1.17 per share this quarter, up 10% over the year. As we have consistently seen through the volatility over the year, Our servicing and asset management business continued to generate durable and growing cash revenues. We think our variable expense structure has enabled us to consistently generate healthy adjusted EBITDA. Strong earnings have also led an increase in interest rates over the last 12 months to offset some of the declines in transaction volumes. As a result, despite transaction volumes declining 47%, Our Q1 adjusted EBITDA was $68,000,000 growing 9%.

Speaker 1

Adjusted EBITDA also benefited from the performance of Alliant and Zelman, contributed $33,000,000 of primarily cash revenues during the quarter. Notably, Zelman closed the largest investment banking transaction in its history this quarter, an attractive upside to the consistent subscription revenue streams that come with its REITs business. We remain focused on adding to family investment banking capabilities to complement Zelman's existing single family expertise, so we will be well positioned to take advantage of M and A and other capital markets transactions as the real estate transaction market recovers. Our first quarter operating margin was 14% and return on equity was 6%, both of our target ranges, but not unexpected in the decline in transaction activity. For the past several quarters, we've been focused on reducing expenses to maximize our operating margin.

Speaker 1

In mid April, we reduced our headcount by over 100 employees in reaction to lower than anticipated volumes and continued uncertainty in the commercial real estate transaction market. As a result of this reduction, we will incur $3,000,000 expense and expect the savings from that action largely offset that charge in the Q2 of 2023 with the full benefit of the savings realized in the 3rd and 4th quarters. As a result of the cost cutting we have implemented, We eliminated $15,000,000 of annual G and A costs coming into this year as annual personnel related costs of $25,000,000 after the headcount reduction in April. These were necessary steps to improve our operating leverage in response to a challenging and then evolve commercial real estate services landscape. Turning now to statistics.

Speaker 1

Revenues for our Capital Markets segment, which includes our translated businesses, were down 38% to $104,000,000 driven almost entirely by the 37% decline in transaction The supply of capital to the commercial real estate market remains constrained and our 1st quarter debt brokered originations were affected most, declining 58% to $2,400,000,000 Until capital begins to confidently flow again, our brokered volumes will remain impacted. The lack of liquidity and higher interest rates is also putting downward pressure on commercial real estate asset values causing clients that would otherwise be sellers to hold on to their assets. Our Queue Property sales volumes outperformed the market, but still declined 6% to $1,900,000,000 Agency volumes of $2,500,000,000 were also slow this quarter, but Fannie Mae, Freddie Mac and HUD have a real opportunity to supply significant countercyclical capital while liquidity remains constrained, and we are very well positioned as their largest partner. The sharp decline in transaction activity during the Q1 impacted financial performance of this segment, can be seen in the year over year declines in adjusted EBITDA and earnings. The Q1 is traditionally a slower quarter of activity for this segment and the macroeconomic challenges we are facing put it down even further.

Speaker 1

Adjusted EBITDA and earnings for our Capital Markets segment will improve as capital and confidence return to the commercial real estate market. And more than ever before, our clients are 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. The Servicing and Asset Management or SAM segment includes our servicing activities and asset management business, which produce stable recurring revenue trends. As a result, this segment is largely insulated from the transaction related volatility in the financial results of our Capital Markets segment, consisting for the 1st 10 year to $133,000,000 due to growth in servicing fees and escrow loans. Also included in our SAM segment is the impact of losses on our at risk portfolio.

Speaker 1

We are in the process of collecting year end financial statements for all of our loans. Although that process is ongoing, the weighted average debt service coverage ratio remains above 2x thus far. Importantly, the book continues to perform exceptionally well, We have only 7 basis points of defaulted loans in the at risk portfolio at March 31. During the Q1, we performed our annual update to the CECL loss factor, 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 0 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.

Speaker 1

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 4 times greater than our historical loss factor, to reflect the challenging macroeconomic conditions, which partially offset the overall reduction to our allowance from updating the historical loss factor. The update to our CECL methodology combined with the exceptionally strong credit fundamentals underpinning our at risk portfolio resulted in a net benefit of $11,000,000 in the Q1 of 2023 compared to a benefit of $9,400,000 in Q1 last year. Our Corporate segment represents the corporate G and A of our business, which includes the majority of our fixed overhead expenses and an allocation of our corporate debt expense. In the Q1 of 2022, Other revenues for this segment included the one time $40,000,000 gain resulting from the GFI acquisition, causing the majority of the decline in total revenues for this segment.

Speaker 1

On a consolidated basis, interest expense on corporate debt totaled $15,300,000 in line with the annual estimate of $50,000,000 to $60,000,000 that we gave on our last earnings call. Neither of those items impact adjusted EBITDA for the segment. So the $6,000,000 improvement in adjusted EBITDA is driven partially by the cost saving measures we put in place 2 quarters ago and partially by an improvement in interest earnings on our corporate cash balances and pledged security portfolio. Forecasting transaction activity within today's rapidly changing market is extremely difficult. Higher rates and constrained liquidity continue to impact our business commercial real estate transaction activity.

Speaker 1

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. The low end of our range reflects Q1 macroeconomic conditions persisting, causing debt brokerage and property sales transaction volumes to remain near Q1 levels for the rest of the year. This downside scenario would result in a 35% year over year and diluted EPS, an operating margin in the mid teens and then ROE in the high single digits. Our servicing and asset management revenues are not impacted sustained declines in transaction activity and will continue to provide stability to our revenues and overall financial results. 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 1

The upper end of our range reflects our original guidance that was based on stabilization of interest rates and the recovery for the transaction markets in the latter half of the year. The Fed's actions yesterday were certainly a step in that direction, but the timing and extent of the recovery remains uncertain. Our property sales team is outperforming our competitors, our debt brokerage group will continue to add value for our clients. Importantly, the GSEs are providing liquidity to the multifamily market today given the pullback in other capital sources, if these conditions are sustained that GSEs are likely to go into their full caps, giving us a path to achieving the upper end of our range, flat luted EPS, a low 20% operating margin, a low teens return on equity and double digit growth in adjusted EBITDA and adjusted core EPS. Turning to capital allocation.

Speaker 1

We ended Q1 with $188,000,000 of cash after paying corporate taxes, company bonuses, earn out installments and our dividend during the quarter. We not only maintain a strong liquidity position, but are generating a hefty amount of cash from our core businesses as reflected by the growth in adjusted EBITDA. Importantly, as historical investments on our balance sheet mature in the coming quarters, such as our interim loan portfolio, we will retain that cash to further strengthen our cash position. We will continue to allocate capital to our shareholders and yesterday, our Board of Directors approved a quarterly dividend of $0.63 per share payable to shareholders of record as of May 18, consistent with last quarter's dividend. 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.

Speaker 1

1 month into the Q2 of 2023, commercial real estate industry continues to face a challenging rate environment, concerns over credit fundamentals of non multifamily assets and speculation around the long term impacts of the banking crisis. Despite all of these unknowns today, we remain focused on our long term financial and operational goals. 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. Thank you for your time this morning. I will now turn the call back over to Willie.

Operator

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. This is still restricted monetary policy, but it's 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. Walker Dunlop is known for operational excellence.

Operator

Our margins have been industry leading since we went public in 2010. And our net promoter score of 95 reflects amazing client satisfaction with our operations and service. We can always do better. Our recent headcount reduction presents career opportunities for our remaining team members also the opportunity to use more technology. 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.

Operator

It is during challenging times like these when everything is questioned, analyzed and hopefully made better. With regard to cost containment, Greg just explained in detail our cost reduction efforts, yet we need to be careful not to be penny wise and pound foolish. We continue to invest in our client relationships. 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. Yet, we are delaying our all company meeting from 20 23 until 2024, even though we see the value of pulling people together to share experiences and our common identity as W and Deers.

Operator

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 we'll 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 and D so unique only grows during these challenging times. Finally, we are exceedingly 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. With a limited number of lenders with access to GSE Capital and there 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. Our multifamily 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 We're as busy as any quarter ever.

Operator

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, particularly for non multifamily assets such as office and retail is extremely difficult. 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 disrupt 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.

Operator

I mentioned earlier the pullback in need for appraisals due to lower transaction volumes as well as the uptick in volume in our small balance lending business due to the bank pullback. Finally, Alliance Zelman to great acquisitions continue to generate stable revenues and earnings and present wonderful growth opportunities for W and D in affordable housing and investment banking. We have an incredibly powerful business model that within a healthy market that is actively trading has the ability to deliver exceptional financial performance and we see a huge opportunity for growth across the business when the market stabilizes. I'm fortunate and honored to have 20 years of experience at Walker and Dunlop and 15 as this great company's CEO. Our President, Howard Smith, has over 40 years of experience at Walker and Dunlop.

Operator

No day, week, year or cycle is ever the same, yet during challenging times experience matters. 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. It turned out pretty good for Walker and Dunlop. Howard and I talked the day the world shut down due to the COVID pandemic and then again the day that the federal government made forbearance available to every loan guaranteed by Fannie, Freddie and HUD. We didn't have a clue what the future held, but it turned out pretty good for Walker and Dunlop.

Operator

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. Rates will stabilize, cap rates will stabilize, investors will transact again and Walker and 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. We saw transaction volumes drop 47% in Q1 over Q1 'twenty two and yet we still grew adjusted core EPS by 10% and adjusted EBITDA by 9%.

Operator

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 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 and Dunlop. 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 2

The line is now 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 Our first question comes from Jade Rahmani of KBW.

Speaker 3

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 CECL reserves across the commercial mortgage REIT space, similar trends as well as the spike in loans are not accrual yet. W and D, if I read correctly, has just 3 loans that are in default across $125,000,000 of servicing. Can you talk to the multifamily credit trends? I know in the past, we've given debt service coverage ratio on the Fannie Mae at risk book.

Speaker 3

I think that's around 2 times. What are you expecting in terms of credit and how has the performance held up?

Operator

So good morning, Jade, and thanks for joining us. As you accurately state, the credit performance has been exceptional. I think it's really important to keep in mind that W and D has not really strayed outside of our core lending business with the agencies as it relates to credit exposure. And as a result of that, all of the loans in the portfolio we're underwritten with a 1.25 that service coverage ratio. Our client base is sort of, if you will, cherry clients as you could possibly find.

Operator

And that has 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, etcetera, etcetera. There were plenty of opportunities for us to jump and do that, we didn't. There have been plenty of opportunities for us to blend and take credit loss on office buildings and retail centers. We made a conscious decision not to do that. And so while we always, as you 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.

Operator

And obviously, today, we benefit from that discipline. And I would just say, we late locked a $120,000,000 Fannie Mae 5 year fixed rate deal yesterday got 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 has been a very active participant in lending in that fashion, in that manner. Would that kind of light more than 53% leverage? I'm certain of it.

Operator

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

Speaker 3

As it relates to the debt service coverage ratio on the at risk portfolio, do you have that number approximately? Yes.

Operator

Greg mentioned it in passing, Jade. We're still pulling together year end financials, so we don't have an update from the last number we gave on that was over 2 times in September. So far, we're through over 8% of our financial analysis and we're still well over 2.0 debt service cover, but we don't have it for the entire book.

Speaker 3

What are your thoughts around interest rate caps this year? Do you expect that to create serial Credit headwinds? It was the topic du jour

Operator

at the beginning of the year, Jade. But we had a very 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 3 year caps and rather than doing the conversion from float to fixed, they decided to just buy a 3 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 at to their view exorbitant numbers given where caps were priced only a year ago.

Operator

So far, it's not a crisis. There are special servicers who have been willing to talk to clients about making adjustments to the caps and the calculation of caps the length of caps. There are other special servicers who basically or I should say master servicers who've given them the hand. But So far, it has not turned into any kind of a crisis. There are clearly some borrowers who would like some relief there.

Operator

But I have to say neither agency seems to be terribly concerned about that issue today.

Speaker 3

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.

Speaker 1

So look, I think, Jay, we have a very healthy cash position, we're generating liquidity. I think our adjusted EBITDA 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.

Speaker 1

I think no 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.

Speaker 1

At this point, all of our cash, the corporate capital that we hold 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.

Speaker 3

Thanks for taking the questions.

Speaker 1

Yes. Thank you.

Speaker 2

Thank you, Jade. Our next call comes from Next question comes from Jay McCanless of Wedbush Securities.

Speaker 4

So my first question, does the low end of the updated guidance assume a steady state from 1Q 'twenty three 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?

Speaker 1

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 share the bottom end of the range based on that set conditions.

Speaker 4

Okay. Thanks. And then my next question, if I look at the opportunities that you talked about in the prepared script, you have small balance lending, but also have opportunities on the commercial real estate side and then the GSE business. I guess right now, what's most actionable given where liquidity is and opportunities for Walmart to grow business?

Speaker 3

So First of all, thanks

Operator

for joining us. Being the largest agency leader in the community, we have real scale, 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 of their top 10 bankers across the entire industry, 4 of the 10 were Walker and Dunlop Bankers. Nobody else and more than 1. So we've got an incredible platform and incredible brand and market share there.

Operator

And as Greg just said, fortunately, we are seeing the agencies back in the market to a distinct degree where they were in Q1. So that's clearly opportunity number 1 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.

Operator

As Greg had pointed out, our wholesale demand and sales volumes, we have significance to 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 broker guide, it's challenging. Half of the capital that we put out in Q1 was bank capital. And as I said in my prepared remarks, banks have pulled back precipitously.

Operator

But there's also been $70,000,000,000 of private capital raised focused on commercial real estate in the last 6 or 12 months. I was meeting with a large institutional investor yesterday, who has had every private debt opportunity on commercial real estate walk 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 what is the rate you should be lending at and what are the terms and what's the value of the actual asset. But as Greg alluded to, we've been waiting for the Fed to say we're going to pause. And while they didn't specifically say they're going to pause yesterday, it's most people's expectation that yesterday was the beginning of them taking a pause next month. That's the type of that yesterday was the beginning of them taking a pause next month.

Operator

That's the type of stability in the market that will get it so rates and cap rates can stabilize and people can transact again. And so we see a great opportunity once things, if you will, calm down a little bit. And then the SBL side of things, Jay, is super opportunistic, if you will. If you look at the top 15 small balance lenders in the country, 13 of the 15 are banks and 11 of the 15 are regional and local. KPM and Wells Fargo are the 2 big ones in there, but all the others, a lot of the ones who are in the headlines today as it relates to having real trouble or going away.

Operator

And so for us being one of the 2 non bank lenders in 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 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 Dunlop they can use to meet our clients' needs.

Speaker 4

Great. And then staying on small balance lending for a second, Willie, I can't remember, did you give the actual dollar value opportunity things out there with maybe with those 15 banks or with the market in general, what type of dollars are we talking about?

Operator

So we did $1,000,000,000 of SBL last year and we're trying to grow that business doing $5,000,000,000 on an annual basis and the opportunity is right in front of us. It's never been a wider landscape, Jay, for us to go after, given the pullback by banks and that, that space is dominated by banks. And the issue with it is, is those borrowers don't necessarily go out and go

Speaker 3

to industry conferences or know who

Operator

walked them up or or know who Waukes Elumab or CBRE are, they go to their local branch office of either Waukes Elumab or Pac West and say, hey, I need a small balance loan for the multifamily property that I own, and they get it from their branch office. And so if they go to a branch office closed or any more to you at our face with where do I go and that's the opportunity for us to step in.

Speaker 1

I think that the MBA data on that is that there's just around $600,000,000,000 of total multifamily debt on bank balance sheet. So I think that gives you the total addressable market that we're talking about here.

Speaker 4

Okay. Dollars 600,000,000,000 of total multifamily debt. But that's That's everything, Paul, as far as balance.

Operator

Jay, just to be specific, that's all multifamily loans, not just mall loans.

Speaker 4

Got it. And then the last question I have, Willie, when you talked about the $225,000,000,000 to $450,000,000,000 range of CRE debt on bank balance sheets. Could you what's the difference between the high end and the low end there? Could you break that out a little bit more for them?

Operator

Yes. No, I was just trying to there are a couple of things there. There's $1,700,000,000,000 of commercial real estate loans sitting on bank sheets across the $1,700,000,000,000 What I was basically saying was if banks pull back 5%, 10%, which I think is a low estimate, take it at 5% to 10%, that create the need for that much capital you just referenced. So that $250,000,000,000 to $500,000,000,000 is just that pull back, if you will. The bottom line is 2 things.

Operator

1, you could easily say that the market won't need that much capital, because values have come down, therefore the market doesn't need 5% or 10% come down 2022, that value means that there's not that much capital to see today. But if the value is like and the market goes back and that's in as we don't that capital has to be a good player that that's a great opportunity for life insurance companies, CMBS, private capital. And the bottom line is all of those numbers are so huge that for WND that has an emerging asset management business, we go out with $1,000,000,000 $3,000,000,000 $5,000,000,000 of debt funds to meet that need, that is a massive opportunity for us as a very significant financial impact to W and D.

Speaker 4

Okay. Very helpful. Thank you, Will. Thank you.

Speaker 2

Thank you, Jay. We now have a follow-up question from Jade Rahmani of KBW.

Speaker 3

Thanks. I wanted to ask about competition on the brokerage level in the multi tenant 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 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 Liti's competitive positioning therein?

Operator

So Jade, I guess, 1st of all, brokers can't really switch asset classes in that way. It's very siloed in the extent that the best multifamily investment sales teams do multifamily, 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 sale last quarter, and not exactly sure what kind of volumes they underwrote to that investment. But I would only say that I'm happy that we didn't make a big investment on office sales at this time in the cycle.

Operator

And then the final thing I'd say is Chris Mickelson has gone about building the very, very best investment sales team in the country, because he got to build it from ground up. We acquired Engler back 2015, which was a one office Atlanta based investment sales team and we built it from there and built the very best teams in every NSA in the country other than 2, CS and Phoenix. And so to have that kind of national platform that has been for all practical purposes handpicked, hypothermic positions. It's the reason we grew so fast. We went from less than $1,000,000,000 $20,000,000 of annual investment sales over a 6 year period.

Operator

And so we're exceedingly well positioned and Obviously, it's a competitive market. Obviously, we go up against very, very talented and scaled teams, great brands, but we feel very good about where we're positioned there also the fact that we're only focused on multifamily.

Speaker 3

Great. Thanks very much. Sure.

Speaker 2

At this time, it appears we have no further questions. So I will turn the call back to Willie for closing remarks.

Operator

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 W and D team for all you do every day. Have a great one everyone. Thank you.

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