Walker & Dunlop (NYSE:WD) Q1 2021 Earnings Call

0:00 Good morning, everyone. I'm Kelsey Duffey, Vice President of Investor Relations at Walker & Dunlop, and I would like to welcome you to Walker & Dunlop's first quarter 2021 earnings conference call and webcast. Hosting the call today is Willie Walker, Walker & Dunlop Chairman and CEO. He is joined by Steve Theobald, Chief Financial Officer. Today's call is being recorded and a replay will be available via webcast on the Investor Relations section of our website. At this time, all participants have been placed in a listen-only mode. and the floor will be open for questions following the presentation. If you have dialed into the call and would like to ask a question at that time, please press star nine on your phone. If you are accessing the webcast on your computer, please click the raise hand icon on the bottom menu bar of the webcast screen.

0:45 This morning, we posted our earnings release and presentation to the investor relations section of our website, www.walkerdunlop.com. These slides serve as a reference point for some of what Willie and Steve will touch on during the call. Please also note that we will reference the non-GAAP financial metric adjusted EBITDA during the course of this call. Please refer to the earnings release posted on our website for a reconciliation of this non-GAAP financial metric. 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 Security Litigation Reform Act of 1995. Forward-looking statements describe our current expectations, and actual results may differ materially. Walker and Dunlop is under no obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise.

1:40 We 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.

1:52 Thank you, Kelsey, and good morning, everyone. We started off 2021 with strong first quarter financial performance with the combination of our people, brand, and technology continuing to differentiate us in the marketplace, enhance our competitive positioning, and drive terrific financial performance. First quarter revenues of $224 million generated diluted earnings per share of $1.79, up 20% over Q1 2020 on total transaction volume of $9 billion. This is a very strong start to the year that appears to be accelerating by the day. We laid out our five-year strategic growth plan in December of last year with one of the objectives being to move from the number five multifamily lender in the United States to number one. To do this, we plan to build a small loan lending business that rivaled JPMorgan Chase's and a multifamily property sales business that rivaled CBRE's, two firms ahead of us in the 2019 league tables.

2:56 Yet due to the use of technology, growth of our brand and truly fantastic execution by our team, We vaulted to the number one position as the largest provider of capital to the multifamily industry in 2020. My father gave me a t-shirt when I was in college that read, unless you are the lead dog, the scenery never changes. Well, the scenery can now change, and we will use our market leadership position to win more clients, continue investing in technology, and benefit from the fantastic branding that this accomplishment establishes. Our vision to be the premier commercial real estate finance company in the United States was established in 2010 when Walker and Dunlop lent $2.7 billion on commercial properties or 7% of the $37 billion that Wells Fargo lent that year as the largest lender in the country.

3:49 And over the last decade, due to hiring great people, investing in technology, and building our brand, Thank you so much for joining us. Thank you for joining us. with the very real opportunity to grow to 3,000 to 5,000 people by investing in technology and entering new markets.

4:55 Our largest competitors have tens of thousands and in some instances hundreds of thousands of employees and will constantly be challenged over the coming years with how technology is going to disintermediate their existing employee base and businesses. Our technology investments will continue to focus on actionable technology that enhances the capabilities of our people as we grow Walker and Dunlop and expand into new markets. The fact that we ended 2020 with 1000 employees and over $1 billion in revenues allowed us to maintain our metric of over $1 million of revenue per employee. As this slide shows, revenue per employee of over $1 million places Walker and Dunlop in line with Visa and just behind the global tech giants, Facebook, Google, and Apple.

5:47 We believe that over the coming years, as we continue to implement more technology and expand our brand, that our revenue per employee can move closer and closer to the tech giants. The numbers behind our brand strategy are stunning. Walker Webcast and related digital marketing strategies have averaged nearly 50,000 views each week in 2021. And just yesterday, we hit 1 million total views of the Walker Webcast since we started it in March of last year. The quality of the guests that we bring on the webcast and their insights provide every banker and broker at Walker and Dunlop with client touchpoints and market insights every week. This has not only expanded the WND brand dramatically, but generated new business.

6:36 Just last week, we closed on a $37 million financing for a new client who listened to the Walker webcast, sent an email to our general mailbox, was introduced to a banking team, and got a terrific loan on their office building and paid us a $250,000 fee in the process. This transaction brought to us through the combination of digital marketing, branding, technology, and flawless execution by our team is part of the 27% of our total transaction volume in Q1 coming from new clients to Walker & Dunlop. That is up from 23% for all of 2020. The other technology proof point we introduced in 2020, new loans to our servicing portfolio, increased to 79% in Q1 of 2020, up from 66% for all of 2020.

7:30 So rather than simply refinancing the loans in Walker & Dunlop's sizable $110 billion servicing portfolio, almost 80% of the loans we refinanced in Q1 were new loans to Walker & Dunlop. generating financing fees and adding mortgage servicing rights to our loan portfolio. The amount of capital targeting commercial real estate investments continues to fuel the acquisitions market. According to Prequin, commercial real estate focused funds began 2021 with a record $324 billion of dry powder. A robust investment and acquisition market combined with a wave of loan maturities Thank you for joining us. And since our technology can tell us exactly who holds those loans, there is a massive opportunity for us to capture significant refinancing volume in 2021 and beyond.

8:54 Let me turn the call over to Steve now to run through our Q1 financial performance, and then I'll come back to talk about the terrific accomplishments we weighed in Q1 towards our long-term strategic growth objectives. Steve?

9:08 Thank you, Willie, and good morning, everyone. Thank you so much for joining us. Earnings in the quarter included the positive benefit of reducing our allowance for credit risk by $11.3 million, which added 25 cents to EPS. Q1 personnel expense as a percentage of total revenues was 43%, which is elevated compared to a typical first quarter due to our recent investments in people as we continue to scale our business and support our future growth.

9:59 During the quarter, we grew our team of bankers and brokers to 214 from 205 at the start of the year, further increasing both our geographic reach with hires in Ohio, California, Texas, and Maryland, and our investment sales product capabilities with the acquisition of student housing-focused 4Point. Even with the increase in compensation expense, operating margin was 33%, inclusive of the reserve release, and 28% without, within our typical range of 28 to 30%, as non-personnel expenses continue to grow at a slower rate. We manage operating margin very closely and are confident that it will remain within our expected range over the course of the year. Return on equity was 19% in the quarter, consistent with last year and within our expected range of 18 to 20%.

10:49 Total transaction volume of $9 billion was down 20% from the first quarter of 2020, as anticipated, given that we originated the largest portfolio in our company's history, a $2.1 billion Fannie Mae transaction last Q1. Notably, we saw strong debt brokerage volumes of $4.3 billion in the quarter, up 8% from last year's very strong volumes, indicative of an active market for commercial real estate financing that is attracting significant amounts of capital as we continue to progress towards a post-COVID environment. 72% of our debt brokerage volumes were multifamily, compared to 94% in the year-ago quarter, reflecting a pickup in lending on other asset classes. The mix of our $7.6 billion of debt financing volume in Q1 2021 was skewed more heavily towards debt brokerage originations as compared to the first quarter of last year, primarily due to the large portfolio that I just mentioned.

11:45 Our HUD volumes at $622 million were up 75% from Q1 2020, continuing the strong performance off of 2020's record year. In addition, our interim lending program was very active in the quarter with $178 million of multifamily bridge loans originated through our JV with Blackstone and on our own balance sheet. The GSEs had a relatively slow start to the year as they carried over a lot of deliveries from 2020 into 2021. Our market share with Fannie and Freddie remained above 11% and we expect that our overall volumes will pick up over the next three quarters as the GSEs manage their deal flow to ensure that they use all of their remaining $105 billion of lending capacity for the year.

12:30 We also expect broker debt volumes for the remainder of the year to rebound strongly from last year's COVID impacted markets as life insurance companies, banks, and debt funds are all very competitive capital providers in the market today. Investment sales volume of $1.4 billion was down 19% from last year's first quarter. However, the pipeline of deals entering Q2 is extremely robust, and we expect significant growth in investment sales volumes over the remainder of the year as our recruiting efforts continue to build out both the geographic and product capabilities of the team. The increase in investment sales activity will also contribute to additional debt financing opportunities over the next three quarters. Q1 adjusted EBITDA, $61 million, is down slightly from Q1 of last year, but is the highest quarter of EBITDA since the start of the pandemic, as we are seeing the benefit of the strong mortgage servicing rights that we booked during 2020 translate into cash servicing fees, which were up 19% in the quarter.

13:30 As you can see on this slide, the servicing portfolio ended the quarter at $110 billion with a weighted average servicing fee of 24.3 basis points, up one full basis point from the first quarter of last year, which is huge given the overall size of the book and the fact that we have added over $15 billion of net new loans to the portfolio in the last 12 months. With 85% of the portfolio's future servicing fees being prepayment protected, The portfolio will continue to fuel meaningful, stable cash servicing fees approaching $275 million on an annual basis. Additionally, this should be the last quarter of significant year-over-year declines in escrow interest as short-term rates, which drive the pricing of our escrow deposits, collapsed at the end of first quarter of 2020 due to the pandemic.

14:19 During the quarter, we lowered the loss forecast used to determine the allowance for risk-sharing obligations. As I mentioned earlier, this resulted in an $11.3 million recapture of provision for credit losses in Q1 of 2021 compared to an expense of $23.6 million in the first quarter of 2020 when the pandemic was declared. One year later, we have very few loans in forbearance and our portfolio has had no defaults related to the pandemic. reflecting the resiliency of multifamily and the quality of our underwriting and servicing teams who have done an expert job of managing our credit risk both before and during the pandemic. Further evidence of the strong performance of our portfolio is that the debt service coverage ratio of the $50 billion of loans we have risk on remained above two times at the end of 2020, consistent with the end of 2019.

15:12 While unemployment rates are still relatively elevated at 6%, this is a significant improvement from the high of 14.7% that we saw in April of 2020, reflecting the return of jobs across the economy. The most recent stimulus bill, combined with an anticipated full reopening of the economy by the fall and forecasted strong economic growth over the next year, gives us confidence that the fantastic credit metrics we are seeing in the portfolio today will persist into the future. We feel that the current level of the allowance at $64.6 million is sufficient to cover any future losses that could arise in the portfolio over its expected remaining life. We ended the quarter with over $277 million of cash on our balance sheet and another $62 million funding loans held for sale bringing our total cash available to $339 million.

16:05 We are currently exploring a number of strategic acquisition opportunities that are in line with our drive to 25 objectives, investing in revenue generating technology initiatives, and continuing to bring on banking and brokerage talent, all of which is supported by our strong cash position today. Yesterday, we announced the acquisition of 75% of Zellman & Associates, the leading housing focused research firm in the country. The transaction is expected to close sometime in the third quarter pending regulatory approval. We expect the Zellman platform to contribute between 15 and 20 cents in earnings per share in its first year. While our focus remains reinvesting our capital back into the business through acquisitions like Zellman, our strong financial position and the steady cash generation of our business enables us also to return a portion of our capital to shareholders.

16:55 Yesterday, our board of directors approved a quarterly dividend of 50 cents per share, payable to shareholders of record as of May 20th. A quarter ago, we laid out ambitious goals for double-digit growth and earnings per share and adjusted EBITDA for 2021. A strong start to the year in terms of our financial performance, credit quality, and cash position, and our expectations for the market opportunity ahead give us confidence that we will achieve both of those goals. Thank you for your time today. and I'll now turn the call back over to Willie.

17:27 Thank you, Steve. Along with delivering strong financial results, during Q1, we made significant progress towards our strategic objective of our five-year growth plan, The Drive to 25. The overarching goal of The Drive to 25 is to grow revenues from $1 billion in 2020 to $2 billion in 2025. by continuing to invest in people, brand, and technology in our core businesses and building three new businesses in small balance lending, appraisals, and investment banking. As I previously mentioned, to become the largest provider of capital to the multifamily industry, we thought we needed to enter and grow dramatically our small balance lending business. Roughly half the multifamily loans originated every year are considered small balance loans. Most of the small balance lending is done by banks, where a property owner may use the bank for checking and savings accounts and ask for a small balance multifamily loan. We see this market where local, regional, and national banks are the incumbent lenders as ripe for disintermediation using our brand, technology, and people. If you enter a bank branch office and ask for a small multifamily loan, your loan officer is a generalist who could just as easily provide you with a boat loan as an apartment building loan.

18:49 We think our focus and brand is the largest provider of capital to multifamily industry can win this customer over. We have data and visibility into who owns these properties and we are building digital marketing strategies to capture clients' attention. We are also investing in technology to drive down the cost of underwriting a small balance loan. We are acquiring a technology company that allows us to quote a small balance loan in just over a minute and also streamline the loan application, underwriting and closing process. We've also completely revamped our small loan origination team, bringing in new leadership and establishing a regional origination model that we believe will allow us to originate higher volumes of loans with fewer people.

19:36 Through our multifamily appraisal business, APPRISE, we have quietly built out our licensed appraisers across the country and are now capable of producing FIREA compliant appraisals using more technology and fewer people than any competitor in the market. A year ago, APPRISE produced 55 appraisals in Q1. This year, we did 5x that volume and we intend to continue growing that number by multiples. Thank you so much for joining us. Thank you for joining us.

20:48 Ivy Zelman, Dennis McGill, and their team have built out one of the most well-respected housing research and analytics teams in the industry. Zelman's research team covers both single-family and multi-family housing. And as these two industries collide in the single-family homes for rent market, Zelman and W&D will be perfectly positioned to provide expert coverage of these markets. Selman's research and analytical capabilities, coupled with Walker & Dunlop's vast data from our $110 billion servicing portfolio and technology investments, will provide the bankers and brokers at Walker & Dunlop with the very best insight into micro and macro markets across the country to enable their sales efforts.

21:36 It is our expectation that W&D's proprietary research and market insights will make us more relevant and valuable to our clients than ever before. Zellman is a registered broker dealer and has a housing-focused investment banking team that has an incredible track record in the M&A, debt, and equity transaction markets, including advising in the IPOs of firms such as Rocket Mortgage and Invitation Homes. The broker dealer and investment banking capabilities inside Zellman provide a fantastic launching pad for W&D's investment banking business in the commercial real estate arena. A couple general comments before we finish the call and open the line for questions. Our 2020 success, expanded brand, and use of technology have fundamentally changed our ability to recruit talent to Walker & Dunlop.

22:27 I mentioned previously the power of the Walker webcast in attracting new clients to W&D, and it is doing the same thing with talented bankers and brokers at competitive firms. & Dunlop, Inc. I mentioned earlier in the call how a new customer called us out of the blue after the Walker webcast and gave us a $37 million office building financing. That is one of many examples where our brand has generated new opportunities for Walker and Dunlop.

23:16 But we have had over 1 million views of the Walker webcast where there are thousands and thousands of potential clients whom we have never met now interacting with our company and brand. We will figure this out, but we are just scratching the surface on how to identify and convert these new client touchpoints into new business and opportunities for growth. As we make significant strides towards the strategic and financial components of the Drive to 25, we remain focused on the environmental, social, and governance elements of our 2025 goals with significant attention being given to our diversity, equity, and inclusion efforts. We recently launched a diversity initiative called CRE United in partnership with some of the largest players in the commercial real estate industry, including Fannie, Freddie, Graystar, KKR, Kane Anderson, and Pacific Life. The alliance is working to identify the obstacles that minority CRE owners and operators face and implement real changes across the industry to break down these barriers. Internally, Walker and Dunlop is also Setting ambitious DE&I goals, including increasing the proportion of women and minorities among management and top company earners by 2025.

24:38 As outlined in our recent proxy statement, our compensation committee will oversee our progress towards these ambitious long-term goals, which will be directly tied to executive compensation. I have watched this wonderful company grow from one office and just over 40 employees into the national powerhouse it is today. And I must say, I've never been prouder nor more excited about all we are currently doing. We established another ambitious five-year growth plan at the end of 2020. And in just a few months, we have made real and exciting progress towards our goals. We remain a great place to work due to the incredible people that make W&D what it is. We continue to invest in technology to enable our people to be more insightful, more efficient and more productive than the competition.

25:28 And we continue to expand the brand using the Walker webcast and the insights it provides to expand our presence and thought leadership across the industry and country. I want to thank our team for an incredible 13 months since the onset of the pandemic. Our financial results and achievements and our pursuit of the drive to 25 speak for themselves. And thank you to all of the investors and analysts who joined us this morning. This is an incredibly exciting time for W&D, and we are thankful for your investment and interest in our company. We will now open the line for questions.

26:04 The floor is now open for questions. At this time, if you have a question on the phone, please press star nine. or if you are on your computer, please click raise hand at the bottom of your webcast screen. The first question is coming from Henry Coffey at Whitebush Securities. Henry?

26:23 I'd like you to unmute.

26:34 Can you hear me now? We can. We can, Henry. Good morning, everyone, and thank you for taking the call. It does seem, reading the text of your press release and some of your comments, that you're expecting more of an acceleration in volume as we go forward. Can you give us some insights into what factors are going to drive that and what the mix is going to look like, how much is going to be a multifamily and how much is going to be outside. Just the general overview as to what that production is likely to look like.

27:13 Yeah, Henry, first of all, great to have you on the call this morning. Second, I think Steve did a really good job of laying out where the various volumes were in Q1. I think that as we Look back on Q1, as you know, interest rates moved up significantly during the quarter. And that interest rate movement made it so that to have the 10-year go from 90 basis points at the beginning of the quarter to 160 basis points by the end of the quarter, had a lot of borrowers and deals moving around during the quarter. We've been very pleased to see rates sort of stabilize in this 150 to 170 range. range for the past month. And that in and of itself has started to accelerate deal flow. The second thing is, as we pointed out, the agencies had a slow start to the year. They had a big carryover of business and they at the end of Q1 still had $105 billion of capital to lend between the two of them.

28:13 And as we all know, they're going to lend every single dollar they have. And so we are set up for three very strong quarters between now and the end of the year Thank you for joining us. partner, and Freddie's fourth largest partner, the second largest agency lender in the country. I would say the third thing as Steve underscored, our investment sales business and the pipeline there is extremely robust. We are seeing a very active market. That rate movement in Q1 slowed some deals down as buyers and sellers were trying to find pricing. Now that we've been in sort of this 150 to 170, and let's just call it a 160 10-year treasury range for a while, transactions are starting to happen at a very accelerated pace. And then the final thing is you've got to think about Q1 2020 to Q1 2021 as it relates to capital to overall commercial real estate.

29:15 Pre-pandemic, all the capital sources were lending on multi-industrial office, retail, and hospitality. And in Q1 of 2021, you only really had capital going to multi and industrial. And so as Steve pointed out, even though we did do more non-multi in Q1 with our capital markets team in 2021 than we did in 2020, which is a huge accomplishment, as capital starts to come back to office buildings, as capital starts to come back to hospitality, and as it starts to come back to retail, our capital markets team across the country will see increased flows. All of those different things come together to say to us that things are accelerating and accelerating at a pretty dramatic rate.

30:02 When I was talking to my home building analyst, Jane McCandless, about the Zellman investment acquisition, we started talking about some of Zellman's thoughts in the multifamily area. Thank you so much for joining us.

30:49 So I'd say two things on that. One, as we tried to articulate in the call, Henry, we see the convergence of single family and multifamily in the built for rent. and single family rental space as something that is very exciting. We have a huge number of Walker and Dunlop multifamily clients that are focused on that space and are investing in that space. There are also lots of single family home builders from the other side of the market, if you will, who are entering and in the single family rental and built for rent space. We don't have longstanding relationships with those single family housing developers and owner operators. Zelman does. And so as we have Zelman's insight into both single family as well as multifamily and the single family built for rent space, we believe that we will be a much more relevant source of capital for the SFR BFR space. to extend your question into does Walker and Dunlop get into the single family lending space? That is not our intention out of the gate. I watch what's going on in the single family lending space right now and how there is a everybody who had a loan to be refinanced did it last year.

32:00 And so their refinancing volumes have come down significantly. Thank you so much for joining us.

32:34 Could you have an offering in the single-family rental space? Not the residential business, we know that, but in the single-family rental space, the dynamics are very similar to multifamily. & Dunlop, Inc.

33:08 Those loans are ending up in securitization pools, Henry, as you know, and that's right down the middle of the plate for the bankers at Walker and Dunlop who have done large pooled securitizations in the past with firms like Deutsche Bank and Citigroup and others that are very active in that space right now.

33:27 And Henry, I'd also add to that, you had mentioned specifically conversion of other commercial real estate assets into multifamily. And I would tell you anecdotally, we are seeing a number of requests on the equity side coming to our asset management platform at Walker and Dunlop Investment Partners. So certainly seeing hotel conversions and some office conversions happening in the multifamily space.

33:58 Thank you.

34:00 Yep.

34:03 Thanks, Henry. Our next question comes from Jade Romani at KBW.

34:10 Thank you very much. Just wanted to ask about, Willie, your earlier comments regarding M&A. Do you expect to consummate large-scale M&A transactions as part of the drive to 25 and WD's overall growth plans?

34:30 Jade, first of all, nice to have you on the call this morning. Good morning. Secondly, look, Steve pointed out that we have over $300 million of cash sitting on the balance sheet today. We have plenty of borrowing capacity as it relates to our overall debt to equity ratio at Walker & Dunlop. And it should come as no surprise to investors that given our growth and given the the expansion of our brand that we have never had more inbound calls as it relates to companies wanting to be part of what we're creating and have created at Walker and Dunlop. As I mentioned in the call, Jade, from a recruiting standpoint, I've been out on the road meeting with candidates, if you will, who are at competitor firms.

35:15 And I have never, ever had more people make comments about how What we've created at Walker & Dunlop is very unique in the marketplace. The use of technology is without a doubt Far, far beyond our competitor. I met with one team two weeks ago who has done a full diligence because they're leaving one firm and looking at us versus three other competitor firms. And they have dived into the technology to see who really is giving them actionable technology that allows them to grow their own origination volumes as well as their W-2s. And in that meeting, they could not have been more explicit. Thank you for joining us. We've been very, very careful to acquire great companies with great leadership.

36:25 We've been very, very careful to acquire companies that would fit well into the Walker & Dunlop culture. We've been very, very careful to acquire companies that are creative to our earnings. We will continue to use that lens or filter as we go to see whether all these companies that are coming to us and raising their hands saying we'd love to be part of Walker & Dunlop are real fits for us from an M&A standpoint. Thank you for that. One of Walker and Dunlop's differentiating factors is also its servicing portfolio, given the prepayment protected nature of loans and the strong cash flows it generates. Do you happen to know, generally speaking, what the company's historical retention ratio is of loans in the servicing portfolio?

37:14 I know that the MSR is basically a runoff analysis. and even the fair value of the MSR is also a runoff analysis. But if you were to assume something like a 50% ability to win those refinancings, it of course is worth a lot more than carrying value.

37:35 Yeah, Jade, I'll take that one. We historically have not disclosed that, but if you look at the nature of why loans... Pay early. Oftentimes, it's the sale of the asset, which obviously, in some cases, if we're managing the sale, we have a good shot at doing the refinancing. But otherwise, those tend to be jump balls. When it comes to actual refinancing of our portfolio, our retention rate is significantly higher than on an overall basis when you exclude asset sales. But we don't disclose the specific numbers, but it is. And if you look at, you know, Willie's gave the stat on how many new refinances, you know, came into our book.

38:28 And then you look at the net growth of the portfolio, you can intuit that there's a significant retention of our existing loans in the portfolio. Thank you. Some questions I've gotten from investors relate to the GSE multifamily origination outlook. And when we look at the deliveries that they provided for the first quarter totals about $35.5 billion. So when you say that they had a slow start to the year, I believe you're probably referring to The timing difference between rate lock, which is when Walker and Dunlop recognizes revenue and deliveries, which is about, I believe, 45 to 60 days later than that.

39:13 So is that really the discrepancy there?

39:17 That's it in a nutshell, Jed. If you look at their both agencies, January and February deliveries, they were quite high. And that's a function of business that was rate locked in 2020 and carried over from a delivery standpoint into the first quarter. Okay. Thank you very much for taking the questions.

39:41 Thank you. Thank you, Jed.

39:42 Thanks, Jed. Our next question is coming from Steve Delaney at J&P.

39:51 Good morning, everyone, and congratulations on Zaleman and moreover, all you've done to position WD as a go-to employer in the space. It's exciting to see. I want to pick up on Jade's last question about the GSE volumes in the first quarter and understanding that the difference between locks and deliveries, but I do believe the caps are based on delivery volume. Freddie was fine. They're both looking nice on a year-over-year, but Freddie was fine at $14 billion versus the average quarter limit of $17.5 billion. But Freddie obviously, excuse me, Fannie obviously blew through it.

40:36 And I assume that $10 billion in January was probably a mega loan. But Willie, I guess I'm looking at this and I'm thinking back to this late summer and fall of 2019. You know, we came in from, if you want to argue that it was $80 billion last year, it's $70 billion today. I'm worried that we're going to get into a situation where we're in the last three or four months of the year and we're going to run out of space on the $70 billion. So how are you thinking about that? And do you think FHFA would respond to that or going to leave the market to its own devices? Thanks.

41:17 Sure, Steve. Nice to have you on this morning. Yes, I am. The $10 billion in January for Fannie was carryover business from 2020. And so as a result of that, that mismatch that Steve just talked about is what ends up happening is that we recognize revenue for those loans in Q4 of 2020, yet they get delivered to Fannie Mae in January of 2021 and hit, if you will, their accounting in 2021. So all the numbers that you and Jay just outlined are exactly right. Thank you so much for joining us. in April from February and March as it relates to agency pricing on deals.

42:15 Dramatic, because they both pulled back after having a lot of carryover. They both pulled back in February and March. They're both back in the market and very active right now. And the second thing is that there's plenty of capacity there for us between now and December 31st. to do our commensurate market share, which as Steve said, we held in Q1 at 11% on a combined basis with Fannie and Freddie. We have grown our Fannie market share up to about 15% at the end of 2020. And I have all the confidence in the world that we'll do that much Fannie Mae business, if you will, of their total 70 billion this year. But it comes at different times in the year. Clearly didn't come in Q1. That's fine. No big issue.

43:01 And then the final thing I'd say, Steve, is the Supreme Court should rule in the next week or two as it relates to the court case they heard in December, as it relates to the term of the FHFA director. It is everyone's expectation that the Supreme Court rules on FHFA like it did on CFPB. If the Supreme Court rules that way, it is very likely from every conversation I've had that the Biden administration asked Director Calabria to step down and puts in a new FHFA director. And so specifically to your question about will the FHFA director step in, will the scorecard be changed? Dr. Calabria, Dr. for Fannie and Freddie in their multifamily lending spaces.

44:01 I would just say that with a new director, there's another bite at the apple as it relates to how much lending Fannie and Freddie can do in the multifamily space. And as you know, as one of the agency's largest capital providers and having very, very longstanding relationships with Fannie and Freddie, as well as the regulator, we will be very active in talking to whomever is the new regulator of Fannie and Freddie as it relates to the need for their capital and where they're placing their capital.

44:28 I would also add, though, Steve, that irrespective of whether the caps are changed or not, as Willie pointed out, we will get our fair share and then some of the $105 billion that remains to be done. And given our footprint and capabilities, as the multifamily market grows this year from last year, we have plenty of opportunity to Get those loans financed by life insurance companies, banks, etc. through our capital markets teams. So we feel very well positioned either way.

45:04 That's great color, guys. And Steve, on your final point about capital markets team, you know, You guys, I think way back, maybe five or six years ago, you had, I believe you had someone focused on CMBS conduit lending into private CMBS. I mean, I guess eventually, depending on what FHFA does, it would seem that is something you could, a capability you could certainly add to serve your customers, you know, in a broader way beyond the agencies.

45:38 That's exactly right, Steve. We have many outlets for our borrowers financing on multifamily. It's not just the agencies. We expect, as Willie mentioned and I alluded to in my remarks as well, we expect an acceleration in the amount of Brokered Financing that we're doing this year, certainly relative to last year when the markets were pretty soft because of the pandemic.

46:11 Steve, just before we move off of that, I'd just add one other thing. Our investments in databases started in the multifamily sector, and that's what has driven those new client acquisitions and refinancings to our portfolio. are very focused right now on expanding those databases into broader commercial. And as we develop those databases and use the same technology to find leads, find new clients, that will also accelerate our growth in the broader capital market space as it relates to lending on office, retail, hospitality, and industrial. And so I would just say that while Steve gave a great number as it relates to Q1 versus Q1 and the amount of non-multi we did in Q1 of this year, All of that focus on technology that started in multi is now moving into the broader commercial space, and that will benefit us tremendously as capital comes back to those other asset classes.

47:05 Yeah, that'll be an important data point for us to track going forward, because I agree that's important strategically for you to add those other property types. A final quick thing, obviously, it's... It's political season. Obviously, we're getting a lot of ideas thrown about tax law changes, whether they be corporate or even real estate. The implication of corporate tax change and a higher rate is pretty obvious. But, Willie, it seems the 1031 exemption, the tax-free exchanges, from talking to your investment sales team, How big a deal is that in terms of driving activity? And if it was to be modified or eliminated, could that freeze the market for some period of time in terms of multifamily transactions?

47:59 That's my final. Thank you.

48:00 So Steve, I'm going to say something that won't please many commercial real estate investors and developers and in the process of that, probably a lot of our clients, but they're not that many that I think this is going to upset. But the bottom line is the 1031 exchange issue is not an issue whatsoever for Walker Dunlop. There's a paper that was published by two professors at the University of Florida that looked at the total commercial real estate sales market between 2010 and 2020. It was published in September of 2020. And in that paper, they looked at every transaction across all asset classes and came back with 7% of total commercial real estate sales transactions between 2010 and 2020.

48:48 had a 1031 exchange. So seven. Inside of that, the average sales price of that 7% was $500,000. So the average sales price that our investment sales team had on the properties they sold in 2020 was $46 million, 46 million. So first of all, it's a small part of the market. and second of all, it is transactions that Walker and Dunlop doesn't either broker nor finance. Now, some of our competitor firms focus on those types of deals. In that exact same study, they cite Marcus Milachap's own research saying that 23% of their investment sales volume in 2017, 18 and 19, 23% was on 1031 exchange transactions.

49:39 So for a firm like M&M, they got a lot of clients who use 1031 money to swap out of assets and not pay taxes. For W&D, it is not an issue. As it relates to the capital gains rate, certainly if you had a change in the capital gains rate, that could accelerate transactions in 2021, depending on whether it is prospective or retroactive. If they decide to do retroactive and bring it back to January 1st, 2021, which many people talk about two things there, one difficult to implement, but both President Bush's tax change in 2001, as well as President Clinton's tax change in 1997, both were retroactive.

50:27 both were passed kind of June, July timeframe and were retroactive to the beginning of the year. As everyone probably remembers, the Trump tax cuts of 2016 or 17 were implemented in 2018. So they passed that legislation in December and it started on January 1st, 2018. So it was prospective. Many believe that the tax changes will be prospective, not retroactive. But one of the things that we are looking at, and it sort of goes back to the point Steve made a moment ago as it relates to the breadth and capabilities at Walker and Dunlop, is if it is a change to the capital gains rate that is significant and it is retroactive, Thank you so much for joining us.

51:30 Thank you so much for joining us. and it is retroactive, we will work very hard to create vehicles that sellers can sell into in a tax efficient manner.

52:08 Very helpful comments. Thank you both.

52:11 Thanks, Steve. Thank you, Steve.

52:15 Thank you, Steve. At this time, there are no further questions, so I'll turn it back over to Willie for closing remarks.

52:21 I just reiterate, thank you everyone for joining us this morning. Great start to the year for WND. Our growth is accelerating, which is really exciting to see. And thank you to Steve and to Kelsey and to our team for all they did to put this call together. I hope everyone has a great day.