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From a Regional Mortgage Company Started in 1937, Under the Direction of its Third Generation of Walkers, Walker & Dunlop, Inc. has Completed its IPO and Grown into the Nation’s 11th Largest Commercial Real Estate Lender
Through its subsidiary
Walker & Dunlop, LLC, Walker & Dunlop, Inc. (NYSE: WD) is one of the leading
providers of commercial real estate financial services in the United States,
and went public on the New York Stock Exchange in December 2010. Walker &
Dunlop is the 11th largest commercial real estate lender in the United
States specializing in financing commercial real estate for owners and
developers across the country. Capital for this financing comes from large
institutions such as Fannie Mae, Freddie Mac, life insurance companies,
commercial banks, CMBS lenders, pension funds, and the US Department of
Housing and Urban Development (HUD).
William “Willy” Walker is chairman, president and chief executive officer of Walker & Dunlop. Mr. Walker joined Walker & Dunlop in 2003 from TeleTech, a global business process outsourcing (BPO) company. At TeleTech, Mr. Walker held several senior management positions including president of the company's European and Latin American divisions. Mr. Walker joined TeleTech from Newbridge Latin America where he was responsible for private equity transactions in the aviation, water and apparel industries. Mr. Walker is also chairman of the board of the District of Columbia Water and Sewer Authority (DC Water) and chairman of the board of Transcom, SA, a global outsourcing company listed on the Stockholm stock exchange.
Mr. Walker: Walker
& Dunlop was started in 1937 by my grandfather and great uncle; so the
company has been around for quite some time and well before I was even born.
The company evolved from being a single-family mortgage company into being a
commercial mortgage company in the 1950’s and 1960’s. My father joined the
company in the early 1960’s and ran the company for his entire career. I had
done a number of things prior to joining Walker & Dunlop including
investment banking, private equity investing, and running the Latin American
and European divisions of a global corporation. I never thought I would join
the family business; however, in 2003 when I was contemplating a career move
while living in London, I said to my father, “I think I can help you at
W&D”, and he responded; “I believe you can, I just did not think you wanted
to”. So I joined Walker & Dunlop at the end of 2003.
Mr. Walker: We work
with the owners of commercial real estate properties, such as an apartment
building, an office building, a retail mall or a hotel. They have an asset
they need to finance which could mean they have a loan with a bank or a life
insurance company. If it is an apartment building, they may have a loan with
Fannie Mae or Freddie Mac. The loan is typically a ten-year loan, so every
ten years that loan has to be re-financed. At this time the owner will go
out to the world and say, “I need the best and most competitive financing on
this property”. In order to get the best and most competitive financing they
will call up a firm like Walker & Dunlop.
Mr. Walker: During the go-go years of 2004-2007 when there was so much capital available, we were very disciplined. We did not do loans that had too many dollars going out or a rate that was too low. This discipline enabled us to get through the downturn extremely well. Between 2008-2010, in the height of the financial crisis, Walker & Dunlop had greater than 30% operating margins. I do not know of any company in the mortgage finance business that maintained greater than 30% operating margins for each of the down years. We were able to achieve this because we had very focused and conservative underwriting criteria during the good times and we had access to capital from Fannie Mae, Freddie Mac and HUD during the bad times. That access to capital was hugely important, not only to Walker & Dunlop, but to the entire apartment finance industry. Our track record therefore allowed us to get through the downturn and raise capital in our IPO in 2010. We are now growing fast, hiring new people, partnering with other companies, and expanding the products and services that we offer to our clients.
Mr. Walker: Say I gave you a sheet of paper that listed the top 20 commercial real estate lenders in the United States and you took that sheet to your cousin who was a high school math teacher. Your cousin would likely know 19 of the 20 names on that sheet since our competition is Wells Fargo, Deutsche Bank, PNC, Bank of America, Met Life, New York Life, etc. Then there is little old Walker & Dunlop right in the middle of the list. Do our customers know who we are? Certainly. Do people in the real estate world know who we are? Probably. But is our brand as strong as the people we compete with every day? Not a chance! I will say that since going public the added exposure that being a public company brings us is almost unquantifiable. The Washington Post has done a number of stories on Walker & Dunlop over the years, which are in their business section. Lots of people in the Washington area read those articles and they may have been picked up by four or five other media outlets. But for comparison purposes, when we announced our first quarter earnings as a public company, they were picked up by 1,307 media outlets. The incremental exposure that we get from being a publicly traded company is huge. At the same time, we are never ever going to have a brand like Wells Fargo or Bank of America; everybody in the country knows those brands. We have to work effectively to take advantage of being a niche player in our market, target marketing and getting our name out there in a very effective way. I think being a public company helps along those lines.
Mr. Walker: We are a first trust lender, so we provide the first trust mortgage on properties. At this point, the economy is in the midst of the great de-levering. If you think about the crisis, it was caused because there was too much leverage in the entire U.S. economy. No one was immune; everybody saw their individual finances as well as corporate finances go through a big de-levering process. However, borrowers today need more than just a first trust mortgage; they need mezzanine financing to add another component to the financing. They might need an equity partner because they cannot get enough debt to be able to refinance their property. We are in the process of putting together additional products and services that we can sell through our origination sales force that help our customers at this time in the cycle to be able to finance their properties effectively.
Mr. Walker: Not necessarily. We have eight offices across the country. Being in New York, Washington, Atlanta, Chicago, Dallas, New Orleans, Los Angeles, and San Francisco allows us to pretty much cover the entire country from these offices.
Mr. Walker: When we were on the IPO road show and people asked us what we would do with our proceeds from the IPO, one of the areas that we talked about was expanding into the investment sales arena. Some of our competitors do a very effective job of tying their investment sales business (purchase and sale of assets) with their financing business. Therefore, we considered whether we should buy a company in the investment sales business, build an investment sales business by hiring people, or partner with another firm. As we looked at the three options, we determined we could get into the market more quickly, and with less risk, through a partnership. In addition, the opportunity for us to work with Cushman & Wakefield was unique and powerful. It is my great hope that the Cushman & Wakefield partnership provides us with a significant amount of new deal flow over the coming months and years.
CEOCFO: What is the
outlook for Freddie and Fannie?
Mr. Walker: We have a tremendous business and exceptional people. We have been very conscientious in how we take risk and where we take risk, and that has been shown over the entire company’s history and most specifically during the downturn from 2008 until 2010. We have an exceptional management team that is young, motivated and very focused. We have a CEO and COO who together own almost 20% of the company, so our interests are directly tied to other shareholders’ interests. We have a huge growth opportunity ahead of us -- the entire commercial real estate finance industry is a $3.2 trillion industry, which is mostly 10-year paper, which means $320 billion is financed every year. Walker & Dunlop originated $3.2 billion of loans in 2010, so we were roughly 1% of the market. And finally, we feel that we have the people, the capital and the opportunity to grow our market share in a highly profitable, well managed manner.
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We scaled the business from being the 45th largest commercial real estate lender in the U.S. in 2007 to being the 11th largest commercial real estate lender in the U.S. in 2010… With the capital that we raised through the IPO, we are growing aggressively and are well positioned for strong growth going forward. - William M. Walker
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