Walker & Dunlop, Inc

Good day and welcome to the Q1 2025 Walker & Dunlop, Inc. Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Kelsey Duffy. Please go ahead.

Thank you, Cynthia. Good morning, everyone. Thank you for joining Walker & Dunlop's first quarter 2025 earnings call. I have with me this morning our Chairman and CEO, Willie Walker, and our CFO, Greg Florkowski. This call is being webcast live on our website and the recording will be available later today. Both our earnings press release and website provide details on accessing the archive webcast. 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 Greg will touch on during the call. Please also note that we will reference the non-GAAP financial metrics, adjusted EBITDA, and adjusted core EPS during the course of this call. Please refer to the appendix of the earnings presentation for a reconciliation of these non-GAAP financial metrics. 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 with a meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe our current expectations and actual results may differ materially. Walker & Dunlop is under no obligation to update or alter our forward-looking statements whether as a result of new information, future events, or otherwise, and 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.

Thank you, Kelsey, and good morning, everyone. We started the year with very little carryover business from 2024. After the momentum of rate cuts last September, turned into rising long-term interest rates and a wait and see attitude across the industry with regard to rates, the economy, and the Trump administration. And while rates came down throughout Q1 from 4.79% on January 13th to 4.23% on March 31st, volatility due to policy announcements and market reaction kept many clients in wait and see mode. Yet within that context, our team delivered healthy Q1 total transaction volume of $7 billion, up 10% from last year, which drove total revenue growth of 4%. Q1 is typically our slowest quarter of the year, and with the political and economic backdrop of the quarter, we were pleased with our top-line growth. Our GAAP EPS was only 8 cents on the quarter, down significantly due to personnel costs to add new talent and remove underperforming ones. fees associated with a debt offering that now provides us with wonderful financial flexibility to continue investing and growing our business, and additions to our loan loss reserve that, while costly, are normal expenses associated with our lending business. In 2020, we laid out an ambitious five-year growth plan called the Drive to 25. We quickly acquired or invested in the human capital and business lines to achieve our goals, and then the great tightening began. pushing up interest rates and bringing down transaction volumes dramatically. We cut costs, yet maintained every business line we invested in to achieve the drive to 25, knowing that when the market returned, the full suite of services would benefit W&D's customers. We saw transaction volumes improve in 2024 and into the first quarter of this year, and there is a growing sense that the pent-up demand for financing and need to deploy or recycle capital is going to push 2025 volumes higher. There is nearly $200 billion of equity dry powder looking to invest in North American commercial real estate, with the belief that 2025 is a strategic entry point to achieve rent growth over the coming years, particularly in the multifamily sector. 88% of our Q1 volume was in multifamily assets, with Fannie Mae originations up 67% from an exceedingly slow Q1 of last year. Investment sales volume was also up 58% from a slow start last year, showing the strength of the W&D brand as well as the beginnings of the next investment cycle. As you can see in the bottom right of slide four, while nowhere close to the sales volume we saw coming out of the pandemic, the multifamily investment sales volume of the past three quarters has been in line, if not a little above, pre-pandemic volume from 2015 to 2020. There is clearly changing sentiment in the multifamily sector with a significant desire to buy today as slide five clearly shows. If you recall the massive spike in sales volume just after the pandemic, look where investor sentiment was during that period, solidly in the sell camp because they saw fantastic rent growth and low cap rates to sell properties into. So what will drive rent growth and cap rate compression to increase the desire to sell and create a more active acquisitions market. As you can see on slide six, 2024 had historically high deliveries of multifamily units across the country. Yet unlike 2022 and 2023, when the deliveries were met with tepid demand and negative absorption, 2024 had positive absorption on record supply. This glut of capacity is about to disappear, particularly if demand stays strong. The record supply of multifamily units in 2024 was due to what you see on slide seven, with construction starts hitting record levels in 2022 and peak deliveries hitting the market in 2024. But as this slide clearly shows, construction starts have plummeted over the past two years, which will make the upper blue line showing deliveries begin falling in 2025 and create an undersupplied market in 2026 and 2027. The only way an undersupplied multifamily market doesn't turn into significant rent growth for apartment building owners in 2026 and 2027 is if single family housing presents an abundant and affordable alternative, which seems unlikely. Slide eight is a clear presentation of why single family housing has become so unaffordable and therefore unlikely to compete with multifamily. Please look at the bottom left side of this graph. Five years ago in February of 2020, the median priced home in America costs $285,000. If you follow the bar chart to the right, in February of 2025, the median priced home costs $385,000, $100,000 more than it did in 2020. Now go back to the February 2020 point and look at the light blue line. It shows the average principal and interest cost of a mortgage on that $285,000 home. And as you see, It's below the brown line, showing the median cost of renting to the tune of $250 to $300 cheaper to service your mortgage versus pay rent on a monthly basis. But now, go back up to the upper right-hand side and look at the monthly cost to service your mortgage on the $385,000 home versus pay the median rent, upside down to the tune of $450 a month. This data is why transaction volumes are increasing in the multifamily sector. And as rents improve and rates hopefully stabilize or come down further, the refinancing market will pick up. We are discussing this data with our multifamily clients every day, and they very clearly see the coming opportunity. They also see the headwinds to construction, both single-family and multifamily, due to existing and potentially higher tariffs, making owning existing assets even more attractive. Our debt brokerage team had a slow Q1 of $2.6 billion of volume, compared to $3.3 billion in Q1 of 24. The volume decline was primarily a timing issue, as a meaningful portion of our pipeline was pushed into the second quarter. Private capital providers are becoming more active, with Q1 being the highest CMBS origination quarter since prior to the great financial crisis, and our debt brokerage team is very focused on growing volumes over the remainder of the year. We have a deep foundation and brand recognition in the multifamily market, a sector with significant tailwinds that I just described. But we have also invested over time to diversify our capabilities to meet the needs of our expanding client base. We recently made several important strategic moves that will drive transaction volumes across asset classes over the coming years. First, we added a senior banker to our New York capital markets team who ran the capital markets business at one of W&D's largest competitors. Second, we entered the hospitality investment sales space at the end of 2024, and that team is gaining momentum on both the sales and financing front. Third, we opened a new office in London, England, focusing on the European and Middle Eastern markets. We spoke about this expansion during our last call, and it's very important for W&D to continue expanding outside the U.S. for both foreign deal flow and to connect with investors looking to put money to work inside the United States. Finally, the data center space has been exceedingly hot over the past several years, and we brought on a fantastic banker to lead our growth in this area. We have significant hiring momentum and are excited about where our business is headed in the coming quarters and years. Transaction activity continues to steadily build, and one month into the second quarter, we have already closed 60% of our Q1 transaction activity. We have seen almost no fallout in our pipeline in Q2, And with the 10-year at 4.17%, we see a promising market for the second quarter and beyond. I will now turn the call over to Greg to talk through our Q1 results in more detail. Greg?