Walker & Dunlop Inc (WD) 2017 Q3 法說會逐字稿

Good day, everyone, and welcome to Walker & Dunlop's Third Quarter 2017 Earnings Conference Call and Webcast. Hosting the call today from Walker & Dunlop is Willy Walker, Chairman and CEO. He is joined by Steve Theobald, Chief Financial Officer; and Kelsey Montz from Investor [Relations] .

Today's call is being recorded and the archived webcast is available on company's website. (Operator Instructions) It's now my pleasure to turn the floor over to Kelsey Montz. Please go ahead.

Thank you, Keith, good morning, everyone. Thank you for joining the Walker & Dunlop's Third Quarter 2017 Earnings Call. I have with me this morning, our Chairman and CEO, Willy Walker; and our CFO, Steve Theobald. This call is being webcast live on our website and a recording will be available later this morning. Both our earnings press release and website provide details on accessing the archived call. 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 Willy and Steve will touch on this morning. 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 or 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 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. 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 Willy.

Thank you, Kelsey, and good morning, everyone. As the hold music you had just listened to may have tipped you off. Today is a very special day at Walker & Dunlop as it marks the 80th anniversary of the founding of this great company. It is a true pleasure to be running the company that my grandfather and great uncle started on November 8, 1937, and that my father so successfully ran throughout his career. They say about companies that the first generation built it and that the second generation doesn't kill it, the third surely will. We've clearly avoided that stage so far and instead have taken Walker & Dunlop to all new heights, over the past decade. And while it is a pleasure to carry on the family legacy in the third generation, it's a true honor to work every day with the men and women that make Walker & Dunlop such an incredible company. I will talk more about the culture and success of W&D at the end of this call, but for now, I'd like to wish everyone at Walker & Dunlop a happy 80th birthday and also thank all of you on the line for joining us today.

Our third quarter results reflect the exceptional execution of our strategy to build premier commercial real estate finance company in the United States. I'm going to start by asking to turn to Slide 3 in the presentation, which lays out our quarterly key financial metrics. Total transaction volume was up 70% to a record $8.5 billion this quarter, reflecting the hiring and acquiring of new banking and brokerage talent over the past several years. Our expanded platform generated record quarterly total revenues of $180 million, up 16% over Q3 of last year. And our strong top-line growth generated a 16% improvement in net income to $34 million. The fourth most profitable quarter (technical difficulty) in Dunlop with a $1.06 of diluted earnings per share (technical difficulty) percent over Q3 2016. With year-to-date diluted earnings per share of $3.49, compared to $3.65 for all of last year, we will deliver strong double-digit earnings growth this year for the fourth consecutive year. $8.5 billion of transaction volume this quarter brings our year-to-date total transaction volume to $19.6 billion, a 50% increase over the $13 billion of transaction volume during the same period last year. As we have said before, Walker & Dunlop's day-to-day execution to meet our clients’ needs coupled with our expanded platform and brand, continue to fuel our growth.

If you will turn to Slide 4, you can see on the right side that we have increased the number of bankers and debt brokers at Walker & Dunlop from 97 to 131 over the past 21 months through a combination of internal promotions, recruiting and acquisitions. If you remain on Slide 4, you can see that we use the method similar to the same-store comparisons used by retailers to break up the loan origination volume of the bankers and brokers who are at Walker & Dunlop, as of December 31, 2015, from the volume originated by the bankers and brokers who have joined us subsequently, to show the organic growth versus growth from acquisitions and hiring. As you can see the existing bankers and brokers originated $11.2 billion of deal volume in the first three quarters of 2016, and that same cohort added $3.1 billion or 27% growth to that number bringing the year-to-date 2017 total to $14.3 billion. As you can see in blue, the new hires added $251 million in the first three quarters of 2016 and have grown that by over 13x to $3.5 billion in the first three quarters of 2017. So of the $18 billion in total originations year-to-date, 79% has come from our existing bankers and brokers and the other 21% has come from new hires over the past 21 months. We will continue to add bankers and brokers across the country, as we scale W&D to be the premier commercial real estate finance company in the United States.

Our reputation as one of the very best multifamily lenders in the country led to Walker & Dunlop being selected to finance Greystar's acquisition of Monogram Residential in Q3, the largest transaction in our company's history. This $1.9 billion Freddie Mac financing was a home run. Our team delivered the financing on time with great terms and conditions and without any drama. One Freddie Mac official, who was impressed with our team's execution said, "You know how President Obama was called no drama Obama, after this deal we might need to call Walker & Dunlop, no worry Walker." This type of praise only comes from having exceptional team that is underpinned by a corporate culture that promotes teamwork, execution and customer service at every turn. The addition of the Greystar deal drove our Freddie Mac loan originations to an all-time quarterly high of $4 billion. We expect to see a -- we expected to see a surge in our Freddie volumes, as many of our borrowers were gravitating towards floating rate financing as a result of the dovish signals coming from the Fed. With the acquisitions of Elkins Mortgage and Deerwood Mortgage over the past year, we anticipated strong brokered originations this quarter and got just that at $1.9 billion of volume. We should see continued growth in brokered originations in the fourth (technical difficulty), as our Capital Markets team continues to expand their client base and contribute meaningfully. We originated $1.4 billion of Fannie Mae in Q3 and given our extremely strong first half of the year, we are 16% over our 2016 year-to-date Fannie Mae production. We have a strong Q4 Fannie pipeline, and are on pace for yet another record year with Fannie Mae. Q3 HUD originations were down from a very active Q3 2016, but on a year-to-date basis are up 41%, and our HUD team is well on its way to originating over $1 billion in total loan volume for the first time since 2013.

Finally, our investment sales group had a slow start to the year due to the macro trends in the market. But many of the challenges facing buyers and sellers early in the year settled down in Q3, and we saw a dramatic pick up in the level of investment sales business to $936 million, up 19% from last year. We have a robust investment sales pipeline right now and anticipate a strong Q4.

I want to touch, for a moment, on our business model and the growth of our servicing portfolio. Our portfolio crossed the $70 billion threshold at September 30, having added $10 billion of new servicing in only 10 months. I'd ask you to turn to Slide 5 for a moment, and here you can see that due to the dramatic growth in loan originations and limited runoff in our servicing portfolio, the period of time it took us to add an additional $10 billion of servicing has decreased from 22 months from $30 billion to $40 billion to only 10 months from $60 billion to $70 billion. Not only is this accelerating growth hugely beneficial to our current financial performance, but it is also very accretive to our long-term enterprise value. 87% of the servicing fees from the loans in our portfolio (technical difficulty) protected. And the weighted average remaining life of the loans is just under 10 years. If you add up all the prepayment protected servicing fees in the portfolio today, it is almost a $1 billion of contractual revenues to Walker & Dunlop.

Finally, we have only $9.3 billion of scheduled loan maturities in our portfolio from now through 2020. So with annual origination volumes in excess of $20 billion and only $9.3 billion of maturities over the next 3 years, we have a very clear path to achieving our 2020 goal of a servicing portfolio in excess of $100 billion.

Whatever viewed in the first part of this earnings call, our financial results and accomplishments that mirror the corporate strategy we laid out for investors 3 years ago. To be at the very top of the lead tables with Fannie, Freddie and HUD, to grow our brokerage business to gain access to new clients and incremental deal flow, and to continue adding prepayment protected high-margin loan servicing fees. The final pillar of this strategy is to build an asset management business with capital that we control and can feed into the loan origination platform we have built. The joint venture with Blackstone, that we announced in May, is the first step towards executing on this strategy. That venture is up and running and we are thrilled to be partnering with Blackstone. We remain focused on building out the rest of our asset management business and envision this to include products like preferred equity, mezzanine debt and nonmultifamily bridge loans.

Growing our assets under management to $8 billion to $10 billion by 2020, we'll acquire additional partnerships and acquisitions similar to the manner in which we have grown our core lending and brokerage businesses. The scale the asset management platform will provide W&D with additional long-term, high-margin revenue streams. Similar to (technical difficulty) portfolio, also strengthening the depth and breadth of our client relationships.

I will now turn the call over to Steve to discuss our third quarter and year-to-date financial performance in more details. Steve?

Thank you, Willy, and good morning, everyone. The strength of Walker & Dunlop's brand and reputation in the marketplace continues to drive top and bottom line growth as exemplified by our third quarter financial performance. As Willy just highlighted, our quarterly financial results were fantastic and as you can see on Slide 6, our year-to-date performance has been equally strong. 2017 year-to-date total transaction volume of $19.6 billion is up 50% from the same period in 2016. Total revenues in the first 9 months of the year surpassed $0.5 billion and $112 million of net income is up 45% over the first 9 months of last year. Year-to-date adjusted EBITDA, which continues to increase at a rapid pace, was up 53% from 2016 to $146 million. During the first 9 months of the year, we delivered a 33% operating margin, while annual revenue per employee remained above $1 million, demonstrating the efficiency of our platform. Return on equity continues to come in strong at 23% for the year. For many years we have articulated our strategy to build out our mortgage banking platform, to meet more of our clients financing needs and to gain access to more and more deal flow. We have also repeatedly stated our desire to work on large financings with big institutional investors, such as the recently closed Greystar transaction. Achieving both of these strategies is highly profitable to us, but does result in lower gain on sale margins. Our Q3 results are a perfect example of this, as we reported a gain on sale margin of 146 basis points, yet maintained an operating margin above 30%, while increasing earnings (technical difficulty) year-over-year. The point is that our financial success does not come from managing to a specific gain on sale margin, but rather from our ability to continue growing origination volumes and the servicing portfolio, while tightly controlling our fixed expenses.

On the servicing front, we crossed over the $70 billion mark in September, as a result of the record origination volumes we achieved in the quarter. The $4 billion of Freddie volumes added to the portfolio, brought the weighted average servicing fee down to 25.7 basis points as of September 30. We earn relatively less servicing on a Freddie loan then we do on a Fannie loan, because we do not take any credit risk. We continue to see relatively low levels of prepayments in the portfolio, as scheduled maturities are not significant over the next few years.

Personnel expense as a percentage of revenue was 44% during the quarter compared to 42% in Q3 '16. The quarter-over-quarter increase was a result of increases to variable compensation, particularly commission expense driven by the year-over-year increase in transaction volumes and to increased accruals for our performance share plans and company bonuses resulting from our strong financial performance. I also want to point out that year-to-date personnel expense as a percentage of revenue is 39%, in line with the 39% we reported for the same time period in 2016, even as we have added 91 net new employees to our team. On the credit front, hurricanes Harvey and Irma made landfall during the quarter in locations where we have a significant number of loans across our Fannie, Freddie and HUD portfolios. And while some of our customers were impacted, today we have not seen any credit issues related to the damage. The biggest impact appears to be in our HUD portfolio, where 8 of our loans in the Houston area experienced extensive damage and they have difficulty getting back online soon. We continue to monitor the situation and do what we can to assist our customers as they rebuild. But at this point, we do not expect any losses. And after 9 quarters with no 60 day delinquencies in the at-risk portfolio, we finally have (technical difficulty) quarter on a $6 million Fannie Mae loan backed by a property in Louisiana. The default was not hurricane related and resulted in only a small increase in provision for credit losses, as the loan had been on our watch list for some time. We knew we would have a default at some point, as we have had an exceptional period of credit performance. The overall credit quality of the portfolio remains stellar and our underwriting remains highly disciplined, with debt service coverage ratios of 1.41x and LTVs of 65% on all GST lending during the quarter.

As outlined on Slide 7, the growth in loan originations and servicing related fees continues to drive dramatic growth in adjusted EBITDA, which totaled $45 million this quarter, an increase of $9 million from Q3 2016. Net new MSRs, an indicator of forward cash servicing revenues, were $15 million in the quarter, meaning we should see additional growth in servicing fees over the coming quarters, based on the MSRs we added in Q3. Our current platform's cash generating power should only increase, as we continue to execute on our strategy of growing our origination platform and related servicing revenue streams.

In July, we moved $120 million of loans from our interim loan portfolio into our joint venture with Blackstone, returning around $30 million of cash to our balance sheet. We ended the quarter with $85 million of cash and another $64 million used to self-fund agency loans at quarter-end. For total unrestricted cash available to us of $149 million at September 30. During the quarter, we used $11 million of cash to buy back 228,000 shares at an average price of $47.7, leaving us with $64 million of board authorized share repurchased [capacity].

Since the beginning of 2014, we have strategically repurchased 6.1 million shares of our stock at a weighted average price of $16.81. Based on yesterday's closing share price that is a return of 224%. With the combination of our current cash position, the growth in adjusted EBITDA and our low leverage, we have a great deal of financial flexibility to continue making capital allocation decisions that increase shareholder value. The third quarter was wildly successful from both a financial and strategic standpoint. We feel well positioned for a strong finish to the year and we are optimistic about our ability to deliver industry-leading growth in 2018.

With that, let me turn the call back to Willy.

Thanks, Steve. We cannot continue delivering the fantastic financial results Steve just described, without the highly talented people of Walker & Dunlop. We have built a corporate culture at W&D that is consistently recognized as exceptional. Most recently ranking #13 on Fortune Magazine's 2017 list of best workplaces for the fifth time in 6 years. A great work place with talented people is at the core of Walker & Dunlop's financial performance. We spend a huge amount of time and energy investing in the success and well-being of our people and the financial results have clearly followed. Walker & Dunlop was just ranked #17 on Fortune Magazine's list of fastest growing companies, based on 3 year growth rates in revenues, earnings per share and total shareholder return. That is amongst all publicly traded companies on U.S. exchanges and puts us in the top 20, along with Facebook and amazon.com.

As you can see on (technical difficulty), Walker & Dunlop's 3-year compound annual growth rates in total revenues, net income and adjusted EBITDA of 24%, 43% and 29%, respectively, reflect a dramatic top-line growth due to our brand, capabilities and hiring; bottom-line growth due to exceptional management and teamwork; and growth in cash flow and adjusted EBITDA due to our unique and highly profitable business model. As you can see on the far right side of this slide, all of that is translated into spectacular total shareholder return of 44% per year from year-end 2014 through September 30, 2017. It takes a long time and a lot of effort to build the type of team and capabilities we have assembled at W&D. But once you have them if you can maintain the culture and what makes you special, you have the opportunity to continue scaling the business for many years to come.

As we look forward, we believe the commercial real estate market will continue to be healthy and very active with regard to financing and investment sales activity. In Preqin's June, 2017 investor survey, 72% of respondents said that they plan to maintain or increase their capital allocation into commercial real estate in the next 12 months compared to the previous 12 months. At the end of Q3, there was $147 billion of dry powder in private equity funds focused on commercial real estate in North America. This high investor demand has driven commercial real estate prices up, but unlike past cycles where asset values have driven a breakdown in lending fundamentals. We have not seen that in any of the commercial real estate lending we are involved with. In our GSE lending, where we take risk, as Steve previously mentioned, our Q3 average loan to value was 65% and our average debt service to coverage was 1.41x. The investors winning deals (technical difficulty) particularly in the multifamily space are not those with more debt, but rather those are the cheaper cost of equity. And as global capital continues to seek yield in U.S. commercial real estate, we expect to see this trend continue. I would also add 2 other reasons why underwriting has not deteriorated, first, the memory of the financial crisis is still very present in the minds of professionals in the commercial real estate financing industry. And second, CMBS lenders have not played as significant a role in commercial real estate lending today as expected. And as a result, have not driven underwriting standards down. As seen in our year-to-date transaction volumes, we have been successful at dramatically growing our brokered loan originations on all commercial real estate asset classes. And we will continue to expand this business across the country going forward. Yet our core lending business and the real driver at Walker & Dunlop's financial performance is the multifamily market, with 84% of our year-to-date loan originations and 100% of our investment sales activity, being on multifamily properties.

I ask you to please turn to Slide 9 for a moment, as we discuss the strong fundamentals of the multifamily market. As you can see since 2005, renter households in the United States have grown by 9.2 million, while single-family households have grown by only 262,000, producing a 5% decrease in the homeownership rate, down to 63.9% today.

A recent Freddie Mac survey on U.S. rentership revealed that both a lack of affordability and the change in preferences could be shifting Americans away from home ownership. The survey showed that a vast and growing majority of renters believe that renting is more affordable than owning and only 14% of current renters surveyed are actively working towards homeownership, down significantly from 21% in January (technical difficulty) year. As depicted on Slide 10, the perception that renting is the more affordable housing option has increased considerably in the past year for renters across all the major age cohorts, millennials, Gen Xers, I'd ask you to note for a moment the dramatic jump from 56% to 75% in only 11 months for this cohort and baby boomers. On the right side of this slide, you can see that rentership is up across all age groups from 2006 to 2016. Some of the key reasons for the growth in rentership is that owning a home has become unattainable for many Americans, due to increasing home prices, flat wages, higher down payment requirements and a lack of supply of new affordable starter homes. I want to focus for a moment on the lack of supply of starter homes.

And would ask you to turn to Slide 11. Really look at this slide, for it shows the dramatic shift in the type of single-family housing being built today versus 2002. In 2002, 54% of the single-family homes constructed cost less than $200,000. By 2016, the landscape shifted dramatically with only 17% of the new supply priced below $200,000. This change in price point by single-family developers is due to several factors: first, regulatory changes have made getting a mortgage for less qualified buyers far more difficult, driving demand to the high end of the market; second, the land entitlement process to develop single-family homes has gotten far more difficult and costly. The recent acquisition of CalAtlantic by Lennar is (technical difficulty) land entitlement process. One of Lennar's stated reasons for acquiring (technical difficulty) was for its inventory of entitled land; and third, construction costs have gone up -- gone way up and will continue to rise, as communities damaged by the 2017 hurricanes are rebuilt. From our perspective, these factors are unlikely to change soon. And with slow wage growth and unprecedented levels of student debt, renting appears to be the only viable housing choice for a large percentage of the American population. I'd like to summarize for a moment a few of the core competitive advantages of Walker & Dunlop. We are one of the strongest brands in the multifamily industry, placing us at the very top of the league tables with Fannie, Freddie and HUD, who will collectively supply over 50% of the capital to the multifamily industry in 2017. We have expanded our client base to include the very largest and most sophisticated private and institutional investors in rental housing. We have grown our loan originations, revenues, net income, and EBITDA dramatically faster than our industry and competitive peer group and currently sit on Fortune's list of fastest growing companies with the largest technology and healthcare companies in the world. Our business is predominantly focused on the multifamily sector, where cyclicality is greatly diminished and where disruptive technology such as WeWork, Airbnb, and amazon.com are not impacting asset values or transaction volumes like they are in the office, hospitality and retail sectors. And we have a unique business model, where we make money while we sleep, rather than solely when we are originating a new mortgage or selling an asset. You add to these competitive advantages our best-in-class people and a great place to work and we should be able to continue scaling this company dramatically over the coming years.

I'd like to finish this call by wishing my father and aunt Betsy, a very happy November 8. They're the only two people still with us who have watched this company evolve over (technical difficulty) 80 years. I can assure you that neither of them ever thought Walker & Dunlop would look like it does today. I can also assure you that if we continue to attract great talent, maintain the corporate culture we have built and continue to exceed our client's expectations each and every day, that Walker & Dunlop 10 years from now will look as different from today as today looks from November 8, 1937. Thank you all for joining us this morning. And many congratulations to all of my colleagues at W&D for another fantastic quarter.

I'd like to ask the operator to now open up the line for any questions.

(Operator Instructions) We can take our first question from Jade Rahmani with KBW.

2017 is clearly a banner year for Walker & Dunlop, so congratulations. Just looking forward, with transaction volume growth of around 50%, how do you think about driving the business in the years ahead? Is the primary strategy to recruit new brokers and getting increased productivity by putting them on the Walker & Dunlop platform? Or do you see opportunities to broaden the strategic mandate to look outside at additional business lines, such as property management, leasing, outsourcing or perhaps team up with a broader diversified real estate services front?

The -- I'd first note that we are still a relatively small company. And so even though our growth is outpaced our industry rivals and many of whom have, if you will, bigger brands and more feet on the street. We have been able to grow faster because of our relative size and today with just over 140 bankers and brokers across the country, if you look at that and compare that to some of our larger competitors, some of them have that many people in 1 office -- 1 regional office, if you will. And so, our ability to continue to attract talented bankers and brokers, I think, well if not unlimited, it gives us a lot of runway to continue to grow. The second thing is, as you know, we have been an acquisitive company. We have acquired 6 companies over the last 8 years and when we acquire companies, we have seen in the first year on the Walker & Dunlop platform, an uptick of greater than 20% for those companies that we've gone and acquired. So there is great advantage to smaller companies becoming part of Walker & Dunlop and if you will, taking their game to a whole different level. So we will continue to look for companies to acquire that have both great people, and then if you will, similar culture to Walker & Dunlop. Because as both Steve and I talked about on this call, one of the most important things that makes us, I believe, a very different company is the culture we have been able to develop over our 80-year history and more specifically, over the last 10 years, as we've become an acquisitive company and brought in new talent. Your question as it relates to entering other businesses. As I hope was pretty evident in our comments, our strategy is to be the premier commercial real estate finance company in the United States. And that mission statement not only states what we want to be, but also should tell people what we don't want to be. It does not say that we want to be the premier commercial real estate services firm in the United States. So some of the product lines, if you will, are services that you just mentioned in your question, are not spaces that we want to go. They are much lower margin, they require significantly more people and we want to be the very best finance company, which is financing in investment sales in the commercial real estate space. So I think you'll see us add additional products and services to make us more relevant to our customers, as it relates to financing and investment sales. But I would be very surprised if we expand out beyond that core mission.

And based on your conversations with the industry, your brokers, institutional investors and perhaps the GSEs, are you expecting overall commercial real estate transaction activity in 2018 to be similar to 2017? And can you also comment on the outlook for multifamily originations?

Yes, so as it relates to the overall market, Jade, you have clearly been on a lot of conference calls over the last couple of weeks, just as we've been listening too. And I think the overall outlook is quite positive, both globally and then more specifically in the United States where we operate solely. As it relates to overall transaction volumes and listening to other calls I think most people feel that 2018 is going to be a strong year, not dramatic growth but growth in various product lines. As it relates to our specific space in multifamily, we look at 2 projections, that are Mortgage Bankers Association survey as well as the Freddie Mac survey, those seems to be the 2 best at predicting the market. And for the past several years, the Freddie Mac estimates have been better or more accurate as it relates predicting the size of the market than the MBA numbers. MBA just revised their 2016 numbers up, as you may know. And so they added, I believe, $11 billion to bring their 2016 numbers up to the low-$260 billion number. Freddie Mac, as we show, I can't member what slide we have the numbers, we didn't have it on the slide, it's not on the slide, sorry. But the Freddie Mac estimates for 2017, Jade, I believe are about $280 billion. And they have that growing up close to $300 billion in the coming year, I think its $305 billion. And so both MBA as well as Freddie Mac believe there is growth in the multifamily market coming in 2018. And I just say that given our competitive positioning and the growth that we have seen, we obviously would love to see the overall market expand. But we also believe that we'll be able to continue to gain market share, almost irregardless of overall market growth, just because of the strength of the platform and the reputation we've been able to build. I'd also add to that Jade, that I'd underscore, doing the Greystar's transaction in Q3, we've told investors and we've told analysts alike that we are really making a push into that larger institutional marketplace. And I think our joint venture with Blackstone, the Greystar transaction in Q3, those are two, if you will, marquee deals with some of the largest investors in multifamily in the world. And we'll continue to focus on those and I think that, that presents great opportunities for increased market share for W&D.

And can you also touch on Fannie Mae originations. I think, for the market they declined about 10%, but they did and have an exceptionally strong 1Q. Is anything going on in Fannie Mae with respect to the market? Or is it just the timing factor?

It's just a timing factor, as we've discussed before Jade, Fannie and Freddie both sort of come in and out of the market at various times. One of them will have a product, will have pricing that is significantly beating the other for a period of time. It almost goes on a quarterly basis, but it's not quite that, if you will, clean. But Fannie had a very, very strong start to 2017. And we did a huge amount of volume with Fannie in Q1 and Q2. Q3, Freddie came into the market. Freddie had a great quarter. We did $4 billion of originations with Freddie in Q3. And I'd put forth to you that both of them right now are looking at their 2017 caps and they are both, if you will, managing their overall deal flow numbers, to be able to end the year strong, to be able to use up all the cap space that they have and I'm pretty sure you've done the analysis as it relates to how much cap space they both have for the fourth quarter. And it's very sizable. Both of them have a lot of additional cap space for Q4 originations. So as Steve and I both said, they are both very active in the market right now.

(Operator Instructions) We'll go next to Steve Delaney with JMP Securities.

So you covered a lot of what I wanted to talk about with Jade, but just picking up a little bit on the MBA forecast. Really one thing I noted in that October 26 release from MBA was that they were talking about $271 billion this year, 73% of a total CRE pie of a $515 billion. But what I was reading that was to say was they're expecting sort of flattish overall for combined CRE and MF in '18. But I'm looking at the exact words in the press release, they said multifamily lending is expected to slow slightly in 2018. And I assume that's from that $271 billion figure. I was just curious, if you've spoken to them and to discuss why, what are they saying in the market that Freddie Mac is not given the significant growth that Freddie's predicting?

Sure, Steve. First of all, I think the world of Jamie Woodwell's is the (technical difficulty) MBA and focuses on the commercial market. And I think Jamie has done great work, but he has been consistently underestimating the size of the market. And I would just put forth to you that Jamie has a responsibility to look at the overall commercial real estate market and Freddie Mac is focused solely on the multifamily market. And Freddie's numbers have just been more accurate. I don't -- it's hard to project forward at this point, but one thing -- I did have a conversation at the Freddie Mac conference, Steve, with a number of other Freddie Mac seller services CEOs, and was talking about -- right now in commercial real estate overall the cycle time for commercial real estate loans is about 4 years in the multifamily space. So if you look at $1.2 trillion of total multifamily debt outstanding and we're doing somewhere between $250 billion and $275 billion a year, right? So you're turning all of that about once every 4 years. And my comment was, if interest rates start to move up that, that cycle time will expand out, because what we're looking to refi will sit there and say, well I don't want a refi right now, I'm going to hold on to this loan. So some of that refi activity would fall off and therefore, the cycle time would push out from 4 years to maybe 4.25 years, 4.5 years, which would naturally bring down the overall volume. And I will tell you Steve, I was the lone voice in the room as it relates to any slowdown in overall multifamily activity and my colleagues from both commercial banks as well as real estate services firms all said that they're actually seeing the exact opposite, which is more transaction volume, generating more financing activity and nobody seemed to buy into the rising interest rate slowing down, both financing for acquisitions or financing for refis. The one other thing I'd put out there is that you have to keep in mind as well that there are -- there is a lot of interest only on a lot of the loans that are outstanding, particularly in the Freddie Mac book and many borrowers will sit there and write out the interest only period and then when the interest only period expires they will go and refinance that loan pick up more I/O. And so the other thing that Freddie Mac can somewhat uniquely look into is how much of their book has I/O on it and when borrowers will likely step up and say my I/O period is about to expire, I want to go refinance that loan to pick up some more I/O.

That's really helpful color on sort of the nuances of it, and we'll think we'll look towards the Freddie numbers when we start projecting out to next year. Wanted to get a reconciliation of the broker headcount. The press release indicated average bankers and brokers of 142 and the Slide 4, where you were comparing same-store sales, showed 131. And is that difference just that investment sales brokers are not included in the 131 on Slide 4?

That's exactly right Steve.

Okay, got it. And well you haven't -- your outlook is, obviously, for growth. I haven't heard anything specifically about headcount. Can you comment on as you've planned for 2018? Have you set -- do you plan to set a goal for the percentage increase in bankers and brokers for the next year?

Yes, we were planning on doing that in our Q4 call in February, Steve, we will lay out the 2018 goals and objectives, as we've done consistently. But I just say to you that you should expect us to have a goal that's very similar to what we've had in 2017. I think, the big issue is as it relates to growth, as I said in responding to Jade's question, (technical difficulty) the strength of the platform, right now, we have a lot of interest in people joining Walker & Dunlop. We've grown faster than everybody else, we've created a real competitive positioning. And so anyone who's focusing in the multifamily space, either on the debt side or in the investment sales side, there's a real interest in, well why is Walker & Dunlop growing faster than my company and why are they doing more? And so that's going to, I think, help us a lot as it relates to recruiting. And then the other is that on the M&A side, as you know and have seen, we've been, I would say, extremely good at acquiring companies and integrating those companies and maintaining the human capital that comes across with those companies. And so we're looking as you can imagine, and I'd say the other thing to keep in mind is, as Steve put forth in his comments on our balance sheet, the amount of cash flow that we're generating right now and the lack of debt on our balance sheet, we have a lot of dry powder, should we want to do a major acquisition. And I'm not trying to say we've got anything on the horizon right now, but if the right opportunity came along, given our track record of acquiring companies and doubling the size of Walker & Dunlop, when we bought Column from Crédit Suisse and CW from Fortress. Doing a very significant acquisition should not be something -- that is not something that should surprise investors when and if we do it in 2018 or beyond.

Great. In closing I just say we applaud the share buyback and I think that sends a strong message to the street.

And it appears we have no further questions at this time. I will return the floor to Willy Walker for additional or closing remarks.

Great. Thank you, Keith, very much for hosting the call this morning. Thank you, everyone, for joining us. A great quarter. I'd reiterate my congratulations to my colleagues at W&D. Job very, very well done. And might also reiterate the happy birthday message. There are not many companies that get to celebrate 80 years in business, and we've (technical difficulty) in it to be one of the few. So to all of you on the call and to my colleagues at W&D and to my aunt Betsy and my dad, happy 80th birthday W&D. Thanks, everyone. Have a good day.

And this will conclude today's teleconference. Thank you for your participation. You may now disconnect.