Walker & Dunlop Inc (WD) 2023 Q1 法說會逐字稿

Good morning, everyone. I'm Kelsey Duffey, Senior Vice President of Investor Relations at Walker & Dunlop, and I'd like to welcome you to Walker & Dunlop's First Quarter 2023 Earnings Conference Call and Webcast. Hosting the call today is Willy Walker, Walker & Dunlop Chairman and CEO. He's joined by Greg Florkowski, Executive Vice President and Chief Financial Officer. Today's webcast is being recorded and a replay will be available via webcast on the Investor Relations section of our website. (Operator Instructions)

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 Greg will touch on during the call. Please also note that we will reference to 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 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, 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 will now turn the call over to Willy.

Thank you, Kelsey, and good morning, everyone. Walker & Dunlop's business and the broader commercial real estate industry faced continued pressure from uncertainty around interest rates and volatile market conditions during the first quarter of 2023. Our financial results reflect the challenges of the current market environment. And while working closely with our clients, our team closed $6.7 billion of total transaction volume, down 47% year-over-year.

Our multifamily property sales volume of $1.9 billion was down 46% year-over-year compared to 74% decline in the broader market as reported by CoStar. It's important to note, as we review quarter-over-quarter numbers that the Federal Reserve began its tightening cycle at the very end of Q1 2022, making it the final quarter of the post-pandemic easy money cycle. Q1 total revenue was $239 million, down 25%, and diluted earnings per share were $0.79, down 63% from Q1 of 2022. Please remember that, that Q1 2022 number included a onetime gain triggered by the GeoPhy acquisition that contributed $0.92 to our EPS of $2.12.

Yet despite the dramatically lower transaction volumes due to market conditions, along with revenues and EPS, our adjusted core EPS, a metric we introduced last quarter that strips out large noncash revenues and expenses to give investors better insight into our current income statement, was up 10% versus Q1 2022, and adjusted EBITDA was up 9% to $68 million. I want to underscore this point. In a quarter where transaction volumes were down 47% from the previous year we grew adjusted core EPS by 10% and adjusted EBITDA by 9%, thanks to our servicing and asset management businesses that generate significant and consistent revenues.

Due to dramatically lower transaction volumes across the industry and at Walker & Dunlop, in mid-April, we realized we rightsized our business and reduced head count by 110 employees or 8%. With this action and other cost-cutting measures that Greg will outline in a moment, we have significantly reduced operating expenses to a level where we can restand transaction volumes similar to Q1 for the rest of 2023. That is clearly not our hope. And as I will outline in a moment, we see plenty of potential upside. But for now, we had to take the hard step of rightsizing our company and saying goodbye to a group of valuable colleagues who contributed a great deal to our past success.

We remain focused on achieving our Drive to '25 business plan, which has always been highly ambitious, even before the current market dislocation, that Walker & Dunlop established its first 5-year stretch business plan in 2007. And when the great financial crisis hit, every indicator told us the 5-year plan was off the table. Yet we remained focused, grew our countercyclical lending relationships with Fannie Mae, Freddie Mac and HUD and achieved every element of our 5-year plan in 2012. We see a similar opportunity today by focusing on operational excellence and cost containment and then leaping forward as the market heals.

Where is there potential upside? The recent banking crisis pulled banks out of the commercial real estate lending market almost immediately. Fannie Mae and Freddie Mac's multifamily lending volumes have increased significantly since then. And should these volumes be sustained throughout the year, as the largest GSE lender in the country in 2022, W&D's GSE volumes will be significantly higher than what we are currently forecasting.

Banks pulling back from commercial real estate lending in an effort to build more liquid balance sheets has broader implications than just increasing GSE lending. Nearly 40% of the $4.5 trillion of total commercial mortgage debt outstanding today sits on bank balance sheet. If banks pull back 5% to 10% in commercial real estate lending, it could create the need for $225 billion to $450 billion of new capital from life insurance companies, CMBS securitizations or private debt funds raised by registered investment advisers like Walker & Dunlop.

Not only does Walker & Dunlop have the fund management business to raise and manage this type of capital, but we also have the distribution network with over 220 bankers and brokers across the country to deploy it. In addition to the capital raising opportunities that the bank pullback presents, there is also a long-term growth opportunity for our debt brokerage business. Banks have direct relationships with their commercial real estate customers, which means that a significant portion of the $1.7 trillion of commercial real estate loans on bank balance sheets today was originated without a mortgage broker.

The role of our debt brokers becomes more important than ever in a capital-constrained market, as borrowers need a broker's expertise to look broadly across the market for the most competitive capital source. In the short term, there is no doubt that a lack of liquidity to the broader market will put pressure on our debt brokerage business. But over time, these opportunities could be a significant driver of growth in our brokered volumes.

There's plenty to commercial real estate exposure on bank balance sheets (inaudible) or any asset class outside (inaudible) at risk for or the exceeding evidence by the benefit for credits we recognized in Q1. From our experience, it was dramatic increase in the unemployment rate impact multi-frame fundamentals the unemployment rate to [3.5%] and will observe is trying to cool employment and raise on it to 5.5%, even that elevated level is statically below the 9.5% unemployment reached 2009 during the after 9.5% unemployment in 2009 where as at-risk portfolio will reach 1.64% of loan days delinquent in Q2 of 2010. And as the economy healed into 2011 the loan got a total losses to our portfolio after the great financial crisis and 9.5% unemployment was a cumulative 16 basis points. This is not say there won't be multifamily loan defaults.

We're already seeing defaults in other lenders' portfolios on poorly acquired and financed properties from the past several years. We have given current employment levels and the ability for the Fed to start cutting rates should be better. We are currently concerned about broad credit losses in our multifamily portfolio. Housing affordability is a real concern as the average entry-level monthly payments for an existing home increased 32% in 2002, nearly tripling the prior record increase of 13% in 2013 according to (inaudible). Stretched affordability has been fueled by 2022 sharp mortgage rates on top of recent price growth, challenging future home ownership, likely keeping residents in rental housing water.

Walker & Dunlop's acquisition of Alliant, one of the largest affordable housing owners and tax credit syndicators in the nation at the end of 2021 was very well timed. The financial performance is terrific. W&D's capabilities and brand in the affordable housing industry are greatly enhanced due to Alliant. Zelman is another recent acquisition that has performed exceedingly well. Zelman's research on all sectors of housing continues to grow its subscription base and making them increasingly insightful on single-family build for rent and multifamily.

And as Greg will detail in a moment, Zelman's Investment Banking division had a strong Q1 and sets W&D [upweility] of commercial malls next cycle. Finally, we continue to integrate the technology we acquired with GeoPhy into our appraisals and small balance lending businesses as transplants have followed so as the need for surprises behind -- as of balance lending banks pump has a dramatic on the smoke space. Banks dominate a small multifamily lending space and any pullback for city for Walker & Dunlop's small balance business.

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

As we discuss challenging conditions in commercial real estate market persisted in Q3, including revenues and earnings. The EPS was $0.70 per share or $2.12 per share in the year ago quarter. As a reminder, the first quarter of 2022 included a $40 million benefit due to the revaluation of our appraisal business upon closing the acquisition of GFI. This boosted revenues and added $0.92 per the diluted EPS in the year ago quarter. Importantly, adjusted core EPS, which eliminates the large swings that can occur from non-GAAP revenues and expenses and acquisition-related activity, grew to $1.17 per share this quarter, up 10%.

As we have consistently seen through the volatility of our servicing and asset management is continued general and growing cash rep in variable expense structure has enabled us to consistently generate adjusted interest earnings blended increase in interest rates over the last 12 months to set some of the declines in transaction volumes. As a result, despite transaction volumes declining 47%, our Q1 adjusted EBITDA was $68 million, growing 9%. Adjusted EBITDA also benefited from the performance of Alliant and Zelman, which contributed $33 million of primarily cash revenues during the quarter.

Notably, Zelman closed the largest investment bank transaction in history, providing an attractive upside to the consistent subscription revenues that come with its REIT business. We remain focused on adding to family invest banking capabilities to complement Zelman's existing single-family expertise. So we will be well positioned to take advantage of M&A and other capital markets transaction real estate transaction market recovers.

Our first quarter operating margin was 14% and return on equity was 6%, both below our target ranges, but not unexpected in the decline in transaction activity. For the past several quarters, we've been focused on reducing expenses and maximize our operating margin in mid-April, we reduced our head count by over 100 employees in reaction to lower-than-anticipated volumes and continued in the commercial real estate transaction market. As a result of this reduce, we will incur a $3 million expense and expect the savings from that action to largely offset that charge in the second quarter of 2023 with the full benefit of the savings realized in the third and fourth quarters.

As a result of the cost-cutting we have implemented, we nominated $15 million of annual G&A costs coming into this year as annual personnel related to $25 million after the head count reduction enable. These were necessary steps to improve our (inaudible) in response to a challenging and involves real estate services landscape. Turning now to the slide for our Capital Markets segment, which includes our transacted businesses, were down 38% to $104 million, driven almost entirely by the 7% decline in transaction volumes. The supply of capital to the commercial real estate market remains constrained, and our first quarter debt brokered originations were affected most, declining 58% to $2.4 billion.

Until capital begins to confidently flow again, our brokered volumes will remain impacted. A lack of liquidity and higher interest rates is also putting downward pressure on commercial real estate asset values and causing clients that would otherwise be sellers to hold on to their assets. Our 2 property sales volumes outperformed the market, but still declined 6% to $1.9 million. Agency volumes of $2.5 billion were also slow to quarter, but Fannie Mae, Freddie Mac and HUD have a real opportunity to supply significant countercyclical capital while liquidity remains constrained, and we are very well positioned as their largest partner. The sharp decline in transaction activity during the first quarter impacted financial performance of this segment, which can be seen in the year-over-year declines in adjusted EBITDA and earnings.

The first quarter is traditionally a slower quarter for the segment and our economic challenges we are facing put it down even further. Adjusted EBITDA and earnings for our Capital Markets segment will improve as capital and confidence return to the commercial real estate market and more than ever before, our clients are joining on the expertise of bankers and brokers to navigate challenging market conditions and or continues to deliver significant value on every transaction across the finish line. The Servicing and Asset Management, or SAM segment, includes our servicing activities and asset management business, which produced stable recurring revenue trends. As a result, this segment is largely insulated from the transaction-related volatility reflected in the financial results of our Capital Markets segment.

(inaudible) to $133 million to both servicing fees and escrows. Also included in our SAM segment is the interest losses on our average portfolio turn the process of collecting year-end financial statements for all of our loans. And although that process is ongoing, the weighted average debt service coverage ratio remains above 2x thus far. Importantly, the book continues to perform exceptionally well and we have only 7 basis points of defaulted loans in the at-risk portfolio at March 31.

During the first quarter, we performed our annual update to the CECL loss factor, a 10-year look back at our historical losses that is used in our loan loss reserve capitulation. We updated the calculation with 2023 data by year of near 0 losses and the loss factor declined from 1.2 basis points to 0.6 basis points as a year with relatively few higher losses fell out of the 10-year look back period. Importantly, our methodology also includes a forward-looking adjustment called the forecast period, which takes into account current economic conditions. We continue to apply an upward adjustment to the forecast period, currently 4x greater than our historical loss factor to reflect the challenging macroeconomic conditions, which partially offset the overall reduction to our allowance from updating the historical loss factor.

In update to our CECL methodology combined with the exceptionally strong credit fundamentals underpinning our Apprise portfolio resulted in a net benefit of $11 million in the first quarter of 2023 compared to a benefit of $9.4 million in Q1 last year. Our corporate segment represents the corporate G&A of our business, which includes the majority of our fixed overhead expenses and an allocation of our corporate debt expense. In the first quarter of 2022, other revenues for this segment included the onetime $40 million gain resulting from the GFI acquisition, causing the majority of the decline in total revenues for this segment.

On a consolidated basis, interest expense on corporate debt totaled $15.3 million, in line with the annual estimate of $50 million to $60 million that we gave on our last earnings call. Neither of those items impact adjusted EBITDA for the segment. So the $6 million improvement in adjusted EBITDA is driven partially by the cost saving measures we put in place 2 quarters ago and partially by an improvement in interest earnings on our corporate cash balances and pledged security portfolio. Forecasting transaction activity within today's rapidly changing market is extremely difficult. Higher rates and constrained liquidity continue to impact our business and commercial real estate transaction activity.

We do not have clarity on whether markets to recur in the back half of the year, so we are revising our guidance for 2023, as shown on Slide 9, to provide a range for our key financial metrics. The low end of our range reflects Q1 macroeconomic conditions persisting, causing debt brokerage and property sales transaction volumes to remain near Q1 levels for the rest of the year. This downside scenario would result in a 35% year-over-year client in diluted EPS on opens and an ROE in the high single digits. Our servicing and asset management revenues are not impacted by sustained decline in transaction activity and will continue to provide stability to our revenues and overall finite results. As a result, our adjusted EBITDA and adjusted core EPS would decline by no more than 10% year-over-year in this severe downside scenario.

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

Turning to capital allocation. We ended Q1 with $188 million of cash after paying corporate taxes, company bonuses, earn-out installments and our dividend during the quarter. We now maintain a strong position at generating at amount of cash from our core businesses, as reflected by the growth in adjusted EBITDA. Importantly, as historical investments on our balance sheet mature in the coming quarters, such as our interim loan portfolio, we will retain that cash to further strengthen our cash position. We will continue to allocate capital to our shareholders and yesterday, our Board of Directors approved a quarterly dividend of $0.63 per share payable to shareholders of record as of May 18, consistent with last quarter's dividend. We view the dividend as an important part of our value proposition to investors and maintaining the dividend at its current level reflects our confidence in our business model and our ability to manage through the current conditions impacting the commercial real estate sector.

One month into the second quarter of 2023, the commercial real estate industry continues to face a challenging rate environment, concerns over credit fundamentals of non-multifamily assets and speculation around the long-term impacts of the banking crisis. Despite all of these unknowns today, we remain focused on our long-term financial and operational goals. We feel very good about the team we have in place, the value we provide to our clients and our ability to manage through the current obstacles to deliver long-term value to our shareholders.

Thank you for your time this morning. I will now turn the call back over to Will.

Thank you, Greg. The 25-basis point increase in the Fed funds rate yesterday was anticipated. In terms of Al's commentary, that a pause is forthcoming, is welcome news. This is still a restrictive amount of a policy, but it's the first time that there may be an end of the Fed's tightening cycle since it began in March of last year. We remain extremely focused on operational excellence, cost containment and winning every piece of business we can.

Walker & Dunlop is known for operational excellence. Our margins have been industry-leading since we went public in 2010. And our Net Promoter Score of 95 reflects amazing client satisfaction with our operations and service. We can always do better. Our head count reduction presents career opportunities for our remaining team members and also the opportunity to use more technology. We put Steve Debolt in the position of Chief Operating Officer to drive efficiencies and coordination across Walker & Dunlop, and his team is doing just that. It is during challenging times like these when everything is questioned, analyzed and hopefully made better.

With regard to cost containment, Greg just explained in detail our cost reduction efforts, and we need to be careful not to be penny-wise and pound foolish. We continue to invest in our client relationships. We continue to invest in technology, and we continue to invest in our employees, such as not cutting our wellness program that is 100% focused on employee mental and physical health. We are delaying our oil company meeting from 2023 until 2024, even though we see the value of pulling people together to share experiences and our common identity as W&D. But that is why I have met with our team members in Bethesda, Denver, Atlanta, Los Angeles and Irvine in only the last week, and we'll continue to travel the country to meet it with our team, thank them for all they do for our customers every day and ensure that the amazing culture that makes W&D so unique only grows during these challenging times.

Finally, we are exceedingly focused on winning every piece of business we possibly can. Clearly, our scale with Fannie Mae and Freddie Mac is extremely beneficial to winning business. With a limited number of lenders with access to GSE capital and they're only being on #1, our debt capital markets team led by Don King is taking advantage of our market position and winning all we can. Our multi property sales business volumes were dramatically down in Q1, yet the number of valuations and broker opinions of value that Kris Mikkelsen and his team generated were as busy as any quarter ever. That investment of time and effort should pay dividends when the transaction markets reserve. As I mentioned earlier in the call, it is our expectation, our Capital Markets Group will become more relevant to the market than ever, given the pullback by banks. But finding financing to date, particularly for non-multifamily assets, such as office and retail, is extremely difficult.

Every broker on our debt capital markets team is part of the largest GSE vector in the country, and they are actively selling that execution. Our HUD business continues to struggle from a volume standpoint, primarily due to hunting efficiencies, but we are working closely with HUD to help them deploy more capital and meet borrowers' needs, particularly for multifamily construction loans given the pullback by banks. I mentioned earlier the pullback in need for appraisals due to lower transaction volumes as well as the uptick in volume in our small balance lending business due to the pullback.

Finally, Alliant and Zelman to great acquisitions has continued to generate stable revenues and earnings and present wonderful growth opportunities for W&D in affordable housing and investment banking. We have an incredibly powerful business model that within a healthy market that is actively trading, has the ability to deliver exceptional financial performance, and we see a huge opportunity for growth across the business when the market stabilizes. I'm fortunate and honored to have 20 years of experience at Walker & Dunlop and 15 as this great company's CEO. Our President, Howard Smith, has over 40 years of experience at Walker & Dunlop. No day, week, year or cycle is ever the same. Yet there are challenging times, experience matters. Howard and I sat in his office the day that GSEs were taken into conservatorship by the federal government in 2008 and didn't have a clue what the future held. It turned out pretty good for Walker & Dunlop.

Howard and I talked the day the world shut down due to the COVID pandemic. And then again, the day that the federal government made forbearance available to every loan guaranteed by Fannie, Freddie and HUD. We didn't have a clue what the future held, but it turned out pretty good for Walker & Dunlop. So while we don't know what will happen tomorrow or how quickly the market heals or further deteriorates, we do know what will invariably happen. Rates will stabilize, cap rates will stabilize, investors will transact again, and Walker & Dunlop will benefit tremendously due to our people, brand and technology that we know, and that is what we are managing towards each and every day.

I'd like to finish by backing up to the financial metrics I mentioned at the top of the call. We saw transaction volumes drop 47% in Q1 over Q1 '22, and yet we still grew adjusted core EPS by 10% and adjusted EBITDA by 9%. We have a fantastic core business model that allows us to continue investing in our clients, people, brand and technology during challenging markets. And with any luck and a ton of hard work, we will grow from here and return to the type of growth and financial performance that investors have come to expect from Walker & Dunlop. Many thanks to all of you for your time this morning. And finally, I'd like to thank our incredible team for all their hard work. Kelsey, I'll now open the line for questions.

(Operator Instructions) Our first question comes from Jade Rahmani of KBW.

I was impressed by the resiliency of credit performance across the bank space. We're seeing increased CECL reserves across the commercial mortgage REIT space, similar trends as well as the spike in loan on nonaccrual yet. W&D I read correctly has just 3 loans that are in default across $125 million of servicing. Can you talk to the multifamily credit trends? I know in the past, you've given debt service coverage ratio on the Fannie Mae at risk book. I think that's around 2x. What are you expecting in terms of credit? And how is the performance ahead of.

So Jade, thanks for joining us. As you accurately state, the credit performance has been exceptional. I think it's really important to keep in mind that W&D has not really strayed outside of our core lending business with the agencies as it relates to credit exposure. And as a result of that, all of the portfolio clear were underwritten with a 125-debt service coverage ratio. Our client base is sort of, if you will, carry clients as you could possibly find. And that has -- many of our competitors have the opportunity and did dive into lending with debt funds, doing CLOs, holding a lot of bridge exposure on their balance sheet, et cetera, et cetera.

There were plenty of opportunities for us to jump and do that. We didn't -- there are plenty of opportunities for us to blend and take credit loss on office buildings and retail centers. We made a conscious decision not to do that. And so while we always, as you know well, have had fantastic revenue growth, could we have grown revenues and earnings a little bit faster during the procyclical times, of course. But we decided not to obviously, today, we benefit from that discipline. And I would just say, we locked out a $120 million Fannie Mae 5-year fixed rate deal yesterday and had a went debt service cover, and it was a whopping 53% loan-to-value loan. That's the discipline that has been implemented by the agencies and that Walker & Dunlop has been a very active participant in lending in that fashion in that manner with that kind have like more than 53% leverage. I'm certain of it. But that's where we go, and that's what makes the servicing portfolio so healthy.

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

Greg mentioned it in passing Jade, we're still pulling together year-end financials. So we don't have an update from our September. The last number we gave on that was over 2x in September. So far, we're through 10% of our financial analysis, and we're still well over 20 debt service cover, but we don't have it for the entire book.

What are your thoughts around interest rate caps -- do you expect that to create trial credit headwinds?

It was the topic du jour at the beginning of the year, Jade, but we had a very significant financing that we were working on to take a floating rate loan and turn it into a fixed rate loan. And the borrower went out and priced new 3-year caps and rather than doing the conversion from float to fix, they decided to just buy a 3-year cap and move forward. It's a very well-capitalized client who could go and do that. While there are clearly some clients who are feeling the pain of having to fund cap costs to their view, exorbitant numbers given where caps were priced only a year ago. So far, it's not a crisis. There are special servicers who have been willing to talk to clients about making adjustments to the caps and the calculation of caps and the length of caps.

There are other special servicers who basically or I should say, master servicers who have given them the hint. But so far, it has not turned into any kind of a crisis. There are clearly some borrowers who like some relief there. But I have to say neither agency seems to be terribly concerned about that issue today.

And just last question would be on capitalization. And the reason I ask is in this environment of uncertainty. How are you feeling about the balance sheet, liquidity, about leverage, access to financing and also counterparty risk, if there's any regional bank exposure on that front?

So look, I think, Jade, we have a very healthy cash position. We're generating liquidity. I think our adjusted EBITDA growth shows that. We're confident in our business model and how we're managing this. We do have some, as I mentioned in my remarks, some assets that are maturing that will add some cash here over the coming quarters, we'll harvest that. I think no concerns there. Our banks are -- we speak with them routinely. They are large national banks that fund our business.

We have no issues there from an overall liquidity perspective. And then from a regional banking perspective, we spent a lot of time over the last month, 1.5 months on that. At this point, all of our cash, the corporate capital that we hold with large national banks, many of the money centers where we hold it in a fiduciary capacity, we've tried to limit that exposure to no more than the FDIC insured amount. So I don't see any material concerns there. There are obviously some customers that want to hold their cash with smaller banks and we're just working with them to make sure they're on top of what's going on out there as the sector is changing rapidly. But at this point, there are no concerns on our end.

Our next call comes from -- I'm sorry, next question comes from Jay McCanless of Wedbush Securities.

So my first question, does the low end of the updated guidance assume a steady state from 1Q '23 in terms of liquidity? Or is the expectation in that low end that it would get worse from here, either from a liquidity standpoint and/or a transaction standpoint?

It's essentially, Jay, a pretty steady state from Q1 forward. I think as Willy mentioned, the GSEs are starting to be a bigger part of the market. But as we finish Q1 and really thought about speaking to you today, we had to take a hard look at what it would look like if the Q1 conditions persisted and that's where we try to share the bottom end of the range based on that set of conditions.

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

So first of all, thanks for joining us. Being the oldest agency leader in, we have real scale, we have real brand there, and we have the best bankers in the country. Fannie may just put out their annual top banker list and their top 10 bankers across the entire industry, 4 of the 10 were walking to a lot bankers, nobody else more than 1. So we've got an incredible platform and incredible brand and market share there. And as Greg just said, fortunately, we are seeing the agencies back in the kit to a distinct degree where they were in Q1. So that's clearly opportunity for one, and we're blessed to have both the access to and also scale with the agencies that we have.

The second is both our debt brokerage businesses as well as our property brokerage businesses are trying to win every single deal. And clearly, clients have needs. There are some clients who are selling multifamily to raise capital for other commercial asset closure. And therefore, we're seeing some sales there on the multifamily side. And as Greg pointed out, our level and sales volumes down significantly on the broader market in Q1. And I'm quite confident that given the strength of our brokers across the country that we will continue to outperform the overall market and pick up a lot as that market heals.

On the debt broker die, it's challenging. Half of the capital that we led out in Q1 was bank capital. And as I said in my prepared remarks, banks have pulled back precipitously. But there's also been $70 billion of private capital raised focused on commercial real estate in the last 6 or 12 months. I was meeting with a large institutional investor yesterday who has had every private debt opportunity on commercial real estate walk through their office. And it's a huge opportunity for private capital once it gets raised and once we get to, if you will, clearing levels.

Many people are waiting for some capitulation as it relates to what is actual -- what is the rate you should be lending at and what are the terms and what's the value of the actual asset. But as Greg alluded to, we've been waiting for the Fed to say we're going to pause. And while they didn't specifically say they're going to pause yesterday, it's most people's expectation that yesterday was the beginning of them taking a pause next month. That's the type of stability in the market that will get it, so rates and cap rates can stabilize and people can transact again. And so we see a great opportunity once things if you will, calm down a little bit. And then the SBL side of things, Jay, is super opportunity, if you will. If you look at the top 15 small balance lenders in the country, 13 of the 15 are banks and 11 of the 15 are regional and local.

JPM and Welfare are the 2 big ones in there. But all the others, there are a lot of the ones who are in the headlines today as it relates to having real trouble or going away. And so for us, being one of the 2 nonbank lenders in that list, there's a really great opportunity for us to step into that market and pick up market share. And behind all of that is just making sure that we continue to do what we're doing and then also raising that private capital so that our bankers and brokers have capital at Walker & Dunlop they can use to meet our clients' needs.

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

So we did $1 billion of SBL last year, and we're trying to grow that business to doing $5 billion on an annual basis. And the opportunity is right in front of us. It's never been a wider landscape Jay, for us to go after, given the pullback by banks and that, that space is dominant buyback. And the issue with it is those borrowers don't necessarily go out and go to industry consensus or know who walk up or CBRE are, they go to their local branch of either go minimum or PacWest and say, "Hey, I need a small balance loan for the multifamily property that I own, and they get it from their branch office." And so if they go to a branch closed or any more to you or faced wherever I go? And that's the opportunity for us to say that in.

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

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

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

Yes, I was just trying to -- there are a couple of things there. There's $1.7 trillion of commercial real estate loans sitting on bank sets across the country $1.7 trillion. What I was basically saying was if banks pulled out 5%, 10%, which I think is a low take it at 5% to 10%, that create the need for that much capital you just referenced. So that $250 million to $0.5 trillion is just that pullback, if you will.

But the bottom line is 2 things. One, you could easily say that the merchant won't need that much capital because values have come down. Therefore, the market is indeed 5% or 10% come down. You have 2022 the value means that there's not that much capital decided today. But if the value is like and the market goes back and set up in as we don't that capital has to that that's a great opportunity for life insurance companies, CMBS to private capital. And the bottom line is all of those numbers are so huge that for W&D that has an emerging asset management is, we go out to $2 billion, $3 billion, $5 billion of debt funds to meet that need -- that is a massive opportunity for us. That's a very significant financial impact of W&D.

We now have a follow-up question from Jade Rahmani of KBW.

I wanted to ask about competition on the brokerage level in the multifamily space. A lot of brokers in the commercial real estate sector are going to be suffering from a lack of business and the office issues could be secular in nature. I think CBRE expects it to take twice as long for values to recover in office. So as those brokers have a lack of business, they may be looking to more resilient sectors like multifamily. Do you expect an increase in competition? And how do you think about BD's competitive position have been in?

So Jay, I guess, first of all, brokers can't really switch asset classes in that way. It's very siloed in the that the best multifamily investment sales teams do multifamily, the best industrial investment sales team doing industrial and the best office to office. So while there are some that play across asset classes, mostly people are focused on one asset class. The second thing I would say is that one of our competitors took on a very significant office sale app order and not be sure what kind of volumes they underwrote to that investment. But I would only say that I'm happy that we didn't make a big investment on Apprise at this time in the cycle. And then I don't think I'd say is Chris Nicholson has gone about building the very, very best investment sales team in the country because they got to build it for ground up.

We acquired Engler back in 2015, which was a one office Atlanta-based investment sales team, and we've built it from there and built the very best teams in every MSA in the country other than (inaudible) mix. And so to have that kind of a national platform that has been for all factories handpicked but the physicians -- it's the reason we grew so fast. We went from less than $1 billion to $20 billion of annual investment sales over a 6-year period. And so we're exceedingly well positioned. And obviously, it's a competitive market. Obviously, we go up against very, very talented and scaled teams, great brands, but we feel very good about where we're positioned there and also the fact that we're only focused on multifamily.

As of this time. It appears we have no forth questions, so I will turn the call back to Will for closing remarks.

Great. Thank you to all of you who joined us today. I hope you have a fantastic Thursday, and I would reiterate my thanks to the W&D team for all you do every day. Have a great one, everyone. Thank you.