Walker & Dunlop Inc

NYSE:WD

Earnings Call Transcript 2022-Q1

[Kelsey Duffey, VP, IR]

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 2022 earnings conference call and webcast. Hosting the call today is Willy Walker, Walker & Dunlop's Chairman and CEO. He is joined by Steve Theobald, 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 Steve will touch on during the call. Please also note that we will reference the non-GAAP financial metric, adjusted EBITDA, and adjusted diluted earnings per share 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.

[Willy Walker, Chairman, CEO]

Thank you, Kelsey, and good morning, everyone. We had a strong start to 2022.

With our people, brand and technology, continuing to differentiate Walker and Dunlop in the marketplace and contributing to strong growth across the enterprise. We saw growth in almost every business line and key financial metric due to the investments we have made and the performance of our fantastic team.

The markets rapid transition to pervasive inflation and higher rates, has required our bankers and brokers to think proactively and innovate for our clients, which they did in spectacular form throughout Q1.

In times of market volatility, Walker & Dunlop has a long standing track record, from the depths of the great financial crisis to the lockdown of the pandemic, of executing on behalf of our clients and growing dramatically. We held our first all-company meeting in over 2 years in Denver at the end of March. Over 1,000 Walker & Dunlop employees gathered to hear speakers, participate in trainings and celebrate our collective success.

I told the team in my closing remarks that we have created something very special at Walker & Dunlop. I equated it to catching lightning in a bottle. And I have no doubt that everyone left Denver are feeling like they are part of an amazing team.

Beyond highlighting the people and technology of Walker & Dunlop at our Denver meeting, we also previewed our new brand campaign titled "Community Starts Here". For as long as I've been CEO of Walker & Dunlop, we have talked about the what of Walker & Dunlop, what we do, how we do it and what it can do for our clients, investors and employees. But we haven't focused on the why, why we do what we do and why does it make a difference?

In launching community starts here, we are underscoring that the capital and services Walker & Dunlop provides allows for communities where people work, shop, live and play to be created and cultivated across the country. Answering the why, why do we do what we do? And why does it make a difference, is vital in the post-pandemic hybrid workplace, where human capital retention and performance is exceedingly important.

The breadth and diversity of our platform is more evident in Q1 2022 than ever before. Due to the dramatic investments in companies and human capital we made over the past year. We helped our clients navigate challenging market dynamics from war, inflation and rates and grew total transaction volume 40% to $12.7 billion.

Total revenues grew a comparable 42% year-over-year to $319 million and drove diluted earnings per share of $2.12, up 18% from the first quarter of last year. This top and bottom-line growth, which was clearly aided by our Q1 acquisition of GeoPhy is exceptional when considering the competitive landscape, macroeconomic environment and investments in human capital and technology we have made over the past year. 40% growth in total transaction volume was once again led by strong growth in debt brokerage and property sales volumes, which were up 31% and 153%, respectively, from Q1 '21.

Our lending with Fannie Mae grew 30% over Q1 '21, and our overall GSE market share grew to 12.3% due to the strength of our Fannie volumes up from 11.4% in Q1 of '21. Fannie and Freddie only lend $31 billion to the multifamily market in Q1, leaving them with a $125 billion or 80% of their total 2022 lending capacity, which has remained a reliable, consistent capital source for multifamily borrowers to use over the remainder of the year. Technology will continue to underpin Walker & Dunlop's growth.

During the quarter, 61% of our refinancing volume was on new loans to our servicing portfolio and 19% of our total transaction volume was with new clients to Walker & Dunlop. 2 data points that reflect our use of technology, which in combination with our talented people and expanded brand are driving continued growth in volumes.

In February, we closed the acquisition of GeoPhy, our Apprise joint venture partner and a wonderful commercial real estate technology company.

As we outlined in the GeoPhy press release, there is a very significant earnout component to the acquisition that will keep the GeoPhy team focused on growing our 2 most technologically enabled businesses, small balance lending and appraisals. These 2 businesses grew dramatically during the first quarter with small balance originations of $176 million, up 54% from Q1 '21 and the completion of 711 appraisals up 187% over Q1 of last year.

While these 2 businesses are only beginning to impact our financial results, they have huge markets to penetrate and have taught us a ton about how to combine technology and human capital to enter new markets successfully.

One of the most important facets of community starts here is Walker & Dunlop's commitment to developing and financing affordable housing. The acquisition of Alliant Capital brought with it investments in over 100,000 affordable apartment units as well as the ability for Walker & Dunlop to provide both debt and equity financing on affordable properties to our clients.

We spent Q1 integrating Alliant's team and products into W&D in our quest to build the very best affordable housing platform in the country. We should begin to see the synergies between the 2 companies emerge as we move throughout 2022.

Zelman, which we acquired in 2021 continues to be viewed as one of the very best housing research firms in the country. Zelman's market knowledge and customer relationships have contributed nicely to sales growth in our banking and brokerage businesses. We remain focused on expanding Zelman's investment banking capabilities from the single-family housing market into commercial real estate.

The addition of $14 billion in assets under management with the acquisition of Alliant Capital did not diminish our growth expectations with Walker & Dunlop's ex investment partners, where we raised commingled funds to place capital into the transactions our bankers and brokers work on every day.

As investors have seen us do before, we will be very active in the market when risk-adjusted turns are attractive. Think for a moment what we've been able to accomplish over the past 3 years to generate the financial results of Q1 2022. We invested heavily in property and debt brokerage in 2019 to expand our service offering. We then used our leadership position with Fannie and Freddie and HUD to wildly outperform during the pandemic lockdown of 2020.

When the market returned in 2021, we brought our expanded service offering to grow transaction volume 66%. And yet rather than simply meet the demands of the recovery market, we made 3 major acquisitions in investment research, affordable housing and technology. And so to grow revenues 42% in Q1 2022 in the current market environment and generate 18% EPS growth while assuming dramatic increases in overhead and personnel expenses due to the 3 acquisitions is truly fantastic.

I will now turn the call over to Steve to discuss our Q1 financial results in greater detail, and then I'll come back to discuss what we see ahead. Steve?

[Steve Theobald, EVP, CFO]

Thank you, Willy, and good morning, everyone. As Willy just described, we started 2022 with a solid first quarter in which we were able to leverage the breadth of our platform to meet our clients' needs within uncertain market conditions while generating strong financial results and creating momentum for future growth.

First quarter diluted EPS was up 18% year-over-year to $2.12, while the strength of the cash-generating components of revenues continued to drive growth in adjusted EBITDA, which was up 3% to $63 million. Growth in adjusted EBITDA was offset by the year-over-year increase in expenses related to the 3 significant acquisitions we made during the last 12 months.

We are currently working to integrate these acquisitions and are extremely excited about the benefits and synergies we will begin to see in our financial results once these companies are fully integrated and getting scale.

Revenue contribution in the first quarter from these acquisitions was $24.7 million, and we expect this number to grow over the course of the year due in part to the seasonal nature of Alliant's revenue, but also as we achieve our planned synergies.

Adjusted earnings per share for the quarter was $1.09 in Q1 of 2022 compared to $1.35 in the prior year quarter. Through the acquisition of GeoPhy, we revalued our previous 50% interest in Apprise, our appraisal joint venture based on the $117 million value of the business. This resulted in the recognition of $40 million of revenue in the quarter, which flows through to net income and earnings per share, but is excluded from our adjusted EBITDA and adjusted earnings per share due to its noncash nature.

Q1 personnel expense as a percentage of revenues was 45%, up from 43% in the first quarter of 2021. Personnel expenses have naturally increased as we originate more transaction volume and as we welcome the Zelman, Alliant and GeoPhy teams onto the platform. These acquisitions added $12.4 million of additional personnel expense in the first quarter. Q1 growth in personnel expense was also driven by the increased commissions expense resulting from the strong growth in transactions volume.

As you may recall, at the end of 2021, we doubled the size of our senior secured term loan to $600 million and assumed Alliant's fixed-rate securitized debt facility in the amount of $155 million. The increase in outstanding debt resulted in a $4.6 million year-over-year increase in interest expense in Q1 of '22.

While the term loan is tied to SOFR, it has a 50 basis point floor and we locked in our rate for the first 6 months of this year, so we will not see any impact from rising interest rates on our interest expense until the second half of the year, at which time we should see offsetting increases in the interest income from our escrow deposits, which are at $2.5 billion and expected to grow over the rest of this year.

Q1 operating margin was 28% within our annual target range of 26% to 29% and return on equity for the quarter was 19% within our annual target range of 19% to 22%. We ended Q1 with $141 million of cash on our balance sheet after closing the acquisition of GeoPhy and paying company bonuses during the quarter.

Our strong financial position has allowed us to close a number of strategic acquisitions over the past year that are in line with our drive to 25 objectives, including the largest acquisition in our history at the end of 2021. We continue to increase our cash flow generation to support our growth initiatives as well as our ongoing dividend payments and any opportunistic stock repurchases.

To that end, yesterday, our Board of Directors approved a quarterly dividend of $0.60 per share, payable to shareholders of record as of May 19, 2022, consistent with last quarter's dividend. With our recent acquisitions, we are updating the presentation of our financial disclosures to reflect a new operating segment presentation, which is included in our earnings release and 10-Q filing.

Agency lending, debt brokerage, property sales and valuation services are now included in the Capital Markets segment. our more recurring revenue streams, including servicing, low income housing development and tax credit syndication, asset management, proprietary capital and investment research are now included in the servicing and asset management segment.

Infrastructure treasury and other corporate services are included in the corporate segment. This new financial reporting structure reflects the impacts of the Zelman, Alliant and GeoPhy acquisitions, and we believe we'll provide the investment community with even more transparency into our overall financial performance going forward.

For the first quarter, the Capital Markets segment generated total revenues of $164 million, up 12% from Q1 '21 and net income of $47 million, down 17% year-over-year from $56 million. The decline in net income was primarily due to the increase in personnel expense, including a $16 million increase in commissions as we continue to hire new origination teams, grow our small balance lending team and grow origination volumes.

The investments we have made in our people, brand and technology are continuing to benefit our total transaction volume with Q1 total transaction volume up 40% year-over-year to $12.7 billion. This growth was primarily led by property sales volumes up 153%, debt brokerage volumes up 31% and agency volumes, which were up a combined 7% year-over-year due to strong Fannie Mae volumes.

We already have a large GSE pipeline for Q2 and fully expect both GSEs to hit their volume caps by the end of the year, which, in combination with our expectations for continued growth in debt brokerage and property sales volumes should benefit our capital markets and overall company financial performance for the remainder of the year. Q1 adjusted EBITDA for the segment was $11 million, down from $17 million in the first quarter of last year due primarily to the increase in personnel expense that I just mentioned.

The Servicing and Asset Management segment generated total revenue of $111 million during the quarter, up 42% from the first quarter of '21 and earned net income of $33 million compared to $27 million in Q1 of last year, a 19% increase. The strong increase in revenue and net income was due to the addition of Zelman in July of 2021 and Alliant in December of '21.

We ended the quarter with $116 billion servicing portfolio, up from $110 billion at March 31, 2021, with a weighted average servicing fee of 25 basis points and $17 billion of total assets under management, which includes Alliant WDIP and our Blackstone joint venture.

During the quarter, our calculated 10-year historic loss rate declined from 1.8 basis points to 1.2 basis points, resulting in a provision benefit of $9.5 million compared to a provision benefit of $11.3 million in the prior year. From an overall perspective, the credit metrics in our portfolio continue to look really good. This segment should consistently generate extremely strong adjusted EBITDA due to its cash-oriented recurring nature. And in Q1, it contributed $88 million of EBITDA compared to $69 million, up 26% from the first quarter of last year

Finally, the Corporate segment generated $44 million of revenue, primarily from the $40 million apprise revaluation adjustment. Since the majority of our corporate overhead is allocated to this business segment, net income and adjusted EBITDA will typically be negative. For the first quarter, net income for this segment was negative $8 million compared to negative $26 million in the prior year, as overall headcount in this segment increased due to the growth of the company.

Adjusted EBITDA, which excludes the impact of the Apprise valuation adjustment was negative $36 million compared to negative $26 million in the same period last year. We plan to hold an Investor Day on May 19, during which we will provide more detail on our segment financials. We hope all of you can join us to take a deeper dive into our new reporting structure and hear more about the new business initiatives that are part of the Drive to '25.

Walker & Dunlop has a long-standing reputation for putting our clients' needs first. And during a period of market uncertainty, our clients have benefited from our ability to meet their needs with the capabilities of our broad and diversified platform, allowing us to grow our transaction volumes and market share.

As we move into the second quarter, market conditions remain uncertain and our clients' needs for the best advice and service will be even more vital. We have a strong pipeline of business for Q2. And while none of us can predict the future, we have built a diversified and resilient business model and expect to achieve our goals of double-digit earnings and EBITDA growth for the full year. Thank you for your time this morning.

I'll now turn the call back over to Willy.

[Willy Walker, Chairman, CEO]

Thank you, Steve. Before I dive into our outlook, I'd like to briefly outline 2 major management changes at Walker & Dunlop that will take effect on June 1.

As many investors know, Steve Theobald has been an exceptional Chief Financial Officer. When Steve joined Walker & Dunlop in 2013, we were a much smaller company in need of the management skills and leadership that Steve possesses in spades. And due to Walker & Dunlop's dramatic growth, I have asked Steve to become Chief Operating Officer.

In his new role, Steve will drive integration of all our product lines and businesses and also identify and realize cost savings and efficiencies throughout the company. This is an exciting move for Steve, and I'm extremely pleased to have someone with Steve's knowledge and leadership in this new role. And while stepping into Steve's role and track record as CFO of Walker & Dunlop is no small feat, I am confident that Greg Florkowski is ideally suited and prepared to do just that. Greg joined Walker & Dunlop from KPMG in 2010.

And after serving as Steve's #2 on our accounting and finance team, Greg has done a simply masterful job running business development for the past 3 years, including the successful acquisitions of AKS, TapCap, Zelman, Alliant and GeoPhy. With Steve and Greg in their new roles, I am confident we now have the operational and financial management in place to drive Walker & Dunlop to our 2025 goal and beyond.

The underlying objective of the Drive to '25 is to grow annual revenues to $2 billion by 2025. We with revenue growth of 16% in 2021 and 42% in the first quarter of 2022, we are well ahead of pace on achieving that ambitious goal. Another goal in the Drive to '25 is to generate $13 to $15 of earnings per share. As investors saw in 2021, as we replaced noncash mortgage servicing rights with cash revenues and earnings from brokerage fees, EPS grew 6%, while EBITDA exploded, growing 43% on the year.

In Q1 '22, as Steve just highlighted, 2 onetime charges positively impacted GAAP EPS. So our earnings growth outstripped our EBITDA growth. But it is our expectation that as we continue to ramp cash-generating services and they become a larger and larger percentage of our revenues and earnings that EBITDA growth will continue to outpace earnings growth.

With that said, as our emerging technology-enabled businesses scale and become more significant contributors to our earnings, we have the potential to grow both revenues and earnings at rates we have not seen before.

Despite inflation, rising rates in war in Europe, the commercial real estate industry maintains many of the same strong fundamentals as it did at the end of 2021. Inflation rate hikes and underlying demand have created a single-family housing market, where only 54% of new and used housing stock in America is affordable to someone making the median household income. That is down from an all-time high of 79% in 2012 and notably down from the historic average of 62%.

As home prices continued their upward trajectory with 20% year-over-year growth in the most recent Case-Shiller report and interest rates tick up over the next several months, the ability for an average American to go from renting to owning will become even more expensive.

And with limited new supply of multifamily properties due to the pandemic slowdown, a supply-demand imbalance exists today that should generate solid rent growth over the next few years. And while rent growth and rates are very important, it is the amount of capital in the global financial system that is driving commercial real estate, both debt and equity capital continue to pour into commercial real estate.

Banks are wildly overcapitalized and seeking assets to lend on, same with life insurance companies. The one area of weakness in the debt capital markets is CMBS and securitized lending, where market volatility makes it very hard to originate collateral for securitization. The exception of that statement is Fannie Mae and Freddie Mac, where the GSEs scale and pricing advantage allows them to be consistent source of capital even in times of market uncertainty as we saw throughout the pandemic.

On the equity side, frequent estimates that U.S. funds had $288 billion of dry powder waiting to be deployed into commercial real estate at the beginning of 2022. And the 2 largest private REITs, Blackstone's BREIT and Starwood's SREIT raised $7.8 billion and $2 billion, respectively, in Q1.

Over the long-term, it is capital flows and not interest rates that will determine commercial real estate cap rates. The market may take time to digest interest rate moves over the course of the year, but it is our responsibility to guide our clients as they seek to deploy capital during these transitions.

With so much capital chasing assets in an inflationary economy, we believe commercial real estate and the transaction volumes that drive Walker & Dunlop's financial results will remain healthy over the coming years. The demand for multifamily assets has not abated, albeit we are finally seeing pricing disparity between various asset classes and the quality of the asset, something that had disappeared from the market in 2021.

Our Q2 pipeline is robust across our debt and sales platforms, currently sitting with a 35% increase in projected Q2 transaction volume over Q1. And while it is difficult to project what the back of the half of 2022 looks like at this point, that's no different from any previous year, particularly in 2020 in the depth of the pandemic, when we had 0 visibility to where the markets were headed.

As we did in 2020, the W&D team will remain close to our clients, we'll continue to innovate, and we'll continue to grow our market share as larger companies with broader exposure to international markets, business lines and credit risk pull back. We have several advantages over our larger competitors.

We are U.S. centric at a time when the world is decoupling. 80% of our transaction volume is in the multifamily industry, the top-performing commercial real estate asset class and a terrific inflation hedge due to the ability to move rents annually. And we have a focused business model and exceptional management team.

Howard Smith and I ran this company when Fannie Mae and Freddie Mac went into conservatorship in 2008, and the great financial crisis took down large swaths of our economy, yet Walker & Dunlop grew dramatically throughout the GFC, culminating with our IPO in December of 2010.

Steve Theobald and I spoke the day the U.S. government granted forbearance on any government insured mortgage by Fannie, Freddie and HUD at the advent of the pandemic in 2020. And a month later, we had a warehouse line in place to handle any pass-through payments to bondholders. We successfully originated the largest loan in Walker & Dunlop's history, and we grew to become the largest provider of capital in the multifamily industry in 2020, while many of our larger competitors were hobbled by the economic fallout of the pandemic.

W&D is by no means immune to economic cycles and volatility, but we are exceptionally well positioned to continue gaining market share due to our focus, strategy and team. I want to finish by returning to the all company meeting we held in Denver at the end of March. We've long felt that if we created a great place to work that the financial results would follow and follow they have. Yet throughout the amazing growth and financial performance of Walker & Dunlop, we never had the brand and scale to truly leverage off of our culture.

Yes, clients would know that they were working with an exceptional team and team members would know that they were at an exceptional company. But only having a few hundred employees with a relatively small brand didn't allow for the word to get out. But with W&D's growth, the dramatic success we've had in building our debt brokerage and investment sales businesses, the Walker webcast and having nearly 1,400 employees, many of whom have joined W&D from competitor firms, the word is out.

And the word is that Walker & Dunlop's people, brand and technology are the very best in the industry. And combined with our corporate culture, make W&D a truly great company. It is an honor to lead this community of talented professionals each and every day, and I'm deeply grateful for all the hard work and success of the W&D team.

Thank you for joining us this morning. I will now turn the call over to Kelsey to open the line for any questions.

[Operator]

[Operator Instructions] Our first question is coming from Jade Rahmani of KBW.

[Jade Rahmani, KBW]

I was wondering if you could talk about the outlook for transaction volumes. What are you hearing from investors? Clearly, rent growth has been extremely strong in the multifamily space in particular with new lease rents up above 20%, especially strong in many markets. In addition, construction costs remain an overhang as inflation is extremely high. So replacement costs are rising, yet multifamily has been probably the darling of the commercial real estate asset class over the last decade, and many sectors exhibit record low cap rates. So could you please just triangulate those variables and talk to the tone of investors that you're seeing?

[Willy Walker, Chairman, CEO]

I had a Walker webcast yesterday with Ivy Zelman, Aaron Appel and Chris Mickelson, where we went into quite some detail on sort of, if you will, multiple aspects of that question, Jade. I think what I would summarize from that discussion is that there's clearly a concern about the single-family housing market, with prices being as high as they are and some price adjustment being needed in the single-family market. That gap between the affordability of rental versus the affordability of single family.

As we said previously, keeps a lot of people in rental housing. And as you accurately described, rent growth is unprecedented right now. And so the dynamics of lagging supply, and we're seeing very little new supply because of the slowdown during the pandemic, and you rightfully underscore the fact that with cost inflation across the board as far as building materials and then also the difficulty in getting labor to help build new supply that there is a supply-demand imbalance, which should allow for rents in multifamily properties to continue to grow above trend.

And so as Steve said in his comments, Jade, from a credit standpoint, we feel extremely good about the market. And from an overall volume standpoint, I mentioned in my part of the script that our Q2 pipeline right now is 35% above what we did in Q1. So we are seeing a significant amount of activity both on the debt financing side as well as on the investment sales side and feel very, very good about our market position.

[Jade Rahmani, KBW]

Regarding the overall company's earnings picture, this quarter personnel expense grew, I believe, around 50% year-on-year. Notable growth in the platform. You mentioned all of the acquisitions. You mentioned the increased capabilities in affordable housing. Were there any onetime expense items to note, perhaps they weren't charges, but any earnouts, any unusual payments or should we think about the personnel expense relative to commission-based revenue ratio to be consistent with what we saw in the first quarter. Just wondering if there's any unusual items in that $140 million personal expense number.

[Steve Theobald, EVP, CFO]

Yes, Jade, this is Steve. I’ll try to unpack that a little bit. So a couple of thoughts. One, so historically, Q1, as you know, is lighter from a transaction volume perspective. And so typically, on the commission side, we still have a lot of our origination team working through their splits, and they’re not really at the high end of their commission rates until second or third quarter in some cases. And that’s particularly during the investment sales side.

Given the strength of the volumes in Q1, we had a, I’d say, a much higher percentage of our origination team get to their max splits earlier in the year. So I think that’s really a function of just the overall volume that we’re not generating on a quarter-to-quarter basis as you’re seeing a higher commissions rate in Q1 than we would have seen historically. So that’s part of it.

Two, the company bonus accrual, just given the $2.12 of earnings, we typically accrue based on the underlying performance of the company relative to budget. And because of the results, the accrual is a little higher than it would have been otherwise. And then I think just looking at beyond personnel expense, there were some onetime other expenses in there associated with the transactions between carryover from the Alliant transaction as well as the GeoPhy transaction in Q1, we had higher professional fee expenses than we otherwise would have expected going forward.

[Operator]

Our next question comes from Steven Delaney of JMP.

[Steven Delaney, JMP]

Well, first, congratulations to Steve and Greg on their promotions. Look forward to working with both of you in your new roles. And also, the good news about May 19, I like the way you've laid out the 3 segments, but we obviously need to go to school on that a little more. So thank you for that opportunity. Willy, if we can, every conversation financial conversation starts with interest rates these days. And if we got the 10-year up 150 year-to-date, resi mortgages up $200 million. Can you just talk a little bit about where Fannie and Freddie are pricing their permanent loans today, maybe compare that to year-end and then also -- let's leave it there for now, and then I'll come back with a follow-up on that. If you could -- just kind of give us a sense of that the cost of credit at the agencies today?

[Willy Walker, Chairman, CEO]

I would say this, we were, I guess, pleased with our Q1 volumes. But I will also say that there was a lot of work to generate those volumes in Q1. And as you can see from the numbers I put forth, Fannie and Freddie only used 20% of their annual allocation in the first quarter. And so they've got a tremendous amount of capital going into the rest of the year.

The other thing to keep in mind as it relates to the rest of the year, Steve, is that there is new AMI data that's coming out soon that will be used to calculate affordability. And because of the step-up in average median income across the country, a lot of Fannie and Freddie lending for the rest of the year will be scored distinctly from how it's been scored up until now. I believe that's imminent. And so I do believe that their need to focus on affordability versus market rate will change somewhat as we move into Q2, Q3, Q4.

And then the final thing I would just say is, as much as both of them at times have felt like they're completely out of the market and we've been quite frustrated about that. As they always do, they come back in and win business and get to the volumes that they need to get to. And so I would reiterate that we fully expect both Fannie and Freddie to use every dollar of capital that they are allowed to use in the multifamily space for 2022.

I would also say Freddie Mac appointing a new head of multifamily, just day before yesterday is a huge move, a huge move because since Debbie Jenkins left Freddie Mac, that platform has not had the leadership it has needed, and we're very, very pleased to see not only a new leader of multifamily, but someone who comes from within Freddie Mac taking that role.

And then the final thing I would say, Steve, is as I said previously, while the CMBS markets have banged around and it's been very, very difficult. 2021, the theme of 2021 was debt funds and securitized debt. Markets where they had limited volatility, rates were low and that securitized world was a big competitor to the agencies.

2022 is totally different. As you well know, VIX is up. The forward curve is ridiculously steep, and it's very, very difficult to price securitized debt unless you are Fannie Mae or Freddie Mac. And so Fannie and Freddie, as they always do, will remain a consistent source of capital throughout market cycles and throughout volatility. And so we feel quite good about the role that Fannie and Freddie will play in the coming quarters given that market dynamic.

[Steven Delaney, JMP]

You're heavily transaction-based and you've built your amazing brokerage business and investment sales to accommodate that. You mentioned the $288 billion of private equity. But every transaction is going to require that an owner of a property get a price that reflects a cap rate he wants as opposed to what the investor wants. And there obviously has to be a negotiation there. Do you think that as cap rates as interest rates drive cap rates necessarily higher, that there will be a slowdown in property sales, specifically multifamily property sales. And if that scenario develops could Walker & Dunlop step in with a new kind of expanded Bridge product. And I guess I'm thinking about something that I think we'd call like a mini perm loan that allows that property owner just to extend his whole period.

[Willy Walker, Chairman, CEO]

So the first thing I would say is that there are both male and female property owners who will be selling properties. So it would be.

[Steven Delaney, JMP]

I apologize.

[Willy Walker, Chairman, CEO]

Not at all, not at all. I just wanted to point that out. And then the second thing that I would say on that, Steve, is this. As you’ve seen, our investment sales team grow from $9.4 billion of transaction volume in 2020 to ‘19 – sorry, $6.4 million in 2020 to 19.4% in 2021. We have built, I believe, the very best team in the country.

And we’ve done it by going and finding the very, very best brokers in every market and Chris Mickelson has done a fantastic job of leading that effort. So if we see a slowdown in investment sales, I do not think it impacts Walker & Dunlop to the degree that it will impact some of our larger competitors. We have a more focused team. We have a much smaller team and we have a much larger market presence for the size of our team. So that would be point one as it relates to any slowdown we see.

The second thing I would say is in your comment, I think you’re saying that owners of properties aren’t going to be able to get the type of return for selling their property that they would like to get. I would only say to you that owners of multifamily properties have had an incredible run and have realized amazing appreciation in their properties.

And so as a result, if they are sellers today, they will get a price that is a very, very good price. That then leads into cap rates. And quite honestly, right now, Steve, we are watching and seeing that there is so much capital in the system that right now, there are cash buyers who are buying at extremely low cap rates because they’re a; not reliant upon the debt markets; and b; they have a lot of capital to deploy.

And so back to that $288 billion number that I said on private equity firms or the $7.8 billion that the Blackstone BREIT raised in Q1, there is a massive amount of equity capital out there. What we are clearly seeing is that when people are acquiring properties, they’re not going to high leverage levels because the cost of debt has gone up so significantly.

And quite honestly, that’s not a bad thing given the amount of equity capital out there. So we’re doing plenty of deals that are 40%, 50% LTV on the acquisition. And then the final piece as it relates to new products and services to meet the market. I think you – I know for a fact, you’ve watched us for a long enough period of time, Steve. If there is an opportunity for us to create a product that meets a market demand, we will do it.

[Operator]

Our next question comes from Henry Coffey of Wedbush Securities.

[Willy Walker, Chairman, CEO]

Henry, we can’t hear you yet.

[Operator]

Henry, you might need to unmute yourself now.

[Willy Walker, Chairman, CEO]

There you go.

[Jay McCanless, Wedbush Securities]

This is Jay McCanless on for Henry. So first question I have, I know you guys had a very good discussion on the webcast yesterday about single-family. But if you look at multifamily starts, we're at the highest level we've seen since the '80s. In one hand, I think that could be good for your transaction volumes. But then on the other hand, what does that do to rental rates and rental growth. So I would love to get your take on the amount of supply that's going to be coming to market, and hopefully, you guys will be brokering loans on all of it, but it's a lot of product for the market to absorb.

[Willy Walker, Chairman, CEO]

I think that number right now is about, what, 520,000 units that are under development right now, which is up from a historic run rate of about 375 million to 400 million. So while elevated, I think the other point to that is it's not delivering tomorrow. And so we're very focused on 2022 on moving through this year and seeing rent growth offset this transition as it relates to interest rates. And when that new supply arrives in 2023 and 2024, it's going to be a dramatically hopefully different economic landscape. We will hopefully gotten through this raising period.

And as I think we saw yesterday with the rally in the markets when Chairman Powell came out and said, we're doing 50 basis points today, and we're taking 75 basis points at the next meeting off the table. One of the things that, at least in my career, when we -- the thing that I don't like is when we get completely surprised by something, the great financial crisis was a big surprise to everybody. The pandemic was a big surprise to everybody.

And as I highlighted in my comments, Walker & Dunlop managed through those 2 crises exceedingly well, exceedingly well. But the issue with it is that the market knows what's happening here. The Fed is being as transparent as it possibly can be. And as a result of that, while this transition period is painful in the sense that people are sitting there saying, "Oh, yesterday, my cost of debt was going to be $425 and today, it's $475 to go do a fixed rate loan, looping back to Steve's question as it relates to where is pricing on a 10-year fixed rate loan today. It's about $475 with the agencies, obviously, depending on sponsor, depending on leverage level, et cetera, et cetera.

But we've got to work with our clients through this transition period. But that new supply that is there right now, I think there are 2 things. One, it will be delivered in '23 and '24. And then the second thing to it is getting it delivered, given where costs are right now and given where labor supply is right now, is going to be somewhat challenging. It is not going to be a normal delivery cycle to get those units delivered.

[Jay McCanless, Wedbush Securities]

And so Steve, congrats from all of us on your promotion, but wanted to pick at the onetime nature of some of these expenses this quarter. Just thinking about what a run rate SG&A, understanding that you've got a variable brokerage component there, but just how much of, I guess, a core SG&A should we expect going forward with the addition of the new businesses?

[Steve Theobald, EVP, CFO]

Yes. I'm super excited about the opportunity here. And in terms of your question, look, I think the onetime expenses, I would say, are kind of in the $5 million to $10 million range for Q1 if that's helpful.

[Jay McCanless, Wedbush Securities]

And then my next question, so we've recently seen Fannie Mae expand their underwriting box on affordable assets, including manufactured housing and realizing that they are going to start allowing homes to be part of the underwriting transaction in addition to the land. Have you guys been seeing similar moves in other housing types by the GSEs? And if so, what could be the positive or negative effects for WD going forward?

[Willy Walker, Chairman, CEO]

Not a lot on the new product development, if you will, or moving beyond their mission. They're still very focused on affordable and it's one of the reasons why the Alliant deal is in our view an exceedingly valuable deal not only from a financial standpoint, but from a strategic standpoint. I think it was Fannie, who lowered rates yesterday on their small balance lending business by 10 basis points. And so our entry into that space and the team we put together and the focus on technology and the GeoPhy acquisition make us feel extremely good about that.

Remember, that's half the multifamily market is small balance lending, half of it, and it's dominated by the banks. And so with our team, with our brand and with our technology focus, we have a lot of runway there. So as I sit around and think about W&D versus the big competitors, and I think about what happens in any type of volatile markets typically to the banks, while they are wildly overcapitalized right now, and I did underscore in my comments that banks are chasing assets to lend on right now, chasing them everywhere.

So there's going to continue to be a fierce competitor. But I would say that our focus on that market and the opportunity to grow in that market is exceptional, absolutely exceptional. So just back to the agencies, I wouldn't expect the agencies to sort of go into any new products right now. I think that this change in AMI levels will have a big impact on how competitive they are on market rate, which will, I think allow them to be less concerned, if you will about affordability on every loan they're doing as the AMI numbers roll through.

But we'll see once the AMI number come out and it obviously is going to also be focused in a lot of the markets where we've seen huge growth. And so one of the things that happens in those types of markets like a Nashville or an Austin is that you've got great rent growth, your AMI has gone up, but cap rates are staying begrudgingly low. And so it's hard to get to leverage levels that borrowers like, and that's looping back a little bit to Henry's question. But what we're seeing is cash buyers and low leverage buyers dominating the market right now because of the amount of capital sitting on the sidelines.

[Jay McCanless, Wedbush Securities]

Last one is a 2-parter for me. The 40% gain in transaction volumes were very impressive this quarter as was the 153% gain in property sales volumes. Could you break out maybe how much of that was organic versus purchased? And then also just kind of -- and I think I know the answer to this one, but assuming that we're setting, moving into a higher rate environment on a more permanent basis, historically has that driven an increase in property sales as set themselves and/or look to, I guess, maybe hedge some of their stock market exposure through hard assets?

[Willy Walker, Chairman, CEO]

So on question 1, that’s all organic because Alliant and GeoPhy didn’t add to transaction volumes in Q1. So all of that, there’s a team here and there that was added in ‘21 that is part of that Q1 total transaction volume growth. But that’s from, I believe, your question, that’s all organic growth. That’s none of that comes from the acquisitions that we’ve done.

And then on the second question, as it relates to rising interest rates, investment sales volume, financing volume. I think one of the things that investors have seen at W&D, is that because we have this scale brokerage business that’s using market rate capital and is selling market rate buildings as well as specialty products in seniors and students and a bunch of other specialty products. When markets are moving like they did in 2021, we grow and we play really well.

But when markets dislocate, we also, because of our size and scale with the agencies have this countercyclical portion to our business that as other large firms that don’t have that get, if you will, washed out as it relates to revenue and volume growth, we have the ability to sit in that space and continue to put up very, very solid numbers.

And so I’d just go back to what I said previously, which is that it’s very difficult to project exactly what’s going to happen from a volume standpoint as we move through this year. I think cap rates stay for investors, but grudgingly low for sellers happily low as it relates to the amount of capital trying to be deployed into the market.

And I would just say that rate movements and rate volatility is very difficult for the last week of April and about halfway through last week. But quite honestly, over the last week, we’ve seen things settle down. We’ve been able to price really well. And so I think it’s very important to understand that this market gets its volatility, then it gets to levels and then people start to transact again. And what I don’t think we’re going to see is as rates rise, I do not think we will see a precipitous move up in cap rates just because of the amount of capital looking to invest in this market.

[Operator]

We have no other questions at this time. So I'll turn it back over to Willy for closing remarks.

[Willy Walker, Chairman, CEO]

Great. I would thank everyone for joining us today. Thank you to those who had questions for us. Congratulations to Steve and Greg on their new roles at W&D. It will be a different 2 of us next quarter when Greg is in Steve seat and Steve is in his role as COO. But Steve, thank you for all of 9.5 years of doing earnings calls with me. It's been a huge pleasure and I'm super excited to continue working with you in your new role. And I wish everyone a fantastic day.

[Steve Theobald, EVP, CFO]

Right back at you, Willy. Thanks, everyone.