Walker & Dunlop Inc

NYSE:WD

Good day, everyone, and welcome to the Q4 2024 Walker & Dunlop, Inc. Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Kelsey Duffey. Please go ahead, ma'am.

Thank you, Lynette. Good morning, everyone. Thank you for joining Walker & Dunlop's Fourth Quarter and Full Year 2024 Earnings Call. I have with me this morning our Chairman and CEO, Willy Walker; and our CFO, Greg Florkowski. This call is being webcast live on our website, and a recording will be available later today.

Both our earnings press release and website provide details on accessing the archived webcast. This morning, we posted our earnings release and presentation to the Investor Relations section of our website, www.walkerdunlop.com. These slides serve as a reference point for some of what Willy and Greg will touch on during the call.

Please also note that we will reference the non-GAAP financial metrics, adjusted EBITDA and adjusted core EPS during the course of this call. Please refer to the appendix of the earnings presentation for a reconciliation of these non-GAAP financial metrics. Investors are urged to carefully read the forward-looking statements language in our earnings release. Statements made on this call, which are not historical facts may be deemed forward-looking statements 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'll now turn the call over to Willy.

Thank you, Kelsey, and good morning, everyone. We ended 2024 with strength. Closing $13.4 billion of total transaction volume, up 45% year-over-year, generating diluted earnings per share of $1.32, up 42% from Q4 2023. Agency loan originations totaled $4.9 billion in the quarter, pushing revenues from mortgage servicing rights up 62% from Q4 '23. Q4 adjusted EBITDA was $95 million, up 8% year-over-year, and adjusted core EPS was $1.34, down 6% from last year. This strong finish to the year helped us close the significant gap to our annual financial targets after an exceedingly slow start to the year, bringing full year diluted EPS to $3.19, flat from 2023, adjusted core EPS to $4.97, up 6% and adjusted EBITDA to a record level of $329 million, up 9% from 2023. Given the challenging macroeconomic backdrop and typically challenging competitive landscape, these results are a testament to the talent, teamwork and tenacity of the Walker & Dunlop team.

As shown on Slide 4, Q4 total transaction volume included $3.2 billion of Fannie Mae lending, up 91% from Q4 '23 and a very welcome surge in lending activity from our largest financial partner. Walker & Dunlop once again finished the year as Fannie Mae's largest DUS partner, an honor we have now won for the past 6 consecutive years. We grew our Freddie Mac loan originations in the quarter by 19% to $1.6 billion and finished the year originating $5.2 billion of loans with Freddie Mac, making us their fourth largest Optigo lending partner in 2024. The GSEs continue to play an extremely important role in the multifamily financing market and Walker & Dunlop's team focus and partnerships with the GSEs have allowed us to remain at the top of the league tables for the past decade. We will continue to invest in these businesses by hiring and retaining the very best bankers in our industry, improving the processes and systems we use to underwrite and fund loans and continuing to integrate all of the products and service offerings Walker & Dunlop has built to bring one-stop shopping to our clients across the country.

We closed $3.5 billion of property sales transactions in Q4, up 20% year-over-year and a very strong finish to the year, given that rates moved up 90 basis points after the Fed's rate cut announcement in September. Our team did a spectacular job holding deals together as rates and client expectations shifted throughout the quarter. For the full year, our property sales team sold $9.8 billion of multifamily properties across the United States, up 11% from 2023 and a great accomplishment on the year after only selling $2.7 billion of properties in the first half of the year. We held our team together throughout the downturn to be able to capture deal flow when markets returned, and our investment sales team's efforts in the back half of '24 were fantastic and set us up very well for 2025 and beyond.

We began 2024 with the Federal Reserve foreshadowing multiple rate cuts at the short end of the curve that would likely bring down the cost of borrowing in commercial real estate significantly. Yet the rate cuts didn't materialize in the first half of the year. And when they did, the long bond surged. Yet throughout the year, the W&D team remained focused, met our clients' needs and grew total transaction volume from $6.4 billion in Q1 to $8.4 billion in Q2 to $11.6 billion in Q3 to $13.4 billion in Q4. We love this consistent quarter-by-quarter growth in transaction volumes as the market began to transact again after the rate increase shocks of 2022 and 2023. We ended the year with average production per banker broker of $172 million, up $35 million per banker broker from 2023, yet still $12 million less than the $184 million average banker broker production prior to the pandemic in 2019.

Given the strength of the W&D brand, expanded service offering and investments in people, brand and technology we have made since 2019, this metric should continue marching upward as the macro fundamentals to commercial real estate improve and transaction volumes grow. As a point of reference, coming out of the pandemic when transaction activity was at its peak, our average total transaction volume per banker broker was $311 million. Walker & Dunlop operates in an enormous industry with an extremely large total addressable market and is up to us, our team to grow transaction volumes, revenues and earnings in 2025 and beyond.

Our technology-enabled appraisal and small-balance lending businesses did extremely well in Q4 and throughout 2024. Apprise more than doubled quarterly revenues from $2.4 million in Q1 to $4.9 million in Q4 for total 2024 revenues of $13.3 million, up 43% year-over-year. We achieved significant efficiencies with regard to data processing and appraisal turn times throughout the year and are poised for strong growth in this business in 2025.

Similarly, our small balance lending business grew total revenues by 20% in 2024 and ended the year as the #4 small balance GSE lender in the country. Both Apprise and SBL were start-up businesses only a few years ago. and have both established the people, processes and technology to scale dramatically in the coming years. And as they do, we will migrate the data, processes and technology from these businesses to our scaled capital markets, servicing and asset management businesses.

Before I turn the call over to Greg to run through our quarterly and annual financial results, I want to focus for a moment on the challenges we have faced over the past 2 years and the steps we are taking to move forward from here. Walker & Dunlop's credit track record is one of the very best in the commercial real estate industry. When I joined Walker & Dunlop, we honestly couldn't afford to take credit losses. And as we have scaled the company over the past 2 decades, we have maintained an impeccable credit culture, which has included thorough training, investments in and implementation of new systems and a generally conservative approach to credit risk.

Yet during the pandemic, due to changes in workflows and post-pandemic due to the sheer volume of business, we made mistakes that have caused us to buy back several loans from the GSEs. We take these buybacks extremely seriously and have implemented new process controls and technology to protect against them happening again. We have also decided to create a new special asset management group led by seasoned Walker & Dunlop executive, Aaron Perlis to work out these loans and recover as much value as we possibly can over the coming years.

I will now turn the call over to Greg to talk through our financial results in more detail before I return to discuss our outlook for 2025 and beyond. Greg?

Thank you, Willy, and good morning, everyone. On our last call, we spoke about the signs of a commercial real estate transaction market recovery and the momentum we highlighted carried into the fourth quarter, leading to the most active transaction market in 2 years. The surge in transaction activity drove year-over-year and sequential growth in nearly every area of our business, including the highest quarterly diluted earnings per share since the great tightening began in 2022.

With our strong fourth quarter, we ended the year closing total transaction volume of $40 billion, up 21% over 2023. Growth in origination fees and MSR revenues, combined with our scaled Servicing & Asset Management platform, drove 7% growth in total revenues this year to $1.1 billion. Diluted earnings per share was $3.19 for 2024, up slightly from 2023. While we ended the year just below our annual target range, recall that through June, diluted EPS was down 37% from the first half of 2023 due to interest rate volatility and a slow start to the year for the GSEs. Our execution over the second half of the year highlights the earnings power of the W&D platform when transaction volumes recover. The strong finish to the year from our Capital Markets business, combined with the consistent revenues from our Servicing & Asset Management business, brought annual adjusted EBITDA to $329 million, a record for Walker & Dunlop and up 9% over last year. Finally, adjusted core EPS totaled $4.97 per share, up 6% over 2023.

Our segment reporting offers insight into how our businesses contribute to our financial performance. This quarter, due to a number of unique transactions, particularly in our Servicing & Asset Management segment, these are even more helpful in fully understanding our financial success.

Starting with our Capital Markets segment. As Willy mentioned, the recovery in the transaction market in the back half of the year drove significant improvement in the financial performance of our Capital Markets segment, as shown on Slide 7. Transaction volumes grew 45% year-over-year, led by a 56% improvement in debt financing volume and a 20% improvement in property sales activity. Segment revenue surged 40% to $181 million, while expenses grew only 23%. As a result, operating margins for the segment improved significantly and net income increased 131% to $40 million, while adjusted EBITDA grew to $4 million, up from a loss of $2 million in the year ago fourth quarter. We invested heavily throughout the great tightening to keep our Capital Markets team in place, and this quarter's results validate that strategy and underscore the performance we expect from this team as the market grows over the coming quarters and years.

Our Servicing & Asset Management, or SAM segment generated strong quarterly revenues that totaled $157 million, up 13% year-over-year, as shown on Slide 8. Our servicing portfolio ended the year at $135 billion, generating servicing fees in the quarter of $83 million, up 4% year-over-year. Placement fees and other interest income of $40 million were down just 1% year-over-year as increases in escrow balances offset decreases in short-term interest rates. In total, net income for the SAM segment was up 7% from the year ago fourth quarter at $37 million, while adjusted EBITDA increased 12% to $124 million.

During the quarter, there were several unique items in the SAM segment that impacted our financial results, as shown on Slide 9. First, over the course of the year, we estimate the value of realization revenues from the disposition of assets in our affordable housing investment portfolio with a final true-up recognized in the fourth quarter. This year, we did not meet our realization goals due to the slow sales market. And as a result, we recognized a $13 million downward adjustment from that true-up as shown in the first column of Slide 9. Property dispositions and realization revenues are always market dependent, and this adjustment is neither surprising nor concerning given market conditions this year.

Second, during the quarter, we entered into a contract to sell a portfolio of assets, including interest held by a part of the business known as Walker & Dunlop Affordable Preservation, or WDAP, that were acquired as part of the Alliant transaction. The sale of one of the assets closed during the fourth quarter, generating $11 million of income from operations and $21 million of adjusted EBITDA, as shown in the second column of this slide. The remaining assets are expected to close in the first half of 2025 as various consents are received. WDAP operated as a general partner of affordable and workforce housing assets with the goal of preserving and extending the affordability of the assets. After operating WDAP since 2021, we reached the decision that the business was not a long-term strategic growth opportunity due to the amount of capital required to scale the business and the overall return profile of the investments. Fortunately, we were able to place the assets with a buyer that carry on WDAP's mission. This was a discrete decision to realize a healthy return on this portfolio and exit a part of the business that was no longer part of our long-term plans and in no way a reflection of our dedication to the affordable sector or our broader affordable business.

Next, with respect to credit. During Q4, we finalized agreements with Fannie Mae to repurchase two loans that we highlighted in our last earnings call. As shown in the third column on Slide 9, we recognized $4 million of provision-related expenses due to valuation declines in our repurchased assets as well as an additional $8 million of other expenses associated with the repurchases, including immediate repairs and maintenance. We have now repurchased 5 loans from the GSEs with an original principal balance of $87 million and recorded $24 million of provision and repurchase-related expenses associated with the deals this year.

We take these repurchases and the mistakes that led to them very seriously. In response to those mistakes and the sophisticated fraud schemes we uncovered, we made significant changes to our underwriting and quality control processes and recently received feedback from both Fannie Mae and Freddie Mac that our actions are setting the standard amongst us and Optigo lenders. While the financial impact of these repurchases is immediate, we are taking a long-term approach to the value of these assets and established a dedicated team to manage and recoup as much of the value as we can in the coming years. While we reposition these assets, they will be reflected as real estate owned on our balance sheet. As such, we will not be marking the valuation allowance to market as we have during 2024, but we will take additional expenses associated with operating the assets while we hold them.

With respect to our broader at-risk portfolio, we oversee nearly 3,000 assets in that portfolio, and we have an exceptional track record of taking credit risk. At the end of the year, we had only 6 defaults in the portfolio compared to 7 in Q3, totaling just $42 million or 7 basis points of the at-risk portfolio. Consequently, we feel very good about the fundamentals of the portfolio and our $28 million risk-sharing allowance.

The final unique item during the quarter was a $16 million benefit from a downward adjustment to the estimated fair value of acquisition-related earn-out liabilities that impacted both our Capital Markets and SAM segments this quarter, as shown in the fourth column on Slide 9. We underwrite acquisitions based off historical performance and forward projections and typically structure earn-out hurdles to reward outperformance while protecting our downside risk. The rate tightening has been challenging and the adjustment to our expected earn-out liabilities is an example of that performance-based structure protecting our downside as intended.

In total, the four items I just described had limited impact on our consolidated financial results this quarter. The overall impact was a net benefit of $2 million to income from operations or $0.05 per diluted share, and the transactions also contributed $14 million to our record adjusted EBITDA this year, primarily driven by the sale of the portfolio of assets. The point being that our performance this quarter clearly demonstrates the earnings power of the core business. While $13 billion of quarterly transactions is a strong start to the recovery, we know that we have a team on the field capable of delivering even stronger results. And when combined with our durable recurring revenues, we have the opportunity to outperform as this recovery takes shape.

We ended the year with $279 million of cash on our balance sheet. The stability of our cash earnings led our Board of Directors to increase our quarterly dividend for the seventh consecutive year to $0.67 per share, a 3% increase and a 15% compound annual growth rate since it was initiated in 2018. It is a testament to our business model that we continue increasing our dividend despite the challenging market conditions over the last several years. Our business model also allowed us to reduce the weighted average cost of our debt over the last 12 months as our cash generation during the downturn demonstrated our strength as a borrower. We feel very good about our capital position today, but we are constantly evaluating ways to capitalize on opportunities in the public debt markets to position our balance sheet effectively, and we are keeping a close eye on the debt markets with credit spreads near historical lows.

We entered 2025 optimistic that commercial real estate market is on a path to recovery. And while there are uncertainties like stubborn inflation, the long-term path of interest rates and a change in the presidential administration, a few things are clear. The underlying fundamentals of the multifamily sector are undeniably strong. A large portion of the record new supply in 2024 was absorbed. And in most markets nationwide, there was rent growth. Dry powder with both investors and lenders is abundant and poised for deployment. And finally, there is general acceptance of higher-for-longer among our clients. So we expect the market to grow in 2025, but remain choppy from quarter-to-quarter, with the first quarter inevitably slowing down compared to the fourth quarter.

Whatever shape the recovery takes, we expect the primary driver of our growth in 2025 to be a further rebound in transaction activity. And with that, we will see growth in our cash origination fees from transaction volumes, but also our noncash MSR earnings from higher agency lending volumes. We also expect our interest earnings on our corporate cash and escrow deposits to decrease in 2025 as those revenues are tied to short-term rates that have already been lowered by the Fed.

Consequently, growth in diluted earnings per share will outpace growth in adjusted EBITDA and adjusted core EPS as our revenue mix shifts towards the Capital Markets segment and away from the SAM segment. As a result, as shown on Slide 10, our full year guidance for diluted earnings per share is growth in the high single digits to double digits in 2025, while growth in adjusted EBITDA and adjusted core EPS will be flat to up in the high single digits, which would again demonstrate the stability of our cash generation after just reporting a record year for adjusted EBITDA. Our team worked tirelessly in 2024 to meet our clients' needs and deliver solid financial results to our shareholders, and I am confident that we will build on that momentum in 2025.

Thank you for your time today. I will now turn the call back over to Willy.

Thank you, Greg. As Greg just explained, our business model, teamwork and market presence allowed us to grow and deliver strong financial results in a challenging market in 2024. As we embark on 2025, we are both excited and yet somewhat cautious in our analysis and predictions for the coming year. And while we will try to give as much color and insight into what we are seeing in the market today, we are also conscious of two facts, that for all of our best planning and prognosticating, the market will move in unpredictable ways. And second, regardless of what that future brings, we have the team and business model to continue competing and delivering exceptional shareholder returns going forward.

It is our base case assumption, the transaction volumes, debt financing, equity placement, investment sales, appraisals, research, tax credit syndication, et cetera, all grow in 2025 after 2.5 years of muted activity. There is almost $1 trillion of commercial real estate debt that matures in 2025, yet how much of that number gets refinanced versus extended into 2026 is going to be a major factor on whether we see big growth or modest growth in debt financing volumes this year.

The Mortgage Bankers Association published their commercial real estate financing volume forecast this morning, projecting growth of 16% in 2025 and 22% in 2026. There is an enormous amount of equity capital looking to be deployed into the commercial real estate industry, yet currently, there is a bid-ask spread between sellers and buyers that is constraining deal activity. Interest rates have settled in around 4.5%, yet even with the general acceptance of higher for longer, some commercial real estate owners and developers seem to still hold out hope that rates will come down, causing them to delay refinancings and acquisitions.

So where we find ourselves today is with an extremely exciting macro backdrop of commercial real estate being one of the few global asset classes that isn't at peak or overvalued, stabilized interest rates, a need for investors to sell, buy or refinance simply due to the maturity of their funds or asset level financings and yet caution due to higher interest rates, lower values and a macro economy that feels wildly unpredictable. The macro drivers in commercial real estate are so big and so real that they will drive the market dramatically. The question right now is when.

The W&D platform is extremely well positioned to meet the market needs today and over the next several years. Our debt, equity and sales capabilities go head-to-head with the world's largest and most sophisticated lenders and service organizations and wins consistently. We win because of the talents of our bankers and brokers, the technology systems and procedures we use to process transactions, the customer service we deliver on every transaction, the brand we have built and the unique corporate culture that drives W&D every day.

As W&D has grown and evolved from a small family-owned firm into one of the largest commercial real estate finance and services companies in the world, it is important to keep in mind how we have evolved and where that evolution positions us today. We started as a local firm, then went regional, then went national and are now embarking internationally. We began as a brokerage firm taking no principal risk on loans and have expanded into taking risk on debt, then equity and now properties. We began selling one product, debt to our customers and now sell debt, equity, hard assets, research, investment banking, asset management and appraisals. And throughout the evolution of W&D's scale and product offering, the market placed huge value on those who control capital, developers and owners who have brought institutional capital to the market.

Over the past 15 years, the growth and expansion of private equity and credit in the United States has been astounding. And while there are many players in both the private equity and private credit markets, the mega private equity firms are raising capital and expanding their platforms far faster than the competition. And while they have seemingly won the capital aggregation battle, they are now faced with a capital deployment challenge, where and how they can invest vast sums of capital to meet their investors' needs.

What we have built at Walker & Dunlop is a scaled capital deployment platform. We take tens of billions of dollars every year and deploy it into the commercial real estate through our work valuing, selling and financing properties. So the challenge and huge opportunity for W&D is how we leverage our client relationships, valuation capabilities and transaction expertise to continue generating alpha for our investors, partners and clients. We must continue partnering with the world's largest capital providers to feed them investment opportunities and deploy the capital they have so successfully raised.

We recently announced the expansion of our capital markets business in three significant ways. First, in Q4, we announced the expansion of our investment sales capabilities into the hospitality sector. We hired a terrific team and are already seeing great connectivity between our hospitality sales and financing teams. Second, in January, we hired an exceptional affordable housing team with deep affordable housing client relationships and expertise. As we continue to build out our affordable platform that now includes financing, sales, equity and tax credit syndication, we expect our affordable transaction volumes and our brand in this important area of the multifamily market to benefit greatly.

And finally, last week, we announced our expansion into Europe with the hiring of a very talented London-based finance team. This move into Europe is very exciting for several reasons. First, after growing W&D to be one of the largest commercial real estate financial services companies in the United States, we have the scale and client base to expand beyond our borders. Second, while Europe is currently under a tremendous amount of pressure due to limited growth and technological advancement, the European commercial real estate market is vast and presents a huge opportunity for continued W&D growth.

Third, as the U.S. economy continues to attract foreign capital, having connectivity into European, Middle Eastern and Asian investors is exceedingly important. Walker & Dunlop's London office will be both the hub of our European operations and a bridge to the Middle East and Asia as we both work for clients in those geographies and shepherd their investment dollars into the U.S. market. Investors should expect further investment by W&D to broaden our offerings across all commercial real estate asset classes and expansion abroad first in Europe and then in other geographies.

We are now in the last year of our 5-year growth plan called the Drive to '25, which includes growing our debt and property sales volumes, scaling our servicing and asset management businesses and establishing our newer businesses of small balance lending, appraisals and investment banking.

As we said on this call last year, the great tightening and subsequent market disruption set us off course from achieving the Drive to '25 volume and financial targets. But W&D's durable income streams from Servicing & Asset Management allowed us to continue investing in our people and strategy of scaling our existing businesses and adding new innovative technology-focused businesses. We are now beginning to formulate our next 5-year bold, highly ambitious business plan that we will outline a year from now. For now, we remain focused on achieving as much of the Drive to '25 as possible as we know it is the right long-term strategic direction for our business.

I would like to sincerely thank every member of the Walker & Dunlop team who worked so hard in 2024 to meet our clients' needs and generate strong financial results in a challenging market. And I'd like to thank our shareholders who continue to believe in our long-term vision for this company.

That ends our prepared remarks for this morning. And I'd like to now ask the operator to open the line for questions.

[Operator Instructions] We will take your first question from Jade Rahmani from KBW.

A strategic question would be, do you see opportunities to more formally align with an alternative asset manager and their insurance subsidiaries perhaps through joint venture or partnerships to help drive their asset needs and increase fee revenue for W&D?

Jade, thanks for joining us. I'm sure there are plenty of firms that we have partnered with in the past and work with every single day. And as you know, we have been scaling our asset management business over the past several years and feel very confident we can continue to do that on our own, but partnership is always a potential.

And the low-income housing tax credit syndication business, W&D Affordable Housing, can you give an update on the outlook for that overall business away from the WDAP exit? Just want to see your thoughts of the core, what was Alliant their business and how you're viewing the outlook there?

Sure, Jade. We made some management changes at the end of Q3 that we've been very pleased with and seeing the team react to, which has all of us having great confidence in the continued growth of that business. And I would say that there's plenty of talk in Washington right now as it relates to low-income housing tax credits and their importance to the affordable housing industry. And so either the maintaining or expansion of the LIHTC budget allocation would be important to the continued growth of that business. And as I mentioned in my comments, we brought across an extremely capable affordable housing team that has an incredible track record in the market. And so adding that team to our existing team and the continued integration of the Alliant business into Walker & Dunlop all has us feeling very good about our affordable strategy and the team we put together.

[Operator Instructions] We'll hear next from Steve Delaney from Citizens JMP.

Congratulations on a strong close to 2024 and another dividend hike. Willy, the Fannie Mae and brokered businesses obviously jump off the page standing out in the fourth quarter as the big drivers. On the Fannie business, was it 1 or 2 mega deals in there? Or are you just seeing Fannie being broadly more aggressive in its pricing relative to Freddie Mac? Why so much of a concentration in Fannie, I guess is the question.

Sure, Steve, and thanks for joining us. It was standard deal flow. So it was not a single large transaction or from my recollection, quite honestly, anything of any real scale. So it was very good flow business. I will tell you that the average servicing fee, although we don't disclose the average servicing fee was actually down in the quarter, which would be somewhat counterintuitive given that it was a very large volume of flow business, typically, you would have reduced servicing fees on having done a number of large transactions. But as we have seen in the past, when rates move up, guarantee fees and servicing fees get squeezed. So it's not that surprising that in a quarter where we were trying to make deals work that servicing fees were under pressure. We had seen servicing fees start to return to normal earlier in the year on very depressed volumes. So to be perfectly direct about it, we'll take higher volumes and a little bit lower servicing fees any day. But that was the dynamic in Q4 as it relates to our Fannie business.

I think the other piece to it is that both agencies, Steve, in the back half of the year looked at where they were in the first half of the year and said, we got to get back into the market. Fortunately, both of them came back in. And as you know, Freddie Mac finished the year doing close to $65 billion on a $70 billion cap. Fannie Mae only did $55 billion on a $70 billion cap. Fortunately, the regulator raised their caps for 2025 from $70 billion to $73 billion each. And so they both have plenty of opportunity in 2025 to increase origination volumes.

Willy, with all you've done in the last couple of years in terms of capabilities and bringing teams in, would you say that as you sit today, the business -- the W&D business model is now essentially complete? Or are there other important capabilities that you'd like to add on that you don't have today?

You're making me feel old, Steve, in asking that question because you and I have been on these calls for a very long period of time. I think you know me and you know this firm well enough to know that we're never satisfied. We're never standing still and saying we've done it. Look, the competitive landscape that we compete in every day has evolved dramatically just in the last 14 years as Walker & Dunlop has been a publicly traded company. And as I tried to outline in the call in my prepared remarks, the breadth and scale of the enterprise that we have created over that period of time has allowed us to remain extremely competitive against some of the world's largest financial services and real estate services companies. So while we feel extremely well positioned today, we are by no means complete. The service offerings that the scaled commercial real estate services firms offer and the brands they carry are a huge competitive force every single day. The balance sheets and financial wherewithal of the large banks and financial services institutions that we compete with are a huge competitive factor every single day.

And so I think that what we have been able to do is stay very focused on the parts of the market where we compete, make sure that we have the very, very best team and customer service that we can put forth. And as I said, we win, but that comes from that focus. It comes from the team. And it certainly W&D has never been a macro play. Many of the companies we compete against are macro plays. They're big. If the market is moving positive, they move positively. If the market goes down, they move down. We have tried to be somewhat of the yin and yang or the zigging when others zag. I will say our total shareholder return in 2024 was disappointing. We lagged in 2024 versus the competition. And our investors have my commitment and our team's commitment to continue to focus, compete and outperform going forward. And that's due to the investments we've made and the positioning of the firm today.

We'll hear next from Jay McCanless from Wedbush.

So I just wanted to touch on the comment you made in the prepared remarks about clients accepting the higher rates and looking to still do deals. It's probably a loaded question, but is extend and pretend done? Because I know you talked about it in your comments, Willy, but if clients really are having to deal with higher rates, are we finally going to see some assets and especially some problem assets get worked out and turned over this year?

Jay, your question is a very good one. It's a hard one to give a broad general response to. What we are seeing is that many borrowers who have floating rate debt on an asset would like to swap that debt into a fixed rate loan, but in many instances, cannot because it would require a cash in refinancing. And so what we find ourselves confronted with daily is clients of Walker & Dunlop saying, I'd like to refinance this existing financing. It's either terming or I just don't like the overall floating interest rate on it. We go to underwrite a fixed rate loan and find that to be able to do a fixed rate loan and bring down the effective cost of borrowing, it's going to require a recapitalization from the equity side. The client will say, I don't want to go back to my LPs and ask for a capital call on this asset, and they will either stick with the existing financing or they will put the property up for sale if they happen to have a realized gain on the value of the asset. We saw a lot of that at the end of 2024, and we're seeing that continue into 2025.

To your specific question as it relates to does that then cause distress in the market? You cannot look at the amount of both equity capital and debt capital that is out in the market today and say that distressed opportunities don't have the opportunity to be worked out. That may result in certain investors, certain owners taking a loss on the property. But what that doesn't allow for is any broadscale distress as it relates to overall market movement. So what I would think will happen quite a bit in '25 is that the clock will run out on certain either fund life or asset level financings and the ability to extend into the future won't present itself. As I said in my prepared remarks, how much of the outstanding maturities actually get called in '25 versus extended into the future will make a difference between whether this is an enormous debt refinancing market or whether it is a moderate debt refinancing market as I put forth in the Mortgage Bankers Association predictions for 2025.

I think the most important thing from a Walker & Dunlop standpoint is to make sure that we are there with our clients to help them work through any of these situations, whether that means they just want to do a straight out refinancing, whether they have to do a cash-in refinancing, whether they want to sell the asset or whether they want to bring in new partners to reequify the asset.

The second question I had, last call, you talked about the possible timeline for the GSEs coming out, maybe like 2026, '27. Any updates to your thoughts on that process?

Yes, for a second. Look, the new HUD Secretary mentioned last week that the privatization of Fannie Mae and Freddie Mac should be on the radar screen and focused on. The President Trump has mentioned the same during the campaign. To my knowledge, he has not mentioned it subsequent to his inauguration. And the Treasury Secretary was asked during his confirmation hearings about the privatization of Fannie Mae and Freddie Mac. So the topic is clearly on the table. The real question will be, is it an issue they focus on in 2025 as a potential offset to the tax bill and either continuation of the Tax Cuts and Jobs Act or new tax cuts that President Trump would like to have implemented, and using the privatization of Fannie and Freddie as an offset to those tax cuts. If it stays related to the tax bill, it probably gets on the fast track and gets very focused on in 2025. And that would be both very interesting and exciting because were it tied to the tax bill, there would be a lot of political will behind getting it done.

If it misses the '25 window and being related to paired with the tax bill, it turns back to the old debate as it relates to Fannie and Freddie will take it into conservatorship. Should they stay in the federal government? Should they be spun back out? How are they spun back out? What are their footprints when they get spun back out? Is it an explicit guarantee? Is it an implicit guarantee? Does it go administrative action? Does it go legislative action, et cetera, et cetera? And so were it to miss the window on the tax bill, I would lower my odds that something actually gets done with Fannie and Freddie just because we've seen this happen before you're into the midterm elections in 2026, and it's a very complicated, difficult issue to get either consensus on Capitol Hill or the political will inside of the West Wing to get something like that done. But if it stays on the radar screen for 2025 in conjunction with the tax bill, I think it could be very exciting and very interesting to see how it evolves.

All right. One more for me. Excited to hear you guys are expanding into hospitality. Maybe give us a thumbnail of how you're thinking about that market and especially with what at one point was some overcapacity there, would love to get your thoughts on that one.

Sure, Jay. Look, what we have seen in our multifamily business is that we were one of the largest multifamily lenders in the United States. And back in 2015, we decided to move into multifamily investment sales. And with the acquisition of Engler Financial and under the great leadership of Chris Nicholson, we have seen that firm come into Walker & Dunlop and expand tremendously and be an incredible both stand-alone business, a business that has enhanced our relationship with multifamily owner operators and developers tremendously, and also allowed for the tying of investment sales and financing on a scale that we, quite honestly, never projected. We have a much, much higher rate of tying our financing to the investment sale than we ever projected when we entered this business to start with. So what we have -- and one of the other things for people to remember in all of that is the following.

If you look at the agency league tables, Fannie and Freddie, a decade ago, their league tables had a number of large banks at the top of the league tables because they were big partners to the agencies and they did a lot of multifamily financing. You look at the league tables today and the tops of the league tables are only filled with broad financial real estate services firms such as Walker & Dunlop, such as CBRE that have the combination of investment sales tied in with financing. And so that's been the competitive landscape today where you can go to the client and provide them with one-stop shopping, if you will. And so as a result of that, we look at that example in multifamily and we say, we need to do that in hospitality. We need to do that in retail. So bringing on the hospitality investment sales team in Q4 was a very significant move for us to move to another vertical.

Interestingly, Jay, there are a very large number of investors in multifamily who also happen to be investors in hospitality. And so if you look at the existing client relationships that Walker & Dunlop has from a multifamily, both investment sales and financing standpoint, many of them also had been borrowers of Walker & Dunlop on the hospitality side. And now we've just added in the investment sales capability in the hospitality market. As it relates to the underlying macro fundamentals of hospitality, as you well know, leisure hospitality has been an extremely strong asset class post-pandemic. Urban hospitality, not so much. Clearly, there are certain urban assets that have done exceedingly well, but there are also some urban centers. I can just poke at San Francisco for a moment that have a lot of distressed core hospitality assets that have very much struggled since the pandemic due to few people coming back to work and few people traveling to those major urban centers. So look, there's a huge opportunity in that market for Walker & Dunlop to grow. And we feel like we have hired a fantastic team to spearhead those efforts. And as I said in my prepared remarks, we will continue to add both to our hospitality investment sales capabilities as well as focus on adding investment sales capabilities into other commercial real estate asset classes.

[Operator Instructions] We'll hear next from a follow-up from Jade Rahmani from KBW.

I was wondering if you could give an update in terms of what you're seeing from Fannie Mae volumes so far this year? And also, just looking at your historical mix between Fannie and Freddie, I think there could be a decent opportunity to grow Freddie a lot. Do you agree with that?

So Jade, no -- as you well know, we don't sort of give mid-quarter volume guidance or what we're seeing. Generally speaking, both agencies have started the year in typical fashion, if you will, get done with the previous year and refocus on what's coming ahead and go to conferences in January to meet with partners and clients and then sort of get back to work. So nothing to report on there as it relates to either Fannie or Freddie or their outlook for 2025.

And as it relates to Freddie Mac, mentioned in our prepared remarks, we came in fourth with Freddie Mac in 2024. That was a very solid year for us. But as you know very well, we fell one ranking point in the rankings. We were very close to the #3 Freddie Mac Optigo partner in 2024, but one of our other large competitors jumped ahead of us. That's disappointing. We're very focused on climbing back up in the league tables. And to your point, there's a huge opportunity. As I mentioned previously, Freddie Mac did $10 billion more of multifamily lending in 2024 than Fannie Mae. And so as a result of that, we clearly would like to do more with Freddie Mac and we would love to move not only back to where we were last year as #3, but higher on the Freddie Mac league tables. And so we have the team, we have the relationship with Freddie Mac, and we clearly have the client base to do just that. It's up to our team to go and do it.

And at this time, there are no additional callers in the queue. I'd like to turn the conference back over to your host, Mr. Walker, for any additional or closing remarks. Mr. Walker, please go ahead.

Thank you very much. As I said at the end of the call, I want to congratulate and thank the W&D team for all they did in 2024 to make it the success that it was. Thank you to Kelsey and Gina from an IR standpoint for all your work in this earnings season. And thank you, Greg, for your prepared remarks and exceptional work at W&D. That concludes the call for today, and thank you, everyone, for joining us.

That does conclude today's teleconference. We thank you all for your participation. You may now disconnect.