Going public gave boost to Walker & Dunlop


William Walker, chief executive of Walker and Dunlop. (Dayna Smith/For The Washington Post)
February 12, 2012

It’s been a little over a year since William Walker took public the commercial lending firm his grandfather founded. The move resulted in $4 million to $5 million in new taxes and compliance costs for Walker & Dunlop, but gave the Bethesda firm $100 million from the initial public offering to grow.

And that it did.

Last June, Walker & Dunlop opened an office in Irvine, Calif., gaining a foothold in greater Los Angeles, the second largest multifamily mortgage market in the country. Six months later, the company snapped up a team from Deutsche Bank Berkshire Mortgage to run its new Nashville office. Those moves, coupled with a handful of hires throughout its eight other offices, upped the firm’s total staff to 200 from 157.

There were more loan originators, asset managers and underwriters to handle the high volume of deals Walker & Dunlop completed in the past year. It recorded a 27 percent increase in loan originations, closing out 2011 with a $16.8 billion portfolio of 1,800 loans.

Nearly 80 percent of the $4 billion in loans Walker & Dunlop originated last year were tied to government-sponsored entities (GSEs), such as Fannie Mae and Freddie Mac. A majority of the firm’s business is concentrated on financing apartment buildings and then selling the loans through the mortgage giants.

The company in 2011 produced the second highest volume of multifamily loans through Fannie Mae’s Delegated Underwriting and Servicing program.

But market watchers say Walker & Dunlop’s close ties to the embattled agencies, which the Obama administration has promised to wind down, could hamper its growth.

“The long-term situation of the GSEs is always going to be an issue because it’s going to dictate what [Walker & Dunlop’s] business model looks like,” said analyst Bose George of Keefe, Bruyette & Woods. “But at the moment, its outlook looks very good. Earnings are very strong. Revenues are very strong.”

Walker & Dunlop has yet to report year-end earnings, but in the third quarter it posted a profit of $6.1 million and $33.4 million in revenue, a 50 percent jump over 2010. It carried no loans more than 60 days delinquent on its books at the end of September. And in the first six weeks of this year it announced 13 new transactions.

“Without any exogenous shocks, 2012 will be another active year of financing for the industry,” said Walker, the firm’s chief executive. “There is a huge overhang of refinancing out there, particularly as some loans originated in 2005 and 2007 into [commercial mortgage-backed securities] pools come up for refinancing.”

Walker is concerned about the future of the GSEs, but is leery of Treasury Secretary Timothy F. Geithner’s pledge earlier this month to lay out more details in the spring on the reform of the GSEs.

“For Geithner to come out and make such a dramatic statement without providing the private sector a plan is nothing other than politics,” he said. “If people really felt what he said was a real risk to a company like Walker & Dunlop, our stock would have fallen because we do so much business with the agencies. But our stock was up the day after.”

Walker & Dunlop’s stock traded around $12 to $13 a share for most of 2011, up from its initial per-share price of $10.

“I always thought the capital markets were very efficient to the extent that what was going on inside of a company was being immediately reflected in a stock price,” Walker said. “But being a small-cap company, which has only so many eyes on it, there is a significant delay between what we do and market reaction.”

George agreed Walker & Dunlop’s stock is undervalued because investors are unfamiliar with the firm and lack a competitive set of companies for a comparative analysis. Most of its peers are units of larger financial firms, rather than stand-alone entities, he said.

“It’s been an education for investors to appreciate the model,” George said. “As the company matures as a public company, people become more aware of it and see the stability of its earnings, it will get reflected in better valuation.”

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