Walker & Dunlop, Inc. (WD) Earnings Call Transcript & Summary

I love going and speaking at universities across the country. And it's a real honor for me when I go to universities that I could have never gotten into. And in some instances, that's a debatable point. But at MIT, that's a very clear point that I could have never gotten into MIT. So it's a real honor for me to be here today and talking to all of you. The other thing that I would say, my friend, Sharmil Modi, just walked in and Sharmil went to Harvard College up the road, but was -- he was his Class A speaker at Harvard. And if any of you get a moment, you ought to go take a look at Sharmil's Class A speech because it's a real -- it's a great one. With all that said, it's really fun to be at MIT today and having gone to business school just up the river. It's always fun to come back to Cambridge and see the Charles River with all the activity going on in the crew shells. And I ran the marathon a number of times when I was here, and that was just last week, and I had 3 of my business school classmates who ran with me way back in the dark ages, who all went and actually ran last Monday, which was really great for the 3 of them. So let me dive into the presentation. I want to get the signal versus noise. As Denise said, I typically like questions during presentations. But I guess from an AV standpoint, it's better for us to wait until the end when we have the mic that's going to go around. So just if you got something that comes up in the middle of it, just hold the question and we can back up to the slide if you need to. But it's just easier from an AV production standpoint for us to do all the questions at the end when we've got the mic going around the room. So titled Signal versus Noise, what are we -- it seems like there's a lot of noise in the markets today, not just in the commercial real estate markets, but just sort of broadly. And so the idea was to just kind of dive into a little bit of the data that might be able to pull out Signal versus Noise and what we're seeing in the market. So let me dive in here. So what was expected in Trump 2? What was expected in Trump 2 is lower energy prices, immigration reform, lower taxes, increased M&A and deregulation. Those are the things that sort of everyone said, this is what the second Trump administration is going to bring to the world that we live in. And on pretty much all of those, the Trump administration has been very effective at actually putting in policies that have sort of delivered on all of that. You can see here M&A back and being bolder than almost ever, hasn't quite hit the peak of 2021 that you can see in the middle there, but #2 over the past decade as it relates to actual M&A activity. The other thing on that black line is that's the number of transactions. So as you can see, the transaction is actually getting bigger, right? As that goes down and the aggregate amount goes up, it's just bigger companies, more M&A activity, which was something that we'd expected to see. And 2026 from both an M&A standpoint as well as from an IPO standpoint is looking like it's going to be a wildly active year in the capital markets. One of the big questions that I have is, as companies like SpaceX and some of the AI companies go public, sort of where does that capital come from? If SpaceX goes public for $1.5 trillion valuation or a $2 trillion valuation, that's capital that has to come from somewhere. Are people selling other holdings and migrating into it? Are they getting out of a private credit position to go buy into those IPOs? Where does that capital come from? And what does that mean for the broader markets as you get trillions of dollars of IPOs coming out in 2026. Tax cuts. The big beautiful bill gave tax cuts across the board to every level, every quintile of taxpayers has more in their pockets. I think one of the big things that people were projecting for right now, if you look -- if you rewind the clock when the big beautiful bill got passed last summer, many people were saying there's going to be a tax refund that goes to a great number of Americans, and they're going to get an average check of $2,200 in May of 2026, and that's going to stimulate a lot of economic activity. And then the Iran conflict happened and sort of everything has kind of gone to the side. But in a normal course of business, you would have been getting these refund checks off of the big beautiful bill that would have put $2,200 on average into people's pockets, which is sort of like the stimulus bill that went through during the pandemic, which would have driven a lot of retail spending. We'll see whether all that plays out given the backdrop of the macro situation today. Border encounters, you can see here, the Trump administration clearly has been extremely, if you will, effective in implementing the border security that they had campaigned on and said that they were going to get to. I will show later on something that shows the implications of this as it relates to the demand side of the equation on rental housing, not an insignificant issue. And then crude prices. One of the interesting things on this is you can see back here when Trump came into office, crude prices were at $80 a barrel. They got down over here on the far right in January, down into $56, $57 a barrel. The back of the envelope number on what that means to inflation is that for every $10 change in the price of a barrel of oil, you pick up about 20 basis points in the CPI. So as you went from $80 a barrel down to $60 a barrel, you're picking up $20 or you're picking up almost 40 to 50 basis points in the CPI because oil flows through everything. And so in that, you could have seen from going up here down to there that the probably new Fed Chair, Kevin Warsh, would come into his new role with a backdrop of inflation sort of being under control. And then all of a sudden around hits and we see where oil prices have gone. And so now you go to the other end of that. So from $60 to $100, do the math, you're adding almost 1 percentage point to the CPI print if oil prices stay up at that level. And on consumer sentiment, this is the one side to it all. You kind of look at the -- where the stock market has gone, and I got a chart in a second on that. But this is the one that I think probably confounds people in the Council of Economic Advisors as well as the President himself, which is that they look at the stock market doing great. They look at all the innovation that's happening in our country. They look at our country versus other countries and they say, "Man, we are doing a great job." And then they look at this chart and they say, "Oh, but the consumer isn't sort of behind us. The consumer isn't feeling good. The consumer isn't right now feeling any better off than they were when Trump came into office back here. And you can see it's actually fallen kind of off a cliff. And so clearly, forget about the politics of all that in the midterm elections. This is one of those data points that I'm sure they look at all the other charts of what they set out to do and have delivered on, they look at this and they say, "What are we missing here?" As I said, where are we on the equity markets? This slide is a pretty interesting one. If you look at inauguration day where you had the 10-year is the black line and the blue line is the S&P 500. And those 2 were inverted in the first year of the administration, they drove the cost of debt down, and they drove the equity markets up. And most people would look at that and say, "Hey, we're doing a great job." Then all of a sudden, obviously, they converge together at the beginning of the Iran conflict. And then you can see the recovery that's happened. The question I would have right now is, if you will, how real is that recovery? Like do these 2 charts continue to move away from each other and S&P continues to go up and the cost of debt continues to go down? Or do they turn around and get back to the 2 convergence points you see on this in July of last year and then in March of this year? K-shaped economy. You hear a lot about this. This slide back to January of '23 really shows you what has happened as it relates to consumer spending on the upper portion of the economy and the lower portion of the economy. So since '23 and the great tightening where the cost of debt went up, credit card payments go up, the cost of flying on an airplane goes up, everything else, you can see here that the top 1/3 of the economy earning over $250,000 annually, that's actually smaller than 1/3 are the ones driving the spending. And then the rest, which is earning less than $75,000 annually has sort of fallen off precipitously. A lot of people have talked about the sort of the fatigue or that the U.S. consumer is going to kind of give up. So far, that hasn't played out. You look at consumer credit card default rates, while they have gone up significantly since the post-pandemic era where they got to historic lows, they're no different than they have been on a historic average as it relates to both DQs -- delinquencies as well as default rates. And so the consumer has actually held in better than many people had thought, but the K economy here really does show you that the majority of consumer spending is happening in the top part of the economy, not in the lower parts of it. How is the K economy played into multifamily? This is kind of an interesting slide for two reasons. One, you can clearly see here on the 76 basis point difference between Class A and Class C multifamily, that there is a huge difference of the newer product, more amenitized, has a big pricing advantage. But then look at vintage for a moment because I think vintage is really interesting. You sort of ask yourself, how is it that assets that are newer or from 2020 until today are trading at a higher cap rate or as you all know, a lower value than a 2010 or 2000 vintage. And the issue on that one is the fact that core capital has basically pulled out of the commercial real estate market over the past couple of years, and it's been that value-add capital that has actually been active in the market for the past couple of years. Hence, those investors of value-add capital are driving down cap rates and the pullback in core capital is what has made Class A newly delivered actually trade at a higher cap rate or a lower value. But as you can see here, I spoke to AvalonBay's development group last week, and AvalonBay is going right at that higher-end product. And what they're building and what they own is directly targeted at the upper part of the K economy. And as a result of that, they're seeing rent growth and they're in the right markets with the right clients. This is an interesting -- this is on multifamily investment sales volumes. So a couple of things jump out to me on this slide. First of all, look how consistent the market was from 2015 to 2020. Like you sit there and you're like, oh, there'll be 1 year that's good and 1 year that's bad and whatever. I mean it's literally like right on top of each other for an entire 5-year period up to the pandemic. And then obviously, we have a big dip down and then we have this big spike back up. The thing to keep in mind here is we're talking about kind of a recovery of the markets right now, and you'll hear myself and other CEOs of services firms talk about the markets are recovering. The market is pretty much recovered. If you look at the average volume for the last year, it's back to pre-pandemic levels. The thing about it is that a lot of us look at this and say, investors in Walker & Dunlop look back and they say, well, why don't you back at these volumes? Who knows whether we ever get back to those types of volumes. But from a normalized market standpoint, you can see the hiking period, the trough, and now we're in that recovery period. But as it relates to overall volumes, we're pretty much -- as far as multifamily investment sales, we're sort of back to pre-pandemic levels. This is an interesting slide, which doesn't take all of you with your MIT soon-to-be degrees to understand this. Hindsight is obviously always 2020 vision. But go back and look at the spread, okay? So this is cap rates versus the 10-year. Light blue is the cap rates. The dark line is the 10-year treasury, okay? And then the bottom one is WME Track institutional sales. So this is multifamily institutional sales and the volume of multifamily institutional sales, okay? Obviously, you've got the pandemic that comes in right here in this moment. And so you have no activity during the pandemic, everyone's gone home, nothing is happening. But look at the spread between cap rates and interest rates. It does not take an MIT degree to realize that this is a really good time to be buying commercial real estate and buying multifamily. The spread between what you're paying in interest rates and where you are from a cap rate standpoint. And then, of course, everyone sees this and they go, great, now it's time to buy. And look at what happens to volume. Everyone gets the memo here and they get to a point here. The problem with that is you really didn't want to be a buyer right here. And by saying what I just said, I'm insulting every single Walker & Dunlop client, okay? So I know this is going out on our webcast and to everyone who's going to be watching in on this, I'm not trying to be -- I'm not trying -- but hindsight's 2020 vision and almost -- not all the deals that happened here are "in trouble," but this is sort of a vintage of deals here where cap rates and interest rates have compressed, where that's not a great vintage. If you bought there, you're probably not getting into your promote. And I just put this out here because as you go into your careers. And you see a chart like this, you just sort of say, let's make sure we're looking at the data when we can see a spread like that and say, let's take advantage of it. And then you see this collapsing of the two and you sort of say, "Maybe now is not the time for me to be buying." What's amazing to me is the amount of institutional capital that sees all of this and they say, we need it on the party, like got to go, let's go buy." -- and they made a buy here or here that they now look back on and say, maybe we shouldn't have jumped into the party at that point. So this slide is on debt volumes. The thing I love to look at is that we pull this from the Mortgage Bankers Association. So this isn't our data. But I will also tell you, I've been in this industry for almost a quarter century. And I have yet to be presented with by either my team or the Mortgage Bankers Association, a slide that goes down here. It's always up and to the right. Somehow or another, the future always looks nice. And it obviously doesn't always go that way because back in right here where they were projecting it to continue to go to the right, we fell off quite dramatically. The one thing to keep in mind on this chart is that this is all based off of maturity volume -- maturity schedules. So it sits there and says, okay, you did a huge amount of debt in 2020 and 2021, right, $1.5 billion between those 2 years -- $1.5 trillion, excuse me, not $1.5 billion, $1.5 trillion. And you sit there and you say, okay, most of it was 10-year paper, project out 10 years and you go 2029 and 2030, you got to redo all that paper. A lot will be redone in between. But you know from a maturity standpoint, these 2 years are going to be significant years given the amount of volume that went on in these 2 years. The thing to keep in mind that is very different is the following. In 2020, just on our agency volume at Walker & Dunlop, we did $20 billion of lending with Fannie Mae and Freddie Mac. And in 2020 at W&D, we did not do a single 5-year loan, not one, 0. Out of $20 billion in 2020, we did not do a single 5-year loan. It was all 10-year paper, some 7-year paper and some longer than that. But the great majority of it was 10-year. So all that $20 billion that we did in 2020 is set to refi in 2030. Now go to 2025. Last year, of our $16.8 billion of lending with the agencies, 63% was 5-year paper. 63% was 5-year paper. So what you're getting here is you've got all of these maturities in 2020 and 2021 as well as all the maturities in 2024 and 2025 that are all going to pile up right here because the market has shifted. Now why did the market shift? A lot of people look at where cap rates are right now, and I'll show you a slide in a second as it relates to buyer sentiment, seller sentiment and builder sentiment. But they look at cap rates right now and they say, I don't want to sell at this elevated cap rate. And so because they don't want to sell at this elevated cap rate, they say, let's just kind of refi the asset, but I don't want to put 10-year financing on it because if I decide to sell it in year 3, I've got a lot of yield maintenance that's left in the mortgage that I have on the property. So I want to go shorter. Let's go 5. And so first of all, it's prepayment flexibility why they've gone 5 and the other thing is just the steepness of the yield curve. 5-year borrowing has been significantly cheaper than 10-year borrowing. And a lot of the deals that need to get redone in '25 and '26 were bought back, maybe they were bought in '21 or '22 with a 3- or 5-year instrument on them. And that cost of financing has made it that the performance of the asset is such that they need every dollar they can possibly get. And so as a result, they're going shorter at a cheaper cost of capital than going longer at a higher cost of capital. And so that has made a very interesting dynamic in the market; a, that everyone is borrowing short; and b, you're going to get this big pile up in 2030 and potentially 2031, depending on what volumes are in '26 of 5-year and 10-year paper that all needs to get redone at the same time. One of the things we're talking to a lot of our customers about is you may not want to have a refi coming up in this window, and you might want to try and push out if you possibly can and not have it come up for refinancing at the exact same time. So here's the buy-build sentiment slide. For one second, take a look here. Remember where we were in '21 and '22 when I was talking about that volume spike, okay? This should remind you of one thing. Markets are made by buyers and sellers, but if nobody wants to sell, you really don't have a market, okay? Everyone back here was a seller. All the dark blue is the sales. Everyone was a seller. It's like, I love that cap rate. Let's go. Let's sell it, okay? And you could see the buyer sentiment is the light blue, which was -- a lot of people you say, are you a seller or a buyer? It was like, no, I'm more of a seller today than I'm a buyer, but obviously, there are plenty of buyers to buy. And as you can see, the build sentiment moved from Q3 '21 and pretty much went straight down until right here in what is that Q3 of '24. So everyone was -- I'm a buyer or a seller, but I'm not a builder. And now all of a sudden, you can see the build sentiment coming back out, okay? The interesting thing, look at how much is in light blue. So there are all these buyers out there. They're like, I want to buy, I want to buy, I want to buy, but there are no sellers. At the end of Q4 of last year, only 4% of survey respondents were actually sellers. And I have also -- we bought 18 companies at Walker & Dunlop, and I've always said that companies are sold, they're not bought. If we want to go buy a company and wildly overpay for it, we can go buy a company. But if you want to actually go make a good deal, you're going to find a willing seller who wants to sell their company to Walker & Dunlop and become part of Walker & Dunlop. That's how good M&A is done. And so similarly, in the property markets, you can see here, right now, we are in a buyer's -- it's not a buyer's market because there are too many buyers who want to buy. It's actually a seller's market, but sellers right now don't want to sell. One of the reasons why we are getting -- let me go back real quick here. One of the reasons you've got this amount of volume in the sales market is because of this slide. So this is capital flows. So capital called, capital distributed and 5-year rolling net distributions cumulative. And as you can see on the 5 years, net distributions cumulative, we are way, way negative. So what ended up happening is that LPs who have invested in commercial real estate private equity funds have sat there and they've said, look, you called all this capital back here, the light blue is all capital calls and you haven't redistributed any of that capital back to me. So you want to go raise private equity Fund VI, private equity Fund VII, you need to return capital to me before I'm going to give you another dollar for your next fund. And so that is what's driving. If you look at this buyer-seller sentiment, nobody really wants to sell, yet you go back here and you say, but the sales market is actually reasonably active. That's because investors want their money back. And it's that sort of forced transaction volume that's going on in the market today that is really driving volume. It's not because they're saying, I love that cap rate and want to sell into the market. It's because they need to return capital to their LPs. And until they do that, they're not going to get capital for their next fund. You can see here, this slide is pretty interesting as it relates to private credit versus commercial real estate. So you can see the light blue is non-traded REITs. The dark blue is non-traded business development corporations. Most of that is private credit funds. And you can see here that it was all commercial real estate in 2020. In 2021, BDCs or private credit started to come out, but it was still predominantly commercial real estate and then boom. From '22, it was all commercial real estate, that falls off a cliff and then BDCs or private credit start to grow. The real question now is what happens with the redemption queues in private credit? And does that end up flowing back into commercial real estate private equity. That's right now, I would say to you that commercial real estate, private equity will benefit from the rotation out of private credit funds. And this just shows you here the redemption queues that are there and what I was just talking about. You can see that the redemption queues on the non-traded REITs have come down significantly, and you can see the redemption queues on the non-traded BDCs going up quite significantly. This slide, you've all seen it, heard it. An effective or a functioning market is when you've got average starts and your average completions relatively close to each other. That's one of the reasons, quite honestly, why you're back here with very consistent sales volume is because you've got supplies and deliveries -- construction starts and deliveries all kind of paired up. But obviously, the pandemic kind of turned everything on its head. You get back to that quarter where everyone is like, wow, I got to get into this market. I'm going to go make an investment. And boom, we got lots of shovels going in the ground and starts start to spike and you're still with a delivery number that's normalized and then all of a sudden deliveries, all these construction starts turn into deliveries. And what everyone sees in this slide, obviously, is that because you had starts come down significantly, you're seeing deliveries come down with the starts. So that is going to create what should be an undersupplied market. But what we've seen is that you're looking at this slide, and this is your multifamily demand slide, okay? And -- what everyone was looking at was, okay, starts have gone down, deliveries will go down. And if you were looking at that back in here, you're like demand, which is this coin bar, demand is just going to keep on going up. So demand keeps going up, supply and starts go down, and it's a great market and we can start to push rents, except as you can see on this for the last 3 quarters, demand has fallen off and demand has fallen off significantly. And one of the big questions there is why has demand fallen off when the price of multifamily housing is so much cheaper than single-family housing. So that's not the market losing in the competitive battle with single-family. Let me just show you really quickly on single-family versus multifamily. So -- and I'll come back to that other slide. So this darker line is what the cost of homeownership is on principal and interest on a mortgage payment. The bar charts are the median price of a single-family home in America, okay? And the blue is the average cost of renting in America, okay? So you go back to 2019, 2020, and you were much better off, much better off buying a single-family house right here for an average price back then of $280,000. Much better off buying your $280,000 home, putting a mortgage on it and your principal and interest. We're down here at less than $1,200 a month. And the average rent in the United States back then was $1,400 a month. You were $200 in the black on a monthly basis for having your single-family home and paying your P&I on your mortgage, then you were renting. And then all of a sudden, as you can see, because of the pandemic, the cost of single-family homes started to skyrocket. And that's this bar chart going all the way up where you move from the average median price being at $270,000 all the way up to what was at $430,000 over that period of time. Well, to buy that $430,000 home and pay principal and interest on your mortgage, as you can see on this line, it's skyrocketed. And you went upside down on your cost of homeownership versus the cost of renting. And look, the cost of renting went up significantly from '21 to '23, but then it basically plateaued since then. But the important thing about this is to think about it from a structural standpoint that right now, it is significantly cheaper to rent than it is to own a home. And until mortgage rates come down and this bar chart continues to fall down, and no one is wishing that we lose value in single-family homes in America. But until the values continue to come down and the cost of borrowing continues to come down, it's still going to remain much, much cheaper to rent than to own a home. So if that's the case, multifamily is holding up really well against single-family. People aren't like saying, "Oh, it's cheaper for me to own a single-family home than to rent. So then what is it that's making that chart as it relates to demand come down? And the only thing that you can come back to really is immigration and the fact that the border has been closed, that there isn't a huge amount of illegals coming in and that legal immigration numbers have not gone up. And so I think this slide is a very important one to keep in mind as it relates to household formation, demand drivers for multifamily as well as single-family. And until the government does something as it relates to increasing the amount of legal immigration in the United States, that demand side of the equation is going to be questionable. Let's dive into a couple of specific markets, and then I'm going to open it up for Q&A in a sec. So before we started, I was asked about sort of what markets are hot and what markets are not and the oversupplied markets. So if you look at this slide and you look at these MSAs -- this is the top 10 markets right now. And you sort of said, I see here all of the Sunbelt, job growth, companies relocating from California to Texas. You would sit there and say, okay, that would mean that San Francisco isn't a place that I want to be. It happens to be at the very, very top of the list. San Jose is a place I don't want to be -- happens to be #2 on the list. Look at the cities here that are doing really, really well right now. And oh, by the way, look at the trailing 5-year population growth, negative 4.5%, negative 1.2%, negative 0.9%. Who's the winner on this list? We've got a whopping 2.8% growth in Cincinnati, Ohio over the last 5 years. Not exactly boom from a population growth standpoint, okay? But none of these markets had any real new supply into them over that 5-year period, so they don't really need the new population to come in to get the type of rent growth that they've been able to get. So these right now are the darling markets that while 2% rent growth doesn't sound that great in comparison to this list, it looks really good. So now look at all these markets. These are all your oversupplied markets. These are all the markets that all those shovels back in that previous one of starts into the deliveries. This is where they all went, okay? And as you can see here, I mean, look at the population growth in all of these. So at this one, our winner here was 2.8%. Look at these population growth numbers, almost all of them in double digits. It's where the jobs are, it's where the people are moving, except for the fact that they've all been wildly oversupplied. And so you might sit there and say, well, I like the long-term growth of Austin, Texas. No doubt, I think you've got to like the long-term growth opportunities for Austin, Texas, except for the fact that in real estate, when you have oversupply to the degree that Austin, Texas has had, you're going to have negative 7.7% trailing 12 rent, it's not rent growth, it's negative rent over the last year. Denver, Colorado, # 2, negative 7.4%. Two really, really hard markets to be an owner in today. Do they both have Austin more than Denver? Do they both have really, really good fundamentals to them? Without a doubt. Has Austin turned into a really affordable market almost overnight, 100%, single-family and multifamily. Austin, if you were -- if I was starting Walker & Dunlop today and I had to pick a city to move to, Austin has so many things going for it, including it's super affordable today. Super affordable. So if you say, start today and go forward, Austin is a great market, except for the fact that you're probably going to have to feed that asset if you went and bought one for a period of time because we're still trying to absorb all the oversupply that was in that market. So one of the big things that Peter Linneman, who comes on the webcast on a quarterly basis and I constantly debate is Peter is very much prone towards Cleveland, Ohio and Cincinnati, Ohio, sort of kind of boring Midwestern markets and anyone who I just offended by calling Cincinnati and Cleveland a boring market, excuse me. But it's kind of steady Eddie. You're never going to get this big surge in supply. And as a result of it, if you buy well, put low leverage on it, it's going to turn into a really good investment for you. These markets are the ones that -- there's a lot of, what I call, grass and glass there. People are like, man, I can go into Austin and I can buy it and I'm going to sell it at like a 3.2% cap rate at some point. And by the way, I got a lot of clients who were investors in Austin, either built or bought back in 2013 and sold in 2018 or '19 at a 3.2% cap rate and made just enormous returns on multiples on their money. So a lot of these markets, you can make a lot of money. But right now, as it relates to do you want to be an owner in them. I was just in Phoenix 2 weeks ago. Phoenix is still way oversupplied. The one other thing about Phoenix, the building of the new Taiwan semiconductor plant there, fascinating to see the amount of work and the kind of ecosystem that's going on in Phoenix right now around that investment. And it's obviously not just that they're going to build a chip manufacturer there. It's all the ancillary services that need to be built out there. I met with a gentleman who is working with Taiwan Semiconductor as it relates to all the other kind of services that they need, the plants and how the plants feed products into the actual chip manufacturer, but then the multifamily and the retail and the office and everything that needs to be around that huge investment of tens of billions of dollars. It's really quite something and will be a great growth driver for the Phoenix market over the next couple of years. So in summary, before we go to Q&A, a couple of things on noise. You hear a lot about $200 a barrel. We're not going to $200 oil on a barrel. Trump won't let it happen, period. The President will stop the conflict before we even get close to that. So there's a lot of fearmongering about that, that isn't going to happen. Runaway inflation? One of the big things to keep in mind is that one of the main reasons that the inflation print has stayed as high as it is, is because of owner's equivalent rent and because of multifamily rent growth that for whatever reason the CPI continues to get a false read off of. But owner equivalent rent is 25% of the CPI and nobody's ever paid owner equivalent rent ever. You don't -- I own 3 homes, and I don't pay rent to anyone. I pay a mortgage, but that owner equivalent rent of what would you rent your house to someone else for today, no one's ever paid it. It's a completely made-up number. So if you call me today and say, what would you rent your house in Denver, Colorado for, I'll come up with some number. And I'm going to kind of triangulate off of some number I heard down the street. They'll tell me, last month, you said it was x, this month, is it up or is it down? And I'll give you my gut reaction of I should charge more, I should charge less. That's the way they go about determining owner's equivalent rent and it's 25%, 23% of the CPI. Makes no sense. So in the CPI number that has stayed elevated is an elevated owner equivalent rent number that shouldn't be there. I'd be interested to see whether Kevin Warsh when he comes into the Fed thinks about doing something to adjust it. It's one of the reasons why so many economists don't focus on the CPI, but focus on the PCE because the PCE has a lower weighting on housing than the CPI. But the bottom line on all this stuff is I told you about oil and the impact of oil. Oil stays high for a very long period of time, it will have an impact on the CPI, but I don't think we're going to have runaway inflation as many people are fearmongering. Higher interest rates. I don't predict interest rates, okay? But what I would say is the following. You have a new Fed Chair who is coming in, and there's no doubt that he has heard the President clearly that he wants to get the cost of borrowing down. The second thing on all that stuff is you are either going to have Kevin Warsh being successful at lowering rates or you'll have a sell-off in the equity markets that should have people move to safety in treasuries. The interesting thing since Iran is that you actually didn't see that happen. Typically, when there's an international conflict like Iran, people flee into -- they jump into safety and you would have seen yields on the 10-year go down. That didn't happen this time, which is a little concerning. And at the same time, if you do get a significant sell-off in the equity markets, there's no doubt that you're going to get the 10-year going down. Debts of the blue states and blue cities, I just showed you numbers on why they're not dead and probably aren't going away. There's lots of talk about all this great migration to the lower tax, high-growth states. But from a real estate standpoint, those states are still struggling. And then transaction volumes remain muted. I showed you, there might be a narrative out there that says transaction volumes are muted, but at least in multifamily on the sales side, it's sort of back to the normal. On the Signal, CRE capital flows will drive transaction volumes up and cap rates down, okay? I showed you that rotation of capital from LPs. That is going to continue. That doesn't stop. The capital hasn't gone back to them. They'll continue to ask for their capital and fund managers who want to raise their next fund are going to have to recycle that capital. That recycling of capital means that they're putting it into assets as they sell them and refinance them. More capital flows mean cap rates come down. You then go from a, "I don't want to sell market to I'm ready to sell market," and transaction volumes come. That's the way it will happen. Multifamily significantly more affordable than single-family. That's there. That's structural right now. That doesn't change quickly. Prices of single-family have to come down materially and the cost of borrowing has to come down materially for that to change. So for quite some time, multi continues to win over single. Sunbelt will continue to attract jobs and families. No doubt about that. You saw the job growth numbers that I put up there. They are the long-term winners right now, unless Blue states can figure out how they can get their tax policies in place to retain and attract new investment. Population growth problem without increased legal immigration. That is a really important one. And by the way, the administration can work on that. They can say we only brought in 700,000 legal immigrants last year. Let's bring that up to 1 million. Let's bring that up to 1.2 million and start processing more legal immigrants to the United States. And then the final rates will come down due to cuts or the sell-off in the equities. Pretty -- again, I don't try and predict where rates are going to go. I get asked about it all the time. I'm smart enough to leave that to economists and not myself. But you just think from a signal standpoint, there'll be plenty of noise in there. But from a long-term outlook standpoint, we should be in pretty good shape where rates should come down either from a sell-off in equities or that Kevin Warsh is effective as the Fed chair in bringing down the short end of the curve and the long end should follow at some point. That is it for my prepared remarks. I am up for any and all questions. So let's dive in.

Michael Camus, MIT, MS. Thanks again for coming out today. You're a native Washingtonian. You've long been a proponent of the city, and it's created a real estate market. You recently had Meyer Baer on the webcast, and she's communicated her and her team are all in on D.C. to bring business and investment back to D.C. But there's obviously been some hesitancy from investors in reentering the D.C. real estate market. And I'm curious if you're still bullish on D.C. And what do you think needs to happen to make those investors more comfortable to reenter?

So a couple of things on that. The big story of 2025 that has not been covered widely, but that Peter Linneman has underscored not only in our last conversation, but in the Linneman letter, is that the federal government shed almost 250,000 jobs last year. Almost 10% of the federal workforce was shed in 2025. And Peter's comment is that like the Trump administration hasn't jumped up and down and said, look, we actually did what we said we were going to do as far as thinning things out. Elon Musk came into town to do his go stuff and left town and everyone sort of said that was an effort that we're not going to follow up on. But that shedding of federal workers is a very, very significant economic driver for the greater D.C. area. If you think about it, theoretically, those people will then go find jobs in the private sector, which if you're a libertarian as my friend, Peter Linneman is, you're like, that's great. They're going to go into productive jobs rather than just redistribution jobs. Those are Peter's words, not mine. But that does put pressure on the D.C. employment market. The other thing that when Doge came in, one of the big concerns I had was all of the consulting firms that sort of, if you will, feed off of the federal government apparatus from a defense contracting standpoint, from a process engineering standpoint, the likes of Booz Hamilton -- Booz Allen and other big consulting firms. They were very much sort of under target for redo or elimination of their contracts from what I have seen. That sort of came and went pretty quickly with Doge. So that they are still doing as much business. And then the other piece to it is you got to remember, we're going to print a, what, $2 trillion deficit in 2026, $2 trillion. So the bottom line is the federal government is still spending money hand over fist. So it's sort of a tale of two cities, if you will, in the sense that you actually had 250,000 job cuts out of the federal workforce, which is big downward pressure, yet you have a federal budget that's running a $2 trillion deficit and is spending money on everything over and over and over. So the question there is what does all that mean for the D.C. area? D.C. is struggling, and they have a new mayoral race coming up and Mural is stepping down from her role and we'll see who the new mayor is. Northern Virginia is doing extremely well and suburban Maryland is also struggling in a very big way. And Governor Wes Moore of Maryland has a big challenge in front of him as it relates to getting that state in a position where it can attract jobs and attract companies.

Well, that was an amazing presentation. I am thinking about the recent regulation on private equity ownership of single-family homes, and I'm curious what your thoughts on how that affects the rent versus own that.

So the legislation that went from the Senate to the House has in it a provision on build for rent that requires anyone who builds a build-for-rent community to sell the community in 7 years. That's really bad legislation. In a bill that is designed to try and increase the amount of supply of housing in America, they put in there a paragraph that does exactly the opposite. And the build-for-rent market has been frozen since that -- since the Senate passed that legislation. And by the way, they passed it 91-8, one person didn't vote, 91-8. They haven't passed anything in the Senate, 91-8 in a long time. When you have Senator Tim Scott from South Carolina and Senator Elizabeth Warren from Massachusetts, both fighting for the same legislation, you know something sort of gone wrong, to be honest with you. I mean, honestly, they should be on different sides of most issues, and this one they both jumped in on. And unfortunately, that paragraph on BFR is going to set the build-for-rent industry back a lot. Senator Warren is very specific in saying it only applies to those who own over 350 homes, okay? And that is only 70 basis points of homeowners in the United States, okay? So she's pretty careful with her numbers here. She's like it's only impacting 70 basis points of single-family homeowners, except those 70 basis points are the only people who have the capital to build new homes. Everyone else is just a single-family homeowner. It's those companies that actually build-for-rent that create the build-for-rent supply that then feeds into the single-family rental market. So this 7-year provision is a real problem. I got something last night that there's actually some real progress going on and a number of Congress men and women have signed on to basically say this provision needs to be changed. And I actually also heard that the speaker of the House understands the problem and has asked the Chairman of the House Financial Services Committee, French Hill, to focus in on this and potentially change it in the House legislation. So we will get that law passed as it relates to the other provisions in it. And the President and his executive orders to try and create more supply and bring down the cost of housing in America. But that one provision on BFR have to sell after 7 years, hopefully gets pulled out in the actual legislation. But for right now, there is not a big institutional investor that will put $1 into a BFR community right now given the potential regulatory risk around it.

Thank you for coming here. And so I just want to ask about rates and inflation. A couple of things you didn't really spend a lot of time talking about was the national debt, the demographic trends and trade, all of which, in my view, are highly inflationary and changed dramatically over the last 5 years. Wondering if you could sort of -- and that's a very large question, but if you could sort of comment on those within the context of your -- what you had said before.

So sure. And I'll give a big disclaimer before I say anything on it. I am not an economist. I'm not a trained economist. But I will tell you from having done now almost 6 years of quarterly Walker webcast with Peter Linneman, who is one of the truly great economists of our time. I do feel like I've gotten a PhD in reading the Linneman letter on a quarterly basis and being able to go to Peter with lots of questions. And so I will say everything I'm about to say is 100% from Peter Linneman, okay? So this is not my thinking. This is all out of Linneman. Linneman has spoken extensively about the fact that he doesn't think that the national debt is a big issue. And I don't want to dive into Peter's reasoning, although one thing that I would say is just he goes to our overall national net worth, what this country is worth, how much GDP we are developing and growing. And he basically says, if you're adding $3 trillion to $5 trillion a year of net wealth to the United States, you can easily afford to be printing $2 trillion of deficits on an annual basis. So as long as you keep that GDP growth going and we're creating $3 trillion to $5 trillion of additional net wealth in the United States every year, you can run $2 trillion deficit and it's not going to catch up with you. The one thing that you know very well on that one is that's as long as we remain the reserve currency. And if we lose that position, we're in real trouble. The issue with it is go back and think about this. China is now squawking about that they want to create the reserve currency. And there obviously was some thought that Bitcoin and other crypto currencies were going to be a better store of value than the U.S. dollar as the reserve currency. The euro had every opportunity to become a real competitor to the U.S. dollar, except for the fact that they never got the U.K. into it and they never got Switzerland into it, 2 of the larger economies from a financial services standpoint. And because of that, it's never really had the chance to be a real competitor to the dollar as it relates to a reserve currency. And then think about how long the euro has been out there and how long they've been trying to make a run of making the euro be any kind of competitor to the dollar. We're talking about things that take decades, quarter centuries, half centuries to get developed. And so yes, right now, there's a lot of talk about the debt is too high, lots of our allies are -- there was a big narrative last year that actually is another one on Noise versus Signal. There was a lot of talk last year about all of our allies dumping their treasury holdings because they wanted to kind of give the finger to the United States. It didn't happen. You look at treasury holdings of foreign countries, they're going to go for yield and safety. They can sit there and listen to politicians and say, we don't like this, we don't like that. They're going out -- they have a fiduciary responsibility to get for their investors what they need to. They weren't dumping treasuries. So I would just say, as long as we remain the reserve currency of the world, unfortunately, we continue to -- we can continue to be propagate spenders and not treating tax dollars the way that they ought to be. The one other thing that I would throw out there is this kind of blue state, red state and tax policies has a huge impact on sort of decades worth of growth and where companies are going. I happen to live in the state of Colorado. Colorado is 4.4% income tax, which is actually quite low relative to other states that have income taxes. There's a ballot initiative in Colorado right now to try and overturn the taxpayers' bill of rights that holds that at 4.4%. And I've been talking extensively with legislators about how damaging that would be to Colorado. And if they were to take it from 4.4% to they've been talking about 8% to 9% if they were able to overturn it. And one of the things I've been advocating is, why don't you all think about going to zero? And every time I say that, they're like, what do you mean? Like we can't go to 0. We've got a $1 billion deficit this year. And I said, well, the bottom line here is think about the type of growth you would get of companies moving from California to Colorado if you dropped it from 4.4% to 0. And what that would do to your overall fiscal position. The thing that Colorado has that many other states like New York or California don't have is that because California and New York get about 50%, if not more, of their income from income taxes, they can't do away with it. They can't go to 0. Colorado only gets 20% of its income from its income tax. So there are lots of ways to make up for that $9 billion of income tax that they bring in, property taxes, fees, other things that you could put there. The bottom line that I'm trying to put out there is that until state governments and local governments understand that they are constantly competing for residents, Zoom in the pandemic changed everything. You used to not -- like I moved from Washington, D.C. where Walker & Dunlop is based to Denver, Colorado in 2019, pre-pandemic, okay? It was a huge decision. It was like we got 250 people in headquarters. I'm going to be leaving going out to Denver, Colorado. I'm going to be back here every 2 weeks. And that was my plan to constantly commute back to the D.C. area because that's where my team was, my senior executive team was, our headquarters work. And even though we have 45 offices across the country, it was like, I got to get back to headquarters. Boom. Pandemic happens. My senior management team goes all over the country. We learn how to do Zoom calls. And it literally today does not matter where I am and where my executive team is. Every company in the country has that dynamic today, everyone. So you don't have to be somewhere. Jamie Dimon talks about the fact that from when he joined JPMorgan Chase to today, they've gone from 45,000 jobs in New York to 35,000 jobs. And in the process, they've gone from 5,000 jobs in Texas to 30,000 jobs in Texas. It's like Maram Dani can tap on the camera and be like, "Haha, we're going after you Ken Griffin and just watch all that money move away." And so one of the things that I'm trying to get in Colorado and to focus on is don't go raise the income tax, raise property taxes because the property in Vail and the property in Aspen isn't going anywhere. You can't move it. That billionaire who owns their $50 million home in Aspen, they may not like the fact that their property taxes go up a little bit, but they're not going to Jackson Hole. So I think governments need to shift on what they're taxing and how they're taxing it to try and keep the revenues in the state because if they're just going that we're going to chase some billionaire out of California, they're going to move to Florida or Texas tomorrow, and it's at almost no switching cost. So that's a big issue, I think, from overall growth in the coming decades and what, quite honestly, blue states and blue cities need to do to retain and attract jobs and people.

Thanks, Willy, for a really informative discussion there. I'm Tanner Miks. I'm an incoming student class of 27. My question, it's a little bit more of a niche market, but the senior housing that I brought up before we started today. Demographic shifting wise, we're seeing probably a doubling of that market over the next 10, 15, 20 years. And the market itself is already undersupplied estimate somewhere in the neighborhood of 500,000 units. My question to you is from your vantage point, how should sophisticated capital be positioning itself today in order to meet that demand? And what type of challenges are there still to be overcome when it comes to meeting the scale that we need to meet, maybe capital structure and then also like operationally, how can we improve our efficiency to make it affordable and beneficial to investors?

So I'll ask you a question. What do you think the percentage -- you keep the microphone for a second because I can ask you this question. What's your handicap us having another pandemic within the next 10 years?

Very unlikely.

And another pandemic in the next 20 years?

Still unlikely, I would say.

And when you say unlikely, 5% chance, 50% chance, 49%, less than 50%?

As far as pandemics go, if you take a 200-year vintage on it, it happened twice-ish, so maybe 1%.

Okay. The reason I ask that is that if I ask you the same question about the great financial crisis right after the great financial crisis, I think you would handicap the chance of a great financial crisis similarly to what you just did on the pandemic, okay? So great financial crisis is over, generally speaking, in 2010, okay? And I was certain that the CMBS market, commercial mortgage-backed securities market would go back to sort of the silly math that created the great financial crisis, that liquidity come back, a lot of the bankers have moved from one bank to the next bank and they would get back to the same lending habits that they had. And until today, 16 years later, CMBS hasn't gotten back to the same practices that caused the great financial crisis. Those memories last for a long period of time, okay? Even though the chance that we were going to have another great financial crisis due to overleverage on CMBS and you can either go CMBS or the mortgage -- single-family mortgage market as the drivers of the great financial crisi's. I would say to you that the reason I'm trying to bring this up is because the pandemic, I think, materially changed people's views of seniors housing. The amount of death that happened inside of seniors housing communities was something that scared people of my age who had parents who might be in seniors housing to their bones, okay? And so there has been a big move for people to say sort of anything but. And yet at the same time, the demographics behind it are unbelievable. You just sit there and look at the numbers, you're like this asset class is going to be full and it's going to crank for years and years. So I would say to you, you look at the math and you say, yes, you should go build there, and it's going to be a great asset class to own in and it's going to be full. But I go back to the GFC and CMBS and the long memories that stayed in place after that. And I sit there and say, it might take longer than you think to get people to go back into that type of living. And -- there are some great companies that are making a lot of money right now. And my friend, Deb Cafaro, runs one of the largest publicly traded seniors housing REITs out there, and they've got a great business. But that asset class had huge losses in 2021 and 2022, huge. And those memories are still there from a lending standpoint. Fannie Mae and Freddie Mac, the only real losses they had in '21 and '22 were in their seniors housing portfolios. And so people underwrite more conservatively. And they look at that risk with a little bit, am I going wrong there? Or am I staying short? And I think that will impact seniors housing for the next couple of years. Yes. I think we have time for 1 or 2 more.

My name is Ryan Oman. I'm MIT MSRED. You spoke about private credit. I understand the SaaS spook because of the AI and vibe coding age. Why do you think investors are spooked by real estate private credit? And why also -- one thing you mentioned in the presentation, you said that fleeing from private credit might go into private equity. What...

Commercial real estate private equity. Yielding private. So one of the big issues there is yield. So one of the reasons why the private credit market is attracted so much out of the retail distribution network is because there are a lot of retirees who want that coupon that comes off of their investment in private credit. As they get concerned about private credit. They're like, maybe I'm going to pull that back and reallocate it somewhere else. They can't go to just a normal private equity vehicle because private equity vehicles don't have a current return, whereas commercial real estate private vehicles, particularly credit vehicles, have a current return. And so it's something that an RIA can sit there and say, okay, we're going to pull you out of that private credit fund, we're going to put you into that real estate fund. So that's the reason I believe that it competes quite well in any reallocation of dollars because people need yield. And the one other piece to it is there's $7 trillion of capital right now, $7 trillion sitting in money market funds, okay? If Warsh comes in and starts to cut the short end of the curve, people will rotate out of money market funds. By the way, they will not go from $7 trillion to 0. Back when the Fed funds rate was at 0 in 2012 and 2013, there was still $3 trillion of money that sat in money market funds. So don't think it goes to 0. There's a certain amount of capital that will always sit in those money market funds. But you could see $7 trillion go to $5 trillion and where is $2 trillion of capital go? By the way, we used to talk about billions being real money. Now it's trillions, okay? So where is $2 trillion go? That's real money, okay? And so if you take $2 trillion out of money market funds because the short end of the curve gets lower and you get any kind of rotation out of the private credit funds, I think net-net, that's probably beneficial for commercial real estate because it's a yielding hard asset. The final piece I'd say on that is, look, who knows where AI goes? Who knows whether these SaaS companies get just obliterated by AI or whether they actually live for another day, that's way above my pay grade. But in commercial real estate, you have yielding assets. They're hard assets. And so in a world that has a lot of shifting and moving parts to it, people got to live somewhere. So multifamily hangs in there pretty tough, okay? People don't actually need a place to work. People -- bricks and mortar, retail, okay? What percentage of U.S. retail sales today goes online versus through bricks and mortar? I'm going to ask you directly. What percentage is online versus through bricks and mortar?

Not familiar with that retail -- held up pretty well.

Yes. But let's swag it. What percentage is online, what percentage is through bricks and mortar?

[indiscernible]

You're going to say 40% online and 60% through bricks and mortar. Other way around, 60% online and 40% bricks and mortar. 16% online, 84% bricks and mortar, 84% bricks and mortar, 16%. It got to a high of 20% during the pandemic and has come back down to 16%. So your impression is 100% where most people are. Everything is Amazon and everything is UPS and FedEx. That's what you think. So retail is actually still a very important part to the retail channel is bricks and mortar. So retail is a good place. Hospitality, if AI puts all of us on the beach, we can all make huge amounts of money on our investment in OpenAI, and we can just put our feet up on the table and go do something else. High-end hospitality does really well in that scenario, okay. The hotel I'm staying in here in Boston for work probably doesn't do that well, okay? But high-end hospitality, let me go to the beach, that's going to do really, really well, okay? And then data centers, the one thing on data centers, I asked Linneman this a year and 4 months ago in our conversation in Philadelphia. I said, so if you had to pick one asset class that you would invest in, and obviously, location is important and all that stuff, but just one asset class that you invest in right now, what would it be? And Peter looks at me and he goes, well, if I wanted to stay rich, it would be multifamily. So I said to him, "Okay, well, then if multifamily is the one that you would stay rich in, what would you get rich in?" And he goes, office. I was like, interesting. He goes, yes, there's some really great office deals. If you've heard that from Peter and you invested in San Francisco office, you've made a huge amount of money, huge amount of money, okay? And so I said, okay, you said, stay rich and get rich, how about get poor? And he goes data centers, okay? Now Jeff Lau was just on CNBC yesterday morning, and he was talking about this $36 billion data center that related his building for Oracle, who's going to lease it out to OpenAI. There are a couple of things to keep in mind there. First of all, the JPMorgan headquarters that they built in Manhattan, that they talk about it costing $3 billion, it's more like it cost them $5 billion. But that's like the most expensive office building ever built in the United States of America, okay? $3 billion to $5 billion. Jeff, was talking about a $34 billion investment in a data center. This is orders of magnitude bigger than anything we've ever seen, okay? One of the other interesting things that he said yesterday was that they went through the 144A market to raise capital for it rather than going to the bank market. Super interesting. Basically, this market has gotten so damn big that banks don't have the ability to even syndicate out the loans on there. They've had to go to the securitized markets and 144A registration to go raise the capital on it. And then the final thing that I have thought for quite some time is if data centers are fundamental to the future of companies like Amazon and Microsoft, why are they doing it all off balance sheet? Just a question. If it's fundamental to their business in 10 years and 20 years, why are they putting it off balance sheet rather than actually owning it? And so there's no doubt we're going to have oversupply in data centers. There's just no doubt Look at that slide that I had as it relates to everyone is like, let's go buy multifamily. Well, we got to put a shovel in the ground and go build it. We're going to get oversupplied. The question is what's the -- what are the repercussions of the oversupply? And how does that then filter out into the valuations of the hyperscalers, the valuations of the Oracles of this world and the valuations of companies like related that are actually building the data centers. And it does seem a little bit like everyone is getting really careful on how they're structuring these things because there's kind of a sense that at some point, everyone grabs and you want to have the proper structure that makes it. So when everyone grabs, you're not left out in the cold.

All right. Willy,thank you again for being here. I'm [indiscernible], MIT Real estate Student. You touched a little bit on immigration, and I had a question about how that relates to the construction labor supply market. immigrant workers are like 1/3 of it, and it goes up to anywhere to like 2/3 for certain trades like drywallers and more skewed also towards single-family home construction. So I guess to what degree is that -- are new starts impacted by current immigration policy and constrained supply of workers that can do new construction?

I'm going to surprise you, zero, zero. It's unbelievable. I have asked that question at almost every single meeting I've had with either a merchant builder on the multifamily side or a single-family homebuilder, and I know lots of the CEOs, the big single-family builders. It is not only not impacted as it relates to the supply of labor, but the cost of the labor has actually come down. So you're seeing deflationary forces from a labor input on construction, which is complete counter narrative to what you would think it would be. And so it has not impacted access to or the cost of construction labor One Iota. And that's an anecdotal comment in the sense that I haven't looked at some actual study that says we've gone and studied everyone in the industry. That's for me meeting with the very big merchant builders, the very big single-family development companies and just saying, "How is it going?" And to a person, they also hasn't impacted us a bit. So it's a very interesting back to Noise and Signal. The noise is that you're not going to get people showing up in the job site, you're not going to be able to get labor. Cost of labor is going to go up, hasn't impacted at One Iota. So thank you all for taking the time. It's been a real pleasure. Thank you.