Walker & Dunlop, Inc. Form 10-Q for the quarterly period ended March 31, 2025

Walker & Dunlop’s Financial Performance: Navigating Volatility in the Commercial Real Estate Market

Walker & Dunlop, a leading commercial real estate services and finance company, has reported its financial results for the first quarter of 2025. Despite the challenges posed by the volatile interest rate environment and broader macroeconomic uncertainties, the company has demonstrated resilience and continued growth in several key areas.

Overview of the Business Walker & Dunlop operates three main business segments: Capital Markets, Servicing & Asset Management, and Corporate. The Capital Markets segment provides a range of commercial real estate finance products, including agency lending, debt brokerage, property sales, and investment banking services. The Servicing & Asset Management segment focuses on servicing and asset-managing the company’s loan portfolio, as well as managing third-party capital invested in tax credit equity funds and other commercial real estate investments. The Corporate segment oversees the company’s treasury operations and other corporate-level activities.

Financial Performance Highlights In the first quarter of 2025, Walker & Dunlop reported a 4% increase in total revenues to $237.4 million, compared to the same period in 2024. This growth was driven by strong performance in the Capital Markets segment, which saw a 25% increase in revenues, primarily due to higher origination fees, mortgage servicing rights (MSR) income, and property sales broker fees.

However, the company’s net income declined by 77% to $2.8 million, largely due to an increase in expenses, including higher personnel costs, amortization and depreciation, and provisions for credit losses. The decrease in net income was also impacted by a decline in investment management fees and placement fees and other interest income.

Segment Performance Capital Markets The Capital Markets segment was the standout performer, with a 135% increase in net income to $2.4 million. This was driven by a 6% increase in origination fees, a 33% increase in MSR income, and a 53% increase in property sales broker fees. The growth in origination fees and MSR income was primarily due to a 67% increase in Fannie Mae debt financing volume, partially offset by a 17% decline in Freddie Mac debt financing volume.

The segment’s expenses also increased, with a 9% rise in personnel costs due to higher commission costs and severance expenses, as well as a 23% increase in other operating expenses, mainly due to the write-off of unamortized debt issuance costs.

Servicing & Asset Management The Servicing & Asset Management segment saw a 56% decline in net income to $19.1 million. This was primarily due to a 28% decrease in investment management fees, a 17% decline in placement fees and other interest income, and a $3.2 million increase in the provision for credit losses.

The segment’s servicing fees increased by 3%, driven by growth in the average servicing portfolio and a slight increase in the average servicing fee rate. However, this was offset by the decline in investment management fees and placement fees and other interest income.

Corporate The Corporate segment reported a net loss of $18.7 million, compared to a net loss of $24.7 million in the same period last year. The increase in net income was primarily due to a decrease in income tax expense, partially offset by higher personnel and other operating expenses.

Liquidity and Capital Resources Walker & Dunlop maintains a strong liquidity position, with $229.4 million in total cash, cash equivalents, restricted cash, and restricted cash equivalents as of March 31, 2025. The company uses a combination of warehouse facilities and notes payable to fund its operations, including loan originations and investments.

During the first quarter of 2025, the company issued $400 million in senior notes and used a portion of the proceeds to pay down its term loan. The company also has a stock repurchase program in place, with $75 million remaining under the authorization as of March 31, 2025.

Credit Quality and Risk-Sharing Obligations Walker & Dunlop’s credit quality remains strong, with a low percentage of defaulted loans in its at-risk servicing portfolio. As of March 31, 2025, the company had $108.5 million in defaulted loans, representing 0.17% of its at-risk servicing portfolio. The allowance for risk-sharing obligations was $24.4 million, or 0.24% of the maximum exposure on the at-risk portfolio.

The company’s risk-sharing obligations with Fannie Mae and Freddie Mac are a key focus area. Walker & Dunlop has various techniques in place to manage its risk exposure, including a strong underwriting and approval process, geographic and borrower diversification, and the use of modified risk-sharing options.

Outlook and Challenges The commercial real estate market has faced a challenging environment in recent years, shaped by volatile interest rates, macroeconomic uncertainties, and the impact of the administration’s trade policies. However, the multifamily sector has remained relatively resilient, with the GSEs continuing to provide consistent capital to the market.

In the first quarter of 2025, Walker & Dunlop saw a 10% increase in transaction volume compared to the same period last year, with notable increases in Fannie Mae lending (67%) and multifamily property sales (58%). This suggests that the market may be showing signs of recovery, although the company remains cautious about the potential impact of the administration’s trade policies on the broader economy and the commercial real estate sector.

The company’s Servicing & Asset Management segment, which is less directly correlated to the transaction markets, experienced a decline in revenues due to lower investment management fees and placement fees. However, the company is focused on scaling its assets under management, and the successful closing of a $200 million equity capital raise for its Debt Fund II in the fourth quarter of 2024 is expected to drive growth in this segment going forward.

Overall, Walker & Dunlop’s diversified business model, strong liquidity position, and prudent risk management strategies have positioned the company to navigate the current market volatility. While the company faces ongoing challenges, its focus on innovation, technology, and strategic acquisitions has helped it maintain a competitive edge and capitalize on opportunities in the commercial real estate market.

Key Takeaways

• Walker & Dunlop reported a 4% increase in total revenues, driven by strong performance in the Capital Markets segment.
• Net income declined by 77% due to higher expenses, including personnel costs, amortization and depreciation, and provisions for credit losses.
• The Capital Markets segment was the standout performer, with a 135% increase in net income.
• The Servicing & Asset Management segment saw a 56% decline in net income, primarily due to lower investment management fees and placement fees.
• The company maintains a strong liquidity position and has used a combination of warehouse facilities and notes payable to fund its operations.
• Walker & Dunlop’s credit quality remains strong, with a low percentage of defaulted loans in its at-risk servicing portfolio.
• The company faces ongoing challenges in the commercial real estate market, but its diversified business model and focus on innovation and technology have helped it navigate the volatility.