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Friday, 04 November 2016

Walker & Dunlop Makes U-Turn on CMBS Business, Quits

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Commercial Real Estate Direct Staff Report

Walker & Dunlop Inc., a relatively small contributor of loans to the CMBS market that until recently had said it was looking to expand its presence, has decided to quit the business.

The Bethesda, Md., mortgage bank is among the country's most active commercial mortgage lenders. It originates loans on behalf of the housing-finance agencies, banks and life insurers and got into the business of writing loans for securitization in 2013 through a venture with Fortress Investment Group.

Even after Fortress decided to quit the venture, Walker & Dunlop indicated it would continue to make a go of it. So far this year, it's contributed $56 million of loans to two transactions, which compares with the $280 million it contributed last year and $120 million in 2014.

The company even vowed to remain a player after risk-retention rules kick in at the end of the year, and mapped out ways in which it would remain a player. Because it originates loans under Fannie Mae's Delegated Underwriting and Servicing program, it's accustomed to retaining risk pieces in loans it writes, so it figured it was well suited to playing a similar role in the post risk-retention CMBS market.

"We entered the (CMBS) business with great hopes and expectations," explained Willy Walker, the company's chief executive. "We also entered at a time when we thought that CMBS volumes were going to grow dramatically." Walker, who added that he figured his company would be a "major player in the space," spoke on a conference call with analysts this week.

But it's found that its core client base hasn't turned to it for conduit loans. What's more, volumes in the CMBS market have been far below expectations, which would impact its ability to gain much market share. While total issuance last year topped $95 billion, it's unlikely to breach $65 billion this year. Risk-retention rules are likely to stifle issuance growth going forward.

In addition, the CMBS business, particularly because of the upcoming risk-retention rules, is becoming far more capital intensive than it has been.

Historically, lenders would fund loans and hold them until they could be sold through a CMBS transaction. That required capital, but that was typically recycled on a bi-monthly, or more frequent basis, as loans were securitized. When risk-retention rules kick in, lenders will have to be willing to retain a risk piece of 5 percent of every loan they write - that's substantially more than the risk-retention requirement of Fannie Mae loans. Fannie loans, meanwhile, bring with them relatively hefty servicing fees, which might not be available in the CMBS regime.

"The increasing capital intensity of the CMBS business, coupled with limited desire by Walker & Dunlop's core client base for CMBS financing have led us to the decision to exit the business," added Steve Theobald, the company's chief financial officer, who also spoke on the call with analysts.

Theobald said the company would wind down its business through the end of the year, taking a charge of up to $3 million to cover severance and other costs. The company would plow capital that was earmarked for its CMBS business to its bridge-lending business. It also might use some of that to buy its shares and fund potential acquisitions.

Comments? E-mail Orest Mandzy, or call him at (267) 247-0112, Ext. 211.


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Additional Info

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  • Subject: CMBS - non-deal specific (CMBS-G), Commercial MBS (CMBS)
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Data Digest







Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44




cppichart FP



CMBS 2.0 Spreads


Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41





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