CFO Stephen Theobald

BETHESDA, MD–Walker & Dunlop scooped up a rare find this week: a $3.8-billion servicing portfolio backed by US Department of Housing and Urban Development multifamily and healthcare loans. The company paid $45 million for the 480 loans — its first stand-alone acquisition of a servicing portfolio. The seller is Oppenheimer Multifamily Housing & Healthcare Finance, a subsidiary of Oppenheimer Holdings, which not only is selling off its HUD healthcare and multifamily servicing loans, but as we shall see in a moment, is also reportedly marketing its construction servicing portfolio as well.

For Walker & Dunlop, though, the portfolio represents a significant step forward in a goal it established a few years ago, which was to increase its servicing and other non-transaction based fee revenues. This, of course, is basic business 101: diversify revenue streams, especially in a cyclical business like commercial real estate.

To get a better sense of what the deal means for W&D — and hopefully also some insight into whether HUD servicing portfolios will start coming onto the market with greater frequency — GlobeSt.com caught up with Walker & Dunlop's CFO Stephen Theobald after the deal was announced.

GlobeSt.com: The numbers in your announcement were fairly high-level. Can you give us more insight about how this portfolio will enhance W&D's revenues and growth profile? Assuming it closes, which I understand will happen later this month.

Theobald: Yes, the closing is scheduled for the 20th and until that happens we won't have final numbers. Typically in a portfolio like this, the July payments on the loans are made between the 1st and the 15th. All of the loans will amortize down and there may be some payoffs as well.

I can tell you that the averaging servicing fee as of right now is a little over 18 basis points on the $3.8 billion and the average loan size is $7.8 million.

GlobeSt.com: I know W&D has done some healthcare loans through HUD but my understanding is that it isn't a significant percentage compared to the rest of your portfolio. Does this acquisition change that at all?

Theobald: Of 480 loans approximately 100 are in the healthcare category, including hospital loans.

We have not historically broken out HUD healthcare versus HUD non healthcare versus HUD multifamily in our reporting but I would say we have little lower percentage of healthcare in our HUD portfolio.

GlobeSt.com: Tell us why this is a strategic play for W&D.

Theobald: In the first quarter of 2016, about 38% of our revenue came from our servicing portfolio. That is an area we have grown organically but also through whole company acquisition.

This is the first time we have acquired a stand alone servicing portfolio and it represents an important part of our strategy to increase our servicing revenues. Also, based on what is in the Ginnie Mae database, this makes us largest commercial Ginnie Mae servicer. That was not the goal behind the deal, but it did add a nice side benefit.

GlobeSt.com: Why is it so rare for a HUD servicing portfolio to come to market? And more importantly, do you think this portfolio is a sign that more may be coming?

Theobald: HUD as a capital source has been shrinking in last few years. It hit its peak when it maxed out its commitment authority at $23 billion in 2013 but it has not come close to that level since then. Last year was $11 billion, for example. That has caused some folks to look strategically whether they want to be in the business or not.

GlobeSt.com: So you think we will see consolidation or sales?

Theobald: Well those numbers do suggest that.

CFO Stephen Theobald

BETHESDA, MD–Walker & Dunlop scooped up a rare find this week: a $3.8-billion servicing portfolio backed by US Department of Housing and Urban Development multifamily and healthcare loans. The company paid $45 million for the 480 loans — its first stand-alone acquisition of a servicing portfolio. The seller is Oppenheimer Multifamily Housing & Healthcare Finance, a subsidiary of Oppenheimer Holdings, which not only is selling off its HUD healthcare and multifamily servicing loans, but as we shall see in a moment, is also reportedly marketing its construction servicing portfolio as well.

For Walker & Dunlop, though, the portfolio represents a significant step forward in a goal it established a few years ago, which was to increase its servicing and other non-transaction based fee revenues. This, of course, is basic business 101: diversify revenue streams, especially in a cyclical business like commercial real estate.

To get a better sense of what the deal means for W&D — and hopefully also some insight into whether HUD servicing portfolios will start coming onto the market with greater frequency — GlobeSt.com caught up with Walker & Dunlop's CFO Stephen Theobald after the deal was announced.

GlobeSt.com: The numbers in your announcement were fairly high-level. Can you give us more insight about how this portfolio will enhance W&D's revenues and growth profile? Assuming it closes, which I understand will happen later this month.

Theobald: Yes, the closing is scheduled for the 20th and until that happens we won't have final numbers. Typically in a portfolio like this, the July payments on the loans are made between the 1st and the 15th. All of the loans will amortize down and there may be some payoffs as well.

I can tell you that the averaging servicing fee as of right now is a little over 18 basis points on the $3.8 billion and the average loan size is $7.8 million.

GlobeSt.com: I know W&D has done some healthcare loans through HUD but my understanding is that it isn't a significant percentage compared to the rest of your portfolio. Does this acquisition change that at all?

Theobald: Of 480 loans approximately 100 are in the healthcare category, including hospital loans.

We have not historically broken out HUD healthcare versus HUD non healthcare versus HUD multifamily in our reporting but I would say we have little lower percentage of healthcare in our HUD portfolio.

GlobeSt.com: Tell us why this is a strategic play for W&D.

Theobald: In the first quarter of 2016, about 38% of our revenue came from our servicing portfolio. That is an area we have grown organically but also through whole company acquisition.

This is the first time we have acquired a stand alone servicing portfolio and it represents an important part of our strategy to increase our servicing revenues. Also, based on what is in the Ginnie Mae database, this makes us largest commercial Ginnie Mae servicer. That was not the goal behind the deal, but it did add a nice side benefit.

GlobeSt.com: Why is it so rare for a HUD servicing portfolio to come to market? And more importantly, do you think this portfolio is a sign that more may be coming?

Theobald: HUD as a capital source has been shrinking in last few years. It hit its peak when it maxed out its commitment authority at $23 billion in 2013 but it has not come close to that level since then. Last year was $11 billion, for example. That has caused some folks to look strategically whether they want to be in the business or not.

GlobeSt.com: So you think we will see consolidation or sales?

Theobald: Well those numbers do suggest that.

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Erika Morphy

Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.