Navigating Commercial Real Estate: Insights from Dean Huber at Walker & Dunlop

We are looking forward to our upcoming Mid-Market Summit event on Thursday, June 6  and wanted to take the time to speak with premier sponsor Dean Huber of Walker & Dunlop ahead of the event.

Kiser Group: What are some of the current trends that you’re seeing in the commercial real estate market, and how is Walker & Dunlop keeping up with those trends? 

Dean: In the current commercial real estate market, we are observing several trends. One notable trend is the bid-ask gap between buyers and sellers, which persists in many deals. At Walker & Dunlop, we are addressing this by expanding our reach in the debt market, ensuring that every letter of intent (LOI) is accompanied by the most suitable debt strategy.

Another trend is negative leverage, particularly impacting borrowers focused on Internal Rate of Return (IRR). Many of these clients are hesitant to transact without positive leverage prospects. Simultaneously, there’s a subset of clients eager to invest and capitalize on the market conditions. We are assisting these clients by optimizing leverage, maximizing interest-only (IO) options, and negotiating prepayment flexibility in anticipation of potential rate adjustments.

Overall, our strategy at Walker & Dunlop involves adapting to these trends by offering tailored solutions that align with our clients’ financial goals and market realities.

Kiser Group: What are some common mistakes that you’re seeing investors make in the lending space? 

Dean: One common mistake that investors are making in the lending space is waiting too long. In volatile markets, sponsors should initiate the refinancing process with their mortgage broker well ahead of a maturity or other critical deadlines. Transitioning smoothly takes time for underwriting, packaging, and developing a robust market strategy. Life insurance companies can lock rates at application, and other lenders can move swiftly too. Taking advantage of market dips requires being in the market and ready to lock rates promptly.

Another mistake is engaging multiple brokers on a single transaction. While this approach can sometimes be effective, it often complicates matters and confuses lenders. When multiple brokers are involved, lenders may hesitate to commit fully, as they may not have a clear picture of the deal. It’s advisable to select a trusted broker for each deal to streamline communication and increase the chances of success.

Additionally, sponsors should collaborate with their brokers to discuss debt projections when making purchases. By seeking better terms, more leverage, or improved rates, sponsors can present a stronger case to sellers. Informing your broker about vetted debt discussions with a mortgage broker demonstrates to the seller that you and your team are capable of executing the deal effectively.

Kiser Group: What are some of the most challenging aspects of working in the commercial real estate industry, and how do you overcome those challenges? 

Dean: Navigating the challenges of working in commercial real estate requires a keen awareness of industry shifts and proactive strategies. One of the most significant paradigm shifts is the realization that loan-to-value (LTV) constraints are no longer the primary concern for sponsors. Instead, debt coverage minimums driven by higher rates have taken precedence. To overcome this, sponsors need to stay updated on market dynamics and adjust their financial planning accordingly.

Rate volatility poses another challenge, as sudden movements in treasury rates can impact deals negatively. The key here is agility; acting swiftly to position oneself to lock in rates can mitigate potential risks and ensure deal viability.

Moreover, the current environment of higher rates presents unique challenges, especially for those with less than a decade of experience in the industry. Sellers are now leveraging existing long-term fixed debts, which were secured at significantly lower rates, as valuable assets. This shift has led to an increase in assumption processing, requiring a strategic approach to deal structuring and negotiation.

In essence, overcoming challenges in commercial real estate demands a combination of adaptability, market awareness, and strategic decision-making to navigate shifting paradigms and volatile conditions successfully.

Kiser Group: How do you stay up-to-date with changes in regulations and policies that affect the commercial real estate industry, and how do you communicate those changes to your clients? 

Dean: To keep abreast of regulatory and policy shifts impacting the commercial real estate sector, I employ a dual approach internally and externally.

Internally, my team at W&D, being the largest Fannie Mae originator and bond trader in the nation, offers invaluable insights into market dynamics. We closely monitor spreads, risk assessments, and the preferences of banks, pensions, and private capital entities. Our trading department provides weekly updates on agency transaction spreads and offers real-time guidance, which is pivotal across various execution platforms such as Agency, Lifeco, Bank, CMBS, and Bridge lending.

Externally, I rely on a diverse array of sources including Bloomberg, WSJ, CoStar, Hedging providers, and insights from prominent economists at institutions like JPM and Wells Fargo. This multifaceted approach helps mitigate biases and steer clear of groupthink, ensuring a well-rounded understanding of market movements and rate projections.

In communicating these changes to our clients, I compile a comprehensive monthly capital markets update. Additionally, for deal-specific matters, we leverage W&D’s trading department’s expertise in forecasting spreads on a weekly basis. By tracking the economic calendar and providing real-time insights, we empower our clients to make informed decisions regarding rate locks and risk management strategies.

These ongoing discussions and analyses are integral to our client interactions, enabling us to adapt swiftly to market fluctuations and optimize outcomes for our clients.

Kiser Group: Can you share some examples of successful projects that your team (or Walker & Dunlop) has worked on, and what made those projects stand out? 

Dean: 

Project #1

Kiser Group managed the listing and chose a Chicago Sponsor. The Sponsor had prior dealings with a W&D broker, including Agency and likely lifeco executions. The condo deconversion strategy posed complexities beyond a standard value-add acquisition. Given this, the W&D broker opted to collaborate internally and co-broker the debt procurement with a more experienced partner. Despite having the option to navigate it independently, the Broker prioritized the client’s interests. The deal closed smoothly in 2022 despite challenges in the short end of the yield curve, showcasing the team’s ability to select the right lender for the situation. This exemplifies W&D’s culture of prioritizing clients and teamwork when necessary.

Project #2

The client sought to acquire remaining unowned units in their building. We explored various strategies including stretch senior, senior + preferred, among others. Ultimately, we secured a suitable bridge lender that facilitated the acquisition, provided time for de-conversion, offered capex funding, minimized covenants, and reduced rate and hedging expenses.

Project #3

A Sponsor had developed $175MM worth of multifamily properties in smaller, often military-centric towns, spanning from TX to KS, three decades ago. Seeking around 50% LTV, most life companies were hesitant due to the perceived military risk impacting occupancy. Demonstrating geographic diversification, we attracted aggressive life company bids. Despite the Sponsor’s skepticism towards government involvement, we presented unbiased information and economic comparisons. The Sponsor opted for a Fannie Mae execution due to better economic terms, highlighting our team’s ability to prioritize client needs and deliver exceptional results.