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Walker & Dunlop Investment Partners (“WDIP”) is an established commercial real estate (“CRE”) investment firm with a national presence in the U.S. WDIP currently has 40 dedicated investment professionals based in Denver, Colorado. WDIP is a wholly-owned subsidiary of Walker & Dunlop (“W&D”), one of the largest CRE service and finance companies in the U.S. W&D is a NYSE listed public company with over 1,000 employees located in 41 offices and 24 correspondent locations across the country. WDIP benefits from W&D’s scale, banker and broker network, market intelligence and operational stability; however, WDIP’s management team and investment committees make all investment and asset management decisions independently of W&D. The result is that WDIP possesses a boutique investment firm culture supported by the resources and operational leverage of a large, public company and the market intelligence of an industry leader.
WDIP targets investments in the CRE middle market, defined as properties that are approximately $100MM or less in value. WDIP believes the middle market offers attractive, hard-to-find opportunities to investors while providing capital access to quality, disciplined sponsors who prefer to focus on the acquisition and management of real estate assets rather than capital raising and investor relations.
WDIP was founded in 2006 under the name JCR Capital. In 2018, JCR was acquired by (and now operates as an independently managed affiliate of) Walker & Dunlop, Inc., one of the largest commercial real estate finance companies in the U.S. The firm officially changed its name to WDIP in early 2020.
Since the firm’s inception, WDIP has launched six private equity funds and several separately managed accounts focused on investing in middle market commercial real estate nationwide. Through these vehicles, WDIP has invested approximately $2B of capital in over 335 investments across multiple property sectors, security types and geographies establishing itself as a leader in the middle market.
The three main advantages that differentiate WDIP from other investment managers are (i) our proprietary deal flow and market intelligence from our affiliation with parent company W&D; (ii) our established presence in the compelling middle market; and (iii) our sophisticated approach to investing that has resulted in an attractive performance track record across a variety of market conditions.
We typically partner with local sponsors who provide a portion of the equity investment. By providing capital and partnering with a local sponsor, WDIP is able to adapt and pivot to changing market conditions, investing up and down in the capital stack, creating downside protection while leveraging operations with local experts.
Our funds will typically make investments in the 2-5 years range but early potential exits are anticipated as well. The life of a fund can be up to 8 years if one accounts for the marketing period, investment period (with extension options), and the full portfolio harvesting period.
Since 2006, WDIP has invested approximately $2B of capital in over 335 investments with only 0.31% realized and projected principal loss on invested capital. WDIP’s range of capital solutions and ability to invest throughout the capital structure allow it to pivot to the best risk-return strategy available.
Middle market CRE is typically defined as consisting of properties valued less than $100MM. These properties can belong to any asset class and be located within any geographic market. Middle market CRE owners face a chronic shortage of institutional capital. This capital market inefficiency provides a wealth of investment opportunities for a firm like WDIP that has the knowledge and experience to provide funding for middle market deals.
The shortage of capital available to middle market CRE owners is largely due to the fact that investments in this market segment are generally too small to be efficient for institutional investors to underwrite. Also, lenders in this space often max out around 65-70% LTV which would require the sponsor/owner/operator to come up with the remaining 30-35% of the capital requirement (in this simplified example).
WDIP provides joint venture equity, preferred equity, mezzanine debt and senior debt to middle market CRE sponsors across a variety of asset classes. Many of our investments are highly customized to protect principal while optimizing upside potential.
WDIP invests across all of the main property types such as multifamily, industrial, retail, office and hospitality as well as niche CRE sectors such as student housing, senior living and storage, seeking the best investment opportunities while constructing well-diversified portfolios.
WDIP defines risk as any consideration related to the partnership, investment, certain regulatory matters, certain tax matters and potential conflicts of interest that could potentially adversely impact the terms and performance of our funds.
On a day-to-day basis, WDIP manages risk from the standpoint of both (i) portfolio, and (ii) operations functionality:
Sponsor: WDIP places an incredible amount of weight on choosing the right sponsors as the foundation for an effective investment. WDIP practices regimented evaluations when screening and working with sponsors with an emphasis on expert sponsors that demonstrate experience executing business plans. WDIP conducts background checks, collects tax returns and balance sheet information, and investigates sources of their capital contributions to ensure proper sponsor alignment. WDIP completes detailed operational due diligence upon selecting an investment sponsor.Asset: At the asset level, downside mitigation is a hallmark of our investment approach. WDIP manages risk by exercising a disciplined focus on basis (both at acquisition and exit), setting realistic and achievable business plans, and conducting full diligence at the property, sub-market and market level with all key assumptions informed and validated by third-party research sources. If there is an aspect of the investment that WDIP views as a potential weakness, WDIP will add additional structure to the joint venture agreement with the sponsor to mitigate the risk. Examples of typical structural components are cash flow sweeps, minimum Multiples/IRRs that are senior to the sponsor’s equity, rights to force an exit upon underperformance, and strong controls around cost overruns and business plan modifications.
Certain risks WDIP is not willing to accept include (i) partnering with sponsors we believe are unfit, and (ii) relying on the capital markets to provide more attractive terms than at the time of investment to generate returns.
In 2020, WDIP sourced over $37B from over 1,100 sources. WDIP utilizes multiple avenues to source transactions, including:
WDIP underwrites all of its investments in-house. WDIP has developed and refined its investment principles over 15 years of diligencing, underwriting and investing, and focuses on four main drivers of returns in real estate investing, defined as “SBBS”:
Sponsor: At a deal’s foundation, the sponsor is key for an effective investment
Basis: WDIP seeks investments with an advantageous cost basis as it will produce a greater yield at a lower rent compared to competitive properties
Business Plan: A poorly executed business plan can disrupt investment returns
Sub-Market Beta: WDIP not only prefers sub-markets with superior relative trends, but also prefers markets with recent momentum and positive attributes relative to long-term trend lines
The section below describes the process by which WDIP reviews, diligences, closes and asset manages an investment. WDIP’s process enables it to be opportunistic while simultaneously using rigorous analysis and time-tested due diligence procedures to mitigate risk.
Phase I – Preliminary Review
An investment professional initially screens requests and quickly sorts through transactions based on their merits and likelihood of closing. A WDIP professional will begin to interact with the broker and/or sponsor to learn more detail about the opportunity and review material on the proposed transaction.
Phase II – Deal Summary, Term Sheet and Site Visit
Once the Preview Committee approves an opportunity, a letter of intent or soft quote is issued by WDIP. After the sponsor agrees to the soft quote, the transaction team will dive deeper into the underwriting for the transaction. The transaction team contacts other local market professionals and economists to obtain their opinions about the property, its immediate market, and the surrounding economy. The deal team presents the results of the additional underwriting and analysis in a Deal Summary for the President. Once approved, a Term Sheet is prepared and both the Deal Summary and Term Sheet are presented to the Preview Committee. Upon full execution of the Term Sheet, WDIP collects a due diligence and legal deposit for travel, underwriting and legal expenses. Upon receipt of the deposits, WDIP schedules a site visit. The site visit also includes a market review and research on the economic and demographic dynamics of the property’s location. In the event site visit travel is restricted due to COVID-19 or other government restrictions outside of WDIP’s control, WDIP will leverage W&D’s employee base across the 40 offices and 24 correspondent locations to ensure an individual from the broader W&D team conducts a site visit (subject to COVID-19 restrictions and which may be virtual or delegated to a local W&D underwriters).
Phase III – Full Due Diligence and Investment Committee Vote
In addition to the site visit, WDIP orders a variety of third-party reports including a background check of the sponsors, legal review, appraisal, property condition report and environmental review. WDIP may begin with many of the sponsors’ third-party reports and subsequently decide if additional third-party reports are necessary. The transaction team then begins an independent process of validating the assumptions surrounding the transaction. WDIP synthesizes the information obtained in all phases of analysis to fully build out its model with stress tests and a variety of breakeven scenarios. Given WDIP’s emphasis on principal protection, every investment requires the analysis of multiple exit alternatives. The deal team presents an Investment Memorandum with this information to the Investment Committee for review, discussion, and vote. If the transaction is approved, WDIP moves forward to close the investment with third party legal representation preparing closing documentation on behalf of, and under the direction of, WDIP.
WDIP performs all underwriting and due diligence in-house. However, WDIP orders environmental reports and market appraisals from third parties to supplement its own due diligence.
On at least a semi-annual basis, investors receive unaudited financial statements of our funds and a summary description of each investment. On an annual basis, investors receive audited financial statements of our funds and a statement of the amount of the investor’s share in the fund’s taxable income or loss for such fiscal year, as well as information such as IRS Schedule K-1s in sufficient detail to enable them to prepare federal, state, and local income tax and information returns.
WDIP also has an in-house Investor Relations staff that is available to answer ad hoc investment pacing, portfolio investments, or capital call/distribution type questions.
IMPORTANT INFORMATION: THIS SUMMARY IS NOT AN OFFER TO SELL ANY SECURITY. THERE IS RISK OF LOSS WITH ANY INVESTMENT AND PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. FORWARD-LOOKING STATEMENTS OR OPINIONS STATED IN THIS LETTER ARE OPINIONS AND SUBJECT TO CHANGE. AS A PRIVATE REAL ESTATE FUND, INVESTMENTS ARE ILLIQUID AND INVESTORS CANNOT READILY WITHDRAW THEIR INVESTMENT IN THE FUNDS. PORTFOLIO PERFORMANCE CAN ALSO BE AFFECTED BY GENERAL MARKET CONDITIONS, INTEREST RATES, AVAILABILITY OF CREDIT AND OTHER ECONOMIC CONDITIONS THAT AFFECT REAL ESTATE MARKETS.
Connect with us today to learn about Walker & Dunlop Investment Partners