In a deal that will create one of the largest commercial real estate lenders in the country, Bethesda, Md.–based Walker & Dunlop announced this morning that it has entered into an agreement to buy Needham, Mass.–based CWCapital, an arm of CW Financial Services.
The purchase price will total $220 million—$80 million in cash and approximately $140 million in Walker & Dunlop stock. CW Financial is an operating subsidiary of Fortress Investment Group, Walker & Dunlop’s largest shareholder.
By combining forces, Walker & Dunlop and CWCapital will create the second-largest multifamily lender, after Wells Fargo, and eighth-largest commercial real estate lender in the United States. It will also be the No. 1 Fannie Mae lender in the country and the No. 3 Freddie Mac lender.
“Scale matters, for many reasons, in our industry, and this acquisition provides significant scale and opportunities for future growth,” said Willy Walker, chairman, president, and CEO of Walker & Dunlop, on a conference call with investors today.

A Large Force
Last year, the two firms had $7.7 billion worth of commercial real estate loan originations, and their combined servicing portfolio exceeds $33.7 billion.
“This aggregate servicing portfolio is a magnificent asset that will throw off significant cash flow in the coming decade,” Walker said.
CWCapital, which originated $3.7 billion worth of loans in 2011, is a leading lender to the multifamily, health-care, and commercial real estate industries, with in-house origination capabilities for Fannie Mae, Freddie Mac, HUD, life insurance companies, and conduits. Michael Berman, CEO of CWCapital, will take a senior leadership role at Walker & Dunlop.
Walker said the origination, underwriting, and closing functions of both firms will be kept intact, but he may look to create “synergies” in back-office functions and servicing. He also said that the corporate cultures matched up well, as did their approach to credit and credit track records. Walker & Dunlop does have products, like its interim loan fund, that CW originators will be able to offer.

Industry Reaction
As a general rule, multifamily borrowers generally met the news with a shrug. “It’s hard to see any direct impact on us, since there are so many DUSs out there,” says an executive at one private firm in California who hadn’t heard of the deal until Multifamily Executive contacted him.
Another Californian, Edward J. Ratinoff, managing director and head of acquisitions at Phoenix Realty Group in Los Angeles, also sees little effect on his business. “We don't do any business with either firm, so I don't believe it will affect our borrowing or have much of an effect on the industry,” he says.  “For a whole host of reasons, I think we are going to see mergers and acquisitions in the real estate services sector, especially when there is a special servicing component."

Walker & Dunlop's decision to make a large deal wasn’t a surprise to Daryl Carter, CEO at Irvine, Calif.–based Avanath Capital. “Walker & Dunlop, being in the public markets, needs to do a large deal to move the needle,” he says.

But Carter didn’t think the deal would usher in an era of more mergers and acquisitions. Instead, he saw the trend being large companies, like Fortress, shaving off parts of their business lines that may no longer fit as well.

“I see the broader transaction as more an indication of a company [Fortress] wanting to spin a business line off [rather] than consolidation,” he says.