Sam Isaacson, Sponsor Update | Ep. 93

Darren    00:00:05    

Welcome back, everybody. This is Darren Powderly. Welcome back to our next edition of Street Beats. Today. I'm here today with Sam Isaacson. He is the president of Walker and Dunlop Investment Partners. Uh, Sam is located in Denver, Colorado, and, uh, you know, I've been a long fan of Walker and Dunlop as a firm, uh, mainly through their capital markets advisory firm, uh, held them at high regard. We work with, uh, some of their advisories across the country. And, uh, now we're fortunate to have a chance to work with Sam, his group, the Investment Partners Group at Walker and Dunlop, which we're just thrilled about. So, hey, Sam, welcome to Street Beats, and why don't you introduce yourself and tell us a little bit about your firm.  

Sam    00:00:46    

Yeah, thanks Darren. I appreciate you, uh, having us on, having me on. Um, so quick background. You know, Walker and Dunlop is a third generation, publicly traded company's been around since 1937. Willie, uh, is the grandson of the founder. They went public, um, in the kind of right, right around, right after the great financial crisis, but it's just an amazing, amazing story, uh, in terms of what Willie's done in terms of leadership with the company. But when he joined, um, very, very small privately owned company to where we are today with close to 1100 employees, 40 offices across the country, um, we did over a billion dollars in revenue last year. We actually are, um, the number one multi-family lender in the country last year. And so, uh, Walker, Dunlop Investment Partners, we were founded in 2006 as a different company. Uh, Walker and Dunlop acquired us three years ago as they were looking to build out an investment management business.  

Sam    00:01:46    

And so we invest, um, balance sheet capital as well as raise capital from outside investors into, you know, really all real estate sectors. We've been very strong and very heavy and multi-family and industrial over the last several years. Uh, we're, our primary office is based here in Denver, but obviously now that we're part of the broader organization, you know, we can kind of plug in anywhere in any of the offices across the country, and we've got access to incredible, incredible deal flow. There's over 200 bankers and brokers across the country, and they have relationships that are very, very deep in all the markets that they're, um, raising capital in. And, um, it's been, it's been really great to be part of the broader organization.  

Darren    00:02:33   

All right. Let's transition, uh, to, you know, Walker Dunlop Investment Partners, your, your, uh, specific, uh, department and your role there. Um, can you, can you give us, uh, kind of an overview of, of the different strategies that you seek, uh, as, as an investment, you know, sponsor of investment, uh, funds as well as single assets?  

Sam    00:02:57    

Yeah, so high level, I mean, we, we invest up and down the capital stack, like I said, in, in both debt and equity, um, all and, and all sectors through a series of SMAs and commingled funds. And we really, um, we have products really candidly for any investors kind of appetite. I mean, we're doing bridge debt, we're doing mezzanine debt, we're doing, uh, preferred equity, um, you know, core kind of core, core plus equity, um, value add, opportunistic. So we, we have a lot of different strategies in different, um, in terms of up and down the capital stack. And then across the, the risk profile, you know, in terms of sectors, we, like I said, mentioned before we're, we've been long obviously given our history as well as the broader organization. We've been long multi-family and then industrial. Um, we've been long that as well. We've done some and investing in in the other sectors as well, obviously. But, um, kind of right now our, our lens is, is still pretty focused on those two sectors.  

Darren     00:04:01    

Sam, is that, is that just an in a very intentional sort of investment thesis at Walker and Dunlop Investment partners? Is that multi-family would seem because of the history of the firm, you know, heavily influenced, told multi-family that you guys are the number one multi-family in, uh, lender in the United States, so that that's, but like industrial, did, did the parent company drive that? Did you pick that, you know, pr you know, years ago as you were growing the firm? And, uh, just if you could expand a little bit more on that.  

Sam    00:04:29    

Yeah, I mean we, you know, we picked that, um, both sectors candidly. I mean, we were doing a lot of, a lot of different things coming out of the great financial crisis and, and, you know, seeing the opportunity of a lifetime in terms of what multi-family was experiencing. We, we, we were, you know, among many others, we jumped into that sector in a pretty big way. And then industrial, um, you know, kind of the same thing. We started seeing the trends and the demand, you know, with e-commerce really starting to pick up in a pretty rapid way over the last decade, um, that's just been an incredible driver for industrial. And so mm-hmm. <affirmative>, you know, a lot of the way we invest is, is top down, right? Because at the end of the day, all real estate is dependent on people and it's, you know, there's a lot of different things that people do that drive demand within real estate. So that's something that we, we track when we're kind of looking at our top down, uh, analysis as to kind of the different sectors we wanna belong in. 

Darren    00:05:29    

Yeah. You know, I was hoping we could, uh, just kind of give an overview. You said up and down the capital stack and you, you mentioned, uh, everything from Bridge and Me Debt, uh, up to, you know, core, core Plus, uh, or, and Core. Can you just give the audience a little bit of an overview of sort of, you know, what that means, the risk spectrum of those sort of different strategies?  

Sam    00:05:51    

Um, I'll start with the debt side. So on the debt side, we do, um, we do bridge loans, so that's for kind of value add assets. We're also doing permanent financing for stabilized assets. Mm-hmm. <affirmative>, right now we're a little bit, um, bearish, generally speaking on n no, I and commercial real estate in terms of taking n  

Darren    00:06:14    

NOI, net operating income, which is basically all your rents minus the debt. Most people know that, of course, you and I throw those terms around like crazy, but I just wanna remind what that says. That's the income that a property  

Sam    00:06:23    

Reduces. Yeah. So we're, we're a little bit bearish on income coming off of commercial real estate assets because of the broader macro situation. And there's a lot of uncertainty still. I know the stock market's been going crazy, um, you know, during, during covid, but there's a lot of pain that still has not worked its way through the commercial real estate sectors. And so for us to take, so if I look at Core, which is those are nicer, newer assets that are stabilized mm-hmm. <affirmative>, they're seeing some softness right now, particularly multi-family, like downtown, urban core multi-family assets. Yeah. Historically, a lot of institutional capital, a lot of foreign capital is very interested in is seeing those are the assets that are struggling because of Yeah. Migration patterns as a result of covid. So to the extent we're investing in those sectors, we're taking a more defensive position, so preferred equity a little bit lower in this capital stack where our, you know, first dollar at risk is subordinated to, uh, someone else's investment.  

Darren    00:07:31    

Right.  

Sam    00:07:33    

Um, and then, you know, we're doing obviously value add investing and opportunistic investing. We like those strategies a lot more right now because you're, you're actually creating the income, you're taking an asset that's broken, you're fixing it. And then our generally our, our approach has been to not hold it very long once we've stabilized an asset. Um, and you know, until we see some sort of reset in values and then, and then we would hold longer to kind of ride the market up.  

Darren    00:08:06    

That totally makes sense. And interesting, like, I just wanted to circle back to one of the things you said, like, you know, core is under pressure. These are traditionally the safest, you know, primary city or like the best building in a, in a city like Denver. Are you seeing that in Denver? Just I know that's where you sit in the Wal dun unlock is nationwide. You know, that's nationwide, but you probably know that market better than, uh, most people. Is that happening in Denver as well?  

Sam    00:08:34    

It's happening in Denver, uh, as well, not nearly as extensive as like a San Francisco or Manhattan. Yeah. But, but it's certainly happening. I mean, a lot of the smaller Western markets have seen tremendous, tremendous general demand increase from migration into these markets, you know, know as a result of Covid. 

Darren    00:08:56    

So may, maybe even a place like outskirts of, uh, Colorado Springs could be seeing some in, you know, upward, uh, pricing pressure rents rising a little bit, perhaps places like Boulder, of course, that always seem to be hot. Right? Um, cuz  

Sam    00:09:09    

People, Fort Collins. Yeah. Like Fort Collins, Boise, a lot of these, yeah. The smaller, like markets that are like a step below Denver  

Darren    00:09:18    

Also provide a little bit of clarification because, uh, there are, you know, the, the, the direct sponsors, right? Um, around the United States, the, the, the local operating partners, and then there's big funds that invest with those local operating partners. Does Walker and Dunlap do both?  

Sam    00:09:36    

We don't do both. We, all of our investments are with local operating partners. Okay. We like that model, uh, a lot because we can actually, um, we can pivot, we can pivot in in terms of where we're investing, the type in where, meaning geography and also sectors and kind of where in the capital stack. And, and we, just depending on the macro trends, we can, we can make changes and, and kind of move around with the market a lot more quickly and more nimbly than if we were buying assets directly. If we had a portfolio of core assets, you know, going into Covid, it would've been a very challenging, uh, portfolio.  

Darren    00:10:22    

That's really interesting. And, um, you know, for, for the audience members that are most used to seeing, uh, sponsors, local operating partners, uh, come on to the Crowd street marketplace, uh, which which is the majority of our deals, you know, I think they, they're gonna be really interested to hear like why your model is, uh, you know, why you chose this model and why this model is, is, um, superior for you. What, what are some of the other advantages for you and for the investors that invest with you in this, this model?  

Sam    00:10:55    

So we, we spent, we focus a lot of our, um, invest, a lot of our investments are focused on kind of smaller, very, um, focused sponsor groups. So I'm generally not partnering with an operator in multi-family, for example, that has a hundred thousand units. I'm looking for somebody that's in Boise or in Colorado Springs, and they're focused on value add or they're focused on development in Denver. But in our experience, the best deals are found by guys that are very, very micro. They know the, in intimately, they know the market, they know the micro markets intimately, and they're senior enough guys putting their own capital into the deals and they have conviction versus, um, you know, some of the bigger, bigger, um, real estate development or real estate operating companies have a little bit of a different approach where it's, it, you know, the principles obviously are very successful, but they're not able to get as granular as somebody that owns a thousand units in Colorado Springs.  

Darren    00:11:58    

Do, do you source a lot of the sponsor relationships, um, directly, or do you source a lot of sponsor relationships because they came to Walker and Dunlop to source debt, uh, and you're placing that debt and you're, you're seeing opportunities out there. Can you speak a little bit about that and, um, how, how you source these sponsor relationships?

 Sam    00:12:17    

Yeah, so, um, it's a little bit of both, but it, it, it really starts more, um, proactively. Yeah. So what I mean by that is when we, when we look at the macro and we're like, you know what, we should be long multi-family in Nashville for the next five years. Like, we're typically starting there, not waiting for a Nashville deal to show up. We're basically looking at what are the macro trends pointing, where are they pointing us broadly speaking, and then will you, we'll reach out to our capital markets group or our institutional sales group, or to the extent that we don't actually have relationships there and say, all right, give us the top five sponsor groups in Nashville that we should be talking to. Uh, in terms of guys that are actually very focused, they've got a good reputation, they're, they're, they're doing something unique. And so then we do our own, you know, we spend a bunch of time screening and talking to a lot of different groups until we, you know, we pick one or two, you know, groups that we wanna partner with and, and move forward.  

Darren    00:13:20    

Yeah, no, that's great. Uh, it seems very prescriptive and proactive in, in terms of your approach and having that investment thesis, which you're then going to sort of execute upon, right? And the data that you guys have, uh, I know is, is also unique, right? You have that competitive advantage by having access to data and understand how to crunch that data, right, right. Um, and understand, you know, how to get all the, the, the insight, uh, especially a time like this where there's so much change going on. It's, it's, I'd say, you know, it's hard to invest in real estate in normal times. It's, it's incredibly difficult today where prices haven't really collapsed. In fact, according to rca, prices continue to go up in most asset classes year over year, despite the pandemic and despite, um, you know, some asset classes, uh, uh, going down, but others going up. And so generally speaking, the overall asset classes continued to go up in value. Uh, ma makes, you know, pick, picking the right sponsors, the right properties, and structuring the right deals harder than ever. Any other thoughts, uh, that you wanna share before we, we conclude here today?  

Sam    00:14:31    

No, this was great, Darren. I really appreciate you, uh, inviting me on.  

Darren    00:14:34    

Yeah, Sam, thanks for coming on the show today. Really appreciate it. Thanks for, uh, the partnership we have with Walker and Dunlop Investment Partners, as well as your, your parent company, uh, Walker and Dunlop. We've got a great, uh, relationship with your capital advisors out there nationwide. So, uh, we're really, really happy to be doing business with you and wish you all the best. So enjoy your springtime in Denver, and, uh, we'll be in touch again soon.