Walker & Dunlop, Inc. Aktie

My professor, Dr. Peter Linneman joined me again, [indiscernible] in Fort Worth, Texas at the Dominion Annual LP Meeting, and it is a real joy to be here with our partners at Dominion and seeing all of their investors in many of the projects that Walker & Dunlop and Dominion have worked on together.

So Peter, a lot has happened. The last 3 weeks have been incredibly tumultuous in the real estate capital markets. I -- my phone has been inundated with Walker & Dunlop customers calling me and saying, can we get you on a call with our team to figure out where are rates going? Where is the market going? And should I be running to refinance a property today? Should I have been selling a property? Should I be concerned about being able to get out of this property a year or 2 from now? And my feeling here has been that for the last 3 years, we did it what I call the hope trade, the waiting and hoping that inflation would come out of the system, that the President would replace the Fed chair with a potentially new Fed chair would start to cut rates in line with what the President has been calling for, for quite some time, and that we would be sitting in a sort of a 4%, 10-year, maybe even best wishes 3.75% 10 year. And you were very straightforward in saying at the beginning of 2026, the inflation print is looking good. If you strip out a lot of various things such as housing from the CPI and other inflation rates that we should start to see cuts and you predicted that we would see 2 rate cuts by the Federal Reserve in 2026. You made that prediction, not knowing we would invade Iran. You made that prediction thinking that oil would be somewhere between $60 and $70 a barrel rather than $90 and $110 a barrel. Other than the Iran war, what did we get wrong?

Well, that was the main one. Really, that was absolutely the main one. When did in -- the 10-year start really moving? And it was -- as the Iran conflict began and it's picked up speed. I would -- anybody who has not told you, Willy, I think just called me and they asked the same questions. And they probably called me because your phone was busy, so I was the second choice to ask those questions. I can tell you the spirit of what I'm answering people. We are at the highest 10-year in now 25 years. That's an abnormal situation. A lot of the people who are saying it's going to stay high forever were the same people in -- not you, but the same people that were in 2018 and '19 saying, yes, negative interest rates make sense. And they don't. Maybe the interest rates they told me since this doesn't make sense. I think a lot of people -- in my view, real estate is an 8- to 12-year investment horizon. That's why the research I've done tends to focus on its performance over a longer period. You got to be around and allow adjustments. And people have judged it after sort of 2 to 4 years. That's like judging who won the NBA championship this past year based on the half-time score. And it wasn't the New York Knicks that won based on halftime scores. By the way, take another example of the Philadelphia Eagles were winning with 4.5 minutes to go. Unfortunately, they played 4.5 more minutes. That's why they play the full game and they lost. And what you've got to do with real estate, I think, is play the whole game. Don't judge it at half time. Don't judge it at middle of the second [indiscernible].

But Peter, let me jump in there for a second. First of all, so everyone knows my password to access the online copy of the PDF of this quarters Linneman letter is Go Birds 2, which killed me as a Washington Commanders fan and not a [ Philadelphia Eagles ] fan. So I appreciate the fact that you pushed those birds all the time. But the issue here is this, many people's game on a specific asset ends in 2026 or ends in 2027. They have a refinancing coming up. They have an investor who wants to recycle capital. So while I get your analogy of, hey, this is an 8- to 10-year game, unfortunately, for many people, they don't have another 4.5 minutes to play as it relates to what to do with a specific asset, whether to sell right now, whether to refi right now because the clock is running out on it. And so to them, what do you counsel them to do now that their game is coming to an end on that specific asset?

Don't sell if you don't have to in a advantaged market. Therefore, talk to you and see about arranging a 2-year or some such product, a 3-year. By the way, and as you know, I'm generally a person that says 7- to 12-year financing on these things. But I play the slope a little bit here right now. And are you exposed as a result of that? Yes, but you're dead the other way. And better to be dead 2 years from now to be dead today, I'd rather have -- be alive today and the option value of it improves. That's what my advice is.

So you would go on shorter-term floating rate financing to refi your property today then go and bring it either pref equity or new equity if you can find it and put longer-term financing on, even though that would obviously cost you some of your ownership of that asset?

Yes. That's -- and by the way, that's very contrary to my normal view.

And you say that because you think rates are coming down?

I don't see them going up. They're at a 25-year high. Let's seems to -- look at inflation, why I say that. Inflation for the 30 years average inflation prior to COVID, which totally reshaped the debt, right? That's why I'm taking prior to COVID, it's 2.2% for the things people actually purchase. For the 2 years prior to the Iranian situation beginning. By situation, I mean bombings, et cetera, right, March, okay? For the 2 years prior to that, it was 2.3% for those same items, okay? We had kind of stabilized. We then had the oil situation. The oil situation has increased inflation. You go from $60 a barrel to $100 a barrel, that's less $118 a barrel. Let's do the mathematics and you get a higher inflation rate. But it doesn't stay inflated. Why? Let's suppose oil stays at $100, right? Let's just suppose for the next 2 years, inflation -- excuse me, oil stays at $100. What's the inflationary impact of oil over the next 2 years if it stays at $100? Zero. What will that do to measured inflation? Pull it down.

Well, right? Yes. Just the way that it happens. Except for the fact, as you and I have discussed, of the 41,000 goods in -- that are on the CPI print, 70% of them are impacted by the price of oil. So what you're [indiscernible] is not showing there, those 70% move up and then once they move up, you're flat.

Then you're flat. That's all I'm saying. I'm just reminding people of mathematics. So even if oil stays up, it will become noninflationary, okay? And much less if some reasonable solution occurs and it falls. Now why is that relevant? What do I think happens when it stops being inflationary. The Fed will at some point lower the rate. And when they lower the short rate, we saw what it looked like in March -- excuse me, in February, you -- if you stated that in your summary. In February, people thought, yes, it's at 4%, short rate stays the same or falls and that long rate was at 4%. What happens if there's no inflation that the Fed says they have to tame. And I think you go back down, much less if oil prices fall because that will really cool down inflation. The Fed will declare success, even though they have nothing to do with success because they don't control the Strait of Hormuz, at least last time I checked. I'm not -- by the way, did anyone notice -- you got a big audience. Did anyone in the audience notice that immediately after the Fed increased rate by 25 bps, the Iranians immediately said, we're repudiating any attempt to go nuclear. We're destroying all our weapons. The Republican Guard is being disbanded. We're opening the Strait of Hormuz, and we're sending lollipops and marshmallows to all American children on their birthdays. Of course not. They have no effect on those things. And yet they pretended as they did. And that has roiled the market. There's no doubt that is -- it's confused me, it's confused everybody. So it is not Rip Van Winkle. There's an important thing to make here. You and I have talked about the federal deficit for years and outstanding debt. There is this silly narrative that for the last 40, 50, 60 years, the investor has been asleep to the fact that the deficit occurs, and that the debt outstanding rose and suddenly like Rip Van Winkle, they awakened and saw the deficit and scrambled and said, "Oh, we've got to increase the rate we would demand." That's silly. If that -- it's just intellectually silly. If it were true, why is it that every country has about the same increase in the long rate rather than being very nuanced depending on their own fiscal situation. So that's why I want to go short. I don't want to go short. Let me clarify that. I don't -- you know it's like, I don't want to give rent concessions. I really don't. But the reason I give rent concessions is to get me from here to there. So let me -- that's the same thing on the people who have to finance.

If I had listened to the Walker webcast in June, when you said they're going to do 2 rate cuts in the subsequent two meetings. You actually said that they weren't going to cut in July, they were going to come back and cut in September. So if I listen to you then, I said, great, I'm going to float because Peter says that rates are going down, short end of the curve to go down, I can play a SOFR plus 200, and I'm going to do well. Well, if I followed you then, it's cost me 100 basis points between that point and today to have floated rather than a fixed in a long-term option at that point. So my only question to you is, what confidence should we have? And obviously, I'm asking you to try to predict rates and nobody can predict rates. But why is it do you think that we are at the all-time high when if I listened to you 4 months ago, I probably would have made the wrong move.

Well, because of how dramatically it's moved since then, right? I mean, I don't know how else to say it more obvious.

Yes. I hear you.

I don't think there's anybody I don't know of anybody. I'm sure there's some hedge funds somewhere. I don't think anybody when we talked in June would have ever predicted. I don't know where we're at today, [ 5%, 3.5% ] for a 10-year. I don't think anybody would have picked it, right? You might have had a few people saying, oh, upper 4s and 5. And so the fact is it's run -- it's just run to a point that's not justified by the economics. That's the simplest way to say it. And I think even the Fed, and I stress even can figure that out.

So as you look forward, you just talked about sort of, if you will, a normalized -- we get out of Iran, oil comes down, rates come down, the Fed doesn't see inflation pushing rates and therefore, they can cut. Do you think that there's a scenario where something breaks? And if you think that something breaks to get them to cut, what do you think breaks?

Well, obviously, something dramatic in Iran. And it's interesting, you're seeing the same stuff I did. In the first few months, every little announcement, every head fake on -- looks like we made progress, oil would drop like $7 to $8. And then it would go back up and the rate was kind of bouncing with it. And there's almost people have gotten desensitized to that information, and it's kind of staying at $100 and -- or a little above $100 a barrel. And the rate is saying, I don't want to screw around and figure this out. I'm insuring myself against the Fed being stupid.

I think it's actually come down to the low $90s in the last couple of days because of the release of the G7 oil reserves, which I would underscore the fact that China has released so much of their reserves and lowered their oil consumption since the beginning of the Iranian conflict. And now the release of the reserves on the G7 is a big reason why we actually have $90 a barrel oil and not $120 a barrel on oil and not something that is sustainable at least on the G7 side of releasing reserves. The Chinese very clearly seem to have built up enough reserves and lowered their demand for oil to be able to stay in their current demand situation for quite some time. And it's kind of ironic that we can look to thank the Chinese for what they've done to keeping oil prices -- last I filled up on Sunday and I was $4.10 a gallon. I'm not at $4.10 a gallon in Denver, Colorado, if the Chinese haven't pulled back their oil consumption on a global basis as significantly as they have.

But Peter, let's switch for a moment to unemployment because I think that a lot of what you're focused on is GDP growth and the overall acceleration of the economy. GDP growth, you're actually looking at '26 GDP growth higher than what you predicted it would be in '25. But on the unemployment side, your unemployment calculation is about almost 2x what the official unemployment numbers are. Talk about that latency or that underemployment in the economy and whether that is people who have permanently retired. So they've -- they're a 55-year-old person who's just removed himself or herself from the labor force, and therefore, generally speaking, is just going to be a drag on the economy going forward. No criticism to someone who's of my age, who's decided to step out of the labor force. But -- or is someone who is 22 years old living with mom and dad and sitting there not employed, but has the ability to come off the sidelines and enter the labor force that actually could give us a lift from a GDP standpoint?

The reason my number, so to speak, is higher, is all it is the same, look, there's a -- just to remind people, the unemployment rate comes from a survey that says, are you employed? And if you answer yes, yes, fine. And if you answer no, they ask you the next question. Are you actively looking for work? That's it. And the numerator is those who say they're not employed but actively looking for work. The denominator is the sum of employed and those who say they're actively looking. It's that simple. What it misses are I'm not looking -- I'm not employed and I'm not actively looking. And that is still fairly high. And it's a bit abnormally high. And there's a whole field discussing why that is the case, ranging from rank entitlement to parents that spoil their kids to there are no opportunities to -- there's a lot of labor out there and it's not working. It's not unemployed, it's not because of wages not occurring. There's a lot of wage activity that's occurred. I don't think anyone, including me fully understands why it's as high as it is, but it is. And it's a drag on the economy. It is a drag on the economy.

So it's a drag, not a potential catalyzer of significant economic growth?

It could be, but you have to wonder why are they not there after such a prolonged period because as you know, it's been up there for some time. It's -- the recovery has occurred. We went through a very hot period. Wages have been up in real terms, et cetera. It probably is much more a drag. Now it's interesting on employment. On employment, the numbers are really strong. If you look at people getting fired because nobody is getting fired. If you look at unemployment insurance claims, new unemployment insurance claims, new unemployment insurance claims. Nobody is getting fired. That's great, right? That's a strong labor market. If you look at new jobs created, it appears fairly mediocre, kind of a run rate of about 900,000 this year, which is not terrific...

It's actually super slow. In comparison to the last -- I mean, since ChatGPT was launched in November of 2022. We've added 4.6 million jobs, I believe, and that goes to like 2.1 million, 1.8 million in '23 and '24. And then '25 is somewhere around 700,000 or 800,000. And if you add up all jobs in Trump 2, it's a whopping 700,000 jobs.

Let's go why? Let's assume it's going to end this year around 800,000, not a great number or not a great core number. We're down probably 2 million to 2.5 million legal and illegal immigrants that came in, in a particular year. If you say half of those would have gotten a job, which is not wildly off, that would have been another 1 million workers. If you add the 1 million workers to the 800,000, you'd say 1.8 million, not spectacular, not bad, right? But absent the immigration, there's a whole bunch of people not looking for work, just not looking for work. And you say, well, why doesn't that -- remember, immigrants get jobs, and they take jobs, but that also increases the demand for jobs. Why? They buy sweaters, shoes, they buy Brooks, 9.5 shoes for example, the people say, oh, immigrants come in, and it's an additional supply of labor that destroys and takes away opportunity. What they forget and what the research shows is, they also get jobs, and they do what everybody else does when they get a job. They add to the U.S. economy's productivity. They buy sweaters, shoes...

But you would see all that show up, Peter...

And that creates jobs.

But yes, I get that, but that would show up then in inflationary pressure on wages.

No, no. Because roughly there's a positive net effect, but it's not huge. And the reason is the supply creates its own demand. Just think of immigrants as a new country of 2.5 million people, okay? New country comes in, the 2.5 million people go to work, the 2.5 million people get hired because they make stuff that they want. There's a circularity to it, and we're not getting them. So we drop them out, right? And you're right, we lose the labor side, but we also lose the labor demand side because they're not buying as many shoes and they're not buying as many -- just go through the list. So the demand is also down. That's why you don't see the spikes. And you made this great point very articulately, I think at your MIT presentation. I'm doing this from memory that you get asked everywhere. Are there labor shortages? And basically the answer -- and it's the same answer the hotel people give, not terribly, a little here, a little there, not terribly. And that's because, yes, the supply got reduced, but the demand got reduced, because those immigrants were getting jobs and working and buying stuff. And that coursed through the economy. So we've dropped the demand and we dropped the supply.

Let's switch then to a sector that is using a lot of labor right now, which is data centers. If we back up to the January of 2025, you and I were together at the Constitution Center in Philadelphia, and I said to you, what is the best sector for you to invest in? And you said, well, if I want to stay rich, I'd invest in multifamily. I then said to you, well, what's the get-rich asset class? And you said, office. And then I said, well, what's the get-poor asset class? And you said data centers. So in this quarterly Letter for the first time ever, Peter has these canaries in a coal mine to anyone in the room who doesn't read the Linneman Letter on a quarterly basis. And he goes through and typically has 55 different opportunities for canary to be dead as sort of a leading indicator of trouble. I think the lowest it's ever been since I've been reading the Letter, Peter, is like 2 or 3 canaries. I don't think you've ever had 0 canaries.

No, I never had 0.

But over the last 3 years, it's gone from 12 to 16 to 18 in the most current Linneman Letter, 18 out of 55 potential dead canaries. But this is the first time you've had data centers as a dead canary. And on each one of these sectors, if you will, there can be a potential of 5 canaries. So Peter is just starting to feel the -- if you will, the vapors coming out of the coal mine of the canary. It's not -- it hasn't shown that we've got a real issue down in the coal mine yet, but it's coming along. Peter, the growth in data centers, we've gone from -- in the last 5 months, we've gone from 570 data centers in the United States to something like 1,300. We've got 2,000 data centers planned to be built. So with that amount of capital and the hyperscalers are putting $800 billion into data centers in 2026. So with that amount of capital going to it, a, do you think something breaks as it relates to just there's defaults, there's not demand. If something happens in the data center AI construct that breaks. And then the follow-up to that is if all that capital continues to flow there, and you don't have anything break there. What is suffering from the amount of capital that's going to data centers that would, in a traditional way, be flowing to other asset classes?

Remember how good apartment demand was rent, occupancy-wise, in what 2021, first half '22 something like that?

Boy, do I remember it fondly.

No supply, no supply because COVID had shut it off and demand, pretty robust demand from credit tenants, namely residents, pretty credit, right? They pay the rent mostly, how did that end? That ended by a huge supply spurt for a lot of reasons, you still have demand and the supply spurred overwhelmed. What's my concern on data centers? You see anything that gives that good a yield, sooner or later, it's going to get overbuilt. I don't know when. And how do I know something? If you look at what's happening in data centers, this is overly broad. Everybody says these hyperscalers are credit. Credit tenants, credit. And by the way, you're old enough to remember just barely when people were building shopping centers saying, Sears and Kmart were credit tenants. And by the time they opened or a year or 2 after they opened there -- one is dead and the other's almost dead, right? Credit erodes for a lot of reasons, competitive and otherwise. And I just -- so here, if one of the hyperscalers, came to one of our developer friends and said, build me an office building or build me a warehouse. What kind of yield on cost were they negotiated down to on a 15-year lease? 6%, 7%.

6%, 7% at the high end.

Yes. Let's just say 6% to 7% yield on cost because they are who they are, right? They're going to negotiate it down, maybe even a little lower, okay? On the data center, what are they doing it for? 10. And by the way, it will be a 9.

10, 12.

So what does that tell you? It tells you they're desperate for that product, and they're doing something they normally would not do. no credit tenant would normally do it. Why? They view they're in a race that challenges their existence, which means they're afraid they go out of business if they don't win, okay? That's why they're doing it. They want to get it, and we know they're paying a premium. Now by the way, let's go to the other capital parts. Let's go to the capital parts. Lenders, lenders are lending 90%, 85%, 90% first mortgages, okay? Why? Because, oh, they are credit tenants, even though the tenants are worried about their existence, that's why they're willing to pay that rent, and you go that's interesting. So the lenders are viewing it as no risk. How has that generally turned out in history that when lenders view something as having no risk, it turns out well when they provide 90% debt or 85% debt. Why are they doing it? They have no exposure to it currently in their portfolio. They got a lot of apartment exposure. They got a lot of warehouse exposure. They have a lot of office exposure, a lot of this. So they all say, okay, we're going to go get it, and we're going to get it while they're getting to it. So they're flooding into it. And they're doing something we don't -- so we see tenants doing something we don't normally see. We're seeing lenders do it. And then we see equity providers saying, hmm, I got crushed in real estate in the last 3.5 years on everything else. Let me try it there, especially with 90% leverage. And by the way, the developer makes the development fee, they have to work hard for it. I'm not taking anything away from them, but the developer's development fee with 90% leverage, they can't lose as the developer. So I think it gets overdeveloped in a strange way. Remember, the office market in the 1980s, you had very good demand growth and yet somehow vacancy got to 18% in spite of great demand growth. That's because unbelievable lending, right? That's why I have concerns. If the tenants are worried about -- just think of this for a second. The tenants are worried about their existence, okay? Why aren't the rest of the capital stack worried about their existence?

Well, they also though -- I mean they have multitrillion-dollar market caps. I mean, I hear you about the "worried about their existence". And by the way, I mean, I would -- your concerns as it relates to the hyperscalers, if you listen to the All-In podcast, which I listen to on a weekly basis. So I'm just stealing from the guys from All-In. This is not my own research, but I listened very intently last week. And in their discussion last week, they talked about a couple of things that concern me on exactly this topic, Peter. The first one was they looked at frontier models versus open models. And 90 days ago, frontier models were 80% of AI usage in the United States and open models were 20% of AI usage in the United States, 90 days ago. Today, it's the inverse. It's 20% frontier models and 80% open models. So at Walker & Dunlop what...

Willy, do you think that has anything to do with why they're now saying, oh, let us get together with the government and regulate and set up barriers. And who do you think they're going to set up barriers against.

1,000%. It's called regulatory capture. It's let's put up barriers so that we can create whatever monopoly, duopoly, triopoly you want to put together but let me keep going on this for 2 seconds because at Walker & Dunlop, we use ChatGPT. We have a closed environment of that ChatGPT that makes it so that we can keep all of our data, run all of our analysis inside of our own environment. It's protected, and I love it. Except for the fact that we spend a tremendous amount of money on tokens with ChatGPT, and my CTO is going to come to me sometime in the next 6 to 12 months and say, if we moved from ChatGPT to an open model, we pulled a server and put all of this on our own servers, we would drop our token usage from X to Y, and we would save, Walker & Dunlop X millions of dollars a year. And by the way, we don't need to be using frontier models at Walker & Dunlop. I'm trying to process mortgages for everyone in this room. If I were trying to solve cancer, I got to stay on ChatGPT or Anthropic and keep on that frontier model. But for W&D, my big issue right now is not necessarily the capabilities of the technology, it's the implementation challenges I have of taking the technology and putting it into our work streams to make it so I can process loans for all of you quicker, more efficiently and more cheaply. And so as I think about that shift in just the last 90 days of the frontier models, you listen to the All-In hosts, talk about it. And they sit there and they talk about if these frontier models don't stay 6 months in front of the rest, their value goes to 0. That's their words, not mine. That's their words.

That's the existence concern.

That's the existence concern. That's exactly what you're talking about. So I don't know. I don't like personally. If you said to me, Walker & Dunlop's future is based on -- and I know Pete is here from Wells Fargo. So let me just use him as an example. Walker & Dunlop's existence is based off of staying 6 months in front of Wells Fargo on everything that you do as it relates to loan origination and loan processing, I might be running for the exits pretty quick. And so I just think about that change in the amount of capital that's gone to these data centers, but the one conflicting point, Peter, in your quarterly Letter that I want to have you discuss is this, after all of that doubt you have about data centers, you state that demand will exceed supply in data centers between now and 2030. So if you think we have another 3.5, 4 years of demand exceeding supply, why are you concerned about a crisis?

Well, because when it ends, it will end. I mean just play out -- by the way, I don't know if the scenario you say is what happens, but play out what you said. There's so many variations. One variation, okay, the 5 hyperscalers, 1 of them wins in the other 4 lose. And so anybody who has the winner on their data center wins. But the ones who had the losers, what are they going to do? And you say, well, they'll repurpose it by selling it -- by re-leasing it to the winner? Do you think the winners got to pay as much rent? When they're that desperate, when they're not in existential mode. And so the rent gets negotiated down if it does get reused or the Chinese win or somebody comes up with a whole leapfrog on the technology. So I just -- look, I'm old. And when I see unusual things, when I see one unusual thing, I'd say, well, that's nice. When you see a whole bunch of unusual things happening at once, it generally doesn't end that well. It doesn't mean it doesn't end forever, right? It just it's got a kind of too much, too much too soon. I'm not anti-AI, I'm not saying, et cetera. I just -- it just seems like too much too soon. And the fact that the tenants are saying, I'm willing to give you almost double the yield on that product that I give you on any other real estate product I'd ask you to do, tells you how desperate they are.

So let's switch to other real estate products. Last call, we talked about multifamily. You were really excited on the last call about the fact that starts were down by 40% to 60%. And then in this quarterly Letter, you say we're going to start seeing rent spikes, your words, rent spikes in 2026 and 2027. First of all, I would say to you, I don't think I have a single client at Walker & Dunlop who has said, I see spiking right now. And we're in October of '26. So we only got 2.5 more months to get spikes into the system for '26. But do you really think we're going to see rent spikes in '27 in multifamily? And if so, where are you predicting they come?

How many have gone from 8 weeks' concession to 0 to 3 weeks. Not everybody. Not everybody.

I mean I'm not going to say not anybody, but I'm not hearing that right now. That's the one -- just, just double-click on that for a second, Peter, because I think that, that is a super important point right here, that a lot of people are sitting there saying, oh, we need to get back to annualized 2%, 3%, 4% rent growth for me to make this pro forma go, and they are forgetting about that, that if you go from 3 months' concessions to 2 months' concessions to 1 month's concessions, you're picking up 10% NOI on each 1 of those months going away.

That's my point. That's my point. So for example, we've got a project -- and I'm not saying this is typical, we got projects where we haven't made inroads on concession. But on actually 2 of our projects in the last 3 months, we've gone from 2 months to f0, all right? Now I view that as a notable spike. By the way, did we raise the rent? No. We did not raise rent.

Right.

But that's a notable spike. I think that's what you're going to see in 2007 (sic) [ 2027 ]. You're going to see a little bit of, more of it in the end of this year. And by the way, our portfolio isn't perfectly represented. I have in Boston, and I have other places, we're seeing -- by the way, the dynamics of how it happens is interesting. And I kind of forgotten. When you got 15 new buildings, all very cool and all very -- all in the same basic submarket and all 20% to 70% leased, a tenant can walk in and get whatever floor they want, whatever unit size they want, whatever view they want, whatever direction they want. Now when those buildings get to 85% to 90%, the owner still sucks, right? It's still not wonderful at 85%. The tenant can't walk in and say, but I want an east view on the 13th floor because there aren't that many units. And that's why the concessions start going away is at that very micro level. And that is starting to happen, depends on the market, right? But that's starting to happen. So I don't -- let me be clear, I don't think you're going to see in the first half of 2027, 10% face rent increases. But I do think you're going to see a month or 2 of concessions kind of fall by the wayside as things lease. That would be huge, that would be huge.

So if that -- if this is the beginning of the multifamily trade that we've been waiting 3 years for, do rates kill it?

Well, it's a 2-edged sword, right? The -- let's take it in 3 parts. One, you financed me on a 10-year note in 2022, I don't give a sh** about any of that, right, about any of the rate stuff. You're my hero, you financed me in 2021, 2022. I was going to do a 5-year, you convince me to do a 10-year, ta-dah, right? That's 1 group of people...

Pause for 2 seconds on that, pause for 2 seconds on that. There is a huge amount of paper outstanding that was a 10-year loan with 5 years IO written in 2021 and '22 that are coming to the end of their IO period and going to amortizing loans in '26 and '27. And that could be a pressure point for many borrowers. So I just point out that, Peter is saying, you did that '22 loan, it was a 10-year loan, but it likely had half term IO and then all of a sudden becomes an amortizing loan, that could put some pressure into the system in 2027.

But I don't worry about the interest rate part, right? I worry about a lot of things. I worry about coverage. So that's one group. Second group is, do I have a higher interest rate because my construction loan or I did put a 5-year or 3-year or I was repositioning. Yes, that's a sincere problem. As you know, the debt will be there. The debt market is working. I think it's just working more sensibly. And so a loan that would have been a 65% loan, now only pencils as a -- you know the math, probably better than I do. 58% loan, which means I got to come up with 7% more equity. And the one thing that's been scarce over the last 1.5 years is not the debt, it's the equity. And so now when that equity is still scarce, I got to go out and find more equity, that's a challenge. And that's the interest rate challenge that it raises on [indiscernible]. Now on the other hand, people are getting more income on their fixed income instruments. So they'll actually get a little boost in spending power. It's just redistributive. But it is a two-edged sword. By the way, how much development occurs in the next 12 months? More or less than you thought 3 months ago? Less.

You answered the question for me. But yes, I would say less. And which is interesting because the numbers are telling you that now is a great time to be putting the shovel in the ground. The issue is putting the capital together to do it. And then the other question is, does someone want to go into a construction loan right now? Or do they want to go into having equity on the sidelines to buy distressed assets that are existing, have good occupancy in them, but the capital structure is upside down. So if someone's going to throw the keys back and you can step in and buy that asset, I would think that, that's -- a lot of the dry powder is waiting for that rather than getting into this next development cycle for a 2- to 3-year return.

Our friend, Jon Gray has said this type of thing several times, which is a lot of investors with a bad taste in their mouth over the last 3 years. I think more institutional or big family office, and they went into things 3 years ago, 3.5 years ago. And it may not have been catastrophic what they did in real estate, but it's not great. And so you come to them and say, now is the time, 3 years from now it is going to be nothing new coming online or right now is the time, let's go in and buy something. And they're going, yes, I don't know. I just don't know. I saw markets going up, up, up. Why don't I just stay in the stock market, I'm okay there. And maybe I do data centers, somebody's got a highly leveraged. No, but think about it. If somebody's got a highly leveraged development that they're offering them, the equity slice of, right? And maybe I do that instead. And it doesn't mean all the capital is going there. But it's a challenge to come up with equity these days still. And in some markets, you -- how much -- if I had a really nice property and I had, I don't know, a 6 cap on it in Austin. And I said, Willy, you guys are the best. I know Wells Fargo is there. So I'll let you both have the assignment.

So is the PNC and a bunch of other people. So I got a lot of competitors in the room talking.

I'm going to give you guys the split assignment, go out and raise 35% equity for me. You're going to tell me, I don't think I can do it. I got better things to do with my time. And that's a challenge. That's a challenge. So there may be opportunities, but there's no money for it. There's kind of debt for it, but there's no equity for it and the interest rate being up means you need even more equity at a time when the equity was already short.

Two quick things to round out on multi and then I want to go to office for a moment. On multi, just a couple of things that Peter said that I would underscore. First of all, it's been quick since this rate move to really see an adjustment in debt yields on debt funds and other providers of capital. The agency, you've clearly seen them move up on their expected debt yields on their lending. But on debt funds, so far, we're still seeing them, stay in the sort of 7% to 8% debt yield range and not move up to the sort of 8% to 9%. If debt yields stay down that low, they obviously will be preferred in the marketplace. The question I have on that is, where are they on the health of their existing book? So there's $232 billion of non-agency multifamily debt maturing in 2027, $232 billion. And it stays actually pretty consistent for the next 4 years at $230 billion to $250 billion of non-agency multifamily debt outstanding. If those portfolios at -- on bank balance sheets, at debt funds, at life insurance companies stay relatively healthy, I think the ability for capital to come from those sources of capital is almost unlimited. But if they start to see cracks in their existing book, what do they need to do on both a debt yield standpoint as it relates to also deployment of capital to be able to deal with their books? So far, it's way too early to tell whether there are fissures on the credit side of things. Those will start to show up in this higher interest rate environment. The one other thing that we have clearly seen is the agencies have almost no refinancings in 2026. They have very low refinancings in 2027. They've only got $47 billion of refinancings in 2027, so very low, but then they start to step up pretty dramatically. And '28, '29, '30, the agencies get into really big numbers. If you add up non-agency and agency debt, multifamily debt outstanding that matures in the next 4 years, it's $1.5 trillion. $1.5 trillion. It is an enormous amount of debt that needs to get rolled in the next 4 years. And so 2 things on that. One, how does the credit perform between now and then? And then how much of that non-multifamily debt gets refinanced by the agencies? Remember, if they only have $47 billion of refinancings in 2027, and they've got a cap from the regulator of $160 billion, they got to go out and find a $100 billion, $110 billion of loans, not in their portfolios today to go finance next year. That's a huge amount of capital coming from the agencies that is trying to find solutions for those loans that a bank, a debt fund or a life insurance company may or may not want to refinance. So I just put that out there as it relates to kind of state of multifamily financing and what's coming up in '27.

Let me go to office for a second with you, Peter, because when I went back and referenced that conversation you and I had in January of 2025, and you said, stay rich multifamily, get rich office. If you listened to Peter in January of 2025 and gotten -- bought office in San Francisco or New York, you have absolutely crushed it over the last 18 months. And I mean crushed it. that was exactly at the beginning of this cycle for office. And so I -- if you've been -- you are clearly directionally right, Peter, as it relates to office as an asset class, but you had to be pretty picky because if you bought office in Denver, you're flat on your year-end right now. So you had to pick the right city, but if you picked office in San Francisco or New York, off the charts returns, you make a point in the Letter that in '26 into '27, we're only delivering 9 million square feet of office in the United States, which is about 10% of normal annual deliveries of new office. Is office an asset class today where you can basically close your eyes and throw a dart at a dart board and win?

No, because the quality is so varied. I mean I think I saw a piece in the Financial Times Monday that hedge fund signed in Related's new building on Madison Avenue for some number like -- what was it, $380 a foot or...

Yes, $380. And when I was in New York 3 weeks ago, I had someone say to me directly, we will see a $400 per square foot lease signed in Manhattan in the next year.

And you couldn't have done -- I'm not being cute. You couldn't have done that blindfolded, right? You really couldn't have done that blindfolded. You -- on the other hand, there are Charlotte, suburban Charlotte is doing quite well right now. Capital is returning, rent and occupancy is doing okay. You're right about Silicon, San Francisco, doing okay, parts of L.A. suck, I mean, Downtown L.A. really sucks. So it varies, Chicago still weak. The interesting thing to me about office is if you -- I don't think you can just throw a dart, but if you have any degree of taste, let's put it that way, okay? 2 years ago, if you had taste, you couldn't get capital. You just couldn't capital. You might have had good taste. You might have picked all the right places 2, 2.5 years ago, debt would have said no. equity would have said no, except for the odd family office, or somebody doing it with their own money, like Neil Bluhm or a high wealth family or Steve Ross or something like that. Today, if you've got good taste, there's a capital market out there. It's not the greatest capital market in the history of office, but it's there. And -- but I don't think you could show up with any old thing.

So I mentioned previously on data centers that you have 18 canaries. What canary scares you the most right now?

In the short term, the Fed, which -- it's interesting, it doesn't normally scare me the most because I expect so little from them over the years. Not unique to this Fed, by the way, not unique to the current people, not unique to the people before them. I just -- I was kind of Milton Friedman trained, and don't expect much help from the Fed and expect more opposition to a good economy than otherwise from the Fed. And they've kind of lived up to that. So I don't normally -- but I think they're dangerous right now. I think they're going the wrong way, and it's just really obvious it's the wrong way. And there's going to be a lag. It's not going to take effect instantly. So the Fed worries me much more than normal. The AI stuff doesn't -- the data center and the money going into it doesn't worry me in a 2-year 3-year kind of context because it's going to occur. They do have that money. They make money off of their advertising company part, and they're just putting it into that. Think about it. Most of the money going into data centers as an equity is -- or into AI in general is coming -- think of Meta.What is Meta? It's an advertising company, right? What's Google? It's an advertising company. What -- they're advertising companies. So these are advertising companies who are going big into that. But in the next few years, they have the cash flow to do it. So that doesn't worry me. I don't think the geopolitical could get much worse. Think about it. We shrugged -- seriously, we shrugged off -- we, the U.S. economy shrugged off Ukraine, right? We shrugged off Iran at the economy level. We shrugged off the Iranian. We shrugged off the Israeli Gaza. We shrugged off. We shrugged off, we shrugged off. I made this comment. I don't know if you know who Jack Reacher is. He's this 6' 5", 255 muscle bound genius, who has judgment and is kind, and there's a prime show on his books. And Jack Reacher gets hit in the head with a pipe. And you think, well, that's the end to Jack Reacher, but 2 minutes later, he's dealing justice. And then you get stabbed 5 minutes later, but 6 minutes after that, he's dealing justice because he is 6' 5", all muscle, brilliant and he's just a force. That's the U.S. economy. And so you can damage it. The Fed has damaged it. Tariffs have damaged it. Taxes damaged in the past, et cetera. But it's like Jack Reacher, just keeps getting up. And if you don't know Reacher, you got to watch -- just watch 1 episode, you'll get it or read on book, you'll get it. That's the U.S. economy. I mean it's not German's economy, it's not England's economy. It's not France's economy, it's not the Japanese economy, they're all powerful, but they go down for the count sometimes, like for a decade or more.

You pointed to the Fed and that's your biggest concern right now. Does the House and the Senate flipping Democrat at the beginning of November concern you?

Not so much in the economy. It could -- as you know, I do -- I seriously try to distinguish between social issues and economic issues. And I'm not trying to say the economics is more important. It's just what I have more comparative advantage. [indiscernible] get to social. I just have opinions.

I'm not -- and I'm not looking for it from a social standpoint. I'm also not trying to have you predict the election. I'm trying to go to something that a lot of people are trying to build into their calculus as it relates to what are the back 2 years of a Trump administration look like if the House and the Senate both flip. And I...

And what will happen is they'll go -- they'll try to impeach. They'll have so much fun trying to impeach that they'll leave us alone.

Well, the one thing that I've said on that question, Peter, numerous times is how many times has the Trump administration gone to Congress in the first 2 years of its administration to ask for it to approve anything that it is done. And the answer to that is basically nothing. So if you thought that they had no impact on the first 2 years, why do you think they'll have any impact on the back 2 years?

My gut is it will be strangely good for the economy mainly because a full Democratic Congress will spend at least a year trying to impeach. And not just him they'll try to impeach. And that will keep -- it's like, give the kids candy and a screen to keep them busy when you're babysitting, right?

We're going to pull that clip out and put that as the clip out of [ this ] one. So I got to be..

The impeachment will be like candy and screens for kids, that will be impeachment for them, and they'll kind of leave us alone.

If I gave you $100 million of equity, and you said that we're in an equity-starved world right now, if I gave you $100 million of equity to put into commercial real estate right now, where are you putting it?

I do it with a long-term view, 7 to 12 years, and I'd be buying in the markets where nothing is being built and I know there's big demand, all right? And I would capitalize myself to say, I don't know when I'm going to get 20% rent increase. I don't know if it occurs in 2 years or 4 years, but it's going to happen. And I would do apartments in those markets and who are those markets? Austin, Nashville, Charlotte, I'm not trying to be exclusive, but you get the point. There are markets where I have high confidence of growth and nothing is going to get built because they were so overbuilt, everybody has been burned on building there, but you're going to get growth and -- but I wouldn't bet on the timing of getting the rent spike, right? I bet on getting the rent spikes, but I wouldn't bet it's going to happen in 6 months. I would try to give myself a 4-year window, 5-year window for that to occur. And I think I'd win.

And if I asked you to pair that long trade with a short trade, what would you short?

If you said short in the current where you gotta cash it in, I've already answered data centers if I have to cash it in, in 5 years, 6 years, 4, 5, 6 years, but I don't think data centers are a loss in the next 4 or 5 years, 4 years because there's just so much money already committed with one exception. Maybe I -- here's what I'd say. I'd say, you don't know what you're doing and you try to develop a data center because you can get -- you think you can get 90% loans. You think you can get the community to go along. You think you can get electricity. You think you can get -- you think you can get and you haven't been to those wars. And those are tough contracts development-wise of time lines and so forth. So if I were to short, I don't think I'd short the big, I don't know, what, 4 or 5 that do data centers because they know what they're doing. Will they make mistakes? Of course, we all make mistakes. But they'll get it, they'll get it, and so -- it's the guys rushing in behind them saying, and I know several such people saying, I'll get $900 million in debt. I'll scrape together $100 million in equity. I'll do a data center for $1 billion. I think -- and they've not built one before. They've built warehouses. They just not dealt with what's -- that would be the short is going into that. That's the short -- why is it short? Because I think what you're going to find is after a year or more, nothing will have occurred except they burn through a lot of your money.

A final one, Peter for you is this. What's the single forecast in this most recent Linneman Letter that you have the least confidence in?

I have high confidence in the inflation discussion. I don't have as high confidence in the interest rate following the inflation part. Back to what we were talking about earlier because my discussion was the inflation part occurs as oil prices stabilize and/or fall. And therefore, shortly thereafter, the interest rate falls. That would probably be, the first part of that I have high confidence in, the oil part and therefore, the inflation part. I don't have as high a confidence on the -- and therefore, in a reasonable time line, the Fed follows suit, because they tend to be late and arrogant and so forth?

Yes. I would remind you that we have a President who's been focused on that for quite some time. So I think the moment he sees the light of day on that one, he's going to put some serious pressure on it.

Peter, as always, a wonderful discussion. Your data is as good as it gets. Thanks for the time. Thanks for the candor and...

I have one question for you, Willy. What color shoe do you want?

That's a great question. We'll take white. It's all good. I get them dirty pretty quick.

Good, good. I just want it on record.

It's all great. Thanks, everyone, for joining us this week and this quarter for the quarterly Linneman discussion, and we'll see you again next week. Thanks.

I can't call him an old friend, because Chris is younger than I am, but I've known Chris for a long time. My dear friend, Chris Lee from KKR joins me today. I've been working to have Chris join me to talk about the state of the commercial real estate market and what he sees from his perch running global real estate at KKR, and it's a real joy and pleasure to have Chris with me. Chris welcome.

Well, Willy, it's always great to be with you, and thanks for having me back. I think the last time we did this was 3.5 years ago, not much has changed, right?

Yes, exactly, exactly. I mentioned, Chris, that you run global real estate at KKR. You're on the U.S. operating committee. You sit on top of pretty much all of the real estate investment and credit committees at KKR. Prior to being -- joining KKR in 2012, you were at Apollo before that, Goldman Sachs. Before that, Harvard Business School before that, Emory University and before that, St. Mark's School in Dallas, quite the resume and track record, Chris. I kind of wanted to start today with kind of an open-ended question of sort of where are we at?

Yes. I mean it's -- the way we describe it here at KKR, and I'll quote my partner, Henry McVey, we think about it as a regime change. And if you think about what has happened over the past kind of the post-GFC world. We all lived in a world where everyone was worried about deflation after the GFC. Most of the central banks had a mandate of only focus on growth and reemploying the economy. And you had central banks that were just doing incredible amounts of monetary stimulus. And you had that coming with fiscal stimulus at the same time. So for about a 10-year period up to the pandemic, you had these unusually low rates. You had these developed economies around the world healing, and you also had this very benign kind of globalization framework where had kind of free flowing of capital, labor you didn't have any of these kind of geopolitical, some of the same geopolitical issues.

Fast forward to today, you've got government balance sheets that feel very fully levered. You've got central banks that are much more worried about inflation as part of their dual mandate than they are on employment. And then you have really complicated geopolitical backdrop and then you have an economy that's really driven by AI capital spending around digitization. And it's just a very different environment that impacts real estate in a bunch of different ways. So I think we're in very different environment today than we were 3.5 years ago when we spoke, but almost feels like a completely different world than where we were maybe 7 or 8 years ago.

We'll dive into specific regions and asset classes and all that kind of stuff. But with that as the backdrop, Chris, the KKR's real estate portfolio, total AUM is about $84 billion, $85 billion and about half of that is credit and about half of that is equity. So given that background, are you risk on credit or you risk on equity or a continued kind of combination of both and equal weighting.

I would say we're taking a pretty balanced approach right now. We're deploying in both, and we are very active. I mean I'll start on the credit side. We're very active as a lender. We're very active buying securities through our insurance company. And across everything we're doing in lending, it's across all of our different pools of capital. We have bank capital, we have insurance capital fixed and floating, and then we have more opportunistic lending capital.

We're very active in all of those markets, and we're in all those asset classes, but we're also active across the U.S. and Europe, where we're seeing a lot of opportunities. It's more competitive than it was a few years ago. So it's -- we have to pick our spots. But there are just a tremendous amount of opportunities to lend given you have really a maturity wall that we're hitting a lot of the 5-year loans from 2021 and '22. They're hitting their 5-year maturity. So there's a lot of need for capital on the refinancing side. And then on the growth side, we're seeing a lot of demand for data center development capital, and we're participating there, also picking our spots. So maybe starting there on the credit side, we're very active.

I'd say on the equity side, where we're taking the last dollar of risk, we're deploying, but we're very selective. And when we think about our investment strategy, we are looking for demand trends that we think are attractive long term. And so we start with what are the consumer trends, what are the corporate strategy trends? What are the demographic trends that we feel very comfortable from a demand perspective. And then we, of course, overlay that with more of the micro around replacement costs in locations and then bring in where do we have dedicated operating capability to really pick where we want to deploy capital. But I'd say we're deploying on the equity side, but it's more selective and we're more opportunistic in terms of how we think about deploying there. It's not a backup the truck type of market given where I started the conversation.

If we focus in on the debt side of things, and you mentioned that you've got bank capital, insurance capital from [General Atlantic], you've got your debt funds that you've raised, your last fund, I believe, you announced it's not a complete closing, but your last credit fund had a $1 billion raise in Q2 of this year. So you've got plenty of dry powder on your credit side of things. You mentioned the maturity wall, and there's a big article in the Wall Street Journal today talking about the debt burden on multifamily, actually two of them, as you can imagine, given the size and scale of our multifamily lending. Here at Walker & Dunlop, those articles certainly make one kind of take a pause as it relates to, okay, how are we doing from a credit standpoint? Do we like the construct of being predominantly a fixed rate lender versus a floating rate lender and then what's the maturity risk that we have in our portfolio today. How do you feel about that as it relates to where KKR has deployed credit, particularly into the multifamily space and this pending wall of maturities that's going to be challenging for some people to get through.

Yes. We think it creates a tremendous amount of opportunity for us. I'd say on the lending side, there are a lot of capital structures that need to be recapitalized. They were set in environment like the journal article you referenced, talked about just these assets weren't necessarily over-levered at the time of origination 5 years ago, but they feel overlevered today because of the cost of debt service having gone up so much over that period of time...

And value is dropping.

Yes. And then the value is dropping as well. So you have capital that needs to come and the asset that needs to get sold. That creates a lending opportunity and a buying opportunity for us. So the asset needs to be refinanced and recapitalized, which creates a lending opportunity for us as well. So our pipeline on the lending side has never been this robust, and we're seeing a lot of multifamily lending opportunities. The nice thing is where asset prices are today and then we're lending at a discount to the appraised value or the new value where someone is coming and resetting we feel like the basis that we're lending at is very attractive. If we think about it on a yield basis, debt yield or we think about it relative to replacement cost, it does feel like a good entry point as a lender when we're looking at these opportunities.

And what about -- from just a credit perspective on the existing book because those opportunities just like us, those opportunities create a huge opportunity to work with our clients to deploy new capital. But we've also at W&D, we have $145 billion servicing portfolio that's got a ton of assets in it. There were a couple of operators in that article today in the Wall Street Journal that were mentioned that we have some loans due. And so how do you feel as it relates to the existing book that KKR has either in the insurance sleeve, if you will, in the funds or in KREF?

Yes. I mean we feel good about our existing book, especially as it relates to multifamily. We were never a what I'd call a high-octane lender lending at 75%, 80%. So even in a world we've seen prices come down. We have -- feel pretty well margined versus today's prices. And in some of these markets, even the ones we've seen supply, you have seen some growth, but it's been offset by movements in cap rates.

I'd say the other thing is we are very sponsor-driven in our lending business. So a lot of what we do is we always say, we're not lending to collateral, we're lending to sponsors. We're lending to human being to have wherewithal, et cetera. And I think that's been an important North Star for us because in our multifamily book we've lent to very high-quality sponsors that have strong businesses, have reputations that they care about, and it's actually led to very few kind of credit situations from a lending perspective in our existing multifamily book.

But it's a market where there's definitely capital that needs to come in. And I think the areas that we've seen the most issues have unfortunately been in the -- what we call more like B properties and where you're seeing more stress in the overall economy in that kind of middle income consumer that's more stretched by what's happening with gas prices, et cetera? And is more susceptible to issues related to inflation. And so we've had less of those issues in our book.

Flipping -- staying on multi, but flipping over from the debt strategies to the equity side. You bought the Quarterra portfolio in what, June of last year. You bought about 5 other assets, 1 in San Jose, 2 in Seattle and 2 in Dallas over the last sort of 18 to 24 months. You like sort of multi here at today's entry point, given the characteristics that you just talked about as it relates to the lending side and on the credit?

Well, that was very good. You know everything we've done maybe better than most of the people on our team. So I would say it's been kind of different things that have driven those different deal profiles. When we bought the assets coming out of the liquidation of that fund, that was in 2024, and we were able to step in and buy those assets at a very deep discount to what we thought replacement cost was at the time. And these were newly developed assets. And so we thought that we bought those very well.

We have kind of watched those assets perform nicely since we acquired them, but that was in a strategy that we could hold those assets longer and we had the right cost of capital when that transaction was available to us. In our opportunistic strategy, the other assets you mentioned in Seattle, in the Bay Area, in Dallas are in our most recent opportunistic fund, a lot of that is being driven by where we're seeing strong job growth. And so ultimately, we think a multifamily, really shelter in general is a resilient asset class.

If you think about why real estate exists, you need shelter, ways for people to interact with goods and services, gathering and then, of course, data. That's most of what real estate exists for. But on the shelter side, we've seen construction starts drop pretty dramatically in the markets you just mentioned are the markets that we think are benefiting in this new economy that we're living in. Of course, the Bay Area is benefiting from AI and that job creation and that kind of wealth creation is also very expensive place to buy a single-family home. So the rent-to-own math is very attractive there.

And then in the Puget Sound, that's also an area that's also benefiting from a lot of the technology, GDP activity that we're seeing in the country. And then Dallas has been a market that's just really -- you've seen a tremendous amount of job growth over the last 20 years, but even over the last 5 or 6 post pandemic, Dallas has been one of the top places where large companies are bringing talent. So it always starts with where those demand trends. And then, of course, we do our work on the individual asset to make sure that it's the right asset in the right corner, right tenant mix. But we really started the 30,000-foot view on the demand side.

And staying on the equity side of the business for a moment, it feels like the real focus has been on multi and industrial not so much on retail, hospitality or office. You bought a bunch of retail across the country, some in coastal cities, some more in Texas and other places. Am I getting the strategy correct that it's really kind of beds and sheds in the sense of where on the equity side, you are most focused as it relates to deploying capital in the U.S.?

Yes, I think the one thing you're leaving out is senior housing. Actually, our highest conviction area over the past 3 years has been in senior housing. It's an area that we have deployed over $1 billion of equity across our strategies into senior housing, and that has been an area that we think is -- has very strong long-term demand trends. It's been across independent living and full continuum. And starting in 2023, we started deploying heavily coming out of the pandemic. And so that's actually been a great -- that's played out very well for us in our funds, and we're seeing very strong growth, very strong demand. And we're really just at the beginning of some of those demographic tailwinds when you think about that 80-year-old-plus cohort that is reaching that point in their life cycle where they're a consumer of senior housing. So I would say senior housing has been our largest area across the entire business, but specifically in shelter.

We've done some student housing as well over the last few years. You mentioned multifamily, you mentioned industrial. And then we've lent on office. We haven't bought anything on the office side, but we think of offices as an investable asset class for sure, but you just have to realize it's a bifurcated market now. There's certain types of high-quality office assets that attract premium rent paying tenants and then there's more of that commoditized office in a lot of markets that has really struggled to differentiate and has very different cash flow valuation characteristics and liquidity profiles as well. So we think of that as two different -- basically two different asset classes within the office space.

Yes. When you talk about seniors housing, Chris, it makes me think about the breadth of the KKR platform and the fact that seniors housing would be one of those asset classes that it's such an operating business. It's clearly a real estate play, but it's also an operating business. Is there -- do you gain leverage across KKR, where KKR private equity fund is investing in a seniors housing operator or supplier or whatever else that kind of then opens you all up to the opportunity from a real estate standpoint and then you step into the sector, because of all the commercial real estate sectors, I would think that, that would be somewhere where there's that sort of cross-pollination of the private equity side of KKR into the real estate side where that might be beneficial to you. Is that a fair comment or no?

No, it's 100% fair, and we actually think of that as our biggest differentiator as a real estate investor is the access we have to tenants. I mean a lot of us in real estate, we spend a lot of time talking to each other, talking to other landlords, talking to other liquidity providers to landlords.

If you think about what we have at KKR, we have an unbelievable access to the tenant, especially on the corporate side. We own a couple of hundred companies in the U.S., employs hundreds of thousands of people that touch tens of millions of consumers. And so when we talk about consumer trends, we talk about corporate strategy trends, those are -- we're watching those every day. Those 200 companies I mentioned, that's 200 boardrooms that are making logistics decisions. They're making hiring decisions. They're making office decisions, they're making retailing decisions. And that information flows and we can develop themes around what we're seeing and what are the trends that are impacting the overall economy? And then how does that impact the built environment.

And then to your point on something like a senior housing we're comfortable investing in asset classes that have a little bit more operational complexity. That's a little bit more of our private equity DNA. And so we think of senior housing as a hybrid. It's a real estate asset class. It's housing, but it's also you're delivering care. You're running an operating business. You're responsible for people's loved ones. We're more comfortable in those types of environments. And we spend a lot of time across our business, our public affairs team and other parts of the firm, making sure that we're delivering that service, which is what it is in the best way possible.

I would think then that, that same strategic advantage would potentially play into hospitality given that hospitality is also a very significant operating business, but then even more so given what you said at the beginning, Chris, as it relates to being in an inflationary economy, you get to change the rents on hospitality every day. And as a result of that, that ability to move your rent versus something like office where you're locked in for a 10-year lease term typically on an office doesn't look that great in a high inflationary economy. Would that put more time and attention towards hospitality over the coming years?

Yes. We dabble in hospitality, but the same thing that you mentioned on the revenue side happens on the cost side. And so a lot of -- you can ask people who operate in New York, it's -- RevPAR is at all-time highs, but I'm not sure -- NOI is at all-time highs in this market. And so it's a more nuanced asset class and then there's also we think about downside profile, upside profile, we think of a dispersion of returns.

We have traditionally not been an aggressive hospitality investor because at the end of the day, we're at prices where the marginal buyer prices that. It's -- the return profile is inside of where we think it should be generally risk adjusted for that type of risk. Then you also -- you're talking about hotels that have a lot of CapEx associated with them. There is -- you have to keep them refreshed. There's always CapEx above and beyond your FF&E reserve. So it's not an area that we have played as much. There are some people who are great at it and have made a living out of it. But we think these other asset classes tend to play to our strength as a firm much more where we can get these teams, right, we can operate them well. And have a liquidity profile and ability to ride through cycles that we tend to like when we're making equity investments.

You mentioned the breadth of KKR and the benefit you get from having the private equity professionals sort of sitting around the table talking thematically. It makes me think about our mutual friend, General David Petraeus, who is at KKR and has been at KKR for quite some time, and it makes anything about Europe, because David, obviously, is about as insightful on the Ukraine war and conflict as anybody on the face of the planet. And it makes me think about the equity fund that you raised at the end of 2025 focused on Europe. I know you've been buying student housing assets over in Europe as well as doing some build for rent on the single-family side of things. Talk for a moment, Chris, about Europe, which you -- I've named two areas that you all see opportunity and sort of, if you will, why student housing and why BFR?

Yes Europe is a very interesting place to invest right now. And as you mentioned, we've been active. Now you can't paint all of Europe with the same brush because you have different economies that are experiencing different levels of growth, of different government balance sheets, and there's also a pretty big difference between what's happening in the U.K. and Continental Europe.

We have been very active as a lender there. And I'll start there. We built out our lending business. We think, number one, it's we can compete well. There's kind of less opportunistic lenders in that market. There are a lot of the kind of usual suspects, but it's not like it's kind of overrun with groups that can really manage across multiple jurisdictions and run a pan-European strategy. I think we benefit there. So our lending business has picked up a lot. And if you believe that the things are likely to be quite stable. There's not a lot of development or supply that you're worried about.

As a lender, we feel very good about our basis in these transactions that we're lending on and we're generally lending also to many of the top sponsors and colleagues or competitors of ours on the equity side of the business, but we feel very good about that. So we've been deploying there.

I would say across our fund and insurance complex, we have been -- we've also been deploying. You mentioned a few areas. Clearly, housing is an area that we've been focused on. We've participated alongside our colleagues in infrastructure in a data center investment. And then we've been very active across logistics. And if you think about what's happening in Europe, and there's a kind of reindustrialization and thinking about energy infrastructure, defense infrastructure, that type of build-out that's happening it needs to happen in Europe. Industrial should be -- and logistics should be a beneficiary of that activity over time. And going back to if you can buy into assets, existing assets at a discount to replacement cost, that should give you a nice buffer.

So that's where we've been playing housing, industrial -- sorry, you mentioned student, one of the things on student housing is we have -- Europe is still really an exporter of education to many other parts of the world. So if you want to go to English-speaking countries and get education. Of course, there's the U.K., there's Australia and there's the U.S., but that is an area that we -- that we've also liked over time, but you have to be sometimes cognizant of supply and also substitution if rents get to a certain point and you have to think about shadow supply in those markets no differently than you do in the U.S.

I've been -- I was just over in our London office, and one of the things that struck me is the sort of the changes to the U.K. tax code that is really having many, many professionals who have sort of made a life in London to look at potentially moving to either Madrid or Milan, and it feels like all the real activity is happening with this big out-migration from London where it has been the finance capital of not only Europe, but right up there as far as New York and for the global position. And it just seems as if the U.K. government is doing everything in their power to try and drive that intellectual capital away and have people move to Madrid or Milan.

And I -- and it's interesting to me, Chris, that Madrid and Milan are the two cities that people are sort of picking, but those two cities from a residential standpoint are just on fire right now, and it's quite something for us to kind of watch how do we how do we cover both companies like you as well as the owners of assets as the knowledge base, if you will, seems to be flowing out of London to other places in Europe and what do we do to kind of follow those people.

Yes. I think you're making a really astute observation, and that's why you really have to follow what's happening from a policy perspective because post-Brexit, there have been some changes in terms of center of gravity and where the intellectual capital is going. And I think also on the policy side, some of these countries you mentioned Spain have really done quite a good job in terms of managing their deficits, their fiscal situation. They are attracting more capital, more immigration and like you said, the residential sector is benefiting from that. And so that's why we are very focused on having a strong kind of macro underpinning when we look at the -- where we invest.

And to your point, it's much more complicated in Europe than it is, I think, in the United States. And then, of course, the last piece is pacing in terms of investment and also diversification is important so you're not overly exposed to one market that makes a policy change or does something that changes how attractive that market is on a relative basis. So we do think of all those things, but your point is well taken and having an impact on population and capital flows.

Yes. What about -- you mentioned you made an investment in Europe in a data center, and I'm assuming that, that's on the equity side. It feels like in the U.S., your data center strategy has been much more on the credit side than it has been on the equity side. Why do you prefer the credit side versus the equity side? Or is it just that that's presented itself and you have the structure of the capital to be able to be a big player in that space on the credit side and have, if you will, either not had the equity capital designed to go into that space or just have held back on that. But why kind of overweighting on the debt side versus on the equity side as it relates to data centers?

Yes. I mean I think that's one of those things where it's important to take a step back and maybe talk about how we're organized. Our real estate business sits in a real assets division. And so we sit adjacent to our colleagues in infrastructure and our colleagues in energy. We lead our equity strategy on data centers out of our infrastructure business. So our real estate funds participate, but the lead investment professionals on the equity side sit in our infrastructure business. Now we all sit on the same floor right next to each other, but you might not see it as much from a real estate perspective, but we're one of the largest digital infrastructure players in the world. We own CyrusOne. We have a lot of large investments in the data center space. We just did a large deal in Asia. So we're a huge player there.

As it relates to the opportunity and the size, how have you gotten your head around the size of the checks that you need to write in the data center space. I've used as an example previously that the JPMorgan headquarters, which is probably the most expensive office building ever to have been built and they say they built it for $3.5 billion, let's just say that it cost them $5 billion, whatever. It's something between $3 billion and $5 billion that JPMorgan did they finance it all themselves on their balance sheet. So it's not looking to anyone else's capital. But then you look at these data center projects that are $30 billion, $40 billion, $50 billion, 10x the size of the largest office building in the country, and we could go through other asset classes at the largest multi and the largest retail. It just it redefines the dollar amounts. How have you gotten your head and your team's head around that type of concentration of risk inside of the funds that you're managing either inside the banking sleeve, the insurance sleeve or the funds sleeve?

I mean, listen, we're watching that, and there have been some deals of that scale that we have decided not to participate in because the insurance requirements, you can't meet because it's the sheer size, like you said, of a location. So there are a bunch of things that we're focused on in terms of taking kind of single credit exposure risk. The other thing is just the volume of capital when we look at what's happening in the bond market, that's a big part of it. If you think about the government borrowing needs around the world, sheer amount of kind of deficit spending, et cetera, combined with this AI build-out that now needs a tremendous amount of debt capital. That's just the supply of funding that is needed. That is also part of what's pushing yields out.

I mean you have so many issuers from governments to municipalities to the private sector that are issuing that there's only so much capacity in the market to absorb all that paper. And so I think we're seeing the impact of that. And so we're also watching that as we just think about the underlying macro cost of capital, et cetera. we haven't seen this kind of demand for paper in a long time.

Traditionally, when you see technology being built out, a lot of it is coming through equity capital sources usually not coming through the bond market. But in this case, you have it either coming through CMBS or the asset-backed market or the bank market, you have a lot of paper out there. So that's one of the things that maybe people aren't as focused on, but it is one of the reasons that we're seeing some of this yield pressure.

That's a nice segue into just the general capital markets and where we are after the Fed raised by 25 basis points last week. You mentioned at the top, the sort of glaring amount of U.S. debt outstanding, surpassing $40 trillion. I don't need to remind anyone who is listening into this discussion about where interest rates sit, whether it's trying to get a single-family mortgage of over 7% in commercial real estate lending, you're really happy if you can get a 5 handle on something. And in most instances, you're now getting into getting a 6 handle on borrowing cost.

What's that from an outlook standpoint? Because Chris, you mentioned previously, there's a lot of debt that's turning. There's a big opportunity to deploy capital into that. But is the -- from your view point, do we get to a point where the cost of capital is strangling it, where a lot of this is distressed lending rather than just refinancing out? And then as it relates to fixed versus float as the holder of that debt, are you more risk on, on the floating rate side because you like where that plays out over the next 3 to 5 years. Are you much more getting your team to focus on, "Let's get some fixed rate loans in here that take some of the interest rate risk out of the equation over the next 5 to 7 years?"

Yes. I mean listen, cost of capital is a huge input into pricing. When you think about risk-free rate, risk premium growth, all of those are parts of how you think about discounting cash flows back. With the risk-free rate increasing, like it's been, that definitely has in and of itself just a negative impact on price with nothing else changing.

I think over the past few years, what has offset that cost of capital going up is risk premiums have probably come in a little bit? Because I think when you back when we were talking in 2023, people were pretty scared about what was happening, especially in the real estate market. They haven't seen that in a long time. So I think risk premium spreads, CMBS spreads, all those things have come in. It's probably offset a little bit of that base rate move.

I think the other part is, this is where you really have to underwrite growth. I think if you have assets that are struggling from a demand perspective or are oversupplied and just kind of no end in sight to demand getting back into equilibrium. Those assets, I think, are really under a lot of pressure from a valuation perspective. And we've talked about that. I mean, if you start with multifamily, there are certain markets or certain kind of tenant profiles or business plan profiles that are very, very difficult. We talked about the bifurcation of the office market. You own a Class B asset and a 25% vacant market. That is a very different discount rate, cap rate, someone's using an asset that sits in brand-new in Hudson Yards or a building of the quality that you just mentioned, JPMorgan's building. And so we think that this is much more of a stock pickers market.

This isn't just like, hey, things are getting cheaper or things have gotten cheaper. So let's just kind of go in and buy. It's what I've said, we've been very selective about buying in markets, buying assets that we feel like have a growth profile that is attractive, but also feel like supply will be in check for the near to medium term. And that is a huge differentiator versus you're coming out of these down markets where you just -- hey, you just need to be buying and long the real estate. We do not think it's that type of market. So that's how we've been approaching it where it's very, very -- we need to be very selective in terms of what we're buying. Now if we do that in the right way, we think that there are opportunities to make attractive risk-adjusted returns for our investors. But it is a market where if you miss, you could probably miss badly if you buy the wrong assets at the wrong price.

I've heard you talk about that you are seeking growth and not, if you will, distress. And so you all have not done a lot in the office space over the past couple of years. But you also -- in talking about the JPMorgan headquarters, for instance. I was in New York two weeks ago talking to a big office developer owner, and we were talking about some of the leases that have been signed recently in Manhattan by private equity firms like yourself and big law firms. And the comment was that we're going to see a $400 a square foot lease signed sometime soon. And I -- my head sort of spun around because I think back to what we're paying at One Vanderbilt in New York which is a lease we signed in the depths of the pandemic. So I feel very, very lucky that we were able to get that space for the price that we got it at.

But with leases being signed in the $200 and $300 a square foot space, I keep scratching my head, Chris, and wondering, I mean, I know what's driving that. It's the growth in private equity. It's the lawyers who need to go and work on those deals. It's the tech sector and just the overall economy growing. But I also think about AI and how quickly the view of AI disintermediating things like law firms, for instance. A year ago, everyone saying the AI is going to come in. They're going to wipe out all these lawyers. No one's going to need the lawyer anymore. You're going to go to ChatGPT and have it give you the brief and everything is going to take care of itself. And now we have big law firms that are taking floors and floors and floors of office space in New York at premium prices.

Talk for a moment about whether; a, office is an asset class that you look at with some opportunity either on the high end, hey, we're in the right place, right location and these rents are going to continue to grow to the ceiling, or there's enough distress there that as markets like my market in Denver kind of get back online, you're going to be able to buy a distressed office building in the CBD for some massive discount, and that's a really good basis to go and play into the recovery of that sector over the next decade.

Yes. I mean you said a lot there. And so...

I know I did. And sorry for throwing in the AI one, but I think the AI one, I'd love to hear your thoughts on that.

Maybe I'll start there and then I want to finish with something you said at the beginning, but on AI, we're incorporating into really everything that we do internally. And we think it makes us more efficient for sure in terms of how we spend our time. But the way that we think about that efficiency is we think that we can spend more time doing things that we think only humans need to be doing, making judgments having conversations around where the world is headed and reducing the amount of administrative tasks associated with running our business.

I mean in terms of populating things in memos, you have junior people that can actually spend time learning how to underwrite and not spend time putting all the comps or all the dots on the map into the memo. And so that's one thing. Same thing with senior people. It allows us to be more efficient in terms of how we prep for meetings, how we do a lot of the things we do on the human capital side, budgeting, dashboards for our business. But if you think about these companies that you mentioned that are very heavily reliant on high-quality human capital they still want to recruit the best people to their firms. And how do you recruit the best people to your firms, I mean, number one, you have to have a great culture and a great mission. It has to be an intellectually stimulating job you have to be competitive on compensation, but then you also have to create an environment that people want to be at.

And I think a lot of that, when you look at these firms, I mean, you talked about $5 billion building, but how -- what -- look at JPMorgan's earnings profile, and they want to have a building that people want to go there and be proud of and they have all these different amenities and eating outlets there. That is what these types of firms are doing, and that's why you see people taking space that they can attract great people and get them to work at their most optimal levels of productivity. And so I think that's what you're seeing, not necessarily, hey, businesses are getting more efficient and they're just going to jettison people, it's businesses are getting more efficient? How do we make sure we have the best people around. And so I think that's what you're seeing is some of these companies really investing in the -- almost the atmosphere that their employees are operating in.

I want to come back to one thing you said about how we're investing I wouldn't say that we are buying distressed assets. But what we're looking for that catalyzes a lot of the investment opportunities is market stresses in the market. I mean you talked about a deal that we did a couple of years ago when a company all of a sudden has to liquidate an entire fund. That is an unnatural act that is creating an opportunity. The assets weren't distressed, but you would have argued that wasn't an ideal time for someone to put 35 apartment buildings on the market. That's what created the opportunity was some other stress in the system.

When we bought into this independent living company, the business wasn't distressed, but there was a catalyst that someone else needed to sell a piece of a large piece of the company at a time when they had other issues in their portfolio, that's what created the opportunity. So our view is we can make attractive returns for our investors without actually buying distressed real estate, but we're looking for stresses in the system. Developers build a building. They built it to a yield on cost. They're not in the promote. Maybe they're not incentivized to optimize the cash flow. It's not a distressed asset, but it's an unoptimized asset. And so we're buying that.

We're bringing in our operating capability. We're bringing in new reset basis, new incentives. That now gives everyone the reason to invest the CapEx into the ROI projects to then optimize the cash flow. So I just wanted to make sure, like you understood how we're thinking about investing because we aren't necessarily looking for broken assets, but there are a lot of conditions out there that are suboptimal that are creating a lot of interesting opportunities for us to generate returns.

Yes. You mentioned that portfolio and that it wasn't the ideal time to take it out to market. I will say a little bit of sort of our -- we bid to sell that portfolio, and we pitched the seller that it wasn't going to be one wholesale of the entire portfolio given where the markets were at that time that would have to be broken up into chunks and sold in different chunks. And one of our competitor firms convinced them that they were going to get one big buyer for the entire portfolio. As you well know, it ended up being broken up and you guys bought a piece of it. But in hindsight, that was one of those ones where we sort of said we read the market correctly. We gave them the game plan to go do it. They ended up doing it with another competitor firm, but it was one of those ones in hindsight where I'm sitting there going, "I wish they'd kind of listened to us and gone down that path rather than going down the path that they went with the competitor." But hats off to the competitor and also hats off to you for buying a fantastic portfolio.

Chris, as we wind down our discussion. As you look out on where KKR is going with your real estate business, we started off with kind of the combined strategy of equity and debt. We've talked through that it's more focused on; a, growth than, if you will, value. And I don't want to -- I'm not putting words in your mouth there. You've been very clear in saying that it's not distressed versus value, but going and following the growth drivers in the market, growth drivers in the economy. And then predominantly in the sort of industrial, logistics, housing, landscape with other asset classes that you'll look at and go into. You did a mall in Portland, Oregon a couple of years ago, which I thought was actually a very interesting play, but we didn't dive into that. But you will kind of jump out of the playbook, if you will, if you see opportunity. What should those of us watching KKR and trying to work with you, be focused on over the next year or 3 years as it relates to the focus on equity debt and then anything from either region or asset class standpoint.

I mean the way we try to position our business is we want to be a solutions provider. And so if someone needs passive capital to help them finance the purchase, we have plenty of that. And like you said, we have fixed, we have floating. We have -- we can lend at 55% LTV to 75%. We can do construction. That's a way that we solve a lot of problems for sponsors who just need passive debt capital. We have hybrid capital that's kind of in the middle where we can do things a little bit more structured. And those have been things that we've done through our insurance company. We announced a transaction in Europe with Realty Income that kind of fits that bucket. We can do scaled transactions from that perspective.

We think that we're well positioned at this intersection of real assets between real estate and infrastructure. We put those businesses adjacent to each other and sit together because we think there is a lot of opportunity around those sectors. We purchased and now merged into our firm called Arctos, that is GP solutions, but also in the sports investment business. And so there's a lot of things in the experiential real estate landscape that we're also spending a lot of time on, and that fits very well with our thesis that we've been investing behind as a firm for the last almost 10 years around experiences over things.

People are spending much more on services, and we think that's only accelerated after everyone got stuck at home for a while during the pandemic, and we're seeing people spend a lot more than just like we're talking about before we came on the people want to experience things. And so there's a lot of real estate that can support that long-term trend that we're seeing. And then as we think about our equity business, we have a cost of capital from kind of lower risk return up through opportunistic. And we also can be a solutions provider where we can step into situations that are a little bit more complicated, a little bit more -- where there's kind of more trading complexity for purchase price. And then we're also thematic and we've also built out a lot of our own operating capability in some of the living sectors in industrial.

I mentioned data centers, we own a large company. So we can act as a hybrid owner operator when we're coming to situations which a lot of counterparties like as well. So we think about it as if anyone has a real estate need or a problem, they can come to us. I think the only thing that we always keep in mind is, we like to do business with people that we like and trust. We just -- we only deal with high integrity firms, high-integrity people because at the end of the day, you're doing business with a person with a firm not with a building. And so that's how we think about the business.

Final question. As you look out a year from now, we've got big IPOs coming of a lot of the tech firms on the equity side. We've got $10 trillion of U.S. debt that needs to be rolled by the federal government. A year from now, equity markets, whether you want to pick S&P or Dow, higher or lower and the 10-year treasury a year from now, higher or lower?

Well, if I knew that...

I understand that one. I got to get a directional -- treasury last week...

Maybe I'll start with the rate side. I think on rates, our view is that this is different. I think there are a lot of people in our industry that just hope rates are going to go down just because they should. But if you really think about the marginal buyer of paper has to earn a real return in an environment that they're more worried about inflation. And we have just talked about the U.S. $40 trillion of debt, $2 trillion plus or minus deficits. You have a lot of kind of mark-to-market as lower rates roll off, and we -- that would mean that the term premium should go up, not down. And if we think we're going to go back to 4.5% on the short end, that would probably put you -- I wouldn't bet a lot of money personally that we're going to have a flat yield curve in a year. So that would push you -- we're at like 5.08% today, it could be mid-5s. That wouldn't be crazy. But I think that's still an environment that we can find interesting opportunities.

On the equity market side, I mean, you still have a lot of earnings growth. Now it's concentrated, right? I mean 50% of the S&P is in the top, I think, 20 companies now, and you have 65% to 70% of EPS growth, based on our macro team, is coming from the technology sector. So it'll be interesting to see how the market digests that. But if you look forward into the next year, there's still a lot of earnings growth, and there's a lot of productivity growth that's coming out of this. The real question is what discount rates people are using, what multiples people are using to value that cash flow. But there are a lot of companies that are doing very, very well in this environment and are likely to continue to do well, and it's a question of what the multiple is.

Yes. Chris, as always, thank you so much. Your insights are fantastic. It's really interesting to hear what you're doing at KKR, all the things that you are investing in on both the debt as well as the equity side of things and as one of the true leaders in our industry, it's a real honor to have you join me for this discussion. So great to see you, and I look forward to seeing you in New York next time I'm there.

Yes. No, thanks for having us. And we really enjoy doing business with you and your firm. And so thanks for having us, and thanks for having me on, and we'll continue to monitor this market together.

No doubt about that. Thanks, my friend. Thanks, everyone, for joining us today. Have a great one.

All right. Thanks a lot.

[Audio Gap] Live Walker webcast or it's actually not live or recording it, and we'll play it next week. And welcome to, hopefully, a really good engaging conversation with Sean Dobson on where the markets are, single-family, SFR, multifamily from someone who has, A, timed markets impeccably in the past, has an incredible mind as it relates to both the financing behind housing and then actually the building and management of housing. And I would say, finally, Sean, just an incredible perspective as it relates to trading in these markets. I thought a lot about where to start this morning.

You kind of set this up here with the expectations a little too high.

Yes. No, it's great. I would start here. Fed raised by 25 basis points yesterday. Other than the fact that the cost of capital just went up. What's your take on that raise and what that does either from a price stability standpoint, if you listen to Fed Chair Warsh or a broader view, as I just said, on CNBC, which is after raising by 0.25 point, I didn't see the memo come in from the Iranians that the Strait of Hormuz is now open and the oil is going to drop by $25 a barrel.

Diesel doesn't get cut in half overnight.

So I'm sort of like what are we trying to accomplish here by 25 basis points.

Yes. Well, thank you guys for having me. I'm a big Ivy Zelman fan. So congratulations on your affiliation with Ivy, she is fantastic. As far as interest rates, it might help a little bit to understand our business. We're an investment manager co-investor kind of merchant investor. And most of our investment programs are 10-, 15-, 20-year programs. So the next month, the next week, the next year is always so hard for anyone to forecast. I don't think we have any special expertise that anyone else doesn't have in terms of the short term. We think that in terms of the overall economy and what the Fed is trying to do, we think they're late and they've been late for about 7 or 8 years. We think they were very late in taking away the subsidies post the financial crisis by a long time. So they kept rates too low for too long.

And then when COVID came around, they kind of had a chance to let things settle back in and didn't and then they over eased and kept them really at a level that was never seen before in terms of interest rates relative to economic activity. And when you do that, housing and what we're all talking about today takes the brunt of those mistakes in both monetary policy and fiscal policy. So I think that raising rates today is fighting inflation that was caused a couple of years ago, and we don't need to keep inflating it.

I think the bigger that you mentioned cost of capital, I think the -- what I'd like to say is kind of the yellow blinking check engine light that we're all kind of whistling past every day is that if you take a look at the return on TIPS, it's way too high. And it just means that America's cost of capital has gone up about 100 to 150 basis points, which is a lot. So as a nation, our cost of capital is now at a level that's going to hurt growth in the economy and raising the nominal rate is not going to help them.

Right. So you made a lot of money and a lot of good bets around the GFC. Anything you're saying today?

I think I keep it. I'm still you're working here.

It's all good, Sean. Anything you're seeing today that is a similar setup to the big bet you made on the GFC?

I tell people that the problem with finding something as big as the mispricing in mortgage credit was when we founded in 2004, 2005 is that you spend the rest of your career looking for another one. And it may have been an accident that we found it in the first place and there may never be another one. I would say that if you simplify the ingredients to what happened in the GFC, the primary cause of home prices getting out of control was Greenspan lowering interest rates into a growing economy. So this was lowering interest rates because of the dot-com bust, which was way more contained than they thought it was going to be, while PCE and consumer spending and the unemployment rate stay just fine on a macro basis.

So what happens in the United States is when consumers are making generally more money every year in nominal dollars and you crash down long-term interest rates, their buying power for housing goes up quickly and it goes up way faster than the rest of us can respond to create houses for those buyers who now have incremental more buying power because mortgage rates drop so fast.

Now if mortgage rates are dropping at the same time the economy is shrinking, then you don't get this explosion you get when you lower mortgage rates into an increasing economy. So that's what's happened post-COVID is that we dropped interest rates into a growing economy. When the economists -- when it's finally okay to criticize the government for their response to COVID, the economists, I think, will conclude that the monetary response was ridiculously too large and the fiscal response was ridiculously too large. And we did them at the same time, which means that the government printed it and literally gave away money at the same time that long-term interest rates were held at 2%, 3% for a very long time.

When those things happen, what happens is the buying power for housing goes way up. And the economy tries to react -- the system tries to react to more supply, but really just drives up prices. So when you have that big of a stimulus for demand, you just drive prices up.

But it sounds like on the GFC, you only had the fiscal side that caused the problem. On this one, you've got both the fiscal and the monetary. Why is this not a bigger train wreck than the GFC?

Well, on the metric -- the model that told us to short the housing market in 2005 thinks that home prices are more expensive today than they were in 2005, 2006. So relative to -- and your homebuilders talked about the low end is hard to supply to. It's not because there aren't a lot of people that make $80,000 a year that would like to buy a nice home. It's because people that make $80,000 a year can't get a mortgage big enough to buy a nice home. So on a pure affordability perspective, you would say that today is the best time ever to short the housing market. The problem is that the problem with that theory and the reason we're not recommending that. As a matter of fact, we're going to recommend the opposite is that you have to keep up with the supply/demand and you have to keep up with this float of housing versus stock of housing issue.

What was unique about the financial crisis wasn't so much that home prices had overrun fair value. What was unique is they were all temporarily financed. So there was a catalyst to create a glut of supply. The catalyst was just that the teaser payment was going to expire. The adjustable rate mortgage was going to be -- was going to reset. Remember, we had the pay option mortgage where you didn't even have to pay the interest. So all the tricks to get the monthly payment to be small relative to the loan balance had temporary features to them. And so you could just forecast when the music was going to stop.

Now it took a long time, like we were short in 2005, 2006. So okay, this is never going to happen. You don't have that catalyst today. You're going to have the third catalyst of 3 million, 4 million, 5 million new for-sale homes in the market. As a matter of fact, you have the opposite. So we kept -- when I talk about the mistakes, and it's easy for me to say I've never -- will be a Fed governor. But what I like to think about is in retrospect, COVID was never going to be a 30-year problem, right? It was never going to be a 10-year problem. It's either going to be the Spanish flu, in which case 30%, 35% of the population was going to die in a matter of 18 to 24 months or it was going to be what it was, a nonevent.

We took long-term interest rates to 3%. We took mortgage rates to 3% on 30-year fixed rate mortgages. When we did that, not only did we create more buying power per unit of monthly payment that manifests itself into asset price inflation, we took those homes off the market for a long time. It's -- I'd say it's tantamount to burning them down. So we talk about the supply of housing. Are there 4 million underbuilt or 3 million underbuilt. And yes, they're underbuilt.

But the real issue is not so much how many homes there are. It's how many homes are tradable. Like what's the -- not the stock of number of homes out there, but the float of homes that are freely tradable. And freely tradable means a couple of things. It means that the mortgage is less than the value, so there's equity. And it means that the cost for the seller to transfer to a new home isn't prohibitively expensive. And so we talk about the lock-in effect, and we've been writing about it for 5 years, and Ivy has been writing about it for a long time since interest rates went up. But I think that it's -- you can't almost overstate the impact it has on keeping home prices unsustainably high. So we think housing is in a technical short. Home prices are high for technical reasons, not because of fundamental reasons. Technical price squeezes break because of a catalyst. And we don't think that catalyst is going to happen.

So I want to come back to that in a moment, but I want to dive in for a moment when you have that short on back in '06 and '07. What -- a, you just talked about a number of different data points that got you to put that position on. There wasn't one yellow blinking light that said that's the one piece to it. But once you put it on, to maintain the conviction to see it out, there had to have been almost daily moments where you said, why do we have this thing on and this isn't going to actually happen?

People thought we were crazy. We thought we were crazy. There's this crazy bond convention that happens every year in Florida. And it's like a convention that dentists are like, I don't know, anybody would have in the industry. Where literally different law firms and investment banks set up booths and you walk around and you talk to people. It's a crazy thing you've ever seen. But everyone competes to hand out the best tchotchkes, key chains out. So in 2005, our little thing that we handed out to people was a hard hat that had Amherst on the front, on the back and said, beware falling home prices. People we thought we were out of our minds. Like home prices had been lock limit up really since 1997, 1998, and there was nothing on the horizon. So by the end of 2006, that conference came back around, home prices hadn't gone down.

Why did you change?

How did you go over the next year? But I think that for us, to stick with the trade, there are 2 things happened. One is it got our first trades were terrible. So we got short bonds that were trading 300 over and then pretty soon, they were trading 200 over. And so we got smoked by 30%. But I think that what we're really betting on was that this catalyst. We could see that by 2006, 2007, the consumers in the homes couldn't afford the payment that they already signed up for. So you didn't have to have like some weird thing happening. You just had to have time pass. So really, when home prices in 2006 underperformed inflation, we tripled everything because the reason we were losing money is because easier credit was supporting higher home prices -- and the new loan paid off the old dumb loan. And so you make a dumber loan and a dumber loan to pay off the previous dumb loan, and it doesn't look like you can make any loan dumb enough. They're all genius.

But when home prices kind of capped out, it meant that there was no cash out refi to pay off the last dumb loan. So that's when it kind of all was over.

It's funny you talk about that new dumb loan to pay off the old dumb loan. When they announced the bond buying program of going out and buying long-dated securities and issuing short-dated securities to do so, it reminded me of back in CMBS days when they used to take a B-rated bond and put it with a B-rated bond and miraculously became an A-rated bond. And it was sort of like how does this actually work?

Exactly. Exactly.

So you talked about what happens to the stock and like burning it down. One of the reasons you started your single-family rental business was you were looking at the market in 2010, 2011 and saying, we've had kind of a permanent dislocation in the single-family space. There needs to be a new homes for rent, but there's also all this inventory out there that's just sitting there as if it had been burned down, that wasn't being used and wasn't capable of being bought. Talk about that moment and the focus of you and your team, Sean, on how you entered the SFR space.

Well, it was -- it looks better now to did it than at that time.

Just one quick side to that. I was with Sam Zell back in 2011 or 2012, and John Schreiber from Blackstone showed up at this conference that we were both at. And Schreiber and Head of Colony are sitting there talking about the single-family rental idea they have. And Sam, in typical Sam fashion, stands up and goes, that's the stupidest F***ing idea I've ever heard. And he looks at everyone in the room and he goes, has anyone in this room ever washed a rental car. And of course, nobody in the room raised their hand and say, that's exactly it. These people are going to come rent these homes. They're going to drive them into the ground. You're not going to be able to take care of them. The maintenance is going to be a huge cost. That's a terrible idea. And lo and behold, it's John Schreiber and Blackstone did pretty well by their SFR.

He wasn't totally wrong. We started out with -- well, how we got into the business was our Amherst customer base are maybe the 300 largest investors in the world. And they -- we work with them on their U.S. residential exposure. And when you're these types of accounts, when you're a sovereign wealth fund or you're a global life company or you're -- whatever, these huge pools of capital, there they need to move in scale, right? So a 1% position has a lot of zeros, and they need something that's going to last a long time. So these are not pools of capital that are like hedge funds running from this quarter to that quarter. They're very -- they're mostly either not-for-profits or taxpayer money of some kind, and they're invested for 20, 30 or infinite life cycles.

So they lean on us, we lean on them for big things, U.S. housing because U.S. housing is the largest private market in the world. It's almost the same scale as the whole S&P -- the whole stock market combined, and it's very liquid. So when you get back to the housing market crash, you had 7 million homes in mortgages in default and home prices in a free fall. We looked around, there was a bunch of things to do that were interesting, right? You could buy bonds that have been mispriced. You could -- every mortgage bank was busted, the banks were busted. There was lots of things like don't invest that you could do, sorting the baby off the bathwater. But we sat back and said, what would be something that the customer base and really is designed around the long term.

And what we decided, and it was ingenious, right, is that the $2 trillion lost in subprime mortgages was probably going to be a pretty big lesson for lenders, and they were just not going to wade back into giving mortgages to people who had less than pristine credit. And that meant that there was forever going to be a new customer in the housing market that was going to be renting instead of owning. And it was a function of -- and that's happened. There's been almost no subprime origination to speak of in terms of like what it was, say, 2001, '02, '03 before the boom times. It's maybe 1/3 or less what it was.

So that was the whole view is that the houses are there. We can probably operate them as commercial real estate. The customers are there. And when people look at the rental industry historically, the customer base was sort of the -- it's kind of the minus of the homebuyer customer base. So it was a fairly hard customer to manage because it was a customer that couldn't get a subprime mortgage, right? So that was the thesis is that the customer quality was going up, the home price had crashed and the returns were high, and we thought we could operate.

And our original strategy was all outsourced operations. We took a lot of lessons from the people that buy defaulted mortgages and work them out through their vendor networks. The GSEs have big vendor networks that repair homes and manage homes. And so we had this big idea to go buy hundreds of thousands of homes, operate them as rentals and package them up to investors the same way that we've spent the last 25 years in the mortgage market, providing up a sort of turnkey investment for a large investor that they buy their books and everything happens, the way mortgage pool works.

But you moved into -- I mean, you basically vertically integrated that business. So you went from really being a trading house and hedge fund to being an actual owner and operator of a vertically integrated SFR business.

Don't remind me. Like we had to. We had to. So what happened is you could find -- a lot of people don't know this. A lot of the -- a lot of the mortgage crisis was fraud. A lot of people, you probably know by now, lied about their income. They were -- the most common fraud was really in purpose of the mortgage. They would say they were lived there and they actually were SFR operators. So a huge chunk of the mortgages that defaulted in the financial crisis were speculators who own 15, 20 homes. those speculators had an ecosystem of real estate agents, leasing agents and property managers to help them manage their portfolio. So we tried to leverage all that.

And what you found is just this -- and you see this today, you guys are talking about family -- a single-family or residential housing conference, you break out single-family from multifamily. The multifamily ecosystem is a super professional ecosystem, everything from design to build to manage to price and they think long term, how am I going to put the carpet in that doesn't work out on the turns. Well, single-family, and I love these -- the guys here from the builders who have done an amazing job given the fact that they've had.

But those same decisions are not made in any part of the single-family ecosystem. Their average hold period for home is 6 months, right? Multifamily developers developing for 15, 20 years. So we ran into that operations. All the thinking was short term. They couldn't spell NOI. They were not compliant with fair housing. There was all kinds of problems at ecosystem. So we just said this isn't scalable. It's not compliant. It's not fair. It doesn't have the reputational protections that we would require. So we built it from the ground up. And that's why the United States is the greatest economy in the planet because you could build it from the ground up.

And so today, you have 100,000 homes.

So it's 50,000 homes.

50,000.

Which is way underperformed our expectations, right? This is -- if you look at the -- there's 4 million, 5 million missing subprime mortgages post-GFC that should have been originated. And that's benchmarks to like way pre-GFC credit standards. The people -- there's been 5 million families that have been told no to buying a home that we think should have been told yes. Those 5 million families are out there in rentals. and we only have 50,000 homes. The industry has had a very difficult time growing.

Why?

Cost of capital in the beginning. This asset was priced by the investors as if it was way riskier than it really is. It took a long time to get market acceptance over price. Then we just had a series of sort of calamities here. I mean, COVID is a big issue. It took -- it hurt the industry dramatically. And now you have, and a lot of the pushback for growth was this narrative, this narrative that SFR is a bad thing, private equity is a bad thing and private equity and housing is a bad thing. And that really limited the investor base. So this investor base started out with sort of adventurous speculator types who would put a very small allocation to see if you could operate the thing. And it took us 5 or 6 or 7 years is this a business or is this a trade? Can you operate it? And now you guys are going to hear from Jessica Thorsheim, who runs our operator. We run as tight a ship as your best multifamily operator, so you can't operate.

So in that 5 years, growth was slow because the cost of capital is really, really high. As the cost of capital came down, you could expand a little bit more, but then we ran into the interest rate spike and we ran into COVID and then we ran into this interest rate spike. So those 2 things have really been heavy headwinds against the industry getting to where it will be eventually, which is part of the housing ecosystem, a solution between the 2-bedroom apartment and the 3-bedroom home you own. And it will lay next -- in the portfolio, lane next to securitize and structured products and scale. But it's hard to start a new industry.

I walked in to meet with some treasury officials yesterday. And as I was walking into the conference room, they said, "Do you want to talk about the ROAD to Housing Act and SFR BFR. And I said, we can talk about that, but I'm like not here to actually like talk about that specifically. And they were like, okay, because if you are, we've got to like bring in a whole another team of people. And so as we were going through the meeting, I sat there and said, so what's your take? I'm asking them the question. What's your take as it relates to the qualified institution as it relates to sale and purchase of SFR communities. And I said to them, my friend, Dallas Tanner, who runs Invitation Homes says it's all up to the rulemaking. And literally all 3 people I was meeting was smiling and go, did he pay you to say that? And I said, no, he didn't pay me to say that. But what's your take on the ROAD to Housing Act and what either headwinds that presents for you all as it relates to growing the portfolio or the value of your existing portfolio given potential constraints from a rule-making standpoint?

It's interesting. So this is the last 6 months of my life has been part-time lobbyist.

I think everyone in your industry has become part-time lobbyist.

Yes. We've all been -- and we're all very fatigued from the whole mess.

Do you think that -- I mean, at the end of the day, the Senate bill was a train wreck. The House bill worked out the kinks in the Senate bill. Obviously, it's going to come down the rulemaking, but are you okay with the legislation?

Yes. I think that everyone, including French Hill and other senior grownups in D.C. and there are some grownups left in D.C. realized that a bunch of people were about to lose housing and they're about to lose the opportunity for housing. And French Hill really saved the day. Honestly, if you had to put an on person French. I've never met French Hill, but...

I know him quite well. He's an exceptional leader of the House Financial Services Committee.

And the guys that I know that are his vintage and his demeanor are leaving in droves from D.C. So it's kind of -- it's upsetting. But anyway, we think it landed in a fine place. It's -- given the choice of ROAD Act, no ROAD Act, I'd rather have no ROAD Act. Given the choice of the thing that the Senate was trying -- that the original bill was ridiculous. This one has meaningful exceptions that allow us to serve those 5 million families that the mortgage market won't serve. That's just 5 million since the GFC. We can still buy, renovate -- obviously, you can build, do BTR, which we have some of that business. You can renovate a home. It just means that you have to make sure that you're really renovating homes, you're not just competing on MLS for the ready-to-go home that consumers can buy. There's exceptions for homes that are operated with real path ownership programs in place, which we're implementing.

So I think it's fine. I think if there's a silver lining around it, it's that it does create a standard that didn't exist before. So the industry is something to point to that says the government has looked at this, they determined what they liked and didn't like and they've given us a way that they approve us to do business before we were kind of operating in kind of a vacuum. So I think that's the best component. The exceptions are well written and well structured.

And yes, the rule-making will clarify some vague portions of the exceptions, but it can't change them. So the way the law is structured, if you own an existing pool of homes, you're carved in as a permanent exception and those homes are carved in as an exception. So there's an argument that the existing SFR portfolios are kind of have a Bitcoin, a little flavor to them because it's really hard to create a scalable portfolio.

It's a little bit of regulatory capture.

Maybe, maybe. We'll see. But the exceptions are -- some of the exceptions are going to allow you to grow. I honestly don't think -- kind of the ironic thing is we weren't buying homes anyway because post-COVID home prices got so high, the return expectations kind of got below our targets. So they banned us from doing something that no is really doing anyway. But the exceptions may be broad enough that it's not regulatory capture that you can still grow.

And so as it relates to that, how big a portfolio -- is there anything here that is super beneficial to you as it relates to gaining scale? I mean, in other words, given you've got that exception, you and others.

Yes. Well, this exception we're talking about carve in the homes that you owned pre the law pass, right. So that's just about 550,000 doors that will carry this sort of unique identifier. But there are other ways to get homes to add to that. Well, they're pretty -- they're not super hard, and they're pretty consistent with how we do business anyway. So I think that when investors are going to look at the risk tolerance, the regulatory risk tolerance, they're going to say, some of the investors are going to say, I read that exception, but if I read it wrong, it's a $1 million fund every time I read it wrong. I don't want to rely on that exception. The one about existing inventory is easy. So there's almost no risk to that exception. So some investors will put a big premium on that but it's hard to say how much.

So you started building this portfolio back in '11, and we're now in '26. So it's been 15 years. During that period of time, given trading on the single-family side, opportunities on the multifamily side, you've decided to stay in the SFR space. Why no additional bets on the single-family side or on the multifamily side?

We have had a decent business on the credit side for a while. We wound down a bunch of those positions. The single-family thing, it is a belief, and we could be wrong, but it's a belief that this is a new sector that will be larger than almost all of commercial real estate combined. A single-family guys kind of look at the CRE space as quaint, right? So when I sold my investment bank to Banco Santander, and we're just a little investment bank you never heard of, and we were buying and selling about $50 billion a month worth of real estate debt. So the resi space is $9 trillion of UPB outstanding in first lien mortgages. It's -- I think it's $55 trillion in market cap for single-family homes.

So like we think that having the ecosystem that allows a large investor to responsibly deploy capital in scale into an asset class that big is a remarkable thing to have. And there's really only 4 or 5 of these things that exist in terms of acquisition development, property management, financing, portfolio optimization. So we made the bet that they were in the past. And we built the entire ecosystem that the multifamily housing sector has across multiple umbrellas. And when I say the sector, I mean, think about everything from someone that develops land, right, to a securitization issuer to a fund manager, right? That whole ecosystem, we have -- for single-family, we have all of that. So we're buying raw land and turning it into build-to-rent.

On one side, we're out doing the glamorous things of fixing air conditioners and toilets on one end and handling our own -- we internalize 65% or 70% of the service calls on our portfolio on that end. On the other end, we issue our own securitizations. We generate our own funds, run our own funds, and we're launching a new big vehicle that will be even more flexible larger. So it's kind of cool to think that you're at the beginning of something that in 10 or 15 years will just be, yes, there's the office space, there's the multifamily space, but then there's this giant sector out here that really represents a core inflation protected position that's very -- that's -- I'm trying -- I'm not saying it clearly, but U.S. consumer, their largest expense is housing, as you know, the largest chunk of that is in single family. So it's not like hardly any other thing in the economy.

So double-click on a moment there about your inflation-protected investment.

Yes.

We're -- I was with somebody yesterday who's trying to raise a fund -- a multifamily fund, and they're taking off for a trip to Asia next week. And they said, it was hard enough to try and get attract investment to U.S. commercial real estate before we had rates go to where they are. And now that we've got rates where they are, it's super difficult for us to go raise capital to come in and invest in a $1.5 billion multifamily investment fund. But you just hit on a point that I think is super important from an overall return standpoint.

Yes, real estate gets hard to sell to traditional real estate investors when the cap rate gets below the financing cost. It's like that investor base of the people I say they want their cake and eat it too, right? So they want to have a high ROE, assuming no revenue growth and then they want the revenue growth. So it's good work if you can get it. But most of the time, when that cap rate is that far above your financing cost, the fair bet is that your revenue is going down, not up in the future, right?

So today, when you have cap rates this far below or equal to or this far below financing cost, you have to wonder, is it a fair bet that your revenue growth is going to make up for that deficit. And we believe it's kind of a very easy bet on the rental side that the revenue growth will well outpace inflation from here. And it's a lot of the dynamics we just talked about. There's -- rental growth has been not great, but steady for the last 3 years during a point in time when all the build-to-rent stuff came on the market, all the multifamily stuff hit the market. You have all this migration going on. And now that whole supply glut is drying up, and it's going to really dry up now that diesel fuel is $6 a gallon and interest rates are this high. So the demand for rental will be high.

But on -- remember, these programs could be 10, 15 years or 20 years. If you study the revenue side of residential real estate for the last 50, 60 years, we did the study. It's kind of fun. We're like what other thing can you buy instead of housing that produces the same risk-adjusted revenue. And the only sectors in the S&P 500 that come close are tobacco, alcohol and caffeine. They're the only people that have the pricing power. So Coca-Cola, the tobacco companies, the beer companies. And of course, the alcohol guys are in trouble now. But over time, recession growth and if you go look at those revenue streams, you look at housing revenue streams, they're very, very similar in terms of durability and ability to reprice when inflation goes up.

The difference is that our housing portfolios, multifamily and single-family run at 60%, 70% margins. Those other companies run on 15%, 20%, 30% margins, which means that as you have inflation, their revenue inflates, but so do their expenses. For us, our expenses go up, but they're such a small share of our revenue that you can really turbocharge the inflation into the investment itself.

So the good news is that the lower going-in yields are not really an issue because they compare very favorably to other things that are as inflation protected. The kind of the bad news for single-family is that it's not risky enough. So when it lies in the private equity allocation of a pension fund, that money is laid over there to earn 15% or something. Housing has the price risk of like a 5-year treasury. So it's really like a 5-year tip is really how you think about. I mean home prices move 4% or 5%, it makes the news, right? So you can't have an asset with a 5% price volume and a 15% return. I mean that would be amazing, but it's not the case.

We think you can easily underwrite single-family rental to be inflation plus 6% year in, year out over decades. The house we build is more durable than the house that the homebuilders build. The house that we renovate is renovated to look more like multifamily than single-family. We run it like multifamily. And we think that over time, people will start to figure out that there's almost no reason to own a bond if you can own a big diversified portfolio of residential real estate at going in yields that are anywhere close to where bonds are yielding because, one, you get the yield plus inflation, one, you get the yield minus inflation. And the long-term bet is that our government is not going to become less oriented to create inflation.

So you just said we can -- it's not risky enough. You can make it riskier.

You can leverage it, but it's like that's all just going to be like time functions, you can make it riskier for a 4- or 5-year function. So you can. And I don't think that's a problem the industry is going to have actually is that securitization terms are 5 years and they should be 15 years. So there's a bunch of this debt that's going to roll and people are going to have to figure out how to deal with that with much higher interest rates.

Does that maturity wall concern you, Sean?

No, I mean, I think everyone is looking at it. I doubt many people -- we're pretty hedged against it. But yes, I mean, the debt markets have been incredible. What's -- we issued a securitization right before the ROAD Act, it was before it became law and after it was published, at our tightest nominal spreads that we've issued to date at our highest advance rate. So the debt markets have been just incredible. They've been incredibly flexible on allowing us to issue securities at a discount when the pay rate needs to come down to effectively prepay the interest. So I'm not too worried about it. I would we prefer longer-term mortgages because it's such a low vol long-dated asset.

And as it relates to spreads, given the pending wall of maturities and that much paper coming out of the market, you've got to expect that spreads are going to gap out.

I don't know. It's like spreads are...

I thought you were going to say yes, definitively there. So I do -- no, I mean that. So why?

Well, if you look at the issuance of fixed income, like where the money, where the issuers are coming from. And if you run a big book, right, there's only so much data center exposure you can take. There's only so much U.S. auto exposure you can take. And remember, those 5 million families that were told no to buy a home. That's 5 million mortgages that investors didn't get to invest in. So there's an enormous hole out there in the debt capital markets for this asset class that is under allocated to. So I don't think this particular asset class looks particularly tight on a relative to any basis. I think if anything, high-grade fixed income is a little bit wide relative to inflation. And that's the biggest issue, like I was saying is that treasury yields are sort of inflation plus 2.5%. They used to be inflation plus 1. During COVID, they were inflation minus 1. So like that 100 to 150 basis points of tax that every bond has in it is the problem.

I think that like overall spreads don't look like crazy tight given how strong the economy is. Now $6 a gallon diesel fuel, we have the Fed raising rates, fighting inflation from 2 years ago, they can mess this up. And the U.S. economy is very fragile. It's -- so it can be best -- the key number that we -- there's a bunch of numbers we look at. So we'll watch our rent collections every month like crazy. It's like unemployment Friday every first of the month to see how our customers are behaving. And knocking on wood, they've been -- they've proven incredibly resilient. Our rent-to-income ratios are in the low 20s. And our velocity of rents is -- our velocity of homes is Jessica's team puts 2,000 or 3,000 homes up for rent every month and they rent 40% of them in the first 30 days, 50% way different than multifamily absorptions.

So we don't think the underlying economy deserves a higher credit spread is the short answer. the quantum of capital that's being borrowed may move nominal rates in a direction you don't want. But the credit risk in the U.S. economy is not that great.

But with that as the backdrop, Sean, then we've got plenty of debt capital. We've got a 5 million previous subprime homeowners who need to live in a single-family rental. All the backdrop sounds like that's perfect. Why not go another -- go buy another 50,000 homes?

Well, and if the capital was out there for it, I mean, in other words, if this is low leverage, so our platform -- at its peak, our platform was buying $0.5 billion of homes a month. And Jessica and our construction team were turning these into fully renovated homes in 60 to 90 days and getting leased up. It's hard to run a business at that scale doing that many small trades. The reason we're not running that pace today is primarily our belief that we'll be able to get a better entry point that you get a better entry point, either more clear rent growth that you're not sort of having to look so far through the fog to see it or a better entry point in cost of build.

So go down on that one. Cost to build or cost to buy.

Cost of build. Cost to buy is tough because there's just nothing for sale, right? The for sale inventory is off still 35% or 40% from pre-COVID times. So the float of housing is difficult. Cost to build, we're investing heavily in our factory to do off-site construction. We build a regular IRC code home, not a manufactured home Cavco does, which is pretty cool. It will be awesome to see them be able to stretch more into something that's a permanent home and will stretch more into something that looks like a home as well. There are efficiencies to be gained in that cost. There's efficiencies to be gained there in required margin to that business. I think one of the things we all talk about with the homebuilders as we see their 20%, 25% gross margins. Like it was interesting the question about AI. Like the question for AI really would be, can AI run the rest of the company so efficiently that you don't need a 25% gross margin to build a home.

So on the -- one of the slides that Ivy showed previously was basically, the death in America versus the births in America, we're go negative on that one. And there are a ton of homes where, if you will, the owners are no longer alive and therefore, that's coming back into the inventory. We talked previously about the lock-in effect on the mortgages and once that's done. Would any of that sort of, if you will, older inventory be back into the rental pool and you go out and try and buy those homes? Because clearly, you're not going to buy homes from Pulte and Lennar, but would you go out and buy that excess inventory?

We would. And the main thesis behind our off-site construction is basically that. And this doesn't tie it one for one. But throughout the South, if you start at Charlotte and you whip all the way around to maybe as far west as Dallas or Houston, what you'll see...

Is that your sweet spot?

That's kind of our sweet spot. That's kind of where people are moving to. It's where the weather is better, the tax is better.

So you stop in Dallas, you don't complete the smile over in Seattle.

We have homes all the way up to Seattle, but really, those markets are so hard to -- it's like the friction points for supply are important, right? So in that smile, you can build. And I think this is the part that surprised people about home price appreciation in the last 4 or 5 years have been way lower in the smile than it has been in other places because when people migrated to those areas post-COVID, those local governments allow to build. And so the supply showed up to meet that demand. So that's what's going on. But I think there's a chunk of housing inventory that's just coming to the end of its useful life. And you can go see it. And it's in great locations, but it's on big lots but they're very small homes and there's millions of them. And there's homes built in the 40s, 50s and early 60s. Those need to come down. And what needs to go back is this missing middle concept that people always talk about something that's either a 5 -- 4- to 7-unit multifamily thing or 2 or 3 homes on kind of flat micro flag lots.

I think that, that's -- we're spending a lot of time on that because I think that's this urban infill trade where the local governments are in favor of density. We don't do a lot of build-to-rent because we can't get comfortable with the locations of many times is that you're kind of underwriting in like this because you can see that people want to live down the highway 15 minutes and they're willing to pay $1.50 a foot to live down there, but you're 15 minutes further from the grocery store, you're 15 minutes further from work, and those rents don't fully translate.

In this urban infill thing, you don't have that risk. But the risk you have is that you can't go do 200 doors with one construction ecosystem, the way that the big builders do, where they've got one person that does 10 foundations, another team does 10 frames, team does 10 roads. That doesn't work when you build one over here and one over there. This one starts in January, that one starts in March. So you have to use our -- the off-site strategy.

And it sounds like you're more focused on high growth as it relates to migration, job growth and employment growth than you are on supply-constrained markets.

Yes. I remember the length of these programs. I would say it was -- I knew you're going to ask the question about like where it's so much easier for us to figure out where or not.

Right. Give us where or not?

No, we're not. I don't have the stock answer, but the where or not, you can run on the list. The where or not price, right? So California, for a myriad of reasons, you just -- unless you're going to live there and enjoy it, I don't know how long world you buy a piece of real estate in California, right? So it's the most beautiful state probably in the union, but the most difficult to do business in by far. So California is out basically because of price.

Just one quick aside to California. I just read a research report by a firm called 13D that puts out really interesting research, and this was on El Nino and the fact that 2026 will go down as the hottest year. They went back -- I don't know how they get to this, but they said it's a top 5 hot year over the last 125,000 years okay? So I'm not exactly sure how they had day goes back to 1,250 years ago. But anyway, they basically were talking about how hot it is and then they were going forward to this coming El Nino year and what it could mean to moisture levels in the state of California and some incredible destruction that could come in to California if you get one of these -- I don't think it's called [indiscernible], but it's like this. If you have even [indiscernible] comes through, the damage that could happen in the state of California, and it was a pretty scary report I read. But so California, you're not touching.

California, the market dynamics there between local governments not wanting you to build, the people want to live within 3 miles of the ocean. It's an incredible economy with lots of wealthy people. So there's plenty of demand for high prices. So California is just kind of off the table. Illinois is off the table. The level of state deficits there are going to show up on property owners' books at some point. So you just can't figure it out. There are places that are like in the East Coast where the combination of density, product type and local regulations just make it very difficult to operate in scale. So like Pittsburgh is a really cool town actually and an awesome place, but nearly impossible to scale up a portfolio.

What about the DMV, District, Maryland and Virginia?

We tried hard to be in the Northeastern Virginia and just couldn't figure it out. Just couldn't figure out operations, couldn't figure out cost. When you're -- our core business is scattered sites, single-family rental. And you need to have pretty easy access to trades. So those unions -- those markets that are heavily union-dependent like the union doesn't want you work in there, but the union doesn't provide the services that you need. So you end up with kind of a mess. The local government is super important.

So even in like St. Louis, there are cities because we say we invest in St. Louis, but it's in a bunch of cities that are around St. Louis. There are some cities that are just off limits because the city government is just noncooperative. They won't issue permits. They won't give you a C of O out of like principal. So there's -- you find that more common kind of in the Midwest and then bending around to kind of the New York area. And that's tough because those are huge populations there. We just marked off 25% or 30% in the United States in terms of headcount.

Anything here? Do you like Boston?

Price?

Yes.

Price. I love Boston. But the -- like whenever you get a Gini coefficient like you have in Boston or like you have in California, you find that like we serve the middle American family. We serve a family that makes $110,000 a year. They're paying 25% of their income and rent incredibly affordable. Our rents are $1.40 a foot a month. But that family has a reason -- like 85% of them have a reason they're not buyers. And it's not because they don't want to be, right? It's 15% don't want to be. 85% would like to own the home and there's -- they either don't have the kind of family that you think about, right? So maybe they're not married, maybe there's 2 sets of kids in there. Maybe they're just roommates. Maybe it's a single mom with some kids and kind of a factoid for you is like all this revolves back to is that the mortgage market hasn't -- doesn't serve the modern family. and the mortgage market is still looking for the Cleavers. And there's a lot of families that don't look like the Cleavers, right?

Do you think that the view on housing as a store value and an appreciable asset has fundamentally changed in this next generation of Americans?

I think we don't talk about this enough because it's one of these sacred cows that everyone needs to own a home and you got to own a home. But what I'd like to say is that if we were regulated by FINRA for years, it's like the SEC of the small firms. And there's all this training you do when you talk to a customer about giving the financial advice, which we had to take the training and then go sell to a sovereign wealth fund. But like if your cousin came to you and said, my financial adviser said, I should take 80% of my liquidity and I should go borrow then another 4x that, and I should invest in one asset in one corner on one street in one city, in one state. you'd say fire that financial adviser, say what in the world are you doing? And that's what we've sort of expect our young families that are forming today to do is to go get completely illiquid, completely levered up and take a bet on that one asset in that one location.

I love those people as an employee.

Exactly, they're motivated. But I think that -- but when we got this idea of the American dream and you need to own the home and you're going to have your 3.2 children, your other investment choices were very different. The cost to invest is very high. There were still people calling up and selling you penny stocks. The risk of investing other things was outrageous. So if you took a look at the balance sheet of a family that was 35 years old, you probably wouldn't allocate them something in this scale that has a 5% risk to it. That has a 5%. You would try to get the ball up through leverage.

Now there's a bunch of societal benefits for people to think and act like owners in their community and in their neighborhood and do they wash the car or not wash the car. And all of those are true. But I would tell you, for the families that -- what we call our -- we say the words our families a lot, like the families in our homes, they are not to be disrespected. I had to sit in Washington, D.C. and say this over and over again. And I was told by our electric representatives, stop talking about your residents, no one cares, okay? And this whole discussion around the ROAD Act, every time I said, hold on. The argument is I bought the house and now they can't, okay? The government gives grants 98% of the mortgages in this country, and they will not finance my families.

So what you're really saying is you don't want those people living in those homes. So if you're going to say that at least have the guts to stand up behind your lectern when you're running for campaign and say, I don't want people to look like that, living homes that look like that because that's the policy you're actually advocating. And I got to tell you, it really didn't land. They really didn't understand it.

So I think that this idea of ownership is 100% correct. I think that arguing that somehow that our families are hurting the neighborhood is completely uninformed. I can tell you that we have people that have been in our homes for 2 years, 3 years, 5 years, 7 years, 8 years. Their homes that look a lot better than some of my family's homes in terms of how they care for them. They act and think like it's their home. And that's what we tell them. There's a difference like we buy a house and they make a home. And the fact that our name is on the title and theirs isn't is interesting.

But I got to tell you, the average American family is sitting out there today, particularly our families, like here's a factoid for you that you may not know. When you get divorce, only one person gets the FICO score, right? So there's a lot of single moms out there who have no credit score. They're not going to get a mortgage and living in our homes. Does this whole conversation about how much equity does she need to have in her home and what's her portfolio allocation? And is it better for her to own the home seriously. She's got a couple of kids she's got in school. She's a nurse. Right now, she lives in a 3-bedroom home. She has a place where her kids are safe in school. Domino's delivers like Domino's delivered every house in the United States. So we put her in a home in a suburb that she's got no other way to live in.

So in terms of these bigger ideals of like should people own their homes, I made almost all my money in the mortgage market. So I feel like I've contributed more to homeownership than probably anybody know. And I'm all for us doing everything we can to increase access to homeownership, and that means more subprime mortgages. But to act like we're ever going to get above 63% or 64% homeownership rate is ludicrous.

That was where I was going.

When we got to 69%, we almost [indiscernible] civilization.

So the other 1/3, but it wasn't -- I mean, but on that, I mean it was fiscal and monetary policy that got us there, not an ownership society that got us there.

You made it super easy to go buy a home or 10 homes or 20 homes. And you just -- look, it's not complicated. You add a bunch of demand to a market that can't create supply, you're going to change the price. And the interesting thing is, and this is -- I spent a lot of my time in foreign countries. they just are mesmerized by a 30-year fixed rate mortgage. And the 30-year fixed rate, what I tell people is you don't really want to buy a house, which you really want to get us a 30-year fixed rate mortgage, right, because that's the most inflation protected thing you can do. But that 30-year fixed rate mortgage basically transfers those mistakes in monetary policy directly to the value of the asset and then locks it up for years. Now not for 30 years.

The turnover rate, I was looking at it yesterday, the largest cohort of mortgages that trade in America are -- there's $700 billion worth of 30-year 2s. The bondholders getting paid at 2, and they're prepaying at about a 5% per annum rate. So 12, 14 years, that group homes will turn over. And so that's the give and the take of the 30-year mortgage is a wealth-creating machine for American consumers, the counterbalance of it is you go to be very careful with how low you let that rate go because you can create these big discontinuities between affordability for the people that don't own and the price that the people have their own.

So a couple final things. First, the wealth transfer that's coming up as those boomers are no longer with us.

I love Ivy slide this morning with the $90 trillion.

Yes, $90 trillion. I've heard it be even a little bit than that. It's a huge amount of money. Does that present headwinds on the SFR side versus the buy side?

I don't know. I don't know. What I thought was fascinating about that is that there's $45 trillion of debt on the government's balance sheets that, that same generation may have left us. So like we could pay half of it down with that.

I think you could.

But there's -- but I think that we spend a lot of time talking about the impacts on longevity on the housing market. On the one side, we talk about the fact that we've lived through the most amazing time for longevity of any generation in the last 300 years.

I got to say, Sean, it's still to come. I mean come on.

The gains are narrowing, right? But like I'd say like in my lifetime, this happened in my life my father's lifetime. So my father was born in 1937, life expectancy of 63 years. He's still with us. He'll be 89 this year.

Exactly the same as my father.

He's the smartest guy I know to this day. My son was born in 2003, life expectancy of 86 years. So you're like, okay, what does that mean? Well, it's 23 years on a 63 base. I mean we're going on like we made these human machines almost 50% increased lifespan. What does that mean?

But you got to think that, that accelerates.

Well, it will accelerate. But if you look at that population pyramid that Ivy was talking about, right, the impact of the acceleration, well, it's not accelerating, but it is high. I mean it's -- we're not going negative. But the big gains have probably already been made, right? Like someone born today is probably not going to get the same -- the same 50-year expansion or 40-year expansion that my dad got.

I just had my COO get his hip replaced and he was back on a bike in like 5 days.

Yes, it's fascinating. But when you get to housing, like what does all this mean for housing? It means several things. It means that this whole reaction to like, oh my God, first-time homebuyers are 40 years old, there must be something with the housing market is completely misguided because today's 40-year-old is not the 40-year-old from 1965, right? Today's 40-year-old is going to live to be 100, right? So we did this funny stat that if you looked at first-time homebuyer, not by the age they bought it, but by the life expectancy they had when they buy it, it hasn't moved in like 50 years.

Same thing with marriages, by the way. So what this has to do is the housing ecosystem has been suffering because the older generation has been keeping their houses way longer than expected and the younger generation is putting off marriage and kids and housing way longer than we would expect on their time. And so everything has been pulled. But that pull is kind of like coming to like the baby boomers are running out of runway.

Final thing. You've been really good at looking for that flashing yellow light. We've talked about national debt. We've talked about mortgage rates. We've talked about demography. We've talked about migration trends. What's the thing that you and your team are watching right now that says, we're long SFR. We like this asset class. We like where we sit, but we would revise that bet...

If X happened?

Well, I think if we thought that there was -- well, I would say the biggest blinking light now is the risk of stagflation. And stagflation is just a destroyer of wealth for almost whoever you are. And if the Fed keeps trying to fight 3 years ago's inflation, they run a real risk of stagflation. So this is oil prices go up, interest rates go up and incomes go down. That's probably the -- if there was a 4% chance of this 2 years ago, that's tripled at least. So that's kind of the biggest concern is, are we going to drive up the cost of capital at the same time we drive down the economy. And we keep looking closely for like how does this war, how does oil, how does a larger and larger government and a larger and larger federal deficit do those things sort of conspire to bring down GDP and drive up inflation.

So the biggest thing we all are looking for right now with rates going up is are we actually going to have a recession? Or if you don't anticipate that recession, it's going to be super, super, super painful. And housing.

The flip side to that is that a recession would actually be good for housing because we probably get rates coming down.

You would get recessions. Well, I mean, recessions can be good, but like recessions need lower rates. So if you get rates going down. But as we talked about before, there is so much demand on the debt dollar that we talked about like will spreads come in. The reason spreads are tight is because nominal rates are going up. So if the U.S. government keeps printing deficits at this level, you could have a recession in higher rates. And that's the biggest problem. And so it's not just so much SFR. It's like it's every financial asset we own is in trouble in that case. So I'd say that's the biggest reason. But...

But you've got that at a 12% chance right now.

It's not that high, but it's one of these things where it's high enough that you have to pay attention to it.

Sean, thank you so much for your time. Thank you, everyone.

Thank you, guys.

Good afternoon, and welcome to another Walker Webcast. It's my great pleasure to have my friend, my colleague, the exceptional analyst, Ivy Zelman join me today. Hi, Ivy.

Hi. Love it, thank you. Nice to be here again.

It's great to have you. Since I have you alone today, usually when we have Chris Mikkelsen and Aaron Appel joining us, I kind of dive right into the questions. And since I have you a loan today, I'm going to do a full bio on you because it's been a while since I've done that bio, and most people who listen to the Walker Webcast know you and know of your background, but I think it is worthwhile to run back through it today as we have a little bit more time of just a one-on-one conversation.

So Ivy bear with me as I embarrass you a little bit on how extraordinary this background is. So Ivy Zelman is one of the most influential housing analysts in the United States and is currently Executive Vice President and Co-Founder of Zelman, a Walker & Dunlop Company. She has spent more than 30 years analyzing housing, homebuilding, mortgage finance, building products, demographics and the broader residential real estate ecosystem. She began her career at Salomon Brothers in 1990, initially in investment banking before moving into equity research covering housing.

She joined Credit Suisse First Boston in 1998 when those firms were still Credit Suisse First Boston, where she became Managing Director and one of Wall Street's highest-ranked housing analyst. She and her team ultimately earned 11 #1 Institutional Investor All-America Research Team rankings. What made Ivy famous was her willingness to make big calls against the prevailing consensus. In 2005, she called the top of the U.S. housing market, becoming increasingly bearish even as much of Wall Street remain bullish. Her skepticism culminated in her well-known challenge to then Toll Brothers CEO during the 2006 earnings call. Then after the financial crisis, she called the housing market bottom in 2012. Those two calls are central to her reputation as one of the industry's most independent and insightful analysts.

In 2007, Ivy cofounded Zelman & Associates with Dennis McGill, building an independent research and investment banking firm, focused exclusively on housing and related industries. A distinctive feature of Zelman's approach is combining traditional financial analysis with proprietary surveys and direct intelligence from homebuilders, brokers, lenders, building products companies and other industry participants. Walker & Dunlop acquired a controlling interest in Zelman in 2021, bringing the firm's housing research and investment banking capabilities into W&D.

Ivy earned a BS in Accounting from George Mason University. She has repeatedly been named in Barron's 100 Most Influential Women in U.S. Finance, has been inducted into the California Homebuilding Foundation's Hall of Fame. I didn't -- I haven't seen a clip of that one, Ivy. And has taught as an adjunct professor of finance at Cape Western Reserve. She is also the author of the 2021 memoir, Gimme Shelter: Hard Calls and Soft Skills From a Wall Street Trailblazer, which combines her career story with lessons about leadership, conviction, relationships and making difficult calls.

So there's the bio, Ivy. I should dive back into so many component parts of that, but given the research report that you and your team just put out entitled A Decade Divided, I kind of wanted to jump into that as a headline because there's so much right now with where rates are, with where housing is, where inflation is, et cetera, et cetera, that I kind of want to roll up our sleeves and dive into some of the data.

You and I have spoken in the past about a housing shortage in America. A Decade Divided seems to challenge that narrative. Are we undersupplied in housing?

Well, first, again, thank you. I think my bio needs to be cut down. It's a little long.

I love it. Given you're a member of our team, I love talking about it. Go ahead.

I appreciate it. I'd say that our view is that the housing market is more balanced than what we hear from other trade associations and people that are in the housing ecosystem. And certainly can dig into why we believe it's balanced, and I think that I can elaborate or you can ask me and I'm happy to respond, but we think it's a balanced market.

So if it's balanced, what are others missing because we continue -- I mean, all you have to do is watch CNBC, everyone who goes on CNBC other than you now, says, we've got a 3 million to 4 million household shortage in America. And so what are they missing if we're in balance?

Well, I think it has a lot to do with what inputs you're assuming and where we are. So for example, if we're looking at the future and looking at sort of the inputs that drive the need for more supply, we really focus on household growth, and household growth is a derivative of population growth. They're not 100% correlated, but they move directionally together. And we've been seeing a downward trajectory for both population household growth for decades. But we're at a pivotal point in our history because we're now seeing -- approaching by 2030, we'll have more people that will die in this country that are born. And the only other variable that matters for population growth is immigration, which has pretty much come to a bit of a standstill as we know with the current administration.

So when we look at what does that mean for household growth, our view is that the current supply is meeting the level of household growth. Some economists are looking at more optimistically overall households living -- I'm sorry, young adults living at home. We think that's a variable that may be more optimistically assumed on a go-forward basis. And the other variable that really makes a difference in any prediction or forecast is going to be vacancy rate. And so again, happy to dig further into there. But those are things we don't get to see other trade associations, how they derive their narrative of a shortage, but that's what we believe would be the major differences.

So let's double-click on all three of those. Coco, will you pull up the graph here? And to those who are listening to this and not looking at it, this is a pretty dramatic graph that comes from A Decade Divided, which shows U.S. births versus deaths and where we are from a population growth standpoint. Ivy, talk through this slide for a moment as it relates to what this is showing because it's just such a -- the thing that struck me about it is it's not that long ago that this number was wildly positive, close to 2 million, and now we're down to almost flat.

Yes. Unfortunately, it's not a positive trajectory as we know, and it's quite troubling. I think it starts with the three components. I mentioned birth rates, young women today are opting to have children later, part of that is assumed because they're pursuing higher education. They're also dealing with uncertainties in the economy and affordability concerns, inflation. So many are opting to be one-and-done or not at all. And so the birth rates have been under pressure.

A lot of it initially was coming from what was a good thing, young women that are teenagers that were getting pregnant. And that's really a big portion of what helped to put a cap on population growth was that we had young women that were unfortunately having children too young, and that really was arrested, so that's a positive, but overall birth rates are below replacement right now for this country. In fact, we are what I would say, much better off than most other developed nations. We're higher in terms of our birth rates, but we're still below replacement as are the other developed countries.

So that's the birthrate story. The other component, immigration. We know with this administration, whether self deportation, legal immigration becoming more challenging as well as illegal and deportation. All of that has resulted in less than 0.5 million people entering this country annually. And we believe that even with the new administration, let's assume the Democrats take the White House, they're not going to open the borders again, and we might see some modest improvement in legal immigration, but we don't think the illegal portion would really change very much. So that was the lever that could really help population.

And then we have, respectfully, death rates that while death rates are actually improving as we have wellness and longevity improvements, the absolute level of death has been rising. And annually, we will continue to see, call it, incrementally 50,000 incremental vacancies coming from deaths and or politely aging out. So you add up all three, that results in a pretty steep decline in what would be population growth. Why we called it A Decade Divided is that the first half of the decade actually had very strong household growth which is really a function of, we believe, these young adults leaving home at a pretty significant level because there was not only a desire for distance and space, but there was a lot of stimulus dollars and interest rates were very, very low, as we know.

And as a result of that, there's another chart that we've included that we can look at, but we saw a big reversal of young adults living at home, and that has definitely created this pop in overall, the first pass of the decade, we had about 7% household formation, which was comparatively even in the decade 2010 to 2020 was only 8.7% in total. But for this decade, even with the second half slowing to, call it, 3%, 4%, we'll be over 11% in terms of household growth. But the minute rates went up in '22, Willy, household, or young adults leaving households reversed and went back to close to levels that were pretty onerous and at peak levels, and we're assuming improved modestly, but not much. And that could be a big variable where other economists are more optimistic about the future and assuming we have young adults leaving home.

So let's jump in on a number of the points you made there. First of all, as it relates to the death rate, you did talk about it accelerating even though we have longevity. Is that acceleration due to the pandemic and that, that then burns off, if you will, as we get those numbers out over time? In other words, did our birth rates in the first half of the decade accelerated death rates accelerated because of the pandemic and therefore, in the second half, that comes down significantly with the aging population that then mutes that?

Well, the death rate itself, because it's improving, I think it has a lot to do with longevity and people living longer. The impact from COVID absolutely had an impact on death that did spike them in the first half, first 3 years of the decade, but then we've normalized that. But even with that normalizing, death rates are improving, However, again, absolute deaths are still going to rise by like 50,000 per annum. You're talking about 2-plus million per annum are dying or aging out.

Which will then put what you said was 50,000 housing units sort of back on the market because of that net downturn in population? .

Incrementally, because estate sales, you'll start to incrementally add 50,000 plus per annum from -- that would result in more vacant units on the market.

So the second thing you said there was that in up to 2022 -- what you pinned it to was interest rates moving precipitously after 2022. Do you think that this is young adults living at home and then moving out to start their own homes? And you said that was moving in a very positive trajectory until '22 when rates started to go up. Do you pin it all on rates and affordability? Or is it more lifestyle? And we did just at that point, come out of a pandemic, where during the pandemic, there was clearly a move for, I need my own space. I don't want to be around my older parents who might be getting COVID and all that stuff. Is it an economic issue? Or is it a more social norm/societal issue?

I think a little of both. I mean I think that what happened post '22 is we know that inflation kind of ran rapid. And when you think about people that are living -- young adults living at home, they're assumingly trying to save so they can start their own household, whether they're renting an apartment or buying a home with help, I think there's also a part that inflation kept people unfortunately unable to generate enough savings to do so even with living at home. But I also think that affordability being extremely stretched had a lot to do with it and still does, but from a secular perspective, it's nice to live at your parents' house now. They made -- we've made it so nice for them, they don't want to leave.

I know I was going to say your three daughters and my three sons might be retreating to our homes these days even though they're bounding out on their own, but our kids are about the same age. And I was actually thinking about that in reading the report. It was sort of like, yes, one of the things that's happened as America has gotten wealthier and more people own single-family homes that have an extra bedroom, have two extra bedrooms. It used to be 50 years ago that it was cramped and the moment that you had the opportunity to get out on your own jumped out because it wasn't that comfortable living at home. In today's world, a, it's quite comfortable; b, it's obviously affordable; and c, in some instances, remote work has allowed younger adults to be able to basically work from wherever, and therefore, they're not forced to go rent that apartment in a distinct city from where their parents are because they can work remotely over Zoom.

Absolutely. And I think you have to recognize that we're really following Europe's lead. Europe has multigenerational living and a lot of that is due to the lack of availability of product coupled with how expensive it is, even though the affordability here is stretched, it's even more stretched in Europe, so we've been seeing more multigenerational living. In fact, homebuilders are offering product that accommodates multigenerational living. That's been a growing part of the housing market. So not surprised, but I think the negative stigma of living in your parents' basement is gone. When I was 18, I was out, I'm sure you were as well. You couldn't wait to get out. And now is it because our Gen Z and millennials, are they a little entitled? Are we to blame? I blame myself, helicopter parents, fall the -- we wanted our kids to have what we didn't have, so we make it really nice for them. And I don't think, therefore, it's just about a lack of affordability.

There's -- first of all, Europe has plenty of things that we ought to both respect and strive for. There are certain things that we might not want to. I'm not sure that, that is a piece of what we ought to go for, but there was a -- you may have seen it. There was a great 60 Minutes piece, it's got to be -- it would be a decade ago now. But a great 60 Minutes piece on how Italian men, that the culture in Italy is that single Italian men still live at home until they're 40 and 50 years old. They did this great piece about the fact that one after the other young single Italian men would just hang out with mom and dad, and that was the way that you kind of got yourself both on from a career standpoint and then found your ultimate [ mate ], but it was a fun piece and seen at that time, totally antithetical, if you will, to the way that Americans grew up and lived. And it was like this -- well, it was a 60 Minutes piece, which obviously made it noteworthy of sort of, wow, look at the way that they live versus the way that we live. And as you're pointing out, we're more and more looking like that.

Going towards that, for sure.

Yes. Coco, let's pull up the slide that they have in A Decade Divided as it relates to this number because Ivy on this one, this slide, to those that are listening, is just the percentage of 20- to 39-year olds in America living at home, and as this slide shows, it has increased from 15% back in 1980 up to 22.4% in 2026. And Ivy, talk for a moment about that, the note on this as it relates to every 100 basis point change.

Right. So if you think about the 2020 time frame when we were at peak at 23.7%, it looked like that was only going to be sustained. However, as rates dropped, again, COVID came to fruition, we saw a reversal of that. And when we think about that 21.7% that is that likely to keep going lower, we've seen a reversal already reflective in the '25 ACS data showing that people are now -- more people are staying at home. But what we wanted to show you is that the sensitivity is for every 100 basis point change plus or minus, that results in an annualized change of about 0.5 million households. So very sensitive to what it means for -- we're going to add incrementally 500,000 new households and therefore, we need incrementally more 500,000 of incremental supply, that's why it's a very important variable when you're forecasting if we're either in a deficit or if we're a balanced or oversupply.

And that's a super important one, if you think about it in the context of what you said on the aging boomer population and the death rate adding in 50,000 units a year versus if you got a 1 percentage point or 100 basis point change in that 20 to 40 cohort living at home, you're going to have 500,000 units of demand coming into the market or lack of absorption if they stay at home.

Right. Absolutely. And frankly, given the state of the current economy with uncertainty around interest rates and continuing to move higher, today the tenure was at 4.8%, it's not looking great for any improvement on the horizon, unfortunately. But I was going to say, bigger picture, I think that when you factor in what the death rate or just incremental deaths mean, I think today, the average longevity of men and women, call it, 80 years old, we also have that aging boomer and aging Gen X that will benefit the housing market, we think. So that not everybody will just die and be gone. You're also seeing benefits like, for example, Pulte Homes has now introduced a product called Explore product where there are people buying, call it, retirement home, but in their 40s, and it is designed to really accommodate an active family still raising children, but eventually that will be the retirement home. So there's positives within the ecosystem that come from aging. And I just wanted to make sure we address that because it's not -- they're not all dying, but there's benefits as we age of which parts of the housing equation are doing better.

And if you think about -- you just commented on interest rates. And interest rate is obviously hugely important to the overall housing ecosystem, and we can dive into that in a moment. But it's really jobs, I would think that is going to drive that cohort of 20 to 39-year-olds out of home and into forming their own household. And we're at, I think the number is 4.3%, 4.4% unemployment in America today. When we saw unemployment come down well into the 3s Ivy, if you look at that graph as it relates to the number of people, 20 to 39 living at home, that didn't materially move that trend. In other words, people were still staying at home even as you picked up almost 100 basis points in the unemployment rate to the positive of getting down towards 3% unemployment.

So like what's the driver there that gets these people moving out? Is there -- I mean I sit there and look at it and say, okay, well, unemployment rate goes from 4.3%, 4.4%, down to 4% or 3.75%. How much does that then bring that living at home number down to spur that 500 to 1 million needed new homes from that migration effect, if you will. Is it all related to employment? Is it all related to -- I mean, this is back to the question I asked previously as it relates to is this habits and socio sort of the way that people are living? Or is this more economic?

Well, I think based on the chart that you had up there, if you look at multi decades, we're showing the decade average, not a point in time, so it's at the end of the decade. And each of the decades has moved with the exception of 2000 where it moved down, we've been a secular trend moving higher. And I'll make everyone laugh, my daughter who's 26, and she'll kill me, but I'm going to tell it, I couldn't get her to move out. So I bought a car and the car is going to be here soon. And I told her, I said, listen, our cars are not going to fit in the garage side by side, so you're welcome to stay. But the Cleveland winters are pretty hard, so you'll be out in the driveway and I'll be in the garage. And guess what she moved out in June because real kick in the butt, and she helped the rental market in Cleveland, Ohio, which is quite affordable relative, but has a roommate, so it would catalyst.

I recommend it if you have something similar. But I do think that young adults, you mentioned remote work, more people can work from home. That could also be the variable where employment even improving doesn't necessarily drive people to leave as quickly if they're not required to move to a different city. So I think there are a lot of variables. But back in the '90s, Forbes did a -- it was either Fortune or Forbes, the disease of affluenza, and more families that are affluent or want to be affluent, want to create the households that are very comfortable for their adult children, so nobody is really pushing either. I think that has something to do with it. I think that parents are more accommodating for kids living at home longer, and it might be that they finally leave when they get married and they're getting married later in life. My daughter's boyfriend's 27, and he bought a house and it was like, "Oh my god, the first-time buyer market, the age is 40 now " So it was very impressive that he bought his house already. So it's a very different dynamic in today's society than it was when you and I were growing up.

And is there anything in all that, that we hear the numbers as it relates to the wealth transfer that's going to come up from the baby boomer generation to the Zs and the Ys and the Xs and everybody else. And the numbers are astounding when you look at them on the aggregate. I just had somebody who's in the wealth management space say to me, over the next 20 years, there's going to be $110 trillion transferred from one generation to the next. I can't even get my head around $110 trillion. And let's just say it's only $60 million rather than $110 million. It's still an enormous wealth transfer that's going to happen here.

In the interim, does that have some impact on the ability for people to go and put the down payment on a new home? Are we seeing the baby boomers be more generous with their kids to underwrite the down payment and help them actually get into their own space? I mean you just talked about the incentive you put in place. My eldest son just bought a house in Boulder, Colorado, and I was absolutely shocked at how little he could buy for the amount of money he spent. And I was also shocked at -- I kind of had some guilt in the sense that we went to look at the house and asked the broker what it was going to take and the broker said it's going to take a 5% premium over the ask, and if you can close all cash with no financing contingency, you can win this, and I sat there at the open house looking at these young couples who are coming in, and this was going to be their starter home for their life and in I come with the ability to back up my son to be able to do 5% premium all cash and we ended up winning it.

And I sort of at the end of the day, it was sort of like, wow, that gives you a sense of the frustration that these people have of, a, on a per square foot basis, it was -- it was $890 a square foot for a complete starter home, 1954 built, brick construction, home in a cul-de-sac where every home was exactly the same, kind of cookie cutter back from 1954. It's a great fixer upper over time, and I'm quite certain that my son will make money on it, but it just sort of -- I was sitting there saying, wow, if you're somebody who thought that this was the one you're going to get into, it was a significant down payment to get the house and all of a sudden, in we walk and get it basically for all cash because we can do that.

So my question here is, are more people of yours and my generation, helping kids? And can we bank on that a little bit over the next 5 to 10 years that might actually spur some of that increased demand?

Sure. And we believe that the wealth transfer is happening to some extent, maybe not entirely. When you have, obviously, parents passing or grandparents passing, you get a bigger portion of that wealth transfer. But what we see today is an increase in cash purchases, roughly around 30% right now. We're kind of more in the mid to low 20% range historically, according to NAR. So I do think cash sales are indicative or supportive that parents are helping, like yourself, maybe they're taking a loan against their parents or getting a mortgage later. But my ex-brother-in-law bought all three of his kids homes. And I know many family members and friends that are doing the same with their kids. So you have definitely a benefit to the market.

If you look at what people own and what generates their wealth, their homes are their largest asset. And so are they waiting until they pass -- likely to pass that home along, but then we have issues with capital gain taxes. And so that's going to be an issue, especially if these homes are larger and maybe older and need repair and remodel. But I do think that the wealth transfer is happening. According to FHA, roughly 20% of the loans for the first-time buyer are actually getting down payment assistance. And I think that, that's been an increasing number. And even in conventional, we see the same thing. So we don't have the data to really even aggregate estate sales or know specifically when they're coming to market and where they're being transferred. But we believe that more and more adults are helping their children today in various ways.

So you talked about where interest rates are and you talked right there about the home being the #1 asset in most families' financial picture. And as you and I have discussed in the past, many of those homeowners locked in historically low mortgage rates back in 2020 and 2021 that set them up to continue to accumulate equity in the home because they've got such a low mortgage rate.

There seems to be, I mean, you mentioned a 4.80% 10-year treasury, which is having a real impact on both the single family as well as the commercial and multifamily industries right now. But if inflation is here sort of to stay, Ivy, if we're -- Kevin Warsh just came -- was in Wyoming last week in Jackson Hole, and it's pretty clear that he was like, we got to get this thing under control. And so if he's going to raise here, we're dealing with inflationary pressures for quite some time. Are people missing the value of real estate as it relates to an inflation hedge as they look at nominal returns on real estate rather than looking at it from an inflation-adjusted basis?

I think your entry-level buyer doesn't look at it inflation adjusted. I think when we get into where the market is the strongest, $10 million and higher is hot right now. And if you go into Southern California markets, brokers that are selling luxury homes above $10 million can't sell enough. It's very, very strong. And most of the country, I'd say that you're seeing that strength. Whereas you go down below $10 million, it gets more challenging, depending on where you are. But the most challenge is that entry-level buyer who probably is not sophisticated enough to appreciate the inflation hedge where that luxury buyer is.

And I think that today, you're right, inflation is obviously a concern going forward. And I think one of the things that we talked to a bunch of brokers who are hosting our housing summit in a few weeks in Boston and prepping for the conference talking to some brokers yesterday, what I'm hearing, it's not so much that they can't afford it. They're looking at the rate today with a lot of uncertainty. And maybe they -- they called it marry the house, date the rate, date the rate, marry the house. That was a good idea because even though it's a little stretched for me, but in 2 years, I'll refi. And therefore, there was the behavioral -- it was okay to buy because I can refi.

Now they're not clear on what rates are going to do 2 years from now. So the buyer behavior, at least within the resell market is uncertainty has really put a lid on overall demand. And we've seen a cooling throughout the summer as we've seen more of the risk that inflation is still not only a problem but is reaccelerating. But when we look at the stuck factor and you look at where we were in 2022 and December '22, 88% of homeowners that had a mortgage were locked in below 5% and 50% were locked in below 3.5%. Fast forward to today, in May of '26, we're now at 68% below 5% and 39% below 3.5%, and by the end of '27, we'll be at 59% below 5% and 33% below 3.5%. And I'd give you those numbers because I do think the stuck factor diminishes people's willingness to give up that low rate.

But as it gets better, slowly, we call it this grind, life changes. And the three Ds that brokers like to talk about are the three Ds of real estate, death, divorce, default. Those are the three D that will drive a transaction no matter what the economy is doing. And then if you add the fourth D, which is discretionary buying, I think the fact that they're stuck mitigates discretionary selling, where I want a new house. No, I'm not going to give up this low rate. But if I'm getting a divorce, you're going to get a new house, you're going to go buy another house because you're not going to live together. Some people actually still live together because affordability is so constrained anecdotally. But I think those are some of the dynamics that are in the market today. And I definitely think that the retail market earlier in the spring, we saw green shoots as we approach the 6% mortgage rate, and we did see incremental demand because people always say to me, what's the magic rate that's going to make the market healthier, and what we see, it's more about rate of change. And as rates were headed lower, people were getting more comfortable with the idea, okay, maybe it's not the lowest rate in the world, but I'm really missing the opportunity to buy a new home or buy a resale and fix it up. I think we did incrementally start to see improvement. That is now sequentially and unfortunately, decelerated.

Do you think that Bessent's move to buy at the long end of the curve and sell at the short end of the curve is going to have a material impact on rates in the market and potentially get the long end of the curve down?

Not smart enough to know the answer, but I think it's...

Come on. I'm not going to let you say that. Come on.

My personal opinion is the fact that Scott Bessent has to notify the markets that they are going to buy at the long end of the curve when there's a $40 trillion deficit didn't make me feel warm and fuzzy. And we saw that rates just bounce back higher after the initial announcement. So I don't think you can control the long, and they don't have enough funding to do that. I know that Fannie and Freddie buying MBS helps, that's keeping the spreads down. And I think that they can control mortgage rates more they can control the tenure. But I don't think that they can really control the long end as it relates to the amount of bonds that they're buying. It signals to the rest of the market, we'll sell it to that. Go ahead, buy as much as you want, but we want out. And I think that unfortunately had been the case that foreign sellers had been putting pressure on the bond market. But most of the buying and selling is now -- is less foreign and more domestic.

But on that, then so -- I mean, you underscored it, $40 trillion of U.S. debt today. We've got -- the current administration is projected to add $2 trillion -- sorry, $10 trillion to the national debt in the 4 years that the Trump administration is in place. $10 trillion, $2.5 trillion a year. And the alternative is the Democrats who haven't found a spending bill, they dislike either.

And so I guess the question here is it feels like the bond market is trying to give us a wake-up call saying that this profligate spending is unsustainable, and yet the alternative used to be, okay, well, the Republicans are for lower taxes and lower spending. And now we have the Republicans of lower taxes and more spending, and we have the Democrats of higher taxes and more spending. It feels like no solution is going to actually address the core problem, which is $40 trillion of outstanding debt is concerning the bond market as it relates to the U.S. being able to actually pay those interest payments in the future and therefore, going to need a higher coupon rate to accept that risk. And therefore, that drives into the housing market, both single-family as well as multifamily on the financing cost, which has always been a core component of it. And therefore, I mean where's the relief, I guess, what's the off-ramp here?

Right. Well, you just saw the announcement that Social Security will run out by 2032. And maybe that's putting some pressure on Congress to contemplate doing something about it. That was like a recent article maybe last week, and really what they should do is lower -- to raise the retirement age and figure out how to generate incremental funds that we need desperately. And until they do something that creates austerity, no one trusts this government. And so there's a lack of confidence in their ability to control spending either side of the aisle. And I think that what they need to contemplate is raising the retirement age. We're living longer, we're working longer. We're both at of age we'll probably work for the next 10 years, you and I, or longer and yet people are getting retirement, Social Security at 65 or even earlier if they want to accelerate it.

So I think that's -- at least that's my thought. But I don't think that this -- legislators that we currently have, want a risk getting fired by the constituents because the people that vote the most are the oldest, the elderly boat. They're the largest voters in the country. So I don't know how else to solve for the challenges that we have, but do we get this administration to focus on spending reduction. I don't see that in the cards right now, not what this war going on.

So if we're in balance from a housing standpoint, and housing is an important issue for whichever administration, I don't -- whether it's the Trump administration now or whatever the next administration is going to be. Housing has always been a core tenant of more people should own a home, single-family homes are the place where people have a store of value. As you said previously, it's typically the largest component of wealth for families and for retirees. And so if you were to look at the policies that are being put into place now, and we obviously just got the ROAD to Housing Act passed by Congress unsigned by the President, but put into law. Where would you direct U.S. policy as it relates to being supportive? Maybe not stimulative, maybe you're saying we don't need more stimulus, but supportive of the U.S. housing market?

Well, let's just take a step back for a moment because one thing we didn't talk about with respect to shortage or balanced or oversupplied is the vacancy rate in the country. So we can come back to that. I just want to make sure we highlight that, that's a very...

Let's just jump on that. Coco, pull up the slide that shows the vacancy rate on multifamily versus single-family rental because this will guide some of Ivy's comments. So to those of you who are just listening not seeing, this is a slide that shows single-family and multifamily vacancy rates in America. And today, multifamily is at 8.3% per Zelman and single-family rental is at 6.2%. Anything else you want to point out on this slide, Ivy, before you go into your comments? .

No, I think it's important to recognize that, obviously, vacancy levels fluctuate, but national vacancy rates are not reflective of what's happening per the differentiated pieces of shelter. So multifamily right now is oversupplied. We're seeing completions come down, starts have come down. So we do expect that supply will get absorbed and get back into balance. Same thing with SFR, we had a lot more build for rent. And now that the housing act has been signed or didn't get signed but got put into law, we are seeing BFR come back a little bit. So I think generally, we'll get there.

The areas that are undersupplied within the ecosystem is really on the seasonal side. Second homes were bought up during COVID, and there's a lack of second home availability, and I think that could be a bright spot for builders, developers to contemplate. But I think the reason I really want to highlight that is if you make an assumption that we're at a 10% vacancy rate, then you could say, "Oh, well, their vacancy rate is going to be coming down and therefore, we're going to have improvement." It really matters what number you're using. And that's the variable that I think there's different opinions and different various firms. Like for example, CoStar is at the same level we are at 8%. Others are using multifamily is at 10%. So it matters what you're assuming and therefore, to forecast whether we're imbalanced or over supply makes a big difference.

You mentioned CoStar. I just -- random thought on this, but I saw it yesterday in a Bisnow article, focusing in on President Trump's 1,680 stock trades in 2026, one of the stocks that he sold they pointed out was CoStar. I just thought it was so funny that like they're sitting there peering into that and trying to see what the President is trading on. I won't withhold judgment on that.

So if we're looking at that type of vacancy on the multifamily side, it feels like we've gone from sort of an index market in the sense that you could buy multifamily in 2012 to 2022, pretty much. And there was a really great macro backdrop to not enough supply, rates being low, a renter nation, if you will, more than a buyer nation, and you could kind of bet the index, and it did really, really well. It feels like we're now back into kind of a stock pickers market, if you will, as it relates to multifamily and most particularly, which markets are showing strength in green shoots in which markets are still lagging.

One of the big things that you have pointed out over the past couple of years, Ivy, was the strength in the urban gateway markets just because there was a lack of supply when the Sun Belt got overbuilt. And so the Sun Belt has been lagging while the urban gateways have actually held up pretty well. And we're now sort of at that inflection point, if you will, where some of the excess supply in the Sun Belt markets has been absorbed. And yet you still sort of have the same demographic and job trends in the urban gateway cities that you had ahead of time. So if you're going to be a stock picker if you will, but instead of stocks, you're going to look at either regions or cities, where is your view right now from a multi standpoint as it relates to where people ought to be making bets?

Multifamily. Well, I think that you're right, the lack of supply in areas like San Francisco is definitely the perfect example when you don't have starts there for more than 5 years. We now have rents up double digits there. And so I don't see that changing. I think where we have a deficit of starts you're going to continue to see rents reaccelerate. The Sun Belt has lagged. We just published recently our survey for July for multifamily operators as well as in the June survey, we saw that things were decelerating. We had green shoots that were coming apparent in May, and June to some extent, on occupancy. But then in July, occupancy and rents decelerated more than seasonal, when those are the two strongest months of the year, supposedly.

So a lot of that is still from the Sun Belt. Because if you go into the Midwest where there's a lack of supply, you're still seeing very healthy rent growth. So I would still bet on the markets that are not seeing starts reaccelerate as a way to profit from stronger fundamentals. Not to say it's great out there everywhere, but there are markets that are seeing not only inventories coming down for single-family availability, i.e., Miami. I take Miami has been where we've seen green shoots for sale. But overall, lack of availability, Miami inventory this year is down 17%. So what is available there in terms of multi will benefit from the lack of supply that is now becoming apparent in the for-sale market. So I would bet on Miami, if I was a developer that will start to thrive as the inventory gets cleared because of the lack of that for-sale availability.

And that would be the same in markets like San Francisco, I mentioned, Tampa is showing green shoots as it relates to improvement with inventories coming down double digit. So multifamily operators might benefit there as well. Keep in mind, multifamily is the better right now asset class fundamentally from the perspective that we are seeing incremental accelerating renter households while owner households are decelerating because the affordability is clearly much more compelling to be a renter than an owner. If you're comparing an apartment, maybe not the best apples-to-apples to a single-family starter home, it's about $900 all-in differential between monthly payment. Property taxes and HOA and mortgage insurance are factored in, and overall insurance.

So I think it's looking more promising from our perspective to be in the multifamily sector, if I'm making bets than in the for-sale market right now, especially in the new home market, even as inventories -- spec inventories are down double digit from where they were last year, but there's a lot of more challenges in for sale and in the new home market than in multifamily, we think.

And you went to Miami there and Tampa and San Francisco, what about the darlings of the sort of 2019 through 2022 era of the Austin, Texas, the Nashville, Tennessee or the Charlotte, North Carolina? Those were the boom markets. They got oversupplied. Austin last year had the -- we call it rent growth because we're all so used to seeing rent growth, but it was the biggest rent decline year-on-year of 7.7% in Austin. When does Austin go from catching a falling knife to actually hitting bottom and starting to build back out?

Based on the supply that we see there, the level of, call it, lease-up necessary and what's still coming. I have a quartile the markets into we'll see maybe 3 to 5 years of continued supply -- oversupply that will need to be absorbed at a decelerating rate but still oversupplied. So it might be a few more years before we really see Austin reaccelerate because of the significant overbuilding that happened there. That's the same in a lot of the other cities, whereas in the Carolinas specifically, I think they're better positioned because South Carolina was the #1 state for population growth through the most recent data. So you're still seeing better migration and overall growth in those markets than in Austin.

And what about -- as you talk about a market like South Carolina, it makes me think about Boise, Idaho, and it makes me think about the growth that we've seen in Boise. Boise being one of the biggest boom markets. It's actually your most recent homebuilder survey has the sentiment on the Boise market as being the #1 market in the country from a homebuilder standpoint. A lot of that, all of that is due to Micron and Micron's tremendous run as it relates to being one of the major chip manufacturers in the world. Its stock price is going through the roof.

I actually heard somebody the other day, Ivy, go from the Mag 7 to something like the -- I can remember what they called the 9, but they included Micron in that 9. So they added them in is like the big stocks that are driving the stock market today. But as you think about that as it relates to AI, where data centers are being built where the knowledge economy, if you will, is growing such as San Francisco, which you mentioned previously, is one of the fastest-growing economies in the country. Boise is up there. Scottsdale, Arizona is getting the Taiwan semiconductor plant that's being built there.

How important is job growth to this overall housing mosaic, and if it is based on that, obviously, you and I both know that growth markets are distinct from good real estate markets. I mean you can have a high-growth market with unlimited supply, and it doesn't turn into a really good real estate market. You can also have modest growth with no new supply, and it actually is a pretty good real estate market. So as you sit there and look at your kind of heat map of where from either single-family or multifamily, you'd put bets, are you going after that job growth? Or are you looking at a supply-demand that says, "I'm going to be a real estate owner for the next 10, 20 years " It's much more to do with the supply-demand curve than it is with the job growth curve.

There's not a single variable that we would look at. We're going to look at -- actually, for our housing summit, we'll be talking about relative market scorecard, like where the best markets are, but a lot goes into that, but employment would be at the top of the list because builders have always used something called an EP ratio, which is the incremental change in jobs divided by the incremental change in permits to kind of gauge where the market is. So a really high EP ratio would indicate that you're going to need more supply because you have very strong job growth.

On market, you didn't mention Columbus, Ohio has been a darling because they're building a chip plant, and there has been a lot more inbound. But it's not because necessarily we're seeing jobs there, but we're seeing developers recognize there'll be jobs there. So they're coming there where they hadn't been there previously to try to get in front of that and add more supply. And that, I think, is the right strategy for a market that's seeing job growth. But that's not the only variable. We want to look at other factors like what is the inventory picture look like right now, overall inventory, for sale inventory, was multifamily in terms of the availability of supply as well as other factors, household growth, what's happening with new employers or job growth. But there's a lot that goes into that, the demographics also. So we have a secret sauce that will determine the ranking of the markets, and we'll publish a report after the summit about it.

Sticking on the sort of stock picker theme and to your point about there are a lot of inputs to it. It's not just job growth, it's supply-demand characteristics, et cetera. But many people in the multifamily industry are like survived at '25 and then '25 came in, and we saw no rent growth. And everyone has sort of jumped over '26 to sort of -- and I use this term when we were together in Sun Valley, a slice of heaven, in '27. But when do we start to see rent growth? And is the answer to that you're not going to see national rent growth anytime soon, but you might see it in specific markets, and therefore, pick up the Zelman research report, and we'll dive in and tell you that Nashville is going to start to grow then and San Francisco is already growing at sort of unbelievable rates, but you're not going to see national rent growth across the board, and it's not going to be a sort of monolithic market. Which is it? And if you can, I know people listening to this would love to know what markets you think have the components for rent growth to hit sooner rather than later?

Well, we are forecasting rent growth to increase in '26 to roughly for multifamily, 1.5% nationally, and then we have that increasing to 2.6%. There's a little bit of a downward...

In '27?

'27, correct. That doesn't get back to trend line, though, until '28, we get to 3.7%. So obviously, there is subject to downward pressures if rates remain as elevated, and we're not seeing any abatement in inflation, but that's our current forecast. And therefore, we are seeing the fortunate benefit of reacceleration with the exception of the July data I just mentioned that saw slowing in blended rent growth. So we're optimistic that lease-up competition is improving. One of our survey questions to our owners and operators are the level of lease-up competition has been coming down and the use of incentives has been plateauing in terms of concessions. So as we start to read the tea leaves, we do see markets will start to show improvement. More likely, it's delayed in '26 into '27 to see any real acceleration. But I think it's slowly getting better and be happy to share the relative performance when we finish the analysis.

One of the things that you and Chris Mikkelsen and I have discussed is just that many people who are buying right now in the multifamily space are buying on, if you will, negative fundamentals and at the moment that you start to project out rent growth in the pro forma that it is going to change the calculus immediately and that all of a sudden, you're going to get all these properties that have been sort of sitting out there waiting for an actual bid on them to actually get real bids, and we're going to start moving in the right direction in a pretty dramatic fashion. So hearing you talk about some in '26 and then that starts to actually get well below trend up in 2-plus percent in 2027 is encouraging.

Yes, I agree. And I think we're, again, more optimistic. There's demand, and we have demand supported by renter households accelerating. We have very favorable affordability. The rent-to-income ratios are not really much above trend line. So there's really much stronger fundamentals for multifamily. Underwriters today that are looking at transactions, they're looking at cap rates going the wrong way because of where rates are. So I think we need to see rates kind of stabilize, but I don't disagree that there's a lot of pent-up demand in the transaction market that will be unleashed, whether it's getting improvement at the long end of the curve for a 10-year paper or we have more confidence that rent growth is going to reaccelerate.

And it might be just because the for-sale market will remain so much in the doldrums as rates are keeping affordability at very, very stretched levels that people do need shelter. And even if young adults are not moving out as early as they've done, you will have incremental households. And I think multifamily will be the beneficiary of that, so more optimistic for sure there.

So to wrap this conversation up, A Decade Divided, which is the follow-on to your cradle-and-grave analysis, which was exceptional. But in A Decade Divided, you read it, and you are the CEO of a homebuilder, you are the CEO of a multifamily either developer or owner, or you are the CEO of a build-for-rent SFR company. Once you've read it, what would you expect or want to see one of those CEOs do as it relates to their strategy based off of the data that comes out of it? So let's start with homebuilder, then we'll go to multifamily and then we'll go to SFR, BFR.

Well, I actually presented the question to your panel in Sun Valley to Ryan Marshall, asked if A Decade Divided or any of the demographic analysis would make its way into the boardroom and would it possibly change your strategy. And the answer was no. Although I would give Pulte credit because they're the only public builder that's really made -- put a stake in the ground to go after active adult. And now again, this Explore product. So I think directionally, they're taking advantage of the changing demographics. And they're actually doing a very large study that will be supportive, I believe, of their strategy. That is not the case everywhere for our homebuilders, so Pulte might be unique in that respect. But I think that it's such a big amoeba in some respect that's so far away, no one's really worried about it. But when you look at one of the exhibits in the report, we're currently call it, running 1.4 million starts.

Now if we start to see the 2030 and beyond that we're going to see household growth go as low as we're forecasting, we're going to have starts come down or we will oversupply the market. And will builders recognize this and pull back on starts, I think that's debatable. And I think when you look at the market share of the public companies for the new home market at 55%, they're driven by shareholders that want them to grow. So I can't imagine that they're going to adhere or think about 5, 10 years out that we should really be buying a lot less land or land banking less land and be more, let's say, nimble given what could be troubling demographics. I don't -- I'd like to say that I think they're going to start thinking about it, but it probably has to hit them in the face to some extent before there's really any major changes. Again, they don't control what others are doing, but it is so concentrated.

Unlike multifamily, where if you talk to CEOs that might be more regionally focused, it does matter where you are and where you operate. If you're a national multifamily operator, I think you'd have a similar maybe reaction to what a large public builder that's national might think, okay, this is too far out for me to worry about it. We're talking about 2030 and beyond. But we do likely have a scenario where if renter households, if we're going to have household growth, it could still be more skewed to renters. Absolute numbers for owner households are much higher, but if renter households are going to grow, you could capitalize on that depending on, again, where markets go back more layered down than just the demographics, where are we seeing regional differences as it relates to the underpinnings of the other aspects of the fundamentals.

So I think it seems as if there's not a lot of attention to this. I know talking with clients of W&D, some are very focused on it and really more on repairing and remodeling existing multifamily product than starting and developing incremental new product. I think we might see a shift to that for multifamily operators in the transaction market, more value add than we would new construction if they started to appreciate some of the risks that we're highlighting. I think they would be quicker because they have an alternative, Willy. Builders don't have an alternative.

Just on that, you were talking about the aggregate number of homes. I think the numbers that I pulled from one of your research reports is there are about 95 million single-family homes in America and about 40 million multifamily units in America today. And so if you look ahead a decade, Ivy, where do those two numbers go as it relates to -- I mean, right now, we're at a homeownership rate in America of somewhere around 64%. I think I'm right on that, something like 64%, 65%. We got to our peak close to 70% back in the Bush 2, George W. Bush administration in the early 2000s and have been sort of firmly in the mid-60s.

Is it -- you've talked about in this hour the fact that right now, because of affordability, it's sort of advantage multi over single-family. But project forward 10 years and say, does that 95 million single-family homes move up well over 100 million because there's just going to be a need for that single-family product? Or does the 40 million multifamily homes move from 40 million to 45 million or 50 million because we become more of a renter nation?

Just thinking about the bookends, births versus deaths and recognizing that more people will be dying than born in this country, when you think about, therefore, again, incremental homes coming to market through estate sales, it would feel like we're going to see a shrinking of homeowners as opposed to acceleration, whether it's going to shrink dramatically or it's going to modestly come down, but you're having less people start buying starter homes. They're starting buying homes at 40 as opposed to in their 20s. And if they're selling because they're -- people have passed, we're going to see probably a lid on growth and maybe more pressure on absolute numbers because of the phenomenon of the demographics.

Flip side would be multifamily would be the beneficiary of that, but might also not grow significantly higher than where we are currently because overall households are going to continue to decelerate. But I would put more, I guess, weight on multifamily improving than I would on the single-family ownership. And today, people say, "Housing can't be that bad." Our homeownership rate has been roughly 65%, 64%, and that's pretty much trend line. But I think it's very bifurcated and it's not -- the composition looks very different of who owns and at what age.

Yes. Super interesting. Ivy, thank you. As always, great to spend an hour with you. I get the luxury of having you around all the time, but for those people who listened in today, I hope you enjoyed our conversation. As you can tell, the A Decade Divided research report that Zelman put out is a fantastic report with a lot of data that gives you a very broad view of housing and housing over the next 5 years in the 2020s, and then that then sets up what's going to happen after 2030. So Ivy, thanks so much. I hope you have a great day, and thank you, everyone, for listening in. We'll be back next week with another Walker Webcast.

Good day, and welcome to the Second Quarter 2026 Walker & Dunlop Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Amy Hopkins, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Karen. Good morning, everyone. Thank you for joining Walker & Dunlop's Second Quarter 2026 Earnings Call. This call is being webcast live on our website, and a recording will be available later today. Joining me today are Willy Walker, Chairman and CEO; and Greg Florkowski, our CFO.

Before we begin, please note that statements made on this call, which are not historical facts, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are urged to read the forward-looking statements language in our press release, which was posted this morning to the Investor Relations section of our website. More detailed information about risk factors can be found in our annual and quarterly reports filed with the SEC.

Additionally, we'd like to remind you that during this call, we will discuss some non-GAAP financial metrics. Reconciliations of these non-GAAP financial metrics are included in our most recent earnings release and earnings call presentation, which can be found on our website. And with that, I will now turn the call over to Willy.

Thank you, Amy, and good morning, everyone. This is Amy's first Walker & Dunlop earnings call since joining us to run Investor Relations, and I'd like to welcome Amy to the Walker & Dunlop team. Thank you, everyone, for joining us. Walker & Dunlop continues to demonstrate the strength and resilience of our platform despite the uncertain macroeconomic environment in commercial real estate due to geopolitical tensions and associated interest rate volatility. W&D is gaining market share, expanding our capital relationships, generating durable recurring cash flows and deepening the client relationships that have differentiated our company for decades. Those fundamentals remain as strong today as they ever have been. Importantly, our clients continue to choose Walker & Dunlop because of the exceptional execution of our team, the quality of our people and the breadth of our capital relationships around the globe.

Our core operating business performed very well during the quarter, as shown on Slide 3. Transaction volumes increased 3% from a year ago to $14.4 billion. Debt financing volume increased 8% to $12.5 billion, led by 43% growth in HUD originations. Brokered lending grew 17% in the second quarter and comprised a larger percentage of total transaction volume, which reflects progress on our strategic plan to expand our capital relationships in the United States and Europe. We expect brokered volumes to continue growing throughout the year due to the volume of maturing non-multifamily loans and the broad supply of capital for commercial real estate lending.

Our Fannie Mae and Freddie Mac lending volumes were down 10% on the quarter due to an extremely active Q2 last year. And yet year-to-date, our market share with the GSEs is up 350 basis points to nearly 15%. This is a tremendous accomplishment by our team and positions us extremely well to end 2026 once again at the top of the GSE's league tables. Fannie and Freddie have only deployed $62.5 billion of capital through the first half of the year or about 1/3 of their combined lending capacity. So with $114 billion remaining for 2026 and our increased market share to 15%, we see a very constructive backdrop for our GSE lending over the balance of the year.

Our property sales pipeline has strengthened meaningfully compared to last quarter. And if our clients decide to transact in 2026, we are well positioned to finish the year with property sales volume above last year despite the slower start to 2026. Increased property sales activity would also support stronger multifamily debt financing volumes in the remainder of the year.

Our servicing portfolio continues to grow and reached a record $146 billion at the end of Q2, up 6% year-over-year, providing durable recurring revenues and cash flows while deepening client relationships that generate future financing and advisory opportunities. 52% of the loans in our portfolio mature over the next 5 years and will generate refinancing and sales opportunities with our existing clients.

To further enhance our client offering and connectivity, we launched WDSuite last year, giving clients a single digital platform to manage their loan with Walker & Dunlop. Through WDSuite, clients can access loan documents, make loan payments, run analytics such as payoff calculations, get real-time property valuation data, research investment opportunities near their property and connect directly with our financing, appraisal, research and property sales teams. WDSuite brings the full breadth of our commercial real estate services platform into one digital experience, reducing friction for our clients while strengthening our relationship with our borrowers.

We feel very good about the underlying fundamentals of our business, yet our financial results year-to-date have been negatively impacted by loan repurchases and credit marks related to a borrower fraud investigation that began 1 year ago. We are pleased to report that Freddie Mac's loan-level review related to the investigation is complete, and we are very close to being finished with Fannie Mae. Greg will discuss the loan-level charges we have taken this quarter and the projected charges related to the Fannie Mae investigation in a moment.

I must say it feels very good to be close to putting all of this behind us. The investigations have been extremely challenging for our company, for our financial results, and for our team. I cannot express sufficiently my thanks to many members of our team for the countless hours of double and triple work they invested while these investigations were ongoing.

Importantly, the investigations indicate that these credit issues were almost exclusively related to a small group of fraudulent sponsors that originated loans with one Walker & Dunlop banking team that is no longer at the company. And while all of this has been costly and time-consuming, we have learned a great deal from this process and emerge a stronger company. As Nelson Mandela once said, "I never lose, I either win or I learn." We have learned plenty, and our underwriting processes and partnerships with the GSEs are more robust than ever before. Together, we have strengthened our underwriting, fraud detection, and review processes while reinforcing the culture of accountability that has always been central to W&D.

Our focus going forward is to execute on the 5-year strategic growth plan called the Journey to '30 that we outlined for investors earlier this year. The Journey to '30 is designed to make Walker & Dunlop the best commercial real estate capital markets company in the world. An important component of that plan is adding the very best talents across geographies and asset classes to expand our origination volumes, deepen our client relationships, and generate exceptional financial returns. Our move into the hospitality investment sales in 2025, along with the opening of an office in London, England, were the first 2 investments in this broader capital markets strategy. And as we expand the scope of our services and our geographic reach, we must continue winning new client relationships.

Year-to-date, 19% of our transaction volume has come from new clients to Walker & Dunlop, and 3/4 of the loans we refinanced were new loans to our portfolio. Winning new clients and new loans has been and will continue to be central to our growth and market share gains over the coming years.

As transaction and refinancing activity accelerates over the coming years, our strategy is to continue winning new business while deepening the relationships with our existing clients. Our bankers and brokers need to expand those relationships with new products and services to increase Walker & Dunlop's wallet share while retaining the loans that already exist in our portfolio.

As seen on Slide 9, on a trailing 12-month basis, our average transaction volume per banker/broker reached $288 million, almost to our 2026 goal of $300 million of production per banker/broker. Because that production flows through a cost structure and producer base we have already built, increased transaction activity per banker/broker should drive greater economies of scale and margin expansion. And because every agency origination becomes part of the servicing portfolio that we retain for the life of the loan, each new transaction has a recurring revenue stream that generates value well beyond its initial closing.

With that, I'll turn the call over to Greg to walk through our financial results and our outlook for the balance of the year. Greg?

Thank you, Willy, and good morning. Our capital markets team navigated a challenging macroeconomic environment this quarter, reinforcing our clients' trust in our team and enabling us to gain market share and deliver solid financial results within our core business. At the same time, our reported diluted earnings per share reflects $23 million of charges and operating costs related to previously identified problem loans. These charges are meaningful, yet isolated to a small number of fraudulent borrowers and not related to new repurchase exposure or deterioration within our broader portfolio. Adjusted core EPS increased 3% this quarter to $1.19, demonstrating the strength of our core business, while diluted EPS of $0.09 reflects the cost of resolving legacy repurchase issues.

Turning now to our Capital Markets segment. As Willy highlighted, Capital Markets generated $14.4 billion of transaction volume during the quarter. Revenue for the segment was down slightly, while net income was down 10%, primarily reflecting a greater mix of broker transactions relative to GSE lending, which reduced non-cash MSR income. We told you in March, we expected MSR margins to be broadly consistent between 2025 and 2026, and that remains the case. Importantly, that mix shift demonstrates the availability of capital to the commercial real estate sector and the scale and quality of our debt brokerage business.

Turning to our servicing and asset management, or SAM segment. The servicing platform continues to generate stable recurring earnings and cash flow, and the recurring revenues of the managed portfolio continued to grow steadily. The servicing portfolio increased 6% from a year ago, and while revenue for the segment was down 5% from last year, the decrease was driven by a reduction in earnings from joint venture investments in our affordable business that was driven by transaction timing and not an underlying trend. The fundamentals of the servicing platform remains strong, and continued execution from our Capital Markets business in the coming quarters should drive additional servicing portfolio expansion as we move through the year.

Turning to credit. As I referenced earlier, charges and operating losses associated with our repurchased loan portfolio impacted our financial performance this quarter. Before getting into the details of the quarter, let me briefly provide some background. As we previously disclosed, about a year ago, we began an investigation in coordination with Freddie Mac that identified a small group of fraudulent sponsors that originated loans with a specific banking team at Walker & Dunlop. Through that investigation, it was determined that banking team did not adhere to our policies and procedures, and they are no longer with the company. The investigation was then expanded to include broader loan-level reviews by both Freddie Mac and Fannie Mae.

Freddie Mac's review is now complete, and we do not expect additional repurchase requests related to that process. Fannie Mae's review is almost complete, and based on our analysis and communication with Fannie Mae, we expect to recognize credit-related charges of $12 million to $16 million in the third quarter this year related to the final resolution of their review without the need to repurchase any loans. At this point, the investigations will be completed imminently, and the capital and financial impacts are known and sized. We can now turn our attention to getting back to business as usual with the GSEs.

Turning specifically to the second quarter, the $23 million in charges and operating costs recognized this quarter were primarily driven by 2 events. First, a group of previously repurchased loans defaulted during the quarter. These loans were performing when we agreed to repurchase them at the end of last year. As a result of the default, we performed property-level inspections and increased our loss estimates to reflect the current condition of the assets. Second, Fannie Mae completed a portion of its loan-level review during the second quarter, and we agreed to increase our loss sharing on a subset of loans rather than repurchasing them.

With regard to loans we previously repurchased, we are actively executing our disposition strategy. Since quarter end, we sold $40 million of properties at prices very close to our estimates, and we are preparing to market another $41 million that will be sold later this year. We expect all sales and repurchased assets to be completed by early next year, with any future valuation adjustments dependent upon ultimate selling prices relative to our current estimates. To put this all in perspective, 95% of the losses we have recognized to date relate to a small group of fraudulent sponsors and loans originated by the banking team that is no longer with Walker & Dunlop.

We are nearing the end of this process, and after reviewing broad portions of both that team's production and our broader portfolio, alongside the GSEs and outside advisors, we have not identified similar issues elsewhere in our portfolio. We have significantly strengthened our ability to detect and prevent the type of coordinated fraud that led to these events and believe the control enhancements we have implemented alongside the GSEs will materially reduce the risk of this happening in the future.

Our broader at-risk portfolio continues to demonstrate strong underlying credit performance, as shown on Slide 11. At quarter end, just 28 basis points of the portfolio was in default. The operating fundamentals of our at-risk portfolio remain excellent, operating at a weighted average debt service coverage ratio of 2x and a weighted average underwritten loan-to-value of 61%. We remain confident in the underlying credit quality of the at-risk portfolio.

We continue generating consistent recurring cash flow from our servicing platform and ended the quarter with a strong balance sheet that provides the flexibility to continue investing in the growth of the business while resolving the remaining legacy repurchase issues. We have a robust recruiting pipeline, and we will continue prioritizing reinvesting in the growth of our business in pursuit of our long-term strategic objectives. Meanwhile, our dividend remains a key component of shareholder returns, and yesterday, our Board approved a quarterly dividend of $0.68 per share, consistent with last quarter, and payable to shareholders of record as of August 20.

Turning to our outlook, our guidance at the beginning of the year, shown on Slide 12, did not predict the significant repurchase-related charges recognized during the first half, nor the potential for the additional costs I just outlined related to Fannie Mae's review. Excluding repurchase-related costs, we remain confident in our core earnings outlook. The ultimate outcome for the year will depend largely on the pace of transaction activity during the second half.

Capital remains broadly available and spreads remain competitive, but the absolute cost of borrowing is currently elevated and could continue to delay financing and property sale decisions. If current market conditions persist, we believe the core business is on a path to finish toward the lower end of our original guidance. Meanwhile, an improvement in the market conditions would likely unlock additional transaction activity and position the core business to perform within the middle to upper portion of our range. Nothing we saw in the first half changes the structural case we made at Investor Day, moderating supply, durable rent demand, a large wall of maturing commercial real estate loans, and a market-leading multifamily finance and sales business established the foundation of our Journey to '30 objectives.

While work remains to resolve the legacy repurchase loan portfolio, we now have significantly greater clarity around the remaining exposure and a defined path towards resolution with the GSEs. More importantly, our capital markets platform is gaining market share, and our servicing business continues generating steady recurring cash flow. We remain focused on executing our strategy, investing in the business, and creating value for our shareholders. Thank you for your time this morning. I'll now turn the call back over to Willy.

Thank you, Greg. As we've discussed this morning, the repurchase portfolio has impacted our earnings and has been an extraordinarily challenging situation to manage over the past several quarters. Despite the investigations and a challenging market environment, our team has continued executing for our clients and advancing our business. Looking ahead, what defines Walker & Dunlop is the exceptional execution of our team, the quality of our people, and the breadth of our capital relationships around the globe. These competitive advantages remain firmly intact today and position us well for the opportunities ahead.

As shown on Slide 13, the Mortgage Bankers Association forecasts continued growth in commercial real estate lending over the next several years, and our people, brand, and technology will help us capture that growth. The improving outlook for multifamily, the asset class Walker & Dunlop is known for, is supported by several key fundamentals, beginning with supply. After the largest wave of apartment deliveries in decades, new development is slowing rapidly. As you can see on this slide, annual multifamily starts have fallen to approximately 274,000 units, roughly 50% below their recent peak, while deliveries are beginning to moderate, creating a healthier supply-demand balance over the coming quarters.

With regard to demand, during the first half of 2026, the market absorbed approximately 279,000 apartment units, making it the second-strongest first half on record and stronger than any pre-pandemic year. A large driver of demand is that renting is still significantly cheaper than owning. As this slide shows, the gap between the cost of paying principal and interest on a home mortgage for a median-priced home versus renting has widened to approximately $420 per month. As home prices increase and interest rates remain high, renting remains the most economic option. As supply and demand get back into alignment, occupancy has now increased for 4 consecutive months.

And as Slide 17 shows, apartment vacancy continues to decline. Vacancy also declined on a year-over-year basis for the first time in more than 4 years, marking an important inflection point for the sector. These are exactly the type of leading indicators we would expect to see before transaction activity accelerates.

Taken together, moderating supply, increased demand, improving property fundamentals, and an abundant amount of lender capital, suggests we are in the early stages of the next investment cycle for multifamily. Given W&D's scale, multifamily lending, sales, servicing, valuation, and research businesses, as the next cycle takes hold, so will W&D's growth and financial performance. And while the macro backdrop is very important to our business fundamentals and financial performance, the things we fully control are what happens inside our company each and every day.

And in May, Walker & Dunlop was named one of Fortune magazine's 100 Best Companies to Work For for the first time in our history. This recognition means so much and underscores that the people of Walker & Dunlop are our greatest asset and competitive advantage. As we pursue the Journey to '30, our people and culture will continue to be the foundations of our success. They attract exceptional talent, drive innovation, and enable us to consistently deliver for our clients. To every W&D are listening, thank you for your passion, commitment, and everything you do for our clients and for one another every day. The Fortune magazine best companies to work for recognition belongs to you.

Walker & Dunlop's future is defined by the strength of the company we have built, the clients we have been fortunate to win and serve, and the fantastic team members who make their careers at W&D. This month, we welcome Frank Cassidy back to Walker & Dunlop following his tenure as FHA Commissioner and Assistant Secretary of the Department of Housing and Urban Development. We're thrilled to welcome Frank back to our team as we work with Fannie Mae, Freddie Mac, and HUD to increase the supply of safe, affordable housing in America.

We have endured some significant challenges over the past several years and believe we have emerged a better, more robust company. And as commercial real estate fundamentals improve and transaction activity accelerates, we and our shareholders will benefit. Thank you for joining us this morning, and I'd ask Karen to open the line for questions. Thank you.

[Operator Instructions] We'll take our first question from Kyle Joseph with Stephens.

Just want to go through expectations for deal flow and kind of mix shift for the remainder of the year. I know you talked about the potential GSE pipeline being really strong. What would we really need to see for that to come to fruition? And remind us, I mean, just based on that, the mix shift between broker and GSE you're expecting?

Kyle, thanks for joining us. So first of all, as it relates to the agencies and their 2026 caps. Freddie Mac has been very explicit that they are focused on getting to their cap. And we are seeing Freddie Mac be quite aggressive in the market right now as it relates to pricing and winning deals. Fannie Mae has not been as explicit as it relates to focus on the caps and meeting the caps or getting to the cap. But we would expect that both agencies are very focused on trying to deploy the amount of capital that they are allowed to under the scorecard in 2026. And as Greg outlined in his prepared remarks, Kyle, depending on where they get to as it relates to the deployment of those caps will have a big impact on our overall production numbers as well as the economics behind the business.

Getting into the specifics of how much is going to be Fannie, how much is going to be Freddie, and how much is going to be brokered, as you well know, is impossible to predict. What you can, I think, point to is that in the first half of the year, we gained market share with both Fannie and Freddie of 350 basis points to take us to just under 15% market share with the agencies on a combined basis. So if the agencies crank up their volume in the second half of the year, that will be very, very beneficial to us given our positioning with both of them.

And at the same time, there is a huge amount of capital in the marketplace from debt funds, from CMBS, from banks. And our team has been extremely capable at deploying that capital into commercial real estate. And that has been both a competitive source of capital to the GSEs, but it's also been very, very beneficial to our clients, which has been fantastic to see and fantastic to watch our team deploy that capital.

Great. Really helpful. And then just a quick follow up. For Greg, just in terms of the timing on the joint venture earnings related to affordable, should that be a tailwind into 3Q as we think about the servicing segment?

No, I think it'll just be more consistent on a go-forward basis, Kyle. It was a unique quarter this time around relative to last year. This year, there were a few little bit -- a few losses that we picked up from some of those joint venture investments, whereas going forward, it's going to be positive to -- flat to positive earnings. So not too much of a tailwind, I would say, with that segment. That segment is driven by the size of the servicing platform, the steady cash flows that flow off of that, and we'll see a lot more benefit from that in the second quarter than pickups from the joint venture investments.

Our next question comes from Jade Rahmani with KBW.

I wanted to ask what you're hearing from multifamily investors. Are they taking a glass-half-full outlook, because candidly, the supply absorption, I know absorption trends have been strong, but supply continues to remain elevated. And I think the rent growth recovery has been delayed, and it's probably still uncertain at this point. So expectations might be getting pushed out. At the same time interest rates are higher than expected this year. So if you could comment on how those 2 factors might be impacting multifamily sentiment.

Jade, what you just outlined is very much where the market sits today. As you know, there was a saying in the market which was survive 'til '25. And in '25, the excess supply would have been burned off and that owners were going to be able to start to put rent increases back into their properties. That didn't materialize in '25 and everyone entered '26 saying kind of, how do we get through '26? And, right now, you are starting to see rent growth in certain pockets across the country. And I would say, were it due to just the fundamentals of the real estate supply demand, you will see the market continue to recover and the ability to start to see rent growth in the back half of '26 and into '27.

I was asked at an event I was speaking at probably 3 weeks ago, what was more concerning, the fundamentals of multifamily or the regulatory/political backdrop as it relates to rent and rent control. And I said, without a doubt, the second. That the fundamentals appear to be improving nicely. And if left alone, that will be a strong underpinning for multifamily performance going forward. But as you well know, our country today is faced with sort of political crosswinds, if you will. And so were you to see increased rent control measures across the country, I think that will have impact on specific markets. And if you don't and you see it be, if you will, from a regulatory standpoint, business as usual, I think you have a bettering market as we move through '26 and into '27.

And then, I think the unfortunate part about the repurchased loan requests is that it muddies the water with respect to underlying credit performance. So let's leave that aside. And if you could comment on the underlying credit performance, and if there was any credit deterioration, because I think generally real estate fundamentals do continue to improve, but we've seen somewhat of a mixed quarter this quarter from a credit perspective across the space.

So I think Greg was pretty clear, Jade, in talking about the broader portfolio and has a full paragraph in our prepared remarks that says that as we look at what we have had to take losses on, that portfolio was isolated to the borrower base and the origination team at Walker & Dunlop and not broader in the portfolio and that the broader portfolio continues to operate very well.

And so if we weren't specific or clear enough in our prepared remarks on that, we can obviously reiterate that, but I believe the stat that Greg showed was that 26 basis points (sic) [ 28 basis points ] of the portfolio today are in default, which on a scale portfolio of our size is a very low number, and that the fundamentals of the overall portfolio, while there are clearly pockets and challenges across the country, as there always are on a scaled portfolio like ours, continues to operate very well. And so the broader portfolio looks very good. And the issues we've identified and taken financial hits on has been isolated to that borrower base and that origination team that is no longer with Walker & Dunlop.

Jade, I will jump in on with some specifics to reinforce what Willy said there. We did have 2 smaller loans default during the quarter. It was about $20 million worth of loans. We recorded some specific reserves against those loans. But as Willy said, I think, our overall credit quality is excellent. We have 28 basis points of our, you know, $71 billion at-risk portfolio are defaulted. So, I think that, that, just from a top-line perspective, is excellent.

And then, the operating fundamentals that we referred to continue to perform at a very high level with a 2x weighted average debt service coverage ratio and an underwritten LTV of 61%. So I think given where we are through the cycle, some of the things that you mentioned with respect to multifamily writ large, I think we're pretty, we're quite happy with where the portfolio is today and how it's performing, and we didn't see much deterioration at all with only those 2 new defaults during the quarter. So still feel very good about how things are performing overall.

We'll take our next question from Chris Muller with Citizens Capital Markets.

So great to see the Freddie investigation has concluded. I just wanted to ask a couple clarifying things around that. Are the increases to reserves in the quarter part of the investigation conclusion, or was that driven by the specific issues at the property level that you guys talked about in your prepared remarks?

So, Chris, great to hear you. Thanks for joining. There's 2 parts that drove the majority of those credit-related charges in the quarter, the first was just the default as you referred to, and then the second was we did have Fannie Mae wrap up a portion of its loan-level review. And at the conclusion of those 2 loans, there were 2 loans that we identified that we recorded some additional reserves as we agreed to increase our loss sharing in lieu of repurchasing the loans.

And Fannie Mae, they've communicated to us that, that would be the intent of how they wrap up and resolve their portion of the investigation, which is why we only expect an additional credit mark in the third quarter as we finalize that review. And we don't expect any further repurchases from either at this stage as a result of the investigation. So from a capital perspective, we'll manage the losses, but we don't have to at this point feel like we need to be focused on actually repurchasing the full UPB of a loan. So hopefully, that came through, but -- and that answers your question.

Got it. Yes, that's very helpful. And then I guess on the Fannie investigation, is that $12 million to $16 million of expected credit losses in the third quarter, is that related to the $15.9 million increase in loss-sharing reserves, or is that separate from that?

That'll be a new charge as we finalize that discussion and overall review with Fannie Mae. So we just have -- we're pretty close to being finalized there. As we said, we're hoping that wraps up imminently here. And certainly by the time we get on the next quarterly earnings call, we'll be able to say both investigations are done. But as we wrap that final, you know, those final loans up in review, we'll finalize what that loss sharing will look like in lieu of repurchasing the loans, and we'll take that charge in the third quarter. So, it's unrelated to anything we've recorded to date.

Got it. That's helpful. And then maybe just changing gears a little bit. As you guys open an office in Europe now, can you just talk about maybe the differences in that market versus the U.S. and just how quickly you think that market can ramp up?

Sure, Chris. That office has a tremendous -- has a fantastic team at it. We've started to see them closing loans after taking a little bit of time to get up and get going and get the W&D brand in the European market. I think the biggest differentiator between Europe and the U.S. is that there's no agencies there. So the W&D brand, if you will, that has been so strong in agency financing and therefore in multifamily, given the role that the agencies play in multifamily in the United States, you don't have that in London or in France or any of the other countries in Europe where we are focused on lending. And so it's a very robust capital market without the presence of Fannie Mae and Freddie Mac, obviously.

And the team has done a fantastic job of both establishing the brand, and it shouldn't come as any surprise, but our first 3 large deals have come from existing Walker & Dunlop clients in the United States who also happen to operate in Europe. And so we're leveraging the platform in the U.S. into U.S. commercial real estate owner-operators into Europe, and our European team is leveraging off of that to, find deals and execute on those deals.

And so it's a true brokerage operation. And 1 of the things that we are right now about to expand is bringing investment sales into that lending or debt brokerage team so that we're not doing just debt and equity, but then we're also getting into the asset sales business, which has been such a key component of the growth of our debt business in the United States.

[Operator Instructions] It appears there are no further questions at this time. I'd like to turn the conference back over to Willy Walker for any additional or closing remarks.

I'd like to reinforce my thanks to the W&D team for all you do. Congrats on the great place to work. Thank you to everyone who joined us today, and I hope everyone has a terrific day.

This concludes today's call. Thank you again for your participation. You may now disconnect and have a great day.

It's really a pleasure to talk with Tom Nides. As Willy introduced earlier, Thomas is an extraordinary person normally, politics and business don't really mix. They often have contempt for each other, sometimes tolerance. But Tom is a remarkable person who's been able to succeed really to extraordinary levels in both of these different venues.

So Tom, your path was very interesting. You went from Capitol Hill to Fannie, Fannie to Secretary Clinton, Clinton to Credit Suisse, Credit Suisse to State Department, State Department to Morgan Stanley, Morgan Stanley to Ambassador to Israel, and Ambassador to Israel to Vice Chair of Blackstone.

So the first question is, why can't you hold down a job? What's going on? We'll talk about that.

Is that before I did Everest twice? Willy, you forgot that I did Mt. Everest twice. Willy, this is remarkable how you could actually be involved in bringing the audience down from what we just witnessed on the cameras. I told everyone I was going to go back to my house before I show -- decided to show up after watching that. That was an extremely unbelievable story.

So Willy, congratulations to him in his achievements. And I know they're going to do a Netflix series on me, given the fact that I gained 10 pounds when I was an Ambassador to Israel. So I think there is hugely -- I can hugely see the trajectory here. And the reason I've had all of these jobs is that I have not had a chance to fully read Steve's book, The Alpha Trap, which really means how to stop taking new jobs and assuming your success of where you had it, and I can't wait for that to come out or to talk a little bit more about his book later. He thought he was interviewing me. I'm going to interview him.

Listen, Willy knows this really well because I've known Willy for a long, long time. And I hear [ Mary Diane ] here, too. Are the Walkers here? Oh, hey, guys. Hi Dianne. They don't pay attention to me. Will you tell her I said hello to her. But I've known the Walkers for a long time and I've adored the family and obviously, Willy and I are very close friends. And I have seen what this company has there's very few 3 generation companies, as they likely refer to them, as the 3Gs, very hard to do this, hard to keep them together. But the idea that Willy's grandfather and then his father and then Willy has been able to put together, this institution is a testament to the family and the values. And Willy, I'm honored to be here and to be part of this.

And listen, I've been really lucky, like many -- all of us in this room, we got the lucky gene. I've had all these opportunities and being able to go from politics to business, to diplomacy to foreign policy, that's kind of cool. And we all have kind of -- I don't get to climb Mt. Everest, but I've been able to like serve the government in a whole variety of different ways, and I like making money. I'm more than happy to say I'm a great capitalist. So I like doing that as well. It's better to do these jobs in government when you're not poor. So you can pay your American Express bill. So I've been able to achieve both. So that's sort of why I can't keep a job because I like switching around all the time.

Let's talk about that. So I mean, in seriousness, and we'll get to Iran off the back because there's some things going on there. They're pretty important that you have a unique knowledge of. But what do you think has made you successful? What are the different skills that require -- that are required for success in politics versus required in business? Are they -- to what degree are they similar? And what are the things that are unique?

I think it's not just similar to all of you in this room. You can't take yourself too seriously. I mean we're all smart. We're all lucky. We're all probably brighter than the other person. But if you actually start believing that you got to these jobs because you're the best of the business, you're going to be a loser. And I think, ultimately, for me, personally, one of the skill sets I have been able to do in both these worlds, both in business and in politics is not take myself that seriously. And more importantly, believe fundamentally that both business and politics have a lot more similarities than people recognize.

People always say to me, "Hey, Tom, how can you go from being a Chief Operating Officer of Morgan Stanley to be the Deputy Secretary of State? Isn't that kind of a pretty difficult thing? Not really. In most cases, the people in government think most people in business are kind of only selfish and only care about themselves.

And people in the business world believe fundamentally the people the government just screw up and waste your money. When you have people that have both these experience, it's just great for humanity. You can explain to people, not everyone in government are a bunch of jerks and want to ruin your life. And people in business aren't a bunch of sleazebags. And the combination of having both those skill sets, I think, has made me a better executive on Wall Street and in business, and it's certainly maybe a better government official.

So I don't know. I think it is really -- it's a mindset about how you look at people and jobs. And if you treat people with respect and dignity, regardless if you are the COO of Morgan Stanley or the Vice Chairman of Blackstone or the Ambassador to Israel, or whatever, or the President of the Washington Post, Steve, you know this better than most. You've got to understand your role, but you're only going to do this if you actually believe that the people around you are what making you succeed.

Right. Let's dive into the current events, Iran. So talk about your thoughts about how -- I know you don't necessarily believe that Bibi Netanyahu sort of forced us into this. But how do you think we got into this? How do we get out of it?

Well, in diplomatic terms, this is what we've referred to as a s*** show, okay?

Thank you, Tom. That's a kind of extraordinary insight that we can expect from Tom.

A lot of experience have been able to articulate that in a very sophisticated way. So let's step back for a minute. One thing about foreign policy, a lot of things can be true at the same time. Make no mistake, Iran is a cancer in the Middle East, okay? This hasn't changed since the Shah left in 1979, okay? They have spread their tentacles of hate and destruction to the region for -- since that and continues today. And they've done it not only through the development of their attempt to create a nuclear weapon, but that's beyond the point. It's their ballistic missiles, it's their proxies. They fund every evil empire inside the Middle East. It's Hamas, the Houthis, Hezbollah, the amount of cancer that the Iranians has spread through the Middle East should not, in any way, be diminished and discounted at any way. So that is 100% true.

It's also true that every single president I have worked for, and I've worked for Clinton and I've worked for Obama and I've worked for Biden and Trump one and actually going back to Bush, every single president has faced the issue about, how do you stop Iran for obtaining a nuclear weapon, okay? And Bibi Netanyahu, to his credit, okay? I have a lot of bones to pick with Bibi Netanyahu. But to his credit, for 40 years, he has been talking about the threat of Iran to the state of Israel.

In his office, in the Prime Minister's office, you walk into his office and on the wall of his office is not a map of Israel, it's a map of Iran.

So he has been consistent about this. Everything else is secondary. He has been consistent about the threat to the state of Israel has been Iran, and he is attempting to try to convince each and every president to do what President Trump has done.

What has happened here is the President was convinced, and again, to be clear, I'm not going to be particularly political here. I mean, obviously, you realize I'm a Democrat. But I don't find it's necessary to talk about foreign policy and political terms. I will say, however, when we did this thing called the -- again, most of you don't dine out of this nonsense like I do, but when we did the original nuclear deal, the JCPOA, which basically stopped the nuclear programs, it wasn't a perfect deal by any imagination, didn't deal with ballistic missiles, didn't deal with the proxies, they didn't deal with a lot of stuff. But it was a deal that Obama did. And the idea was to basically stop the nuclear program and begin a negotiation.

When President Trump decided to rip up that agreement, presidents have prerogatives, he ripped up the agreement, and he made a commitment that he was going to basically stop the Iranians from getting a nuclear weapon after he ripped up the agreement.

Unfortunately, this is where we are today. And the problem is, in my humble view, recall the Strait of Hormuz, which everyone was talking about, wasn't closed a year ago, okay? We're now fighting to open something that was never closed in the first place. And so we got the President, unfortunately, for good or for bad, is in the [ cul-de-sac ]. He did a lot of good by diminishing the ballistic missiles, getting rid of some of the gray nuclear dust, which is a little bit absurd, but going nuclear, I don't want to be partisan, nuclear dust. But the reality of this is that the President now, the Iranians understand that the President wants to end this war. He's made it very clear he wants to end this war.

So the Iranians know that Trump is trying to end the war. But the Iranians won't let him end the war. And so we are in a very, very, very difficult place. And I'm very -- I'm scared. I was in Israel a couple of weeks ago. It's very dangerous for the Israelis. The Israelis are very unhappy right now in the current situation. They're the victims of this. They're very unhappy. They want Trump to keep going. Trump can't really get keep going because of oil prices and the midterm elections.

So we're in a very dangerous place because as we all know, my biggest fear is some huge accident is going to happen or something on purpose is going to happen, meaning one of these drones is going to hit one of our bases in Bahrain or Qatar or Kuwait and God forbid, hurt a number of our military, okay? That hasn't happened yet. But when it happens, all hell is going to break loose. At that point, it's going to unleash something that I think none of us have yet to see, and that scares the hell out of me, okay?

So you've got -- we're in a very, very dangerous place. And my hope is that cooler heads will prevail. The Iranians will come to their senses. President Trump will stop saying things on Monday and change his mind on Tuesday and change his mind on Thursday. I hope we'll get to get some reality put in place here to begin getting this resolved. But this is a very, very dangerous place to be in.

Taking a step back, can you talk about why the Israel relationship is so important to the United States? And has this war strengthened or weakened that relationship?

Listen, I'm a Zionist. I saw some of my fellow -- some Orthodox Jews in the audience, I don't know where you guys went, But I saw you walking. There you are. Hey, guys. There are very few yarmulkes here in Sun Valley. So glad to see you here.

I think it is -- this crushes me. I was just -- I was coming in here and someone just showed me a poll that 82% of Democrats have a negative view of Israel, okay? I mean really? And I saw a poll that 35% of Republicans also share that view. There's going to be a vote today in the House about cutting the assistance out of Israel. As a Zionist, as someone who cares deeply about the state of Israel, thinks deeply about the security of the State of Israel, it sickens me okay? It really is a -- we're in a very, very difficult place right now for the bilateral relationship.

We'll get -- I like to tell -- I gave a speech in Miami a couple of weeks ago at the AJC, which is one of these. I've now become a professional Jew. But one of the -- at some one of these groups, and I said, we're -- they didn't like this, but I said we're sort of like -- we have to be like alcoholics. And they're like, "What do you mean?" They all looked at me and like, "What do you mean?"

We have to admit that we have a problem before we can deal with the problem. And we have a problem. But I say we're jews, we can figure this out. And we're going to have to figure this out because if you're 30 years old today and you are younger, the only thing you know about Israel right now is the Gaza War and Bibi Netanyahu. And that's unfortunate because the magic of Israel is this little country that was created in 1948. It is the only democracy in the Middle East. You can stand in the middle of the street in Tel Aviv and hold a sign and say, I hate Bibi Netanyahu. Bibi Netanyahu should go to jail. That's not mine, I'm just saying what the sign would say. And you will not get arrested in Israel.

This is a democracy. This is the only democracy. It is our only true, true friend in the Middle East. They are our friend everywhere in the Middle East. This is the startup nation. It is a country of 9 million people, of which 2 million of them are Arabs, okay? So we've lost that whole narrative. And someone who cares passionately about Israel, cares passionately about the security of Israel, we have a huge problem. And I think we're going to have to have -- spend a lot of time -- and by the way, it's not just the liberal democrats. Some of my more conservative Jewish friends will say, "Oh, it's all you, liberals, who hate Israel." This is actually not true.

Tucker Carlson, last time I checked, is not a Liberal Democrat.

And so we got a big problem, and we'll get through it. I believe we need new leadership in Israel. I think we need to get through this, But the security in the state of Israel is paramount. We need to make sure Israel has the security it needs to protect itself, but we are in a very, very dangerous place. It's interesting in one little footnote. Iran has not shot missiles into Israel over the last 10 days. They do not want to get Israel sucked into this again because they know the amount of terror in which Israel will bestow on Iran if they have an opening here. So it will be a very interesting dynamic here in the next 72 hours and how far this goes. But it's getting precariously close, this thing, tipping over into a complete chaos.

And as part of the problem that you have 4 different groups that are distinct with some overlap. You have the Israeli people, the Jewish people, you have the Israeli government. You have the Palestinian people and you have Hamas. And people always conflate those and people talk about criticizing the Israeli government is due to being antisemitic. Whereas if you go the other way, you're an enabler. Is that part of the problem?

Let's discuss. Yes, I tell people -- I'm one of the few people who admit that they have friends in AIPAC and at J Street. I'm very close to the policy and leadership. I mean one of the things I was lucky enough -- I'm not ideological. I mean, yes, I'm a little Democrat, but I don't -- I came to Israel, and I was like, listen, guys, I'm not a religious guy, I'm a liberal reform Jew from Duluth, Minnesota. I'm the youngest of 8 kids. I mean, my parents were like community leaders. They were the head of the UJA and [ the temple ] and all sorts of stuff.

So I came there without a bias one way or the other. I had all -- a lot of friends of Haredi community, had a lot of friends in the real hard left. And the reality is Israel is a melting pot. I mean the reality is people don't know that Arabs work side-by-side with Israeli in Israel. I mean they've lost that whole set of narratives. I mean, go to a hospital, a school and educational facility, there's -- the Arabs are at the heartbeat of the country. In fact, if it hadn't been for the Arab parties, the last Prime Minister, I had 3 Prime Ministers when I was Ambassador, I had Bennett, I had Lapid, and I had Netanyahu. The only reason Bennett and Lapid were actually Prime Ministers because the Arabs voted for them, okay?

So the reality is people don't know all that because it's too confusing and they hear all this stuff. The reality is the people talk about a 2-state solution, like we got to have a 2-state solution. I talk about it all the time because you have to, you have to say it, and I hope it would happen. But put that aside for a second. What Israel needs to do is treat the Palestinians with dignity and respect. And things like housing and education and health care in parts of the West Bank need to be implemented.

We lose sight because everyone uses all these rhetorical terms. We need 2-state solution. I believe I need that we need to say [indiscernible]. In the meantime, people need schools, need health care. So when I was an Ambassador, I spend a lot of time on the little things. It's like your business. It's the little things that make your business. It's not that if you're in a servicing business and a mortgage servicing business, it's making sure those mortgages get serviced. It's not the kind of overall arching idea of interest rates is great.

But in your business, in my view, we need to do more for the Palestinian people. The Hamas is a terrorist organization and they should be destroyed. But everyone in Gaza aren't Hamas. We get stereotyped, every idea that every Palestinian is a terrorist, that is complete nonsense. It's like everyone in Gaza is a member of Hamas, it's complete nonsense. It's not every Israeli hates Palestinians. It's nonsense. It's the small minority that creates the chaos for the rest of us. It's a small minority of people who create the insanity in which all these wars begin and we have to understand that.

And you were uniquely suited to look at the Middle East, take a bigger view of the Middle East. How do you think things have changed with the UAE with Saudi Arabia, the Abraham Accords. How do you see that? How has that evolved? And how do you see it evolving going forward?

First off, I give Trump Administration a huge credit for the Abraham Accords. I don't know how many of you understand it or are involved like I was. But Jared Kushner in Trump's first administration, I like Jared, I think he's a really smart guy. I'm not sure he should be -- I think he should be doing this either full time. This idea, you have a private equity fund and you're doing diplomacy is a little bit, I wish I knew that. I would have never given up my stock at Morgan Stanley. But just kidding, of course. I'm not trying to be partisan.

But to his credit, he formulated something which should -- he really should have gotten the -- I don't know about the Nobel Peace Prize, but something close to it. It was the first time a negotiation that occurred that the Morocco, the Emirates, UAE and Bahrain recognized the State of Israel. It was referred to as the Abraham Accords. This was a big deal because even after October 7, after October 7 in Israel, when the Hamas did the atrocities on the State of Israel, those 3 countries stuck with Israel. They never broke relationships with Israel.

This is what could be. We were so close to getting the Saudis involved in the Abraham Accords. I mean I worked -- I was telling some report of this yesterday, I did some TV interview yesterday. Lindsay Graham, I love Lindsay Graham. I mean he was sort of nuts, but I really love Lindsay Graham because he wanted to do the right thing. I always want to do the right thing. And so I was sitting in the hotel lobby of the King David Hotel. And Lindsay Graham, I knew Lindsey Graham because he had called me, when I was Deputy Secretary of the State, he asked me for a favor, and you love Senators who call you and ask you for favors, especially when you need them to help you on something else. I mean it's sort of like Wall Street.

So anyways, he called me and he asked me for his -- he had a constituent that has some sort of textile problem. I didn't know what it was. So I asked one of my staffers to take care of it. And again, I hope it was legal. Anyway, one day, he called me later, he goes, "Tom?" Lindsay. "I'll never forget you, what you did for my constituent. It was really, really -- he's my best friend." And like, I still, to this day, have no idea what I did. But he singlehandedly helped me get elected, helped me get confirmed in the Senate twice. He literally called Republican Senators, made sure I was confirmed unanimously, both for his deputy sector and his -- so he was my guy. So I couldn't tell them, my liberal friends, that because they'd be really mad.

So I'm standing in the King David hotel. And as you recall, MBS, the leader of Saudi Arabia, as you know, sort of had a bad day when he, unfortunately, was involved in the Khashoggi killing, right? As you remember, the Washington Post, up a letter, you probably knew Mr. Khashoggi. And there was a lot of hatred towards MBS for being involved in that untimely death of Khashoggi.

And Biden, President Biden pledged during the campaign at that the Saudis were basically terrorists and he would never see MBS and he would never spend time with MBS because he was a killer. And so Biden was coming to Israel for his 10th visit right in the middle of COVID when I was Ambassador. And he -- we pushed Biden to go to Saudi Arabia and mend fences with MBS, or not mend fences, but have a meeting. And by going there would by nature.

So I'll go to Lindsey Graham thing in a minute. So we convinced Biden to go because we thought, you can't be fighting with everyone. We're right before the midterm elections. We've got to make sure oil prices are stable. And it's -- everything in life is politics. And Biden, to his credit, agreed to go, but he said, "I'm not going to shake his hand." It was right in the middle of the COVID season. So we practiced fist bumping, okay? And so he fist bumped MBS. So we didn't have the photo of him greeting -- it was all kind of nonsensical, but that's what you do.

Anyway, so I'm sitting in the lobby of the King David Hotel with Lindsey Graham. And Lindsey Graham, just like Biden was trashing MBS, kept saying all sorts of nasty things about MBS. And he said -- but he said, "Tom, I think there's an opportunity to normalize Saudi Arabia with Israel." I said, "Well, Senator, how are we going to do that? You've been trashing MBS, too." He goes, "Tom, wait to see what I do." He said, "I'm going to do an interview in about an hour with George Stephanopoulos in the lobby of the King David Hotel. Just watch what I do.

And that guy sat in that chair and he reversed himself on his hatred of MBS. Basically said, I think I can do business with that guy, MBS. And from that moment on, for the next 2 years before October 7, Lindsey Graham spent all his energy working on getting normalization between Saudi Arabia and Israel, working with the Biden administration. He was totally into it. And then obviously, it all fell apart after October 7 because the Saudis couldn't talk to Israel, and the whole thing fell apart.

But I say this because Jared Kushner created the platform of these things called the Abraham Accords, and then layered on top of that with the potential of Saudi Arabia. If we can get back to that, it will be dreamy. Now we're dealing with the war in Iran. So who knows. And I think ultimately, I don't know how it's all going to shake out for the rest of the Middle East. But the reality is the Saudi piece of it could be really important, the Abraham Accords was exceptionally important, and we should use that as a foundation.

It just shows how difficult these conversations are because when I hear about an employee in the Washington Post who was killed and chopped up with a bone saw, we kind of think that guy isn't a great guy. But you have to think of the bigger picture. These are tough conversations.

So you talked about October 7. So you were watching a preseason basketball game in Dubai, NBA basketball game. And Jack Lew had been named, but not confirmed, as your replacement as Ambassador to Israel, and you found out about October 7. Can you take us through what that was like? What happened? What you were asked to do?

It's even worse than that. So I'm in -- the Timberwolves were playing with the Dallas Mavericks in the first exhibition game in Abu Dhabi. And Miriam Adelson had just bought the Mavericks. I knew that, but no one else knew that. And she invited me and we get into the whole Miriam Adelson shtick in a minute.

So she invited me to come to Abu Dhabi for the game because Timberwolves -- I'm from Minnesota. So I said, this is going to be cool. So we're sitting at dinner in Abu Dhabi with all of the players from the Mavericks and the Timberwolves. And I have all the diplomatic core from the Middle East, and I have a bunch of Jews from Israel. And I've got the UAE Ambassador who was instrumental in the Abraham Accords, Yousef Al Otaiba. And I stand up. And I'm toasting the success of the Abraham Accords, and long live the Abraham Accords and bla bla bla, and I'm like, going on and on probably too long. And 2 hours later, our phones start lighting up.

There's something really crazy going on in Israel, like really crazy, like crazy like we've never seen before crazy. And it just was the beginning of what we saw play out, and so all of us left. None of us obviously went to the game the next day. We all got on planes. I flew back to -- I felt terrible because I just left a month earlier. And my wife runs CNN. So she was like, your next wife can follow you to Israel, sort of going up like Mount Everest, but she did not want to go. And she visited me however. And so I left early and I felt terrible because my DCM, my deputy was in charge. And she is really great. This happens to be now the Ambassador of Bahrain. So she was dealing with what arguably was the biggest crisis in the state of Israel has had since the beginning of the country, okay?

I mean the amount of just terror, I mean I had 3 or 4 friends who lost her kids at the festival. And for all of you to remember, I don't -- again, I don't -- I can't imagine all of you to spend much time thinking about this, except for my friends back there. But the reality is what happened on October 7 since that, no larger number of Jews were killed in a single day since the Holocaust on that day on October 7, okay?

And it wasn't just the killings of the Jews and Arabs, by the way, on October 7. The kids that were in that, the concert was like burning man, okay? They went to this concert to show you could have a concert at the wall, the fence dividing Israel to Gaza, it was a bunch of kids having a fun time. These were not protesters, these weren't -- these are kids getting high and having fun and listening to music. It's sickening what Hamas did on October 7. And then not only the brutality of the number of people that were killed, but the brutality of ripping all these people and bringing them to Gaza and showing them in the tunnels. And it is beyond anyone's imagination.

And if you -- for all of us, I think all of us in this room have had tragedy, you wouldn't be -- all of us have had some sort of tragedy, right? We all have it. This is a level of tragedy that I don't think any of us could ever, and God forbid, ever endure. I spent a lot of time with the hostage families who basically woke up every day just trying to get their kid back.

And then I had my friend [ Ruby Chen's, ] -- all he wants his kid's body back. He knew that the kid was dead. He just wanted his body back to bury him. You can't -- again, I don't mean to get on this. So the level of what happened on that day changed Israel forever, forever. And that's what -- for me, as the former guy, I felt a little bit like -- so I know I basically then spent the next 6 months just working on behalf of the community and trying to raise money and do the things you do when you can't be there on the ground to help.

Thank you. So shifting gears a little bit, thinking about DOGE, and you were obviously were the Deputy Director of State Department, and you've seen what's happened, 300,000 federal workers cut in just the first 1.5 years of the Trump administration. Only 28 of the 150 ambassadorships are filled. For people on the right, they might say, well, we've discovered massive inefficiencies because the world seems to be working fine. Have these been efficiencies have been uncovered? Or are there things that we're going to regret later on? What's your view with all this.

Again, I'll try to be disciplined here. I think Elon Musk is a brilliant guy, okay? Listen, SpaceX, what he's done on Starlink, what he did on electric cars. I mean no one will take it away from him. But I thought what he did on DOGE was disgusting. Now, I don't blame him, I blame how they did it. To be clear, the President of the United States that cut more civil service jobs in any president in the United States was Bill Clinton and Al Gore. Al Gore was in charge of reinventing government. I was involved in this, okay? He actually replaced more government employees than Elon Musk. There's a way to do this, and there's a way not to do it. Is there a waste at the government, 100%? Is there waste in budget of your companies, yes, probably. I mean, maybe, don't take that personally. But just hypothetically, okay? Yes, okay? There is a way of doing this and there's a way of not doing this, okay?

The reality of this is to pick on the civil service of our country, it makes me sick to my stomach, okay? The men and women who wake up every day want to do the right thing. Are there bureaucrats who slow things? Sure. But the vast majority of the people that I work with want to do the right thing. And do I believe we can do things better and faster? 100%.

Let's just take an example, okay? USAID. USAID reported to me. I was the Deputy Secretary of State. What people don't understand about USAID. USAID, which is not perfect and needs reform, I get all that. But USAID represents to our country, soft power, you know what soft power is? Hard power is our military might. Soft power is what makes America, America. It is what distinguishes us from China. It's what we do in countries in how we make countries better. And it's not just what George Bush did with using USAID to eliminate AIDs in parts of Africa, it's everything in between. It's water, it's democracy building, it's community building. The guys who are the most biggest advocates for USAID, the U.S. military.

I used to call Dave Petraeus. Every time I had to testify in the Congress, I said, General, I need your help. He goes, count on it. I will go and sit next to you and advocate for the support of USAID because my strategy is very simple. The military can clear, right? They can clear enemies out, but to hold them takes the guys in the short pants, the soft power guys. That's the only way. And by the way, we're learning this lesson right now in real time in Iran. The only way we're going to end this thing in Iran is you can blow the bejesus out of them, okay? But we're going to have to have a diplomatic response. That's the only way you can get at the end of the day, long-term peace is through diplomacy. You can't bomb your way into peace. You can get them to the table but you better have a program. We learned that after World War 2. We've learned that historically. We've learned this everywhere.

And so the idea you come in and you say, you know what, USAID sucks. Let's just shut it down. Really? So I think ultimately, reforms need -- be needed. To be clear, I have no problem of doing reforms. Listen, I have fired, sadly, way many people in my job that I have had running several financial institutions. I get how to do this. I know it's not perfect. But I think what they -- how they conducted themselves in how they did this, I think we'll be paying a price for this for a very long time.

Are there particular -- USAID is one. Are there particular areas where you think the cuts are going to bite us?

Listen, I think it's -- I go back to -- I think, again, people is like, "I don't care about Voice of America, who cares?" Well, I'm telling you guys, when you wake up and you realize where the staining of America is around the world, some of this is, yes, part of this is somewhat of President Trump style. It's somewhat different than some other presidents. I appreciate that. Some of it is the pressure we put on rightly on NATO to spend more money on their own defense, totally support that.

But I think the reality of this is, is that if you look across our government and the things that we do internationally, I'm on the Board of a thing called the IRC, the International Rescue Committee. The job is basically to help refugees who we settle here in the United States and help refugees in countries and war-torn countries. The budgets has been dramatically reduced because obviously, we're not letting refugees come into the United States anymore, and how we use those money overseas. These organizations are really, really important guys.

At the end of the day, what made America, America, was our kind of -- we were the -- we are the shining light on the mountain top, as Ron Reagan used to say. That's what made us who we are today. And again, I'm not being critical about the administration. But I do think, ultimately, we got to get back to a little bit of that. And maybe we went too far, maybe we were too open, maybe we were to this. But I think ultimately, for our country to have the strength that we need, we need the soft power as much as we need the hard power.

And so speaking of things generally viewed as helpful. We asked NATO countries to spend more on defense, and that's -- and they're doing that. So does that make us safer or less safe with a more militarized Europe?

Listen, you look at what's going on here. We have a raging war going on in the Middle East. Do I want to remind any of you? We also have a massive problem with Russia-Ukraine. We're not talking about it very much, but it is a -- quite frankly, that is a bigger threat to the security of our European allies than the Iranian capacity to get a nuclear bomb, okay? We're not talking about because it was supposed to be resolved in the first few days of the Trump administration. But sadly, these things are really, really complicated, and the Ukrainians aren't giving up and the Russians aren't giving up. And the more the Ukrainians push the Russians, there's a chance that Putin may say, "I got to go much more aggressive." And then all better off, okay?

So do I think a unified NATO is helpful? Yes, I do. I mean I didn't like the idea. I really didn't like the idea that when President Trump picked up the phone and called Macron and Starmer in the U.K., and Macron in France and said, I need your help on Iran, at the Strait of Hormuz, that he got basically the Heisman, okay? I don't like that. I don't -- I think the American President, when he picks up the phone, this is what our NATO allies are supposed to do, are supposed to help us. And I think this may be the future that we're at. And much of this is for a whole variety of reasons. It's fighting around things like Greenland. It's about Iran. It's about Ukraine and Russia. It's about Zelenskyy. That's very complicated.

But at the end of the day, a strong European allies, a strong NATO is good for the United States. Make no mistake. Yes, we paid too much. They need to pay more. No question about it. But we need their help, we need their support and we need to be working collectively together. Breaking up NATO is a terrible idea. Weakening NATO is a terrible idea. At some point, the United States needs to support. It may not be the military support, but we need the support of our NATO allies.

Do you -- how confident are you in the alliance structure being able to survive? And related to that, what do you think the chances are of a military conflict involving Taiwan?

On -- well, survival. Again, not to be political, but President Trump will only be in office for 2 more years or 2...

Not clear, but probably true.

I could actually give you the hours, but no, no. But so I don't think even the next Republican President, if a Republican becomes the president. I don't think -- this is -- he's taken a very unusual position vis-a-vis NATO, personalized the relationships in a way that might be -- I don't think that any Democrat or Republican president necessarily is going to follow it.

Now he set the standard on the idea of them paying more for the defense, and I appreciate it. The thing about President Trump is that people have this Trump derangement syndrome like everything he does is terrible. That's not true. And I've tried to be somewhat balanced. That is not true. But the problem is he does do things and then he goes to one click too far, and that's kind of like to dilute some of the good that he's doing. And getting NATO and spending money in the defense was quite good. I think ultimately next, the personalizing his relationships with some of these NATO leaders and then meeting them, probably not so good. But we can talk about that later.

China, in every security meeting I was in, have been in, it was clear the Chinese have a goal of taking over Taiwan, Make no mistake. They believe it belongs to them. We've had a very kind of delusional kind of idea how we talk about Taiwan, all of our assessments were that in 2027, that the Chinese would in fact go in and try to take Taiwan. That was basically the assessment during the Biden administration. I'm not expressing anything that hasn't been reported, I don't think or I'm going to go to jail. But I think that was clearly the intention of the Chinese.

A lot of things have happened since then. One was obviously COVID and the COVID shutdown had huge financial implications on the Chinese. The Chinese real estate market completely collapsed, and had also a huge impact. President Xi purged his whole security apparatus because he felt that the military operation around him wasn't efficiently loyal to them and focused.

I think ultimately, President Xi has an enormous amount of desire to take Taiwan. I do not believe he will do this in the next year or even the next 2 years. The reason for it in my view -- and by the way, I could certainly could be wrong. He needs to fix his own fiscal house. You saw the GDP numbers today in China dropped dramatically from last quarter. He has an aging population. He obviously wants to do what he wants to do is succeed in AI. He's probably doing a better job on using -- thinking about jobs around AI than we are in the United States, but that's still a hugely significant issue.

So I think ultimately, his desires are clear. The real question is, will he take Taiwan now because he thinks there's an opening because he has Trump? Maybe. Do I think when Trump was in Beijing 4 weeks ago when he was in the middle of this whole Iran negotiation, they didn't have a little pull aside and said, listen, President Xi, buddy, I need your help on Iran, and because he knows that the Chinese -- the Iranians only care about the Chinese because they don't want to buy their oil. And do I think at the same time, do I think the President Xi said, big guy, I need your help on Taiwan, meaning don't sell them the arms that they already had, Congress already approved them. I think both those things are true. So ultimately, I think that he will not go at Taiwan in the short term, but the desire there is there.

Right. So one thing I'd love your thoughts on that the theory the Supreme Court has of this sort of powerful executive that the President should be more powerful. And the recent things with the election committee where the President can now fire a bipartisan, basically fire all the Democrats in certain committees, not there are certain protections still.

But do you worry that in terms of predictability, think about your own real estate investors and we want -- investors want predictability and our allies want predictability. Is there a problem with more powerful executives that we could just have pendulums that swing back and forth, and people, business people and our allies can say, I don't know, I may trust you, but I don't know what's going to happen in 4 years. Are we -- how do we recover the trust of allies? And how do we deal with this from there?

Listen, Willy and I have had this conversation before. Listen, this is problematic. I mean listen, good news is the court did step in on the Fed, okay? I don't think Trump is going to necessarily stop his badgering I think, quite frankly, in my humble view. I think Kevin is -- Kevin Warsh is going to be very similar to Jay Powell. They have the same temperament, the same ideal. I think they're going to have -- basically, Trump is going to regret the idea that somehow that Kevin Warsh is going to browbeat the Fed governors to lower rates anytime before he believes it's ready. And obviously, the Fed's certain goal is to keep inflation in place.

Kevin Warsh basically has said that. Ultimately, I'm sure the rhetoric is going to get cranked up even more so. President Trump, when he realizes that probably Kevin Warsh is going to actually march to his own drummer. And I think it was reinforced by the Supreme Court's decision that they couldn't fire Cook. And ultimately, I think that's good for all of us. It's good for humanity. If by the way, it's good for -- if the next -- if a Democrat wins the presidency, I think that's really important.

I think this whole issue of presidential power is one of the issues that no one's really talking about because here's what's going to happen, folks. If a Democrat wins the White House in 2028, guess what they're not going to do. They're not going to say, "Oh, you know, all those presidential powers that Donald Trump gave, I'm going to give them back. I'm going to give back to Congress because I don't really believe in a strong presidency." BS, okay? The next Democrat President is going to basically take those powers and do the things probably that many of you in this room are not going to like because they will say, we don't have to reverse a lot of the stuff that Trump did.

And so I think this is like -- this is the one little thing that people don't talk about because I've seen this happen. Listen, Biden did a lot of executive orders when he became the White House and to a point that people were like, oh, I think he actually had done more executive orders than Obama had done and the Trump first administration, and now Trump obviously doubled down on that in his second term.

So I worry about presidential powers because we need balance. I mean we need balance. I don't want -- I can't say this to my friends. But I don't think having a Democratic President, a Democrat Senate, a Democrat House is necessarily great, okay? You need people to have checks and balances. And this is why I think ultimately, if the House becomes -- gets into Democratic hands, which I predict will happen, I think it's better to have some checks and balances. Now it's not going to make Trump particularly happy, but I do think there is some of that, but I do think it's a issue about presidential power and his ability to fire anyone is not great, especially in these jobs like the FCC, and the SEC, and basically the idea of having some bipartisanship is important because they disagree with you.

If you fire them, I don't think it makes our business any easier because you're 100% right. These massive swings, you can't do a 5-year business plan when you're not sure exactly who's going to be running the regulatory agencies that you guys are trying to manage through. So I don't think it's great for your business. I don't think it's great for humanity. But I don't see any idea that this is going to change under the next president either.

So shifting gears because we have a real estate audience. You are Vice Chair of one of the largest real estate owners.

The largest.

The largest. Who's counting?

[ Just saying ].

[ Just saying ]. So you don't sit directly under UB talk to investors a lot. And so what are people saying? Where do you think the big opportunities are? Where are the problem areas? How worried are you about private credit? I know you have a balanced portfolio, but what do you think?

Well, okay. So step back, listen, you guys are real estate guys. You know Blackstone's positions, obviously. We had a very tough 4 or 5 years in our BREIT business. There's a lot of anxiety among our investors, liquidity, and everyone thought the world was going to come to an end. And since we are the largest real estate owner in the world. Obviously, we have huge exposure to multifamily and single-family and commercial properties, we have only 5%, just saying 5% of our portfolio is in offices. Sometimes it's better to be lucky than smart.

But we have a massive exposure around the world. We got through that period of time, like many of you in this room, okay? We got through the period of COVID, and we've now seen a huge uptick in our real estate, not only inflows of cash coming in but even the performance of some of those assets, yes, we have plenty of assets still need to be worked through. But ultimately, the fundraising in our big funds have dramatically increased. And we are very much focused on hard assets. As you know, we are the largest developer of data centers in North America. We own a company called QTS, which is -- massively took a public company, turned it to private, bought for like $20 billion. We now probably is worth $100 billion, $125 billion. We bought a company in Austria called AirTrunk.

So we are very much focused on hard assets, not just data centers per se, but our infrastructure fund, which includes everything from ports to airports and then, of course, the energy to drive those data centers. So natural gas, the alternatives, we own a big alternative wind solar company in Illinois. So we are very focused on the surround sound on the platform.

So we feel pretty good about the real estate business today as it sits. Obviously, we'd like rates to come down, it would make our business even feel a little bit better, so we could actually sell some of these assets. But we feel quite positive.

On private credit, it's funny. It's sort of like the BREIT of it all, right? And everyone's over the BREIT since we are the largest private credit player in the world, too. It's sort of like someone gets a cold then we get the flu or something like that, I guess. And ultimately, you all know, guess what, private credit isn't going anywhere. I know that's shocking to people. It's been around for 20, 25 years. As long as private credit performs better than traditional fixed income assets, we will be doing just fine. Are there going to be disruptions in the private credit business? Sure. We have exposure to software companies, like everyone else does. We have a smaller percent of it. But we've seen a little bit of disruption.

But I'd like to remind people, and I want to be disciplined here maybe. But the people who have been screaming about the private credit business that the hair is on fire and the world is going to end were the big banks. And they're my friends. We love all the big banks. I love Jamie Dimon. I think he's a phenomenal executive. He's done a great job, and he's been the biggest drummer of the beating of the private credit business bubble.

One of the reasons is he sort of kind of want to get back into the business. As you know, the banks were pushed out of the private credit business during CCAR and the cost of doing that business became very difficult for them. They want back in. So I think, ultimately, the private credit business, as you see in the inflows, the people who hit the sell button on private credit were our retail clients. Many of you in this room I'm sure got a little bit panicky. The people who stuck with it are the institutional players. They like the returns, they like the stability. So we feel pretty good about private credit. But like everything else, it's like BREIT will come back and things will get stabilized.

But when you have a company like Blackstone, which you have in $1.2 trillion of assets under management to have all these different asset classes from everything from data centers to Jersey Mike's. It's not a bad business to be in, and it's all about diversification.

So Willy talked yesterday about this idea of who's going to win the stock market or the consumer. So the idea was the consumer confidence index is the lowest level it's been in 60 years. And yet the stock market goes up and up. We see the famous stat of 37% of Americans couldn't handle a $400 surprise. And yet over the last 1.5 years, their costs have gone up $6,000 to $12,000 and wages haven't kept pace.

So there's this massive income inequality. There's this change, there's a shift. And you see this not surprisingly, with this kind of disparity of rich getting richer, poor getting poorer. You see the socialist waves at these kind of -- some of them sort of crazy socialist, the woman in New York, who says she's not sure that murders should be incarcerated. So what do you think this -- how worried are you about income inequality? And what do you think about the political ramifications of that?

It's a problem, but it's been a problem for the last 50 years. This is not unusual guys. I think where it's going to manifest itself is how they deal with AI, okay? I'm sure you've done a bunch of AI stuff at the conference. But to me, that is really where this is going to matter. It's certainly already been manifested and people are distressed about data centers, okay?

Now most of you don't know what a data center is. And they're like, because it's this machine, they think, and there's this poll that done last week by Publicis that the more people are likely to want a nuclear power plant next to their house than a data center, okay? So that is not about the data centers. That's about people's anxiety about AI, about what's going to happen to their job. And it's not about blue collar jobs. I worked with the Clinton Administration, I did NAFTA. And everyone was worried about Ross Perot calling me and saying, "Oh, here is a sucking sound of jobs from U.S. to Mexico." It's not about blue collar. Now, it's about white-collar jobs. It's about kids who are graduating college like many of you in this room are like fearful what your kids are going to do, and it's people trying to figure out what AI implications is going to have.

We all talk about productivity. Productivity is a shorthand, we're doing more with less, and less is a lot of people in this room or people who work for us. So that is to me -- this is what's going to be the #1 issue in the 2028 election. It's not going to be Israel. It's going to be how politicians talk about AI and talk about what we're going to do, and that's going to manifest itself in this whole issue about economic inequality, job anxiety. That's all people care about.

I mean people don't -- I mean, yes, they care about Iran and they care about -- I mean they care about Ukraine and they care about, right. But at the end of the day, they care about their family, they care about their food, they care about their education, they care about buying a house, and they're worried and they're really worried about what this thing, what AI is going to mean for their lives and how people -- and so politicians are going to have to wake up and they are going to need regulation around this in a way that people feel more comfortable around it. And so that's how it's going to map itself. But yes, 100%, richer getting richer. We've all had a very good, great few years. That is not new. But how you talk about is going to be really important.

And that is, by the way, how Donald Trump got himself elected. Donald Trump got himself elected by convincing people that he was going to fix the economy. That Joe Biden was too old, too feeble, and he's going to do 2 ways. He's going to bring down inflation, make the economy better and he's going to stop illegal immigrants coming in and taking your jobs away. And he was really successful in articulating that. And that is why he's at 35% approval rating because people are not sure that's actually happened yet. So this is going to be the fight.

And by the way, the fight with the Democrats are going to be the left saying we should do way, way more. And the moderate parts of the Democratic party will say, if you do that, you're not going to get electable. And that's going to be the big fight among the Democrats, and I have no idea how it's going to come out.

Can we do one thing before we go? So I do want to just spend a second talking about your book because I think it's, for me -- and I know I wasn't supposed to do this, but I want to do it anyway. Your book is about how like Alpha People, people who are like us in this room are successful business leaders, how we transition from being successful business leaders to being fulfilled individuals. So I don't -- I haven't obviously read the book. We have a lot of people who wrote -- blurbs about the book. Just spend a minute talking about your book for a minute. I know...

This is how Tom became a politician.

Because I'm done with this, okay? I've done talking, but I'd like to hear -- just spend a minute talking about your book for a minute.

Now I'm going to do them a favor after this.

Just talk about, just to talk about your book.

So it's a little bit like, I think, what Albert Brooks was talking about it. If you want to check it out, there's thealphatrap.com. You can go there and actually do an assessment of to what degree you're an alpha and to what degree you potentially have -- what aspects of your life you can fill in.

I interviewed about 100 people, all sort of Alpha's, Willy was one of them and talked about what are your -- what's made you successful. And looking at sort of the biology of it, what's made people successful over time? And then what gets in your way of connections of happiness of fulfillment. And sometimes those same drives actually don't serve us well, particularly in sort of the second chapter. And so it also talks about people and examples of people of what they've done, specific practices of how people have done that. So if you want to go to thealphatrap.com.

What are the couple of things you'd recommend people to do? Let's assume hypothetically. You can't -- all of us cannot be as successful as Willy is. But hypothetically, some of us are somewhat successful. How do you do that?

So one thing is there's a thing on this -- on the website, you go to, it's a wheel. It identifies what are the gaps. Is it -- are your gaps between your current state and your desired state? Is it about health? Is it about your relationship with your friends, relationship with your spouse, contribution, inner peace, trying to first identify where the gaps are. And then practically, how do you close those gaps. So the tendency is even though maybe success and status and money isn't what we need more of, we're so used to try to achieve those that we keep striving against the same things as opposed to looking at things that offer more balance.

He is a guy, by the way, just to record, who is the President of the Washington Post, an unbelievable success. Then started -- my kid took a class from him and he teaches at Georgetown. And best class my son has ever done. Also writes music, all sorts of things. Now writing a book. So he's got this down. So I was -- you better buy the book when the book comes up.

Yes, you're very kind. You're very kind. So I'll just ask, Tom, one last question or a couple of questions. So the first is, so do you have a front runner for the 2028 on the Democrats and on the Republican side? What -- do you have any predictions?

I'm going to make a prediction. On the Republican side, first, Dave McCormick is going to run for President, okay? I don't know if this for -- I've been mistelling you. Dave McCormick will be very interesting. I know everyone talks about JD Vance and Marco Rubio. I think -- I don't even know if he's going to run -- but I'm telling you, I think Trump is going to be there today in Pennsylvania doing an event with McCormick doing something else, but he'll be a very interesting candidate for Marine, Ranger, Pennsylvania. He could be -- he'll shake up the Republican primary ballot. So that's -- think about that. You won't remember I told you that, but when it comes through, he's like, I remember that guy, I don't know.

On the Democrat side, who the hell knows? We're going to have 18 people running on the Democrat side. You're going to have governors. You're going to have the governor from Pennsylvania, from Illinois, from Kentucky, potentially from Maryland. You're going to have 4 or 5 senators. You're going to have people like Rahm Emanuel, you're going to have -- who knows if Mark Cuban, you're going to have all sorts of people getting on the Democrat side. And there's going to be a fight in the Democrat side, as I just mentioned, between the people on the left, there's going to be someone on the left. There's going to be someone like AOC or someone like that who's going to flurry around and get a lot of attention.

And ultimately, I don't think that person will emerge as the nominee, but you're going to have a big fight among the Democrat Party and you're going to have a big fight in Republican party because JD Vance is going to believe that it's his to get because he's JD Vance. Marco Rubio, very clever is I predict that Marco Rubio by the end of this year, you're going to see stories in the New York Times saying, Marco Rubio is thinking about he needs. He's exhausted. He is to spend more time with his family. He needs to step back from being Secretary of State and National Security Adviser and he's going to leave to spend more time with his family, which means he's going to end up running for President because he got to get out of the administration.

So I think you're going to have a lot of interesting dynamics. And just remember this one thing. Every election is a reflection from the last election. So who the Democrats and Republicans pick will be a reflection upon what people believe Donald Trump did or didn't do going into the next election.

Well, Tom, thank you for your extraordinary wisdom, your thoughts. We appreciate your time.

Thank you guys very much.

Thanks, Tom.

Good morning, everyone, and a pleasure to be here. I'm Ivy Zelman and run Research and Investment Banking at Walker & Dunlop. And I'm excited to have such a prestigious panel with myself. Steven DeFrancis with Cortland is going to be our multifamily expert; Ryan Marshall with Pulte Homes, CEO, will talk about single-family; and Dallas Tanner, who runs Invitation Homes, will talk about single-family rental.

So Willy talked about a lot of things today. I'm going to hit on some of them, but I want to kick it off with a discussion about demographics. We're just about to publish an updated version of a report we did back in 2021 that was pretty unpopular, called cradle to grave. And really, probably the reason it was unpopular, it was pretty troubling to look at the demographics of this country's future. And I want to revisit that because right now, with immigration being predominantly shut off, we do have a very troubling outlook.

We have an aging population. I politely say many of those people are aging out. And currently, our fertility rate is below replacement level. So when we look at future population growth, which drives household growth, it doesn't look very good, and it's going to only get worse unless something changes around immigration because I don't think young adults today, predominantly women, are that interested in having children. I can tell you my 25-year-old tells me she doesn't want children, which breaks my heart, but a lot of them are saying they're one and done or frankly, don't want them at all for many reasons, political ideology to can't afford it.

But with that said, I'd like to kick it to first, each of the gentlemen to talk -- I should have done this, I apologize. Why don't you just walk through your footprint and give people some perspective on your operations.

Dallas, do you want to start?

Yes, sure. Great to be with everybody. Ivy, thanks for hosting us. Dallas Tanner, CEO of Invitation Homes. We're a publicly traded single-family rental business. We basically cover the West Coast, Southwest and Southeast. We have about 110,000 homes that we own and operate. Average customer is sort of 38, 39 years old. They have a combined household income of, call it, $150,000, and they stay with us about 5 years. And so we have a lot of, obviously, interesting information on what that sort of consumer is up to.

Thanks, Dallas.

Good morning, Ivy. Thanks for having us. The view this way is spectacular. Hopefully, it's probably not nearly as good looking this way, but it's really nice to be here in Sun Valley. So Willy, thanks to you and Ivy and the W&D team for hosting us. I'm Ryan Marshall, I'm the CEO of Pulte Homes. We're headquartered in Atlanta, Georgia. We're a national homebuilder. Most of what we do is all for sale. We do a little bit of single-family rental with partners like Dallas. We're in almost every single -- top 50 housing market and many of the top 75 housing markets.

Last year, we built about 30,000 single-family for sale homes, most of those being single-family. We do a little bit of condo, a little bit of townhome in a few markets. The majority of our business is in the Southeast, Florida; Texas, Southwest. We've got a fairly decent Midwest business, including Ivy's hometown of Cleveland, which we love building in, and we don't want anybody else to go there because it's quite lucrative for us right now. We do a little bit of a business in the Northeast as well, Boston, D.C., New Jersey, New York. Average price point for us is $560,000, and we serve everything from the entry level to the move-up, luxury, and we have a big active adult business as well.

Great. Steven?

Good morning. Steven DeFrancis. I'm the CEO of Cortland. We're based in Atlanta. We're a vertically integrated multifamily investment manager, meaning we buy, build, develop, renovate and operate multifamily communities. We have about 80,000 units today and the markets we focus on are the -- we consider the growth markets of the U.S. So I think naturally the Sunbelt, Mountain West, Mid-Atlantic and in the middle of the country, the bread basket of our country. So we're in most places that aren't the Northeast or the West Coast.

Great. Well, thank you. So let's get back to my demographic discussion. Ryan, I'll start with you. As it relates to discussions in the boardroom, recognizing after COVID or during COVID, we had massive migration to the Sunbelt and yet home prices surged, and we all are now dealing with a lot of affordability issues and overbuilding. So do you discuss recontemplating where to go strategically? And do you still want to be in the Sunbelt given that we're seeing migration reverse outside of the Sunbelt?

To your question, Ivy, about the boardroom, we talk about it a lot. And the report you mentioned, cradle to grave, was not one of my favorite reports. I read it multiple times and tried to find all the reasons I didn't agree with it. But there's a lot I did agree with, and there are a lot of things in there that could potentially be problematic both for sale and multifamily developers because we need population growth ultimately to continue to grow our businesses. So we pay attention to it a lot. We really focus on where population growth is going, and we also talk maybe more importantly, where the jobs going because ultimately, population follows the jobs.

The post-COVID environment was certainly a very beneficial one for us because all of the land that we had bought pre-COVID, we got a real nice lift in gross margins as prices went crazy. I think we're dealing with some of the fallout of the post-COVID environment in markets like Austin and Denver, a little bit in Phoenix, where things maybe went too high, too fast. There was too much population growth, followed by rapid price increases and you're seeing some of that reset. And then you mix in all the things that we've seen with interest rates, and I'm sure we'll touch on that at some point in time.

But getting back to the question that you asked, do we focus on it in the boardroom? 100%. And one of the things that we've tried to do as a company is to own less land and have more optionality and more flexibility so that we're not stuck in an owned land position forever. There was a point in time when we were, and we learned some of those hard lessons in the great financial crisis.

But you have expanded more than other public builders into the Midwest, and that strategy seems to be really serving you well right now.

Yes. Rather than expanding there, that's where our company started. We were founded in Detroit, and we expanded into Denver, Chicago, Washington D.C. and Atlanta were the first 4 cities that our company expanded into 75 years ago. And we've continued to grow a Midwest business. We often, in our investor marketing information, we tout that we're the most geographically diverse homebuilder. And the reason that we can say that is because of our Midwest business. And it's Indianapolis, Columbus, Minneapolis, Cleveland, Chicago. Those are all markets that aren't the sexiest, highest growth markets, but there's a lot of people that want to be there. They're more affordable. They've got good jobs. They're very stable. And because there's arguably less competition there, they've been great markets for us.

Steven, your thoughts?

Yes. So we talk about it a lot. Like Ryan's, our focus is on where the jobs are going and then the population follows the jobs. So a lot of those markets have been -- from a multifamily standpoint, have been struggling over the last few years because of oversupply. But that's still where the population growth is going. And yes, population growth is down overall, which I think makes it that much more important to be mindful of where there is population growth.

Right now, the coastal major markets are doing well relatively in the multifamily space. However, in most of those places, they're -- if they don't have immigration, they're losing population. So they are net negative until people immigrate into those places, which long term is obviously very tough to run a housing business. So we are focused on where is population going and where is the growth going, really where is the job growth going.

But at this point, you're not changing the footprint or expanding and exiting, you're kind of staying pat.

We're sort of always looking. We were very close to moving into Boston a few years ago. Then, like right before COVID, we had a portfolio chasing, then COVID happened, so we lagged off. And then once we got ready to move back in because we like the market, then the regulatory environment up there really started to shift, and so we've held off. So we're not -- there's no red lines on markets. We're just always watching what's going on with the population growth and then...

Now I want to come back to on immigration a moment. So Dallas, have you made any decisions to expand into new markets or exit markets given changing dynamics and population growth?

Yes. I mean sometimes we look at our business just based on where we have dislocation from a concentration perspective. And if you think about the way we grew our company, I mean, 90% of our assets came out of the GFC, where we were buying homes one by one, and we basically did 30,000 homes one by one in 18 months. And so we had to go where the puck was in terms of where the discounts were the greatest, where we saw an ability to achieve scale. And then over time, we've sort of fine-tuned our portfolio. So like, for example, today in Florida, we have 26,000 homes in Florida. We love the market. It's high growth, a little bit higher property tax, which sort of hurts our margins. So those things we take into consideration.

But you might look at that market and say, okay, we have a lot. And on a relative basis, where else could we invest capital and sort of diversify in a way that would give us better risk-adjusted return. There are markets like Nashville where we're looking at trying to do more, Salt Lake City, which we're pretty small in, but we see that as high growth. To your point around demographics, people are still having kids in some of these markets, like those are the sort of places where we like the opportunity long term.

And then there's -- and Ivy was kind of busting my chops on this in the back room, like California. We still own 12,000, 13,000 homes in California, which we bought really cheap in 2012, and that's a 75% margin business for us with 6% plus revenue growth year-over-year. The challenge is it's California. And for all of you that own or operate in California, you're just always dealing with extracurricular noise based on something.

So you sort of weigh that out, we're not doing a pivot from the Sunbelt to say that we think the growth stopped by any stretch. In fact, I probably have a longer view that I would be more bullish on the Southeast and the Southwest based on all the different reasons. I think demographics will sort of shift, immigration reform will sort of shift back and forth. And then I think at the end of the day, people want to be where the sun is shining and where -- I hate to make it so partisan, but like red states are easier to do business in than blue states. And there's a lot of red states in the South and the Southwest and the Southeast. And so I just think they're going to be a net winner sort of over the long haul. And I think as an operator, warmer weather is a little easier on your assets and everything else as well.

Ivy, if I can, I give you maybe a compare and contrast of 2 markets that we contemplated going into 5 or 6 years ago, Greenville and Boise. We looked at Greenville and saw a big job opportunity, job growth, population growth, affordability, good quality of life. You had a lot of attractive things about Boise with a lot of population growth that was coming from California as people were fleeing California for a variety of reasons in the kind of pre-COVID, post-COVID environment.

The thing that we couldn't wrap our head around with Boise is job growth. And while there are jobs there, it didn't seem to be as robust and sustainable as what we saw in Greenville. So we elected to expand into Greenville. We're very happy about it. We elected not to pursue an opportunity in Boise, and I'm pretty happy about that -- 2020 being perfect.

Yes. And Boise certainly had a lot of reversal of that migration when people were called back from working remote. So maybe in hindsight, it's a good decision. One of the things that the demographics also, I think you've capitalized on, Ryan, is the active adult segment. And by the end of 2030, we'll have 20% of the population will be 65 or older. It feels like that's still the where to be, and you've capitalized on that going into active adult into a somewhat different strategy. Do you want to elaborate a little bit on that?

Yes. So we've -- about 1/3 of our company is in active adult, which is we predominantly do with our Del Webb brand. You may be familiar with that. It was a company that we bought in the early 2000s. It was its own stand-alone publicly traded company that we acquired in 2001. And we've continued to operate that Del Webb brand as a stand-alone business unit. So our Sun City or our Del Webb communities are -- you've got to be over the age of 55 to live in them. They've been incredibly successful in large part due to some of the slides that Willy showed about net worth and balance sheet. And so you've got a population that's over the age of 55. They love owning homes. In some cases, they own multiple homes. They've got a lot of wealth tied up in their existing home. They can liquidate that and they can come and pay cash and downsize into a community that perfectly fits their lifestyle.

It's a little bit about the piece of real estate that we're selling. More than anything, it's creating a lifestyle opportunity for these individuals that are either retired or moving towards retirement to be around people that are like them, that are active, that are wearing their WHOOP strap and they're kind of living their best version of their retired life. So it's been a very important part of our company. One of the things that we've started to identify and we're moving there now is that as that boomer population continues to get older and older and older, is that a problem for us because it's no longer a growing demographic. If anything, it's flatlining. And so we've launched a new brand called Explore by Del Webb, which will be targeted toward the Gen Xers.

And I personally right square smacked out in the middle of the Gen X population. I'm not ready to retire. I'm not old enough to be in an over the age of 55 community. But I might want to start moving toward that at some point in time. And we think there's a whole population of folks that are over the age of 40 that are still working that would like the benefits of living in a highly amenitized resort-style community. And so that will be, we think, a big growth opportunity for the company over the next decade.

I was surprised to see the stats for the number of second homeowners predominantly are in their 40s, which I thought was -- I would have thought it would have been older. But as we think about the aging population, maybe, Steven, you can start with, is there an opportunity to provide rental communities for active adults or people in that 40 age cohort, 40-plus?

Well, first, I have to say my perspective has changed recently as of a couple of months ago, I became 55-plus eligible.

We'll sell you a home, Steve. We'll give you a discount, friends and family discount.

No. So we actually, in about 2014 or '15, after looking at the demographics and the demand growth, got into that business and started a sub-brand called Attiva, and we did about, I don't know, around a dozen deals, bought some and did value add and then built some and frankly, we got out of that business several years later because while they were all working, we were frankly had to be honest with ourselves and recognize that they were working because everything was working in the market at that time, not because the idea. At the end of the day, what we learned was the profile that we were serving in our 55-plus communities, a, you could have gone to all of ours and never found a WHOOP strap. So it was a much older demographic.

And what we found was the demographic we were serving was extremely thin. So if you were below that, you couldn't afford to live there. And largely, their biggest concern was outliving their money. And so they would prefer to go in a traditional multifamily deal, get more value out of that instead of paying a premium to be in a senior specific development. But most of them, frankly, would rather be in your product where they -- or even Invitation Home where they can rent a home and still be in a house.

And so really, what we found was it was largely an older demographic that was being pushed to do it by their adult children and most of them were actually being subsidized by their adult children. So we felt like that was really too thin of a demographic to commit to projects. So we stopped doing it. We got lucky because of the timing. But we are seeing that the population of folks 55 and older in our traditional multifamily is going up. It's in the high teens today as a percentage of overall population. And so we are serving more and more of those folks in our traditional multifamily.

Got it. And Dallas, we spoke about it, but with respect to the SFR invitation strategy, any reason to try to capitalize on that aging population and have age-restricted communities?

The BTR stuff is sort of along the same lines as Ryan talked about. From a segment perspective, you can highly amenitize some things. I've spent a bunch of time recently like understanding that Margaritaville concept, which I think is really cool. If you haven't been to one, go check it out. It will totally expand the way you think about highly amenitized sort of senior experiences.

It's when seniors become teenagers.

100%, maybe worse than...

Yes. So worse than their teenagers.

Look, there's going to be a lot of opportunity. I do think private capital can play a meaningful role. I like where Ryan went that the mobility, to your point around second homes, this thing in terms of how flexible our lives have become because of the cell phone. There's obviously ways that people want to explore living differently. I think there's going to be many opportunities for private capital to step in, create new experiences. Some will be gimmicky and won't work. I think some could have like a sticky factor like a Margaritaville.

And I certainly think that there's a way to create operating companies around those very specific segments. I mean just think about the way we travel. We travel so much differently than we did 30 or 40 years ago. Some people want to river cruise through Europe, and that's all they want to do. And there's segments that are available for that now that didn't exist 40 years ago. I think living can be the same way. And I think it will just -- there'll be a lot of ebbs and flows and some of it will work and some of it won't.

Got it.

Ivy, one of the failures that we had trying to do rental in -- and I had this idea because we had so much success working with companies like Dallas' company doing single-family rental where we would take part of the community, we would build it, we would sell it to Dallas. They would rent it out. And you'd have owners living next to renters and you couldn't tell the difference. In some cases, Dallas' homes look better than the ones that we sold to an individual because he actually cuts his grass. It was nice.

And so we said, well, why can't we do that in the Del Webb community where we build a bunch of homes and we sell them to Dallas and he rents them out to people that want to live in the Del Webb community, maybe they don't want to make the commitment of buying. And Dallas and some of his competitors, they said, "No, it won't work. It won't work." I said it's ridiculous. They absolutely will work, and we're going to do it. So we built about 10 homes in one of our communities in Phoenix. We put them on the rental market. And guess what happened? Nobody rented them. And I'm like, how is this possible? We must not be marketing it well enough. And so I dove into the marketing strategy.

And what we found out was there are owners that we sold homes to and they're renting their homes at significantly below market rate because they're not living there for that period of time. And so a home that should be renting for $4,500 a month.

That's a good price.

They were put on the market for $2,500 a month. And so guys like Dallas, they're not successful by accident. They couldn't make money, and they couldn't make a return. So we learned it the hard way. We didn't rent any homes. The homes that we built, we sold, and I'm going to chalk that up to affiliate.

Well, back to your bread and butter. So tried it, it didn't work. So thinking about just the competitive landscape and recognizing whether we're talking about owning or renting, it feels like the housing ecosystem is really intertwined now. So Steven, when you think about the overbuilding that happened post-COVID or during COVID, how does the SFR, BFR, for sale impacts your multifamily operations?

Was multifamily overbuilt? Yes, when things are working close to normally, it doesn't impact it a lot because it's definitely a different segment. When the market got really tough last year, maybe the year before, it definitely -- it's all one pot, A class, B class, C class, for sale, for rent, single-family, it all impacted the market. So we're growing out -- or as Willy said, you saw the demand numbers for this year. And so we've been growing out of that hole. We look at each market individually and evaluate by market where we think each market or really submarket is going to get back to a point of stabilization where you can get normal rent growth.

And if you look across all of our markets where we operate, probably 40% of them are -- or maybe 25% are at that point, probably got half of the balance are popping along the bottom. They're not gaining, but they're not losing ground. And the other half of the remainder are close to turning, and we think probably next spring, all of it will have turned. We don't think it's going to go -- next year is going to go running off the page with performance, but we think you'll get back to a more normal rent growth type of year and starts continue to -- thankfully, developers continue to struggle to be able to make deals pencil. And hopefully, that will continue for a few more years to give the market time to cycle.

That's the subject I wanted to talk about, whether we think that we're in a shortage or we're oversupplied right now. And I think one of the interesting things has been that rhetoric hasn't really been discussed lately. I haven't heard a lot of people talking that we have this major housing shortage when we have empty apartments, empty houses and you guys are sitting with competitive forces that are impacting multi because the friction with SFR, BFR is close enough it impacts you. Thinking about the dynamics of the oversupply.

Ryan, we'll talk about the new legislation from the government. But as it relates to the competitive landscape, Willy showed a slide that showed the monthly payment for an apartment is substantially less than an owner would have to pay to buy the -- a first-time buyer of $410,000. But you're buying mortgage rates down. So that actually is not really in effect what's happening. That segment of the market, it feels like that segment of the market doesn't have a chance to really drive for affordability. Why even be in that market? Why are you continuing to build starter homes when, frankly, people can't afford them and you're being forced to crush your margin doing so?

Yes, it's a fair question, Ivy. And if you went back to 2013, 2014, the question that we were being asked, and in fact, I think you were the one asking the question, if I'm not mistaken, was why aren't you building more single-family entry level because that's where all the growth opportunity was. And we -- at that point in time, it was probably 25% to 30% of our business. Today, it's 37% or 38% of our business. So like all things, first time, move up, active adult, they go through cycles. We're in a cycle right now that's maybe not as ideal for that first-time buyer. We've adopted the philosophy and strategically said we're going to be a significant player in every single consumer group, entry-level included. It's not the most attractive, but it's also -- it's not bad.

And we also tend to play at the higher price point of the entry-level buyer. So if we look at our entry-level product, it's in the high 300s, low 400s. We're not building very many homes in the kind of high 200s. I'm not sure anybody is in the high 200s, but if I had a do over or I could do something today to tweak it slightly, I'd bring our entry-level business down to kind of 32%, 33% of our business, and I would take those 4 or 5 points that I'd be giving up and I'd move it into the active adult. I think there's more opportunity there right now, but...

Well, your point ebbing and flowing definitely. But as we know, we have a K-shaped economy. And for those that are not familiar with the term, we have directionally, the wealthier getting wealthier and the poor are getting poorer. And so when you think about what the administration has been focused on is really more the likelihood that we need more rental product because people can't afford to buy because they have difficulty solving for affordability. And the recent legislation really -- tell us what do you think? I mean you got away with still allowing to do BFR, but you can't buy an MLS. And does this really help affordability?

This is where I roll the grenade in the room. It's been a very interesting 6 months. I just want to piggyback on something Ryan said. I do think there is a misnomer in terms of like who the average homebuyer is today. And I think the unfortunate piece -- and it's not all wrong. I want to be fair to like all sides of the argument. But like it's not a 23- or 24-year-old trying to buy a house today. I bought my first home when I was -- my dad let me a little bit for the down payment when I was 24, 25. I just got married. That is not -- by the way, just to kind of compare and contrast what you said about your daughter, like probably very different thought process 20-some-odd years later, 20 years later.

I would say, if you go back to LBJ, the homeownership rate in this country has been about 67% continuously, okay? So for the last 50, 60 years, about 2/3 of the country owns something and about 1/3 of the country leases something. Willy talked about it earlier in terms of the lock-in effect, like mortgage rate volatility has tons to do with what happens in the housing market. We all know that, but you have to actually like believe it.

So when you think about Ryan's business, these guys have done a wonderful job buoying up housing prices over the last 3 to 5 years by buying down mortgage rates. The percentage of new home sales as a total aggregate of all home sales is abnormally high right now and has been for the last 2 to 3 years. So you sit there and you say, well, what's going on? It's like looking at a pool of water, like it's really stagnant. You have about 4 million sales a year right now happening, 4.1 million, 4.2 million. That's 1 million units light.

That's the pool that got painted blue?

It's got reflection pool challenges. But what I would say is like Steve's business benefits, my business benefits, Ryan's business benefits from more transaction volume. So if we have 4 million sales a year in the U.S., it's probably 20%, 25% light. So you have people staying put. You have more disposable income availability, as Willy talked about also earlier. So people just aren't as much focused about like, let me burn my awesome 3.5% mortgage rate, and let me go buy a 5.75% rate and see my payment go up 60% for what at this point in time. And so it's just a little bit of a tricky balance.

So to Washington's credit, I think both sides of the aisle are trying to say like, well, how do we stimulate sort of both the politics of a good story around housing growth and everybody deserves the American dream, but also the real practical application, which is we need people. The economy is sort of built on housing to some degree. I think the current -- we got caught up as sort of the -- when I say we, like our industry, if you look at that housing bill, am I okay to go here?

Yes. Go for it.

If you look at that housing bill, it's like 300-some-odd pages, the final version to get through. The piece about SFR, which got sort of the most attention when the tweet was in January, it's about 20 pages. And where I came encouraged from the process, we obviously spent a lot of time in D.C. I came very encouraged that both sides of the aisle were open to healthy discussion. Now it's really clear to me very quickly, both sides of the aisle and I'd say the administration, treasury as well, is that the politics that are interplaying in all this totally dilute the messaging we all hope would be really pure. Makes sense. It's like that around pharmaceuticals. It's around oil and gas. Housing is no different.

So our industry got sort of painted as a bogeyman. But I think the one helpful thing through the process for the industry was that for 10 years, we couldn't get a fair media article written on our industry. We had hundreds between January and June, where everyone is like, guys, these aren't the companies that are really creating the issues. By the way, we don't even buy really any homes on the MLS. We haven't since about 2017. So the reality is we're all out building. We're trying to create new supply. I think the government, from a federal perspective, wants to create a narrative where supply can be more easily induced into the market.

I do think there's some good things in the bill that sort of incentivize local municipalities to deregulate, to do some things that are smart. I think unfortunately, a lot of the energy and the momentum around that bill was caught up in sort of the false narrative around supply being taken or this, that and the other, which isn't true. The challenge for the federal government is that they can't have the impact that the local and the states have. We all know that in this room. And so the waterfall effect is, hopefully, local and state sort of gravitate to the good things in that bill, which will help obviously open up better pathways for developers and operators and institutional or private capital to play more of a meaningful role.

Now that being said, and I know all 3 of us would answer this the same. If we can't see the demand, we're certainly probably not going to take the risk. And so you have to be incentivized in some of these parts of the country where maybe a Midwest market, take for example, wants more housing units. There's got to be sort of a risk/reward trade-off if we're not sure what those absorption statistics are going to say or do. And I think that's the tricky part because when you get down to the brass tacks, even with the politicians. And I would say, look, to be fair, I was very impressed with a few people on both sides of the aisle that are truly trying to tackle this. And I give fair credit to the administration as well, legislative affairs office, the back office that was really trying to kind of strike the right balance. Everyone was collaborative.

I think the challenge is the noise around housing, and it's a very easy pinata to put out there to say, do you want something cheaper? I do. I don't know about anybody else in the room. But the reality is like the market is what moves that. So to Willy's last point around stand up for capital is -- you also have to stand up for free markets. Because when markets dislocate, that's when usually the opportunity either comes or the wiping of the bad decision-making occurs and then the market can kind of course correct. And so I think the challenge is as a consumer, and I'm speaking about myself now, we've all been so stuck on hot money in housing for so long that sort of the overhang effect isn't that fun, Steve, like we talked about the last couple of years. But we have to pay the piper at some point.

Right. And with respect to the oversupply that we're now dealing with, in reality, Ryan, really the way the market will adjust is if we have capitulation by land sellers and that's not happening.

That hasn't happened yet.

So really, how does the government get involved in creating affordability? I don't think they really can unless they start using a big stick to governors and saying, you need to figure out at the local level how to bring more housing. But I guess, Steven, on our prep call, we talked about, do we even need more housing. I mean you mentioned the multifamily starts. They're running still at 400,000 roughly annually. And arguably, if you go back historically, that's still slightly above a trend line. So tell me what you think as it relates to supply. Do we need more supply?

I would say no to all of the developers in the room.

[indiscernible] a hike this afternoon, Steven.

Exactly. We need more single-family for sale. Ivy, to your point, starts have not gone down nearly as much as everybody would have assumed they would have given the fact that we're in probably the fourth year of softer declining fundamentals in areas which cover probably more than half of the population of the country. I think there's a -- it's become a political narrative that we don't have enough housing in the U.S. and we truly do not have, but you talked about the K-shaped recovery.

At the bottom leg of the K, we truly do not have enough affordable housing. I don't know that we can solve that. It's -- and telling developers to develop more at numbers, where that housing is needed, by and large, you could build that deal for free and still not cover the operating expenses. So I don't know the solution, but it's not get the developers to just build more housing. I don't know of any industry that is as efficient at overbuilding the market it serves as definitely the apartment market, if not the whole housing market. And you...

I think we're all good at overbuilding.

Yes, we're all really good at it and all pro. And you've seen that in the last few years where in most -- all the markets where we operate, wages have continued to grow and rents have been soft. I do want to give one plug since we're here in Sun Valley to Boise because we did go and it's been a great -- it's been interesting to watch. It's been a proxy for us because it's the smallest market we're in.

You're happy with it.

Well, to your point, it went down. So it was the first one to struggle, but it was also the first one to come out. And it's our -- this is not a plug for everybody to go there, but I think our rents today are probably -- our trade-outs are over 10% year-over-year. And so we're hopeful if we can get all of them there, but it's been a good market. It's small. So it's a lot of volatility, as you can imagine. But we don't need more housing today in most of the markets in the U.S.

And one of the things about the multifamily industry that I find fascinating back in '09, I started researching multifamily and having only done single-family, the turnover was, call it, 55% to 60% per annum. And now it's like 35% to 40%. So people just don't want to move because there's too much friction in moving. And as a result, bringing so much more supply, you just don't have that competitive pressure that you would have hoped that people would want to move up from a Class B, let's go to Class A. So the dynamics of the food chain don't seem to be working as fluidly.

Yes. There's a couple of things driving that. Well, one is -- the most obvious and hopefully short-term one is that because people can't buy houses, they're just not moving. We don't have nearly the numbers of folks move out to buy houses that we would have...

Do you have any stats on that? Because it used to be like in the teens and now it's in the single digits?

Yes. I mean, so if you compound that over several years, it's a big impact to that renewal number. And the other thing is multifamily rentals are serving a much higher demographic than we have historically. And so our average resident is probably making $95,000 a household and paying around $2,000 a month for rent. And these are people who have invested in that as their home. They decorated it. So...

And you guys have made the amenities and everything you offer is so much better.

We're not going to go spend. 20 years ago, almost every resident we had could move with one pickup truck. Today, these are higher demographic. They hire movers and they've decorated their apartment. And so to go spend, I don't know, $5,000 or $10,000 to move to save $300 a month on the rent. It's a big savings on a relative basis to the rent they're paying, but it's a big cost to move. And by the way, they're making -- they're paying less of their income for rent than they ever have in our case. And so our average renter is probably paying 18%, 19% of their income for rent. So it's just not as material a benefit for them. It's a big cost and not as material a benefit. So I just think that's causing a lot more people to stay put.

Yes. Interestingly, the national numbers show that renters are really burdened. So your footprint is showing something different. But more than 50% of renters are spending more than 30% of their income on their rent. And that isn't just the coastal markets because I looked it up, and it's like nationally 52% and then it's like 40%, but it's inclusive of all the other incremental costs that are inflation and things that are impacting that.

The low is the bottom leg of the K everywhere. And it's a good bit of the upper leg in those coastal markets where...

One thing I wanted to ask you, Dallas, and then I want to talk a little bit about factory built because we had -- Pulte has gone in and out of that. But Dallas, reluctant landlords, reluctant landlords or accidental landlords. From a competitive perspective, how much is that impacting you? And how is multi oversupply impacting both BFR and SFR?

It's interesting. We survey coming in and we survey going out. So 80% of our customers that come in are coming from a single-family rental home prior to choosing our single-family rental. So we don't see as many people saying, "Hey, I'm done with the Cortland property, and I'm coming." It's a different customer type. We have a couple of kids, dogs, multiple cars, things like that. [indiscernible].

[indiscernible] homes are slightly bigger, right? You're slightly more expensive.

Yes. So our average square footage is probably right around 2,000 feet, and our average rent is about $2,500. We do see in the numbers on the supply side on listings, on available listing data. Now the single-family rental industry, we have terrible data in terms of what another competitor is actually leasing their homes. We have no clue. What we see are listing data, so we get all the access to the Zillow and all the public data, but we really don't know where people are closing on leases. There's no information system that includes all that.

We certainly saw in '24 and '25, an increase of homes available for lease in multiple listing services in some of those markets. So that puts some pressure on rents for sure. This year's rents, we talked about this on our earnings call, feel a lot better than they did at this time last year. And I would say the same thing, we peaked out in rents last year earlier in the cycle. So for us, we typically peak in June. Last year, we peaked in like April and May. And I think that had a lot to do with the amount of supply that was on the market.

One other thing I wanted to bring up before I go to the factory built, Steven, as it relates to the immigration stat that Willy brought up, suggesting that occupancy or rents are not growing because of the lack of incremental immigrants coming to our markets. Do you agree with that?

Yes.

I know he's the guy hosting the conference.

I always agree with Willy, no matter what he says here.

There you go. Where is he?

We do not serve that clientele for the most part. But when the market moves materially, it's hard to separate. It all impacts -- every piece of it impacts the whole market. And so I'm sure that impact is -- the lack of immigration is impacting our portfolio differently in each market, but it definitely created a meaningful lack of new renter demand, which is clearly impacting the overall rental market.

Right. So the bottom, bottom of the food chain because every operator that we survey, every multifamily public company REIT has not had an impact from deportation or the lack of incremental immigration. So I think it has to be that households are doubling and tripling up, and they don't really get the benefit of immigration for a few years to come. So I disagree with you, Willy. But apparently, Steven doesn't, at least based on the data that we have, as it relates to the competitive pressures out there and we think about ways to solve for affordability, there's been a lot of discussion about factory-built housing.

And we had Katerra for a while that really got the market excited about the factory-built opportunities, and that kind of died pretty dramatically. But Pulte has gone in and out of doing factory. ICG recently exited after purchasing what would have given you backward integration in '21. So talk about why you went in and why you're not staying and what you think about the future of factory-built for the U.S.

We bought a company 6 years ago called Innovative Construction Group, and they were a factory -- an off-site modular building component manufacturer. So they were building walls and they were building floor trusses. And the idea was that we were going to take what they were doing. There's nothing really novel about wall trusses, floor trusses and wall panels. But the idea was that we could go in and we could integrate electrical plumbing and do window installation and then sheath exterior of the wall and ship essentially a wall unit to the job site.

There's something there, and I still believe that it's possible, and it really stems from this idea that you've seen no manufacturing efficiency in housing in 40 years. You can look at every other manufacturing system and process, and you've seen real gains, meaningful gains in labor efficiency, not in construction. We've had 0. Maybe our biggest invention is the nail gun. That's it. And I really do think that's got to change. It's got to be part of the affordability, kind of solve an equation. The business that we built, we got some benefits out of it. We learned some good things. We learned some bad things. Ultimately, we decided is we're not the best operator of it. There are some companies like BFS and Saint-Gobain that are putting millions and millions and millions of dollars into innovation. I think they can do it way better than what we can. You also need real scale in really close geographies to your plant in order to make the transportation efficiencies of those manufactured products work. So us trying to be an owner of it, even as big as we are, we were too geographically dispersed in order to get the efficiencies that you really need to have with the production side. So...

And you said the returns just weren't attractive enough.

I mean they were positive returns, but they're not the kind of returns that our shareholders want when they give us capital. They've got a different expectation for return on capital that they give to us than on return on the capital that they give to like a BFS as an example. So we're going to continue to use those products in our building system -- in our construction system. I'd just rather be a buyer of it than an owner-operator of it. I think there's just folks that are way better at it than we are.

Just one segue because the recent activity, M&A activity has been pretty significant from nonpublic homebuilders. So we've got -- the Japanese have been very active as well as Berkshire Hathaway recently buying Taylor Morrison because the Japanese have come in, in a big way. They now have like 20% market share. It's pretty significant. Do you think their plan -- maybe you talk to some of the leaders there that are looking at factory built like they have in Japan? Or is the geography in Japan versus the size of New York?

Yes. So a couple of things there. One, I think it's a sub kind of story that nobody is talking about. If there was an understanding of how much of U.S. housing is now owned by Japanese-based companies, it would scare and shock a lot of people in the United States. And they've been doing it very, very quietly over the last 15 years coming in and buying founder-led, entrepreneur-led homebuilders to the point where 3 Japanese companies own somewhere about 20%, 25% of U.S. housing.

Now I think from a geopolitical standpoint, we've got good relationships with Japan. But I don't know that you want a foreign country owning 25% of something so critical as housing in the United States. So that's -- somebody else is going to have to figure that out, but I do think we need to pay attention to it. And then your question on...

The reason they do, by the way, is because they have no population growth. So we're respectfully probably doing better than other nations from the developed world countries, but not looking good again.

And these Japanese companies have demonstrated they know how to do manufacture -- off-site manufacturing with housing. I think the difference there, Ivy, is what you talked about, the geographic proximity and the densification, the density in which they build, it works. And here in the United States, when we're talking about places like Sun Valley, where we have just mass expanses and highway systems and the way that we live as Americans, I'm just not sure that, that model is going to have the same level of success that it does in a country like Japan.

Yes. I think the Japanese that came over for the World Cup figured that out when they went to Costco and a few other places that it's a little different here.

Yes. I mean when you're trying to take home a gallon jug of [indiscernible].

Ryan is stressing, right? Yes. So Dallas, you made an acquisition, ResiBuilt. Thank you for letting Walker & Dunlop do that, Zelman. In terms of the opportunities for consolidation and thinking about SFR that's become more mature now, where do you see the industry going directionally? Is it kind of staying packed? Or you think there'll be more backward integration through building yourself developers? Will you continue to work with Pulte? Or will you focus solely on your ResiBuilt for development?

It's probably like 4, 5 years ago, Ryan and I had this goal like building 5,000 houses together. And we would still say out loud, I think both of us, we share that same goal. The ResiBuilt acquisition was sort of nichey. These guys are in 4 or 5 markets. They do a really good job. Jay, who runs that company, we've known for 10 years. And I think for Invitation Homes, our natural sort of progression has been to stand up and stabilize the operating company, start to expand into relationships with homebuilders.

I don't see us being a homebuilder like a Pulte Homes. I mean like we're just not -- that's just not our core competency. But I think having a partner or an affiliated partnership with a, call it, an in-house development platform where if they can build us 1,000 or 2,000 units a year 5 years from now, great, we should still be buying 5,000 or 10,000 units a year from Ryan.

I'm still waiting for him to buy the first 5,000.

He doesn't offer that same friends and family discount he offered Steve. And I would just say the reality is that it is going to be very helpful. It gives us unique insight into some of the challenges. We were talking backstage about Denver. The impact fees in Denver are ridiculous right now. Like we can't build a home in Denver, and we want to build a home in Denver that would work for somebody in the for-rent space. It's just hard to make the math work.

So I think our view is sort of continue to lean in with our homebuilder partners, build as many as we can with the companies that want us in their communities. And then I think off to the side, the nice thing that works for ResiBuilt is it's sort of a bespoke opportunity set where we can do a 50-unit development, a 75-unit development, which wouldn't be on the radar for some of the big builders or even some of the bigger regional guys. So it allows us to sort of fit into some of these nooks and crannies that make sense where the demand is there, but it's just not a big enough project.

And then all the while, we're continually -- and we bought last month, probably $25 million worth of homes from homebuilders. And so we want to do that every month. We would love to 2x, 3x those numbers if the cost of capital is there. So the goal is to just continually be active. And I think, look, the scattered sort of buying from the resale person in the MLS really hasn't been a business model for probably 8 years. I would say you have to have a real depressed overall housing story going on for those sort of assets to make sense. You're just much better off building today.

I remember when Jonathan Gray and I had lunch and he said, we're an army, we're invading the country and now we occupy and we don't need to do it, let us start operating. And when you think about SFR back when the GFC allowed for that depressed pricing for you guys to come in and acquire, do you anticipate more of the multifamily industry coming into SFR because some of the public REITs were really negative initially, and now they seem to be slightly more positive or some of them actually getting into BFR, SFR.

Some of them have done it. I mean, to be totally fair to both businesses, like they've been around for hundreds of years. So you've had the mom-and-pop landlord who leased a home to somebody in the 1800s, right? That's just starting to professionalize post-GFC. And so now you have companies and technologies and smart home tech, and we can put a washer and dryer in your house, don't worry about it, like that's on us. Like there's things that can just make it much more feasible, which to be fair, we've stolen from multifamily, who made a lot of those amenitized offerings a much more seamless experience.

I think on the inverse, there are still a huge segment of the country, 16 million people that want a multifamily apartment. They want that experience. They want highly amenitized stuff next to running pass and all that. We can't compete with that. But we also have parents that have 2 or 3 kids that want to live in Sandy Springs, Georgia, and they need to check the neighborhood out for 3 or 4 years before they buy. And so they're just -- they just exist, and there's enough space for all the different type of...

Steven, any thoughts about getting into BFR, SFR?

No. As mentioned earlier about the average, I think Invitation serves a resident that makes a little more than our average resident, but they're paying 25% more for a unit that's about twice the size. And so I think our average population tends to be a lot -- more centrally located and is looking to be more centrally located. I think one mistake a lot of us apartment developers make is that we mistake suburban or ex-urban areas where people are willing to move to, to get into a house as a place that people want to go rent an apartment. And there's just no reason to because you can rent that same apartment much closer to town for the same price because it doesn't cost materially more to develop.

So we think, as Dallas said, it's just a different market. And so our population tends to be closer to town, not all urban, but inner suburban areas and urban areas. And I think we're serving that need before they graduate into his population.

Got it. So I can't leave the panel without finally talking about AI and thinking about the implications of AI in your businesses. So maybe we start with you, Steven.

Yes. So I think half the population is convinced that all the jobs are going to disappear tomorrow. And the other half is convinced that there's going to be such an increase in economic activity that it's going to create a whole new set of jobs that we're not thinking about. We're watching what's going on. We don't have -- we have not taken an opinion either way. We think it's still early to make that decision.

Have you implemented AI into your business?

We're implementing AI. So two different questions, I guess. One is, are you using it and how are you using it? One is, are you making business decisions based upon the long-term impact on the job market? The second one, we're not. We're watching it. We don't know whether it's going to be A or B, but we tend to think B is probably what happens.

On the implementation side, we are using it in a number of different ways in prop tech, operations, our construction and purchasing execution. None of these are sort of Elon Musk level AI uses, but there's dozens of little ways where our teams have created more efficient ways to operate and to underwrite and find or evaluate opportunities. And that's growing pretty regularly, as you could imagine with the...

Has it resulted in incremental net jobs down or up?

I would say neither yet for us. I do feel -- obviously, we can read a lot in the media about a lot of these big tech firms, which are cutting jobs, huge numbers of jobs because of AI. There's also a lot of folks that I speak to who are not hiring low-end jobs or staffing their low-end positions because they're depending on those people that are there just to use AI to sort of accomplish that expanded execution need.

But if you look at the jobs numbers, you're not seeing it in the jobs numbers. There were some concerns earlier this year jobs for newly -- young people, newly out of college or in that age, but that seems to have corrected itself in the second quarter. I don't know where all those folks are going because they're not becoming households. Obviously, a lot of them and the data are staying with their parents. But the job seems to have corrected and as we...

But for you, for Cortland, you're not incrementally hiring and you're waiting to see how AI develops and benefits the business before incrementally starting to bring in a lot of new bodies. Is that fair?

Yes. I mean we've always had a pretty big data science team. So we're not hiring a significant amount of new people specific to AI because we've tended to...

It seems like everyone I talk to, and I'm curious, Ryan, whether I'm talking to Lennar or I'm talking to Home Depot, there's this -- we're just going to see how it goes before we incrementally start hiring. And our ecosystem is under pressure. But tell us about what you're doing. We've only got 4 minutes, so you got 2 and then Dallas, you got 2.

Yes. And we're really trying to experiment with it and use it in kind of back office to make our employees more efficient. So we just gave more than half of our workforce Cowork or Copilot. We're experimenting with a bunch of the other models. And I think we are seeing some efficiency out of it. It's not caused us to reduce staff at all. Maybe it's slowed hiring just a tad, but it has not eliminated it by any stretch. The one that I'm probably most excited about is efficiencies in the loan origination process. We have our own mortgage company. 80% of the homes that we build and sell, we do the mortgages for.

We have 1,000 employees in that space, and it cost us $9,000 per loan, $9,000 to manufacture a loan. It's absurd. You think about $9,000 worth of paperwork to create a 30-year fixed rate mortgage, it's absolutely crazy. And so I think there's a big opportunity in that business where we can potentially reduce -- significantly reduce the cost and the labor hours that go into originating a loan. We'll see if it pans out.

We are also -- and I've got -- my team has got a strategic offsite in a couple of weeks. One of the topics that we're really trying to study is if AI plays out the way that some are talking about and there's real changes in the workforce, what does it do to some of the migratory and demographic trends that we started talking about? And what does that ultimately mean for housing?

Is that the study I participated in?

It is. It's a study -- yes. It is one that you participated in, Ivy. And I don't think it's a 3- or a 5-year question. I actually do think it's a 5-, 10-, 15-year question, and we're thinking about that and how it impacts our land strategy.

Yes.

Lots of low-hanging fruit, centralized leasing functionality, HOA management. We manage 45,000 disparate HOAs. And so a lot can get sort of -- that's a very archaic industry in itself. So just like deconfusing the coordination there. We've seen some headcount reduction in a few areas, but nothing that I would say is earth shattering. The fun stuff is I was actually showing a friend this last night, like my Claude Cowork, it scrapes every night and it presents a CEO summary every morning of just things that's picking up around macro policy, legislative at the state levels, industry. Now you still have to kind of curate it and fine-tune it, but like every iteration gets a little bit better. So I think having information quicker that makes me a little bit more nimble on my feet when I'm talking to my ops team, talking to my finance group or my head of legal affairs, I think it's been pretty helpful so far. So I think it's -- nothing is like reinventing the wheel, definitely making our teams faster.

Yes. And what about hiring?

No. I mean, look, I would say there's definitely going to be some functionality in our company that will get quicker with automation and will, in fact, reduce some heads, like more back-office functionality. It can't change the way one of my 500 guys in a maintenance van shows up and does great customer service. So I wouldn't expect like anything like that. It's definitely made our investments team a bit more efficient.

So like if Ryan's team sends us a tape of 2,000 homes that they're sort of thinking about selling down the road, that would have taken us a couple of days to go through. I can get a pretty good desktop in a couple of hours now, which would sort of give us some leading indicators of how to give feedback. So I feel like our evaluations are getting a lot quicker in terms of how we can sort of work with partners.

And maybe that just ultimately contributes to what Jamie Dimon said, AI is going to give us all a 3-day a week work week or a 4-day weekend.

Or Elon says no working, and we'll just be utopia. So we'll see how it goes. Well, everyone, thank you so much for joining us. Thank you, gentlemen.

Coming in. It's an honor to have you here. we're going to start recording the Walker Webcast, and we're going to play this is a Walker Webcast next week. And so I guess I ought to do an official welcoming to Phil Washington, who runs the Denver Airport Authority after having run the Los Angeles metro system for many years. And prior to that running Denver RTD. And so Phil was in Denver that went to L.A., was extremely successful down in L.A. and then came back to Denver, and we are the great beneficiaries of Phil running a couple of things that are just really noteworthy.

First of all, it is the largest employer in the state of Colorado. It is 10% of Colorado's GDP is at DEN, 10%. By far, the largest contributor to the state of Colorado's annual GDP is the Denver Airport. It is the third largest airport in the United States of America. It is quickly growing to become #1, with 84 million passengers in 2025. Correct on that?

82.4 million.

82.4 million. I want you to correct me on my stats here, Phil. So 83 million passengers last year, very focused on 100 million and going well beyond 100 million. 100 million by 2030?

If not sooner.

If not sooner. Takes getting to 105 million annual passengers to surpass Atlanta is the busiest airport in the world?

Correct.

Right. So that's a growth trajectory that most airports, most companies would love to have in front of it.

What's the biggest challenge right now as it relates to expanding DIA from 84 million annual passengers to 100 million and then on to 125 million?

Well, first of all, thank you for having me.

It's great to have you.

Willy, it's wonderful to be here with all of you. I think our biggest challenge is making sure the facilities match the growth. We're talking about an airport at Den that was built and designed and built for 50 million annual passengers. And so having to make sure that we can accommodate this tremendous growth is probably the #1 thing and also doing it safely. Safety obviously is our #1 priority. But this growth that we're seeing, not just at Dan, I mean, Dan is the fastest-growing airport, I think, in the country, but also making sure that we are multimodal and making sure that it's not just by passengers.

Obviously, that's our #1 priority, but we want to branch out into other sectors. And hopefully, we can talk a little bit about that. But the biggest thing is the modernization and keeping up with that growth, I would say.

So a couple of things that you've done recently. First of all, to give people a sense you have a competitive advantage because of the land you have.

Yes.

So the airport itself is as large as the city of Miami to -- or the City of San Francisco or 2 reference points as it related to how much land you have. You have 6 runways 1 of which is 16,000 feet long.

The longest in North America.

The longest in North America, which allows any size jet to land and land comfortably.

Correct.

They're also wider than most landing stretch. Correct?

Yes, yes,.

So all that comes into being an advantage in what way?

Well, as you said, I mean, we can land any aircraft in the world right here. the land, 53 square miles gives us an incredible advantage in terms of development, in terms of things that we can do and what we can accommodate with regard to development as well. It also allows us to expand our cargo operation, which is, I think, one of the huge, huge potential avenues to bring more cargo into Dan. So this land thing is incredible. It really is. And there are some challenges with that as well, having all that land. I mean you would be shocked to know that we've got a lot of wild life out there. We've got...

You've got people who jump the fence.

Yes, we do. We do.

Are you -- can you talk about that at all? Or is that something because of what happened? You just tested -- I mean, I don't want to ask you a question, you can't. I mean if you say I can't talk about it, that's fine.

No, I can talk about it. I mean, I can talk about what we've said in public.

Anyone who doesn't know an individual jump defense in DIA 2 weeks ago, ran out under the runway and got hit by a Frontier flight that was taking off for Los Angeles was killed that has been deemed to be a suicide.

Correct.

So it's them that he did it on his own fruition and was there purposefully, if you will. Anything?

Well, I mean, it bears mentioning that we have about 36 miles of fence of perimeter fence. So when we talk about the land that we have, there's a lot of it unfortunate incident, we are assessing our security right now. We always do that anyway. NTSB, National Transportation Safety Board, is -- has an active investigation on it. But it was unfortunate. I'm very, very concerned. i was very concerned about the passengers on that flight and concerned about our operations and maintenance people who had to clean all of that up. And we had that runway back open the next morning at 10 a.m., after working all night to make sure that we clean that runway up. So safety, obviously, is #1. We're still working on this.

We're talking to Frontier Airlines, which is our hometown airline here in Denver. We have a very, very close relationship with all the airlines, but especially the hometown airline here, but a very unfortunate incident.

Does that engine -- can it be repaired? Does that have to be replaced?

I am actually talking with the CEO of Frontier next week. I hesitate to say it can be repair. I mean it's a tough thing. But these engines are very resilient, you know what I mean, and there's a lot of repair that goes on with the engines and the aircraft. So our hope is that it can be salvaged.

So 6 runways very wide, very long, gets you to a flight cancellation rate that is way lower than any other major airport. You're at 0.85% of flights canceled on an annual basis last year. To give people a reference point to that, Atlanta was at about 1.5% of flights were canceled in the last year. And ORD or Chicago was at 1.85%, so almost 2% of their flights were canceled last year. What does that give you as well as the airlines that fly in and out of Den as it relates to consistency, cheaper to operate? There seem to be a lot of derivative effects from having that low flight cancellation rate. And it's not like the weather here is any better than it is in Atlanta or in Chicago. So is that all based off of the length and the width of the landing strips?

I think it's some of that, and it's our people, too. who keep runways open, who maintain runways. We close the runway in the summer every year just to do runway maintenance. And so when we talk about just maintenance in general, that is a huge part of it. And you mentioned the winter. We know snow here at this airport. And it's amazing that our snow crews can actually plow a runway in about 15 to 20 minutes with the equipment that we have. And so all of that plays into it. So you've got runway maintenance, you've got our ability to increase non-aeronautical revenue that keeps cost low for airlines. There's something called cost per enplanement. We are very low or sort of middle of the row with the large airports around the country. That means a lot because we keep airline costs low in terms of how we handle our business and handle maintenance and financial management as well.

Last year, we -- from all 3 credit rating agencies, we got the highest rating in the history of Denver International Airport. And so all of those things kind of play into how we are attractive to airlines to come in and out of Denver International Airport. So all of that plays into it.

That's got to help you with your borrowing cost and your $7 billion of debt.

That's right.

We talked a little bit about the ability to grow the airport. You also talked about passengers. TSA wait times at DIA are shorter than they are at any of the other major airports buying quite some bit. Your average wait time right now is 6 to 10 minutes on your TSA lines that stacks up to 15 to 20 minutes at all the other majors and some even 20 to 25 on the TSA. How do you pull that off?

Well, a couple of things and great on the stats.

I have -- that's why I have a pause -- about aviation. I also love it. And I also happen to live at DIA. I mean I'm in and out of that airport all the time. So all this stuff is a big interest of mine.

I'd point to a couple of things. One, we invested heavily in the new security equipment. And we wanted to get it in very -- as quickly as we possibly could. And so the biometrics that we have there, the various -- the 4 stations, if you will, that we had at 3 or 4 stations that we have in one lane has taken us from about 140 passengers per hour per lane to over 200 per hour per lane, and that is a big deal.

So I point to the technology that we have brought in on the security side. And we want to do more of this. We think we can do more in terms of AI with security and different things to move folks through much, much faster. So we were very, very proud of the fact during the shutdown that we did not have these issues in Denver that you saw in Houston and some of the other places. But it's the investment that we have made in security technology that has gotten us there. And we're going to do more of that.

When you look at the East and West security checkpoints, we are going to have 12 additional lanes on Level 5 as well as we build out that entire terminal or great haul, if you will. But I point to the technology that has helped us keep those wait times low.

So people get through the security and then they go down the escalator and they get to the trams.

Yes.

And so the trams went down over your last fiscal year, 130 times that when I first read that fill, I was like, well, that's a lot. And then I read a little bit further. They went down 130x, but for an average time of 4 minutes, which gave you a redundancy rate or the network being up 99.903% of the last fiscal year. Okay. So everyone in the telecom industry used to always say five 9s that you needed your network to be 99.9999% reliable for it to actually be a network that you would be able to go and actually sell. You're at one 9, but that's still damn good.

It is, but I want 100%. And look, I -- we need redundancy at Denver International Airport for the trains. Now my operations folks tell me that all the time, "Hey, Phil, we got 99.86% uptime for the train." When that train is down, it's chaos at the airport. I mean it's...

We've got 160,000 people a day using, right?

That's right. That's right.

160,000 people a day using it.

It's incredible. -- the airport, when the train goes down, the airport is really quiet. You have been in a quiet airport, it's scary actually. So we need that redundancy. And I was talking to one of the -- Mayor Federico opinion, Secretary opinion not long ago. And I was joking with him and with others that we must atone for what I consider the original Sin of Den, SIN, the original sin was not having redundancy for that train. And we want to atone for that by having redundancy.

Redundancy in another train or redundancy in walkways?

We're looking at either or both or actually the train itself, how can we have redundancy from A to B, C. And so we have been working on that. And...

I know you're going to go from C to D because as someone who spends a lot of time in that airport, when I'm at Gate 92. I don't mind walking long distances. It's a long way. how further can you go east, west before you go north, south?

Well, a couple of things. We don't want to do a Concourse D. And the reason we don't want to do a Concourse D is that is more strain on the train. And so for us to get to 100 million, there is an expansion that we're doing on Concourse C West, Sea West. That is the last expansion that we can do on the existing Concourse infrastructure, right? We've already expanded all of the other Concourses.

In the last 5 years, we have built and opened 39 new gates. That's like another airport. That's like Kansas City. Anybody from Kansas City, yes, that's likew Kansas.

We don't like people from Kansas City. They got to go football team.

Well, they got good barbecue ribs, too. But -- so the last expansion we can do is Concourse West, which we have already started, that is 11 additional gates. That gets us to 100 million. Beyond that, we've got -- well, we actually have forecast for 120 million by 2045. What we want to do is expand the terminal itself. So think about the terminal. The south end of the terminal is where the hotel is. We want to expand to the north end. There's space there to expand that with a new, what I call a, processing facility and then have walkable concourses off that area. So you can walk to the concourses that we will build off that new facility that will have airline counters and security and all of that. So it's a walkable concourses with 25 gates each.

We have already started sort of the preconstruction utility relocation work on the facility that we have to build first to lead to 4 additional concourses, 2 on the north and 2 on the south end by the hotel.

Will you charge more for those gates? Is there any difference in cost between Gate C82 and A10?

We have use in lease agreements for the airlines. And so there's not much difference. I mean closer to the center core, they may be a little bit more expensive.

But that's typically for bigger jets, too.

Correct. And we have international gates as well on A that might cost a little bit more as well.

So someone brings in and Well, A380 is different because it's a double deckers. So let's just stick with 1 level airplanes. But someone brings in a Dreamliner versus the 737. The 737 is out on one of the far gates, the 7 -- the Dreamliner is on one of the closed gates just because of the number of passengers. But does that airline paying more for having a bigger jet come and use that gate?

There's a difference yes. There is, yes. Absolutely.

Okay. I was talking about the cost of operating and why airlines like flying out of DEM, jet fuel is another one, okay? So right now, the WTI crude is trading at $100 a barrel today, a barrel of Jet 1a is trading for $165 a barrel. So to give everyone a sense of how much more refined jet fuel is than just normal crude that shows you the price differential of a 65% premium on jet fuel. So all the airlines today are trying to come to the cheapest. I pulled up you, Atlanta and Dallas. And it didn't surprise me that Dallas was the cheapest, you're in the middle and Atlanta is significantly more expensive on a gallon of Jet A. How do you keep your cost so low and how do you get the fuel?

Well, we have pipelines. We have fueled this truck in as well.

But it's predominantly from the pipeline that goes straight to the refinery, correct?

Yes. That's right. That's right. Well, on the cost, I think the first thing is increasing non-aeronautical revenue as best we can. That's parking, that's a number of other concession revenue, things like that, where we can keep airline costs down. And I mentioned that cost per enplanement piece that CPE, please, where we are sort of in the middle of the pack, and that's actually a good thing.

What airports are really, really struggling with right now is how to increase non-aeronautical revenue. And I was at a conference not long ago and we have this form of the 100 top airports -- the CEOs from 100 top airports. And you go around room and they mentioned their challenges or whatever. And you come up with this word salad thing. Yes, what this thing. And every one of the predominant thing was growth, modernization, keeping costs down and increasing non-aeronautical revenue. And so what we have done in a big way is the parking is our biggest revenue generator.

So you got 51,000 parking spaces at DIA today.

Correct. Correct. About 51,000 or so. And we also have...

You're going to grow that? Is it going to 70,000?

At some point, we likely will grow that, but we're also looking at what public transits can do as well, namely the A-line, which happy to say I had a part in when I was running RTD. But we may have to -- as these numbers grow, we may have to look at parking, we may have to look at additional parking, but we'll look at that. We haven't decided on that just yet. We want to increase transit usage.

Will there be new parking space in the new rental car facility?

We're looking at that. We are building a new consolidated rental car facility. We are well on our way with that. We have a professional team that's helping us with that. We're going to start design and construction. We're looking at perhaps employee parking likely on the top level of that. We're looking at about 16,000 to 18,000 spaces in that consolidated rental car facility.

Quick story, though, when you look at all of that rental car space when you're driving a long [indiscernible], I was talking to one of the pioneers of building the airport and he said, "Phil, that space was temporary." And I thought, well, temporary for 31 years, which -- so one of our big priorities is to build out that space or build out that consolidated rental car facility and really EV chargers and all of that on our way to a zero emission airport.

It will be a great spot for a data center, except for the fact that City Council just passed a law that says you can't put a data center in Denver.

I know. I know. yes. It also -- and I should mention this ties to our efforts around energy resiliency and being energy independent.

So you had a blackout. You had an energy loss in March, which was at Excel substation. So when that happened, what happens? Do you have just massive generators that kick in? I know you've got solar out there, but can you run without connection to Excel?

We do have some redundancy, but we depend on Excel. We've got generators and all of that. But is not optimal. When that outage happen, and we have quite a few of them, as you mentioned, all the escalators and the elevators and all of that stopped at an airport. That's -- it was, again, very, very eerie. And so what we've done is that we want -- and we've put out a request for information to the private sector on how we can be energy independent eventually. And I stand by that.

I mean we cannot be down. We cannot afford to be no airport can afford to be down. I mean we saw the outage in Madrid last year, another in Heathrow last year as well. In Atlanta, in 2017, they were down like 10 hours. I mean can you imagine that? And so we've had these outages. And so we went out to the private sector and said, "We want alternative energy options for this airport." It's like a problem statement in college. You put out this. We put out our problem statement, our challenge statement and said, how can we eventually be energy independent. And let's put a pathway or a road map together to energy independence.

And so we put out that RFI, a request for information. We got 31 proposals from all over the world on how we can do this. We would be the first airport in the world to be energy independent. And so we're on our way to doing that, which will bring in a whole new industry to the Rocky Mountain region. That is that multi-modalism and multi-industry focus that we have a whole energy industry we could do here at Denver.

So as you think about other revenue sources, first of all, revenues in DIA now are $1.2 billion, $1.3 billion?

Yes, neighborhood, yes.

And by law, you don't return any , if you will, they're not profits that come out of DIA that go to the city of Denver. It all stays at DIA and then you continue to reinvest. So we, as a community, benefit from about $40 billion of economic activity that happens around DEN, but it's not as if the city of Denver is there and says, well, we got a windfall on us a check for $300 million last year, and so we don't have to go and do X, right?

Right, right, right.

And that doesn't change. That's by federal law federal -- that's federal off. So you take this cash flow and just pour it back into it with the thought of being the best airport in the world, potentially the largest airport in the world, but then also bringing other economic development to the city of Denver and the State of Colorado.

Yes, that's correct. And let me just put a finer point on it. We use no sales tax dollars, right? We are an enterprise. So we actually live on what we make, to your point, right, through those revenue-generating mechanisms that I mentioned. And so what we generate must stay at the airport. If it leaves the airport for any reason, that is called diversion of revenue. And that diversion of revenue is a violation of federal law, as you mentioned.

So the revenue we generate, we plow back into the airport, and we need to do that. We absolutely need to do that primarily because of the growth that we're seeing. And it's not just us. We are probably the fastest growing. But when you think about like the 20 largest airports in this country and in the world, all of them have what's called a capital improvement program. And so this capital improvement program, or CIP, when you hit that term, that CIP is in the billions of dollars.

Yours is $12 billion?

Ours is about $12 billion over a 10-year period. I spent a lot of time in Los Angeles, LAX. Theirs is something like 20-some billion.

But they don't have any space to grow.

No, they don't. They don't.

So they're going to continue to go into the existing infrastructure and just upgrade the infrastructure, but they've got no ability to say, let's move from X number of passengers to Y because they can't put another runway down.

That's exactly right. And so we have this incredible benefit, this incredible resource of land here where we can spread and we can develop and maybe we'll talk about that development piece in a minute as well.

What's a new -- what's runway 7 cost? If you just said tomorrow, I want to go build runway 7. What's the runway cost?

Between $700 million and $1 billion.

That's pretty cool. That's a lot of money.

Right, right.

And that's just trading and paving.

Yes. Yes. But I mean, this thing is very deep. It's not like paving your driveway.

No, I got it. And on that, what about putting radiant heat underneath that -- could you do that?

We could. I mean there's technology...

Are there airports that have radiant heat underneath the...

I can't think of one right now. I think there are some, but 6 runways. We are doing the pre environmental work on a seventh runway right now. There's a lot of discussion about that.

What's the environmental work cost you? I'm asking this because you know my next question is going to be about the penny Bolivar. But what's the environmental cost to go? And by the way, we're talking about farmland between here and Kansas City.

Yes. Yes. That's right. That's right.

I'm a Denver resident. I like to have clean water. I like to make sure we don't have chemicals running off and into the rivers, all that kind of stuff. But you're going to spend millions on an environmental impact study to try and build Runway 7 when it farmland.

Yes, yes. Well, I mean, I've been in this role for almost 5 years. And the environmental contracts for the seventh runway was let before I got here. So that pre-environmental was awarded about 5.5 years ago, 6 years ago.

To do a pre environmental study?

Environmental overall. So we're still in the pre environmental stage. But but that contract was let for all of the environmental for a seventh runway. And so that's being done. Now the issue is -- and what we've run into from various stakeholders is, namely the airlines is, are you fully optimizing the 6 runways you have? So therefore, do you need a seventh runway?

Now what I've said and what we've said is that once we go over 100 million, in order to sustain, we need a seventh runway because of the rate of departures and takeoffs and all of that. And so we know at some point, with forecast for 2045 of 120 million, we're going to need a seventh runway.

Talk that through for a second as it relates to -- everyone in this room has flown in and out of DIA. My understanding is that the slope that your jets come in is the exact same slope at every single 3%, which is the same at every major airport. So you can only have 2 coming in simultaneously and 2 taking off simultaneously. Is that correct? Or if you added a seventh, you could actually add a third inbound or a third take off?

I believe we could, yes. Yes. We could do that.

Is there any other for that's done that where they've got 3 jets taking off simultaneously...

I don't know of any. I don't know of any right now. But keep in mind that we're geographically, we have wind conditions and all that. So we change runways like all the time based on wind conditions and all of that. So...

But you don't have to worry about any buildings and you don't have to worry about any noise ordinance. And as a result of that, you have a massive advantage.

Well, we -- I would say we don't have to worry about noise. I mean...

Really?

We have a 1988 intergovernmental agreement with Adams County that talks a lot about noise and measure and noise and all of that. So we're always concerned about noise. It's inevitable at an airport, though. But I wouldn't say we don't worry about that. We do. We're very concerned about that in many ways.

That's surprising. So you've got, I think, 350 miles of roads out there. If you add it all together, that's from D.C. to Boston of continuous roads that you've got to maintain.

Yes.

You've also got more snowfall than another major airport. You and I have talked about this before. What do you do with all that snow?

Well, hopefully, it melts.

But you've got a melter.

Yes. We've got a melter. We've done very, very well with snow management, if you will, a melter...

Big environmental issues to it, right? So it all gets melted and then what happens to the water? Does it get recycled? Does it get...

Yes, we look to retain and capture all of the water. We look to retain and reuse the deicing fluid and all those things, that sustainability piece that we have. But we look to capture and recycle as much water as we possibly can. And I think we do a pretty good job of it.

And is there anything that doesn't meet the eye that goes on at DIA? So for instance, you've got like 1 of the things that I looked up First of all, you got a jail there. Hopefully, nobody in this room knows what the jail at DIA looks like.

Yes, we've got a morgue there, too. So...

You've got a morgue there too. How many passengers die on an airplane and end up at DIA to be taken care of, back of the envelope?

A year, I don't know, probably 10% or below I mean we -- I mean it's not as rare as you think. We have a lot of emergencies on aircraft. We have a lot of emergencies and not deaths, fortunately. But we take care -- I mean, in the concourses in the terminal, we have a lot of medical emergencies.

You have the largest service dog training facility in the state of Colorado. Why is that?

Yes. Well, the CATS program, the C9 program is really a fantastic program. Keeps people calm this whole idea of neuro diverse and all of that, and people get nervous when they fly. And so the K9 program, the CATs program really -- I mean, you would be amazed. When we bring all those dogs, those K9 in, it really calms a lot of people now, especially kids and seniors as well. And so that is one of our great programs.

People that own these lines that bring them in, I'm forever grateful to them, bring in their dogs and they got to pass a test. I don't think -- we don't have any rock wides or anything in that K9 program.

And as it relates -- I mean, all of us look at Instagram, and we see all these very sad kind of road rage that happens inside of the cabin of airplanes. Just last night happened to see one of the Southwest Airlines fight between 2 women. It just kind of came up and I don't need to see that. But that happens. How often do your either EMTs or law enforcement get called out to a plane to take care of sort of what I would call road rage would be what I call even though it's plan rage?

Yes, plane rage, air rage. It happens -- I won't say frequently, but...

I thought you happens more than I thought.

No. It happens occasionally, I will say. Where we have a disturbance on an aircraft. We have a fair number of planes that are sent to den for various reasons or -- and it might be a disturbance in the air. It might be a medical emergency and they are diverted to Dan. I think a lot of that happens when they are sent to us is because they know that our teams are very, very proficient, both our medical teams, both our fire department there. We pay for those services from downtown as well, police and fire and all of that. We pay the city for that, by the way.

But I think many of these are sort of referred to Dan because they know we have the personnel to handle pretty much any situation.

When you have police, you have paramedics, you have gate agents, you have pilots, you have passengers, you have caterers, you have fuel -- 40,000 people working in this ecosystem. They're not all your employees.

Correct.

How do you manage the access/safety component when they all have access to your facility and are all participating there. But if some, let's just say, Southwest Airlines gate agent decides that he or she doesn't want to act the way that they're supposed to act in going to the gate and being engaged with a flyer who may be or not be flying with Southwest, how do you deal with that?

Well, I think the first thing is creating a culture within the entire ecosystem, even though we don't handle everyone. We're not responsible for everyone. I think that we can really lay out a vision of safety and excellence and all of those things and create that culture ecosystem wide. And so we've done that. We meet with the airlines once or twice a month as a sort of a consortium of all the airlines. And so we talk about this culture thing. We talk about safety. We talk about all these things.

And the airlines, they handle their business as well. Airline employees, the example that you gave, all of the vendors, the concessions and all of these folks out there, I think -- I want to think that they understand what the culture is and what the vision is of the airport itself. And I think they adhere to it. That's not to say we don't have issues, we do. But I think for the most part, everyone understands that we need to run a good ship, and we have done that.

Is there a person -- so United has 90 gates at DIA, Southwest has like 40%. Is there a person at United who sort of is the station manager, everything that goes on at DIA. So you call him or her and say, "Hey, we got an issue where they call you and say, "Hey, we were on Gate A20 and something is that happening?

Absolutely. We talk to those station managers on a daily basis. You mentioned United. They have a wonderful lady who is the station manager, great professional, and we talk to her frequently. Again, probably almost every day. The same thing with all of the other airlines. And then we meet as a group, at least once a month. And I'm in that meeting. Several other folks from our team are in that meeting. So we work through these issues.

If we have an incident, we talk about the lesson learned. We talk about the after-action review that we do. So it works. I mean it's a big ecosystem and people find it hard to imagine how we control all that. But we've got good people there at the airport that help us do that.

I was looking at what your biggest city payers are. I was surprised that Phoenix is your largest city payer. And then it goes to Phoenix, Vegas, I believe, then Dallas and then L.A. But I was surprised about those. I would have -- I think about this being a regional hub and people coming in here and then going off to places like Boise that don't have a whole lot of direct access or -- but all 4 of those airports are major international airports. They've got lots of international flights coming into them. That surprised me that those were your biggest city payers. And I guess the question would be, how much are you working on getting flights from Asia to fly over San Francisco, fly over L.A. and come to Denver to then allow passengers to spread out into the United States. -- because your #1 international destination is Cancun, which is just Denver rights going to Cancun or someone from Boise who comes through here to go to Cancun. That's not necessarily someone in Tokyo, saying I'm going to New York. And I'm not going to go direct to New York, I am going to Denver and transfer across. What's the opportunity there?

Well, I think what we bill ourselves, what we've been saying over the last 5 years is that we are the gateway to the West. So it's -- in my mind, it's not just about Denver. The gateway to the West is come into Denver, catch that connecting flight to Phoenix or whatever. And so we have been sort of promoting ourselves that way internationally. We have been very, very aggressive over the last 5 to 6 years on international. We believe that with the rise of the middle class in Asia, in Africa, that travel will just -- we're already seeing the growth.

And so we have taken delegations to the continent of Africa. We are really targeting the continent of Africa. We actually went to Otis Ethiopia, Otis Ethiopia and took a delegation there and met with the government because Ethiopian Airlines owned and managed by the government of Ethiopia. And met with the Prime Minister there about a flight from Otis to Denver. There are some challenges with that. Otis is actually a higher elevation than Denver. And so we would have to take off from here with a less than full tank because of the weight that is involved with that. But I see tremendous growth on the continent of Africa, Asia as well.

Quick story, I was in Istanbul about a year ago. And we're in a setting like this, we had a delegation that went there because we got a direct flight, Turkish Airline. And the gentleman from the Chamber of Commerce came in and said, "We don't aspire necessarily to a big house like Americans do and the picket fence and all of that. We aspire to travel." So we're not so much concerned with maybe how Americans think about a house and all of that. Because what he said was we can't afford it, but we want to travel and our children want to travel. And I thought, you know what, that's pretty incredible to me. And we need to put Denver on the map, if you will, and not just have it as the flyover city. And so that is why this whole idea of economic development and us being a generator of $47 billion a year, whatever it is. It really boils down to what's happening here in Denver that people want to come to, and the West.

And so all of these things that city government is doing, the mayor is doing and all of that really ties into the potential that we have for folks to come here from all over.

You're talking about flights from Africa or from the Middle East or from -- you won't make it from the Middle East, that's too far right now. But from Asia and from Europe. What about space? Could DIA ever be a landing pad for people who go up to space and come back to space, given you got long runways, you've got runways that have very, very sturdy runways below them and you're pouring concrete down? How deep is that concrete? Is it 6 feet?

Yes, it's at least 6 weeks.

Really. Have you guys thought about space?

We have. We actually have -- listen, we've got a space for it within 5 miles of the airport, right? And we meet with the folks from Spaceport all the time. I absolutely believe that we are in the best position of any airport in this country to have space travel from. Now we've got to build the infrastructure and all that. But I think that we're so well suited. We talked about the land that we have and we talked about the space that we have to build. We talk about -- we haven't talked too much about the opportunities for development that we're doing right now. But I absolutely believe when I think about 20, 30, 40 years from now, Dan is the launching pad. It's the launching pad.

So if you think about that in the context of SpaceX and Tesla, and how Elon Musk is the S3 on -- or S1 on SpaceX came out yesterday that gives lots of insight into what the FaceXIPO is going to look like. And in it, they -- one of the things that I thought was so interesting was the fact that Elon has these 2 ecosystems between Tesla and everything that's in Tesla and SpaceX and everything that is SpaceX. And it's all co-mingled. You've got base buying the Tesla SUVs, right? You've got his -- all of these different companies are interacting with each other. So you're sitting here saying we're positioned as potentially the best airport to try and attract space activity, and yet the Denver City Council yesterday banned the development of data centers. You think Elon Musk comes to Denver?

What I will say from an infrastructure standpoint, what I feel our team's job is, is to prepare the way. I am not, of course, an elected official.

No, but I'm trying to push you on this front.

Yes. I'm an infrastructure guy. I was an infrastructure guy since I was a kid. You know what I mean. I was just like when my mother worked 14 hours a day and wondered when the next bus would come as we lived in public housing. My mom is a single mother. I was enamored with infrastructure for the good of humanity. I'm talking about -- I'm talking sidewalks, water, transit and all of that. We want to do what we can in our Fox hold, if you will, to show that we can prepare the way in terms of infrastructure for anything that we can dream of. And when I think about space, I think about what do we need to do at Denver International Airport to prepare that facility with the hope, with the hope that the politics will follow, right?

To much to ask for the politics to lead.

I think so.

Fair answer.

I think so. And I'm not just here. I'm talking about just nationally. I think that if I think about how I can prepare the way, and I think about all these things. I think about -- that we've talked about, I think about energy independence pave the way for that. Whether that is geothermal, whether that is small modular reactors that I get beat up on, but I stand by it, though. Absolutely.

How much would a small scale reactor to be able to give you enough energy cost?

Well, I mean, I think right now, I think about the need to run -- have energy and electricity, 24/7 days a week or whatever. And it's not just SMRs. It's a combination of all these things.

Could you do it on just SMRs?

I think eventually, we will be able to.

And any idea what that would cost?

I don't know. I don't know. Right now, it costs too much to do that right now, but I'm looking down the road.

Even with you having a $12 billion capital campaign right now. So it's bigger than that.

Yes, I think so. I think so. I think so. But I mean, these things are expensive now. SMRs, there's no real...

Could you pull it off on solar or the storage doesn't allow you to do?

I think solar -- I don't think we have enough solar to do that. Even though we have more solar arrays, and we have the -- probably the largest solar farm of any airport in this country. We can't do it just on solar. And so I think we're going to need a little bit more. And so I'm not just stuck on SMRs. I think we can do this across the board. I think we can do a combination of various alternative energy options to get us where we want to go, which is energy independence.

Final couple of questions. I talked earlier about the environmental impact study on Runway 7. You've got an environmental impact study going on, on the widening of Penny Boulevard. Of all the bottlenecks, you've gone and you've changed the TSA lines and brought it down to the best in the country. You've got your canceled flights down at the best in the country. You've got more growth than any other airport in the country. And yet Penyu Boulevard is still 2 lanes out and 2 lanes back. And to anyone who goes out there all the time sits there and says, "Why am I waiting longer to get in my car out there than I am to get through security into my gate.

Exactly.

Are we going to get some relief here?

Absolutely. And listen, we are talking about improving Penyu.

Well, that's just tightening it, isn't it?

Well, we cannot predetermine the outcome during the environmental period. Actually, that's against the law. So I have my ideas, but this is why we are going through that environmental process.

This is a $12 million environmental impact study.

I forget how much it is, but it is...

I believe it is $12 million.

Yes, yes.

But to figure out whether a swallow is going to have its migratory pattern change by us adding 2 more lanes to Pennar Boulevard?

Yes. It's we are looking to accelerate that environmental process as best we can, but we've got to go through it.

You want to make a -- do you want to make a bet with me that you've got a fix to your duality on the trams before Pena gets widened?

No, I'm not going to bet. I'm not going to bet. But I will tell you this, we are scheduled to get to what's called a preferred alternative by the end of this year. Now the preferred alternative says, this is what we want and plan to do. Now you got to go through this community thing and all of that, right, which we're nearing the end of. And at the end of this year, we're going to come out with that preferred alternative. Widening is one of the alternatives that we are out there shopping.

Sorry, what would be something else?

I can't remember all of the alternatives.

Beyond just widening it. Is it we're just widening it?

Well, there's a couple. There's there's the widening -- I'll come back to you with the other ones. But there's a transit element that we're doing to -- we've got 20 recommendations for what's called transit demand management, 20 recommendations that we can improve the transit side. But people don't realize that we own Pina, the airport does. And we're responsible for maintaining it. But to your point, the fact that Penya has not changed in 31 years. It's about time that we do something about -- and we are. We're at the end of that environmental period. And here's a bit I'll make with you.

Great. I'm not sure I'll take it, but you put it out there.

I bet that they will be a lot of consternation with whatever preferred alternative we come up with or people might just say, "Hey, that's great, Phil." But listen, this is something that we need to do. I mean we've had to explain to people that we cannot go from 50 million annual passengers, airport design for 50 million to 100 million and not do something about Pena.

100%.

Yes. I mean, just like we're doing with all this other stuff, right, we are doing the consolidated rental car facility. We are looking at a seventh runway. We're building the North Terminal expansion to get us to 120 million. We are expanding Concourse C to the West to get us to 100 million. We're doing all the sustainability things. alternative energy options, all of this. We've got to focus on the road that gets us to the airport. And I'm happy to say over the last 4 or 5 years, we have done that. And we're nearing the end of it towards the end of this year, where we are going to announce that preferred alternative.

So as I was getting myself ready for all this and looking at all the stats, I looked at what impact what you manage has on this state, and I said it at the top, it's got tens of thousands of employees, the largest employer in the state of Colorado. It's got 10% of the state's GDP. There's no other company or government service that has that much of a contribution to our state's GDP. It's innovating, and it's growing faster than almost anything else, and you run it. So I was sitting there saying, is Phil the most important person in the state of Colorado. And I will tell you, you're damn close to it. The governor may have more sway over an overall GDP growth and where he puts his finger on the scale to say that needs to grow or that doesn't or we're going to invest there. But barring the governor, I don't know someone else who I could have had to this conversation, who has a bigger impact on growth and the GDP of the state of Colorado.

And so thank you for all you do. Thanks for answering all of my very detailed questions. I love what you do. I love flying in and out of your airport, and I really appreciate you joining us today.

Thank you so much for having me. Thank everyone that's here or online or whatever and thank you for being just such a supporter of Denver International Airport and aviation in general.

Phil has the one drawback of knowing me as well as I know, Phil, is that he gets these texts from me at random time. I have been for 32 minutes from my value -- hasn't shown up on Carousel SP1 And he's like, it's coming really. I've got the team on. It's all good.

I remember that.

Yes. That actually, I'm not -- I hope everyone in the room who's watching this knows, I don't do that. What I did do once as I was coming back to the international terminal and literally the baggage cares. I was literally exploded in front of me. So I text it Phil said it baggage carousel on in the international terminal and the thing literally just exploded. He's like, thank you very much for audit. So I'm not quite as bad as my bags are taking me a long time the holding had blown up.

Well, what's funny about that. What you didn't know was that I was on an international flight right behind you.

Was it fixed by the time you got there?

No. No. But I had just landed and I was behind you on another flight, and I walked in and saw that. And our folks text it, our folks were working on it when I get to the international car sales, great.

So Phil, thank you so much. It's been great -- great conversation. Thank you all.

Thank you.

Good day, and welcome to the First Quarter 2026 Walker & Dunlop Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Kelsey Duffey. Please go ahead.

Thank you, Lisa. Good morning, everyone. Thank you for joining Walker & Dunlop's First Quarter 2026 Earnings Call. I have with me this morning our Chairman and CEO, Willy Walker; and our CFO, Greg Florkowski.

This call is being webcast live on our website, and a recording will be available later today. Both our earnings press release and website provide details on accessing the archived webcast. This morning, we posted our earnings release and presentation to the Investor Relations section of our website, www.walkerdunlop.com. These slides serve as a reference point for some of what Willy and Greg will touch on during the call.

Please also note that we will reference the non-GAAP financial metrics, adjusted EBITDA, and adjusted core EPS during the course of this call. Please refer to the appendix of the earnings presentation for a reconciliation of these non-GAAP financial metrics.

Investors are urged to carefully read the forward-looking statements language in our earnings release. Statements made on this call, which are not historical facts, may be deemed forward-looking statements within the private -- the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe our current expectations and actual results may differ materially. Walker & Dunlop is under no obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, and we expressly disclaim any obligation to do so. More detailed information about risk factors can be found in our annual and quarterly reports filed with the SEC.

I'll now turn the call over to Willy.

Thank you, Kelsey, and good morning, everyone. I want to start the call by thanking Kelsey for her incredible 12 years at Walker & Dunlop. She is going to take early retirement to spend more time with her family and everyone at Walker & Dunlop and Greg and I particularly are extremely appreciative of all you have done for Walker & Dunlop over the last 12 years. So thank you, Kelsey.

We started 2026 with active commercial real estate capital markets across the industry, and Walker & Dunlop closed $13.7 billion of total transaction volume, up 94% from Q1 2025, as shown on Slide 3. That strong transaction activity, coupled with continued growth in our servicing portfolio drove total revenues of $301 million, up 27% year-over-year, and diluted earnings per share of $0.46, up 475% over Q1 of 2025. Adjusted EBITDA grew to $74 million, up 14% year-over-year.

Our Q1 2026 financial performance reflects Walker & Dunlop's teamwork, brand, and continued standing as one of the best commercial real estate capital markets firms in the industry.

Debt originations totaled $11.8 billion, more than doubling year-over-year as activity accelerated across nearly every part of our financing business. Agency lending volume was up 109% to $5.2 billion, led by $3.1 billion with Freddie Mac. Our strong quarter with Freddie included a $1.7 billion refinancing of workforce housing assets for Starwood Capital Group, a deal that demonstrates our team's ability to execute on scaled, complex transactions.

$4.7 billion of originations for the GSEs increased our market share from 11.2% at the end of 2025 to 12.3% at the end of Q1, a nice step-up. Brokered debt volumes totaled $6.5 billion, up 155% year-over-year, reflecting our fantastic team and ability to place capital across commercial real estate asset classes with a multitude of capital providers. The debt capital markets are flushed with capital and allowing owners who don't like pricing in the sales market to refinance.

As Slide 5 shows, on Zelman's quarterly research, buy, sell, build sentiment index, only 6% of multifamily owners are currently sellers with 64% buyers and 30% builders. This phenomenon is tempering investment sales volume, which was solid, but only up 4% on the quarter to $1.9 billion. We expect investment sales volumes to increase over the course of the year due to increased capital flows as well as values. One important indicator of our growth and productivity is transaction volume per banker broker.

As you can see on Slide 6, on a trailing 12-month basis through Q1 '26, our average production per banker broker was $282 million, up from $248 million at the end of 2025. This increase reflects the pickup in industry activity as well as the large portfolio transaction I mentioned previously. As we continue to use technology and focus on increasing our team's productivity, we expect that this metric will continue to improve to hit our goal of $300 million of transaction volume per banker broker by the end of 2026.

Loan repurchases and indemnification agreements with the GSEs have required a tremendous amount of time and effort from our servicing and asset management teams over the past 2 quarters. During the first quarter, our total GSE loan repurchase exposure was lowered from $222 million to $192 million, which is welcome progress. Both Fannie Mae and Freddie Mac will be performing their annual reviews of Walker & Dunlop, and we are hopeful that those reviews in conjunction with the conclusion of any loan-specific investigations will be resolved later this year and allow us to move past these repurchase issues.

We have strengthened our underwriting processes, enhanced our teamwork and protocols, and reinforced our culture of accountability to make us an even better lender going forward.

I will now turn the call over to Greg to talk through our financial performance and financial outlook in more details. Greg?