Webcast transcript:
Susan Weber
Good afternoon. I'm Susan Weber and joining Walker & Dunlop CEO Willy Walker today are Kara McShane and Kristy Fercho from Wells Fargo. Before we kick off this insightful discussion, I would like to read a brief disclaimer. Any views or opinions expressed, including any market price, market data, indicative value or estimate is indicative and subject to change without notice. And Wells Fargo accepts no liability for its use or to update or keep it current. And any views or opinions are of those of the individual speakers not necessarily of Wells Fargo. Past performance is not necessarily a guide to future performance. Wells Fargo & Company may provide views or opinions that differ from those expressed in this communication and also may from time to time, acquire, hold or sell a position in the securities or financial products mentioned herein. Expressions of opinion, are subject to change without notice and is not intended as investment advice.
Thank you for joining us today and now over to Willy.
Willy Walker
Thank you, Susan. I feel sort of like I'm starting an earnings call here, ladies. I like the Wells Fargo disclaimer. It's great.
Kara McShane
Quite a disclaimer.
Kristy Fercho
But, it's like we will disavow ever knowing you.
Willy Walker
Exactly.
Kara McShane
Kristy Fercho I feel like that should be the punchline.
Willy Walker
When we were a young public company, we used to have these pages and pages the disclaimers at the beginning of our earnings calls. And I kept asking our general counsel, can't we winnow that down a little bit so we can kind of get to the real stuff? Here's like we got to do it.
So, Kara and Kristy, it's just a true joy to have the two of you. I will introduce you both in a second, but as I think about the real estate landscape, the mortgage landscape, both of you in your own right, are such incredibly influential executives in the mortgage finance world.
To have both of you under the same roof clearly says that Wells Fargo has got the most powerful female executive team in mortgage finance period end of statement. And I would also say that it's really hats off to Wells Fargo for having recruited and promoted two women of your capabilities into the roles that you have today. And we'll get into a lot of that later on in the call. But it's just at the top of it, this was a dream webcast for me to put together. I started talking about this with Kara back in, I don't know, June or July, and then I looped Kristy and to get it on both of your schedules was a tad challenging, which I knew it would be. But I just want to say to get this in 2021 is a real joy on my part.
Let me do quick bios on the two of you, and then we'll dive into the conversation that I know lots of people want to hear us have.
Kara McShane is an executive vice president and head of commercial real estate at Wells Fargo. Kara joined Wells Fargo in 2010 and has held various senior roles within CRE and asset backed financing, including head of structured real estate, head of commercial real estate, capital markets and finance. Prior to joining Wells Fargo, she spent seven years at Morgan Stanley, where she was managing director and head of securitized products group, capital markets, as well as co-head of commercial real estate, capital markets and trading. Kara serves on the board of directors of the Real Estate Roundtable, the board of Breaking Ground and several other industry boards. Kara received her BA in economics from Duke University and her MBA in finance and management from Columbia University.
Kristy Fercho is executive vice president, head of Wells Fargo home lending. Kristy has 18 years of experience in the mortgage industry, most recently serving as president of the mortgage division at Flagstar Bank. Before Flagstar, Kristy held the strategy and business performance of single-family customers, at Fannie Mae for fifteen years. Kristy also held sales operation and human resources roles at Baxter International before moving to PepsiCo, where she was director of worldwide corporate human resources. Currently, Kristy serves as chairman of the Mortgage Bankers Association and a member of its residential board of governors. She also leads the Affordable Housing Working Group for the office of the comptroller of the currency project REACH initiative and serves on the boards of the National Urban League, Open Door Foundation, City Year, and the Detroit Zoological Society.
I want to talk about animals before we get done with all this stuff and the Detroit Zoo.
But let's, first of all, thank you both. And I want to start last week, I had Ed Walter, the CEO of the Urban Land Institute on. And during that we discussed ULI’s emerging trends report which painted a pretty bullish, very bullish picture for commercial real estate in 2022.
Kara, let me start with you. As the largest lender on commercial real estate in the United States, what's yours and Wells Fargo's outlook for commercial real estate in 2022 and beyond?
Kara McShane
Hey, that's a good one to start with Willy.
So first of all, thank you so much for having both Kristy and I today. We are delighted to be here, and I am delighted to share the screen with her. So, this is really fantastic.
I have to say that I agree with Ed unfortunately. If you were looking for controversy, you're not going to get it here. I am fairly bullish for 2022 for a whole host of reasons. I would say that's assuming there's no material, negative economic reversal. We've got global low rates, which even if they go up, I think they're going to stay low on a relative basis. I think CRI is offering good relative value to other sectors. We've got an abundance of liquidity in both debt and equity across the capital stack. We've got unprecedented record levels of dry powder. And all of that is going to continue to fuel investment in commercial real estate. And it's going to drive flows into the sector. In 2021, we've seen tremendous activity, M&A activity, lots of publics to privates. And we expect continue to see that trend in 2022. And that drives a lot of need for capital, both secured and unsecured capital. So, I just don't see this slowing down anytime soon based on the conversations that I have with industry participants and certainly from the activity that I see in our pipeline.
Willy Walker
As you think, Kara for a moment about the big taper or the transient inflation numbers, and everyone trying to read the tea leaves on what's going to happen today and what the FED says and where we go from here, you made the comment that rates may move, but relatively speaking, they're still very low from any historic standpoint. And I kind of look at a DOW at 35,000 and a 10 year at 1.44, 1.42. I think it actually rallied a little bit today ahead of the meeting. I mean if you'd ask me that a year ago, I would have been like, man o man, that's an incredible end of 2021. Is that your same feeling about where we sit today?
Kara McShane
Yeah, I think everybody has been surprised at the economic recovery that we've experienced this year. I don't think the economy is overheated, though. So, I am worried about inflation like everyone else is. I think this is interesting timing to have this webcast right before the FED meeting. So, I'm not sure anyone's going to be paying attention or if they're just going to be looking for the announcement.
Willy Walker
That's why we tape it and play it later. So, we're all waiting to hear what the FED chairman says, they all come on and watch us later. So, it's all great.
Kara McShane
I thought we were live I didn't know that...
Willy Walker
We are alive, and I'm listening live, but a lot of people come in when it doesn't sit in the middle of their day. Anyway, go ahead.
Kara McShane
But to your point, inflation doesn't seem transitory at this point. I think it will remain elevated at levels, probably above where the FED prefers it to be for some time. And they likely will raise rates next year. And as long as it's not unexpectedly quick, or the magnitude is not unexpected, I think commercial real estate will be fine. And frankly, commercial real estate has performed really well historically in inflationary and environment. So, there's some built in protection there that I'm not saying that there aren't uncertainties for the economy, and we can talk about energy prices and wage inflation and all sorts of things. But I still feel bullish about CRE and feel like we've got some built in protection with some of the risks that are outstanding.
Willy Walker
So Kristy, let me come to you, because as Kara looks forward and says, commercial real estate, higher inflation, rates low, a lot of large deals, really, very positive macro environment for CRE and CRE lending. It's not so much on the single-family side. What's your thoughts as it relates to? I just saw today, MBA came out, and year on year, mortgage applications are down 10% over this time last year. So, we're seeing that everyone went and kind of redid their single-family mortgage, but then you also have a very robust purchase mortgage market. So how are you viewing the outlook for 2022 from a single-family standpoint?
Kristy Fercho
Yeah, actually, very similar to what you were saying. I mean, we all know that the housing market is cyclical, and it's been really striking to me, and especially coming out of this pandemic going back to, kind of 2020 when this all started in March. It's been really striking to me to see the market dynamics be what they've been over the last couple of years, being as steady as they have been against this backdrop of this broader economic volatility. And so, as we think about what the forecast is and again, the last two years have been the highest origination years on recorded history, right? If you would have told me the same thing like you're looking at what 2020 was when we all went into lockdown and Covid that in 2020, we would have the highest origination here, and then we would follow it up in 2021. We may have exceed $4.8 trillion of originations in 2021. If you would have told me 2021 would even stronger than 2020, I would have lost that bet. And so, I think it has been an extraordinarily strong market. And you know we are certainly expecting, and we were expecting it to really hit kind of in the second quarter, right? That the normalization would happen in the second quarter and if you look at earnings reports in Q3, still really, really strong. In Q4, you mentioned the MBA index starting to come down and that's mainly on kind of refinances. But still a 140, 10-year, you know, we hit 160. I was thinking about a month ago, I was thinking OK, here we go, right? This is the rise that everybody's talking about. And we're anticipating. And in the forecast were showing that by the end of 2022, there will be just right under you know kind of 4%. But again, when you look at historic norms, a 3% thirty-year fixed rate mortgage is still really cheap money. And so, I think what you're going to see, and the forecast that we're looking at is as you go into 2022, that refinance is going to taper off a little bit. Just given you know; we do expect rates to rise. But you'll see purchase, actually, when you look at the forecast from the MBA or Fannie or Freddie or even or forecasting at Wells Fargo, we're looking at that purchase market to be at par or even a little bit stronger with what we've seen here in 2021. It's the refinance market that's going to come down pretty substantially to actually be in the $2.5 to $3.1 trillion. If you look at kind of all the experts where their range is. And so, while the market will be certainly smaller than what we've seen over the last 2 years, we think it's still going to be robust and especially in the purchase market, where Wells Fargo, that's a strength for us.
Willy Walker
And Kristy we had forbearance come into place. And Kara and I both had it in loans that are guaranteed by Fannie, Freddie, and HUD in our portfolios. But it turned out to be nothing on the commercial side. On the single-family side of millions of loans went into forbearance and have now been starting to work their way out of it. It's my assumption that has not caused any real issues. What's your outlook as forbearance kind of burns off, if you will, as it relates to the credit quality in single-family market?
Kristy Fercho
Yeah, I think it's still going to be incredibly strong and it's funny to use the million-dollar mark. Wells Fargo, we helped over 1 million customers go into forbearance and with the expiration of that Cares Act forbearance coming in September was the first month that that expired. We've been in touch with the majority of those customers, high 90% that we've already been in touch with, and we've transition them successfully into new loss mitigation tools. Or one of the things that was characteristic of this market, which was really fascinating, is how many customers asked for forbearance, but never availed themselves of it, actually stayed current on the mortgage. They wanted it as the protection in the event something happened. And in some ways that was the beautiful thing about Cares Act forbearance, right? How quickly the government intervened to say this is unprecedented. And so, we're going to take unprecedented action and provide people with support. And we had a number of customers who took it and then never availed themselves on it, or now that the expiration has happened very quickly, brought themselves current, which said to me, they may have had money in the stock market and have taken advantage of that and were able to bring themselves current.
So, we've actually seen really great successes as we're transitioning customers off. And that's been the same thing that the MBA has been reporting as customers are very quickly coming out of forbearance. I think when you look at the credit quality I mean, go back the last couple of years again, the credit quality has been extraordinary on every dimension. And I think we will continue to see that as we go forward.
Willy Walker
Kara, as the purchase market on the single-family side continues to be very robust. And we've seen incredible price appreciation. That stock of existing inventory on single-family has sort of inflated up in price, which has kept many renters being renters. Wells is obviously a massive participant in the multifamily lending market. As you think about where you'll be putting dollars in 2022, can you just talk through the various commercial asset classes and where you're saying love putting dollars to multi and others, but kind of shying away from other asset classes?
Kara McShane
Sure, while I'd love to say that I get to decide where we put dollars, like I'm an investor. Unfortunately, as a bank, we're here to serve our clients. And so, we really have to follow our clients and into the sectors that they want to be in and support them where they want to go.
Willy Walker
Just on that, that's an interesting point. So do you, I mean let's just say that you looked at it and you said I would like to, let's say you've got X billions to put out in 2022. Do you have any ability to say I'm going long multi, and I'm shorting something else in the sense of aggregate dollars, or do you sit there and basically say, look, XYZ it underwrites well? We've got a great sponsor. We're going to do that, even though directionally, we may not like that asset class.
Kara McShane
Yeah, it's really a combination Willy. So, you're talking about really a top-down portfolio management approach, which is something that I'm actually relatively new in the role I've been in the seat for two years now, got into the seat one month before the pandemic. So, it is something that I've brought to the commercial real estate platform, more of a top down approach to portfolio management. We're also very bottoms up, and we are also very focused on following our customers and supporting our clients. So, there isn't an asset class that we wouldn't lend on right now, maybe with the exception of a B or C mall, something like that. But beyond that, we are not redlining, retail or office or hospitality. But that does mean we're looking at overall exposures and we manage those exposures. So, I can tell you we're consciously trying to increase our exposure to multifamily or to industrial, or to some of the off the run asset classes, the alternatives, asset classes.
We actively de-risked our retail portfolio over the three or four years leading into the pandemic. So, we took that exposure down pretty materially in the years leading up to the pandemic, because we had a negative view of retail. That doesn't mean we weren't lending in retail or supporting our clients. We were. But we're obviously a little bit more selective. And when we are leaning into sectors that were cautious on, we want to make sure we're seeing a tremendous amount of cash equity that it's the right property in the right location with the right sponsor.
Willy Walker
Does that alternatives bucket that you just talked about, whether it be medical office, student housing, I don't know, vertical greenhouses…
Kara McShane
Data Centers, Life Sciences…
Willy Walker
We just did a vertical greenhouse, and I was like that's a first, but it might be where the world's going. Does it concern you at all Kara that... Because the major food groups are priced, either overpriced or priced to perfection that capital is going into these emerging asset classes where operating histories, and if you will, performance isn't as clear as in the traditional food groups.
Kara McShane
It's a great question. The truth is it doesn’t, and I'll try to explain why. I think that these off the run sectors have become a larger part of the market for years. And a lot of these property types have been around for decades and have performed really well and have tremendous fundamentals behind them. But many of the real estate investors out there are underweight these sectors. So, when they look at themselves relative to their peers or to their benchmarks, they're underweight. And so that's going to hurt their performance in any given year. I also think that these sectors provide tremendous diversification, and that's, in particular why I'm interested in these sectors. And this is something that we've been very consciously trying to increase our exposure over time to some of these sectors that we're watching secular trends, we're watching demographic trends, and we're looking at where the puck is going, if you will. And I'm wanting to make sure that we're appropriately positioned.
So, I'm not really concerned. I think there's been under investment by certain investors and they're playing catch up right now. I think it's less about the core property types being frothy or overpriced, and more about the fact that they're looking for diversification and they're looking for... Maybe they're overweight some of those core sectors and they need to rebalance their portfolio a little bit. It's like, it is hard to compete. I'm obviously in multi and industrial, it is hard to compete. So, it is nice to look outside those asset classes sometimes.
Willy Walker
Kristy, we were just talking about the stock of single-family inflating up in value and making it very strong for the multi sector. One of those specialty products has been Build-for-Rent and single-family rental. And what we've seen is a lot of big institutional investors, and I'm certain that Kara has also seen it, where rather than going for sale on a community they've just built, because there's so much demand for yield in the institutional markets that they can go and sell a BFR community for a much higher price, on a group basis, if you will, on a pool basis than individual homes. Does that concern you at all as it relates to the supply of new inventory on the single-family side?
Kristy Fercho
Yeah, it absolutely does. And I think of affordability and supply is one of the key issues that is happening in the market. We even talked about the positive economic trends and the supply and demand issue that we have seen in this last market has really driven home prices up pretty significantly, which is certainly impacting both supply as well as affordability. And so, I think it's one of the big challenges of the housing sector today and is something that is especially pronounced in minority communities. So, I think when we think about how to address this challenge, it's important that we recognize the fact that there's a number of barriers that we have to navigate to be able to work on this. And clearly, they're pretty systemic in nature. Right before I got on this call I actually participated in, the MBA had the consumer affairs advisory council meeting and we were joined by Erika Poethig, who is a special assistant of housing and urban policy. And it was just really interesting her perspective in terms of what's the White House kind of doing on that to really be able to address some of these issues. I really think it's going to take the proverbial village, if you will, to really be able to focus on this. It's going to take you know, certainly lenders to engage in. It's going to take the White House to really start to focus on what are some of the policy decisions that have gotten us to this place. And then what are the real solutions that you can move forward on that I think it's going to really be able to engage anyone, but there's a couple of facts in that, that are just pretty stunning to me. I mean the one when you think about the black home ownership rate being some 30 points below the white home ownership rate, which is the largest gap that we've had since when segregation was actually legal. Right. There are some real barriers to home ownership there and certainly kind of affordability and access that, I think are exacerbating some of these broader financial inequities that are making it more difficult for minority families to be able to build wealth. And so, to the extent that we address this issue or don't address this issue, I think it continues to create some real systemic issues for our nation. And I have a unique advantage point, right? Being, you said it my bio, but that the head of home lending at Wells Fargo, being the chair of the Mortgage Bankers Association, and then leading the Affordable Housing Working Group for the OCC and their project REACH and I get to see the industry from a really unique advantage point from all three of those positions. And I got to tell you, I have never seen such alignment in the industry and such alignment with people trying to understand this issue but then really concentrated on putting real action into place to address some of these systemic barriers. And so, I think that's the good news, is that everybody's focused on it in a very concentrated way. I'm actually seeing some real momentum in it. But I think laying the... it took us decades to get here and some of these issues have taken that long. I think, to really be able to ensure that the momentum is sustainable and actually translating this energy into real change that's kind of the work that I think needs to go forward in the infrastructure. The policies that need to be put in place to really be able to allow us to be able to address it in a more systemic way.
Willy Walker
You mentioned that you sit in a very unique seat, given the various roles that you play. And if there's one magic wand, if there's one solution… we are in a market, as we've all discussed, that has tons of liquidity right now and clearly access to capital is a big piece of it. And FHFA is working on that, and lenders like Wells Fargo are working on that, and you're working on that with Mortgage Bankers Association. But it doesn't feel like it's a capital deprived market. It feels like it's a supply deprived market. Yet, I think, and I see Kara nodding your head on this, if all of a sudden single-family housing starts went from 800,000 to a million to getting closer to 2 million. I think a lot of us would sort of say, here we go again with the single-family housing crisis of the mid-2000. We got to be careful there. What's the way to create supply that meets this affordable housing crisis without getting ourselves over our skies that we have another single-family crisis.
Kristy Fercho
Yeah, I definitely think continuing to lean into housing starts and it's interesting because I think it's the economics and the foundational elements to me, don't have me worried about that yet. I think some of the policy decisions, though, that would need to be made in terms of ensuring that others have access. And ensuring that we can invite people into this process in a more equitable way, and I think is going to be really critical. And so that's why I think whether you're using the housing policy fund that FHA is starting to look at. Whether you have special access programs that the administration can certainly drive. I think it is being intentional about what we do with the supply, who has access to that...and just like in New York City, right? And this is you guys your expertise but being able to designate certain units as affordable units in protecting that, so that it's more equitable for all. I think some of those policy decisions are going to be absolutely critical as we continue to explore what's the right way to be able to provide people access without overriding or overheating the market.
Willy Walker
Kara, Wells has been a huge lender on affordable housing, and quite honestly, I've been wildly envious of your affordable housing group and how significant they've been in helping both the construction of new affordable housing, as well as the maintaining of existing buildings that have HAP contracts in place and assistance programs. What more can be done from such an active participant like Wells Fargo in creating more affordable housing in America?
Kara McShane
Great question. First of all, thank you for pointing it out because it's a business that I am super proud of on our platform. And it's also a business that is incredibly personal to me. You mentioned at the start of the webcast that I'm on the board of Breaking Ground, which is a non-profit that affordable housing developer and it's affordable housing and supportive housing for homeless. So, it's very personal to me. I truly believe that every person deserves a home. And whatever I can do, whether it's inside my career, outside my career to help achieve that goal, I will do. Wells has a tremendous history, a long history of being a real leader in the affordable housing space. We've got one of the largest geographic footprints. We have a dedicated group, as you mentioned, it's called Community Lending and Investment and it sits inside of commercial real estate. And I love it because it is truly a mission driven business, which is so different than all of the other businesses that I have oversight for in commercial real estate.
And we don't just do low-income housing tax credit or LIHTC debt and equity. We do new markets, tax credit, debt, and equity. We do community development, financial institution loans, which it's really patient capital for underserved communities. So, we are changing neighborhoods that historically are not served by banks. And we do all this amazing work. And I don't think there's any magic bullet right. It's that each one of us has a responsibility in the industry to try to achieve these goals. And so, we're going to continue to do our part. I think you see our commitment by the amount of capital we deploy year in and year out in this space. And I think the numbers for ‘21, and don't quote me on this, even though I know this is taped, I think we're going to deploy just in my team alone and the rental affordable housing space over $8 billion this year to finance over 28,000 units, which if everybody can get on board and do their part.
It doesn't just stop right with the financing. As you said, it's not really a financing shortage. It's more of a supply shortage. So, we have to think about how to incent developers, owners and operators of multi-family real estate, to create and maintain affordable housing units. So that's the magic bullet, which I think gets fixed with policy and some of those types of things. But I do see it. I sit on a couple of boards like Kristy does in and around the space. And if it were easy and there were a magic bullet, we would have fixed the problem by now.
Willy Walker
Very much so. I hear you say $8 billion and that's absolutely fantastic. And we have a pretty sizable number ourselves. I was thinking as you said that when you and I talk about $8 billion, Kristy goes $8 billion, come on, get seriously. Let's get some volume in our numbers here. We would be talking about $8 billion. I do that in a day. Hey, what are you talking about?
Kristy, just before we move off of affordable housing for a second, Sandra L. Thompson nominated by the White House yesterday to be the new permanent FHFA director. Clearly great news, at least from my perspective. What do you think we as a community can expect Sandra hopefully gets confirmed and gets into that seat as it relates to any changes that FHFA might have over Fannie and Freddie, either on the single-family side or on the multifamily side?
Kristy Fercho
Yeah, I'm thrilled about that as well. I think Sandra, well this nomination and if she gets confirmed, this will actually be the first career person that would be nominated to and confirmed to lead the agency. And I think she's dedicated her life in career to public service. I think what we can expect Willy is more of the same. I mean since she's been in a chair in such a short period of time, I think she has really refocused the GSE's on getting back to the basics, right? What goes to their core mission, and what were they chartered to be able to do? And she’s removed a lot of the noise. So, some of the action she put in place very, very quickly in terms of lifting the limits in terms of how much people could access into the cash window, the second home, and investor limits that she lifted the removal of the adverse market delivery fee. I mean, there were just a number of things that she did very, very quickly, to signal that she is here to be supportive of the market, to ensure that the GSE is continued to fulfill their role to provide affordability, and sustainability in the market. And so, I think we're going to see more of the same. She attended the Mortgage Bankers Conference just in October. And so, we got a chance to hear her talk a little bit about her platform. Affordable housing and increasing minority home ownership is very important to her and being able to look for ways to continue to do that.
So, the work that Freddie did around being able, sorry, it was Fannie, and Freddie is to follow. But to be able to include rental income into the underwriting and have that account for those people that might have been credit filed, and some of that creativity around how do we take long term tried and true policies and think about them differently through the new consumer, through the new gig economy, and thinking differently about how do we give people access, I think, is what you’re going to see. But she underscores and I think it’s absolutely critical, because this is what gets people nervous about, are we just going back to what happened in the last crisis? She underscores sustainability.
It doesn't do, I actually share Kara's view that everybody should have a home, and everybody should want one. There shouldn't be any systemic barriers to people getting access to it. But when people get in them, we must make sure that they can sustain them. And I think that's a huge piece that we lost focus in, in the last crisis, that I think is going to be really, critically important as we find solutions as we roll out new products to how do we expand home ownership. I think that sustainability piece is going to be key and you're going to see that.
The last thing I would offer is, I think some of the things that had been put on hold with Director Calabria, I think you're going to actually see her really just encouraged the GSEs to get back to this innovation and pilots and things that really do advance the industry. And I'm personally excited about that, because I think if it wasn't for some of the appraisal innovations that the GSEs had done prior to the crisis, I don't know where we would have been for the last 19 months. And so having them be able to lean forward on, what's that next phase, what are the innovations that the industry needs to continue to move forward, I think she'll support that with some very strong focus over how we define a pilot, who gets access to it, when will it then be available for the entire industry. I think she'll put some parameters in place that will allow us to continue to innovate but keep moving forward. So, I hope they confirm her quickly so, we can get on about the business of what we're doing.
Willy Walker
When you talk about innovation, it makes me think back to when Fannie and Wells actually entered the SFR financing space in a very innovative way and did that large securitization that ended up having the agencies back out of SFR, but that was back in a time when Fannie and Freddie could explore and try new things and unfortunately, that one didn't quite work out but it was due to Wells partnering with Fannie on that large single-family securitization.
Kara, as I think about, Wells' ability to do single sponsor securitizations, standard CMBS, balance sheet lending, agency lending, bridge lending, construction lending. I mean there is not another... obviously, there are a couple other banks that have the breath of the capabilities you will do, but not many. As you look forward to the capital markets and the fact that we have had relatively little volatility, which has made it, if you will, all those executions have been humming along, as you think about the future and where rates are going, and volatility are not in the markets, what's the... I mean there are a lot of people listening today, who are like, should I be thinking about CMBS loan? Should I be thinking about a single sponsor securitization? Should I go back and go get another agency loan if it's a multifamily property? Is the window open to do a construction loan on a suburban office building? Talk a little bit in the executions that you have right now and what you're looking at as a real opportunity for you deploy capital in 2022?
Kara McShane
Thank you for the advertisement.
Willy Walker
Believe me. I compete against it every day, so I know it pretty darn well.
Kara McShane
The truth is that any and all of those things are available. And it really is up to the specific sponsor or borrower in terms of what they want. There are pros and cons to each one of those things, right? You can term out, ten-year fixed rate debt in the CMBS market, but you lose flexibility relative to a balance sheet loan. Obviously, the GSEs have been prolific lenders in the multifamily space but they actually started to see some real competition this year from non-bank lenders, from CMBS. So, these are all very real competitors in the space. And one thing I'd like to highlight, I just thought about, I mean that's all of that availability of capital and all those different sources, are partially why I'm bullish about the market, because we're not overly dependent on one particular sector. If you were to go back in time and look at the percentage of the market that CMBS made up in pre great financial crisis, it's not a surprise when liquidity dried up that we ended up with a massive recession. So, I think, just sort of across the board, we have all these different sources of capital, and they're all there available and ready for you to take advantage of.
So, what I would say to people who are looking to borrow money is, what are my options? Right? Just don't show me what you do show me what else is out there and what are the pros and cons of each one of those options? And so that's what we try to do. And obviously, will advise people based on their preferences. But I have seen a lot of people not wanting to term out because they think things are going to get better, right? And they want to be able to take advantage of that NOI growth over time so they're staying short and floating rate. We've seen a tremendous amount of single asset, single borrower volume, which has just dwarfed the conduit market in CMBS so we're seeing a lot of trends that we haven't historically seen. And I don't really see those things changing anytime soon. I mean you can look at Blackstone and the amount of investment capital that they have, they're raising and their non-traded REIT, and other sponsors raising capital. And they have to put that money to work. And they need to do big deals, and they need to do portfolio deals to be able to put that stuff, that capital to work, and then they need to turn around and borrow. So that's going to fuel a lot of lending demand next year.
I think there's capacity in the market. Markets have been stable throughout the course of the year. If there are hiccups, I think they'll be temporary hiccups, and then they'll in bond investors will see that as an opportunity to buy.
One thing I actually do worry about is work capacity. I mean if you talk to people, and I talk to people all the time. People are having the best years of their careers. They're busier than they've ever been. You hear that all the time. And there's such a war on talent and a demand for talent, particularly in the sector that I sit in. I mean it's everywhere. I don't want to say that it's just a CRE thing. I do worry about people's ability to process all of the business that they have. Do they have enough people? Do they have enough talent? And that's going to lead to technology and innovation that's necessary for the future.
Willy Walker
Kara, on that, just when you mentioned Blackstone and the BREIT, and how much capital they've raised in the BREIT. It made me think about the dynamics of the market as it relates to... Wells previously having had, Eastdil Secured at Wells and now Eastdil Secured being out. I'm just curious from a competitive landscape standpoint without that brokerage arm at Wells, which as you and I both know, because we didn't have the brokerage arm at Walker & Dunlop until we got into it on the multifamily side. We felt like we had one arm tied behind our back, because the CBs and the JLL's of this world were using investment sales to feed deal flow back into the lending operation. How's it been since Eastdil Secured is out of the picture at Wells as it relates to going head-to-head with the big services firms that are bundling the investment sale with the lending?
Kara McShane
Yeah, that's a really interesting question. And I will, you know, Eastdil obviously was a broker and investment bank that sat inside of Wells Fargo. They didn't feed our platform, though. They were very arm's length. And so, it's different than the CBRE or the JLL or your setup of being able to say, hey, we've got this investment platform, and you have to use this for debt. We couldn't do that, and we didn't do that. It would have been nice if we if we could and we did, but Eastdil is a big debt broker, and they needed to obviously treat Wells Fargo like everyone else. So, in a strange way, not having.... it almost felt a little bit harder to win a deal from Eastdil as it was part of our firm. It feels maybe a little bit like we're on level playing field now.
In terms of what you were talking about and the competitive advantages, I mean, certainly we experienced this in our multifamily space. We hear people all the time say, hey, I have to do this loan with these guys over here because of their investment sales business. And so, my response is, that's great. I get it. But when you need construction capital are they going to be there for you? So, each firm has to think about what their own competitive advantages are, right? It's a very tight multifamily market. We are all competing for the same product. And we have to think about what is our competitive advantage is and what do we deliver. So, what I always say is Wells Fargo has the full suite of products and we do quite a bit of construction lending. And so that's what we have to capitalize on to compete with not having an investment sales, brokerage division.
Willy Walker
Kristy, I want to come to you on a competitive issue in two seconds. So, I'm going to ask you about Rocket in the presence of Rocket versus Wells Fargo.
But before I go to that, Kara mentioned construction lending. Are you actively lending on construction loans across asset classes? You said that you weren't, if you will, redlining or staying out of anything. But if I, other than maybe I want to go build the next Mall of the Americas, other than that, are you pretty active across all asset classes in construction lending or you shying away from hospitality and office right now and really it's mostly industrial and multi?
Kara McShane
Yeah, I mean, to be frank, we're not seeing a lot of demand for the sectors that you would imagine we're not seeing a lot of demand for. So, we're not seeing a lot of demand in hospitality or retail or office. We're not seeing spec office. And where we are active in construction, it's in the office space, for example, it's more likely a built to suit product. That doesn't mean we haven't done any spec construction office. We actually, in the middle of the pandemic closed on one Madison for SL Green. And we're seeing tremendously leasing activity there already. So, like I said, we're not red lining anything in particular, but I think you wouldn't be surprised to hear where we're being particularly cautious and where we might be leaning in.
Willy Walker
So Kristy, I want to stay on the competitive dynamic of the marketplace, because I think it's fascinating given the breath of Wells Fargo and the brand that you all have. We've obviously watched Rocket go from Quicken Loans into the Rocket that it is and being, I believe now, the largest single-family mortgage originator. Clearly, given Wells' position in the market, you got a lot of alternatives if you will. You've got such a great install base; you've got such an incredible brand. How do you compete with that landscape of a technologically enabled, what I would call up starting, though Quicken Loans and Rocket has been around for a long period of time, but they seem to have kind of come from nowhere? A lot of opportunity there or more competitive threats than opportunity?
Kristy Fercho
Yeah, I think a lot of opportunity. I actually have the distinction when I was at Fannie Mae I started covering then Quicken Loans in 2008, and they were not a direct deliverer to Fannie Mae. And I remember the first meeting with Bill Emerson, who was the CEO at the time. I was like, why aren't you direct delivering to us? That first year we did $250 million together with them as a direct deliverer.
So, to watch them now be the number one lender in the country, and I'll do some over $350 billion this year, potentially. Personally, it is incredibly satisfied. I tell them I helped create you. So, I have a great respect for the leadership team over there.
I love what Rocket has done to the market and especially coming through the pandemic. I mean if it wasn't for them in 2016 launching Rocket, and really jolting the industry like we got to lean into this whole digital capability I don't know where the industry would be today. And so, I give them a lot of credit for that. You know, as we're thinking about what we're doing it at Wells, I still think home is the single largest financial asset that many of us will ever purchase. And people don't want to do that, push a button, and just do it, right? And from a regulatory standpoint, this is still an incredibly complex asset. And I think it needs a level of personal care to manage through that. And so, I think you'll absolutely in the strategy that we're focused on it at Well Fargo is absolutely leaning into more digital capability. But doing it in a way that combines both people, which you talk about competitive advantages, Kara talked about that earlier. Our distributed sales force is, I think one of the great strengths of the Wells Fargo franchise, and so their ability to be able to engage in the market, engage at the Wells Fargo customer, to help explain this incredibly difficult purchase. You take people and technology and combine those together to provide what we're calling this simple, predictable, and personal experience when, where and how customers want it. And so, I think that what's inherent in that strategy that we're focused on is how do we leverage the digital capability where it makes sense? But more importantly, how do we take data? I mean Wells Fargo has over 68 million customers that we serve every day, many of those who we have bank account information and investment information through our WIN portfolio. How do we utilize that information and be able to tell them, like, I know you? We are your bank; we have all the information on you. No need to ask you for all over those documents. Can you just confirm that this is your information and that's the information you want me to make this decision on and be able to have speed to certainty and be able to provide them kind of the quick credit decision and be able to move forward. So, I love what's in our tool kit and our ability to be able to know our customers and be able to serve that. But then also leveraging cutting edge digital and technology to make that experience easy. I mean it's still sad to me that mortgage is still the most paper intensive process of all of financial services. And I think there's a lot more that we could do on that. So, I feel very good about the Wells Fargo value proposition and our ability to serve our customers. And as I say to the Rocket guys all the time, like I look forward to meeting you in the arena.
Willy Walker
Kara, on a similar line. I was at a conference about a month ago, and we had a presentation from a partner Andreessen Horowitz who put up a slide, it was all financial services CEOs in the room. And they put up this slide about Fintech. I think they were trying to scare everyone in the room that Fintech's going to take away all of our companies and put us all out of business.
And the slide was that there's $500 billion of both public company and private company Fintech companies today. They were trying to basically say we're investing in all these companies that are going to go take away your businesses. There were insurance execs and bank execs, and specialty finance execs in the room. I raised my hand and said, but that's really an impressive slide. It's got PayPal, and it's got all these other great Fintech companies. But the market cap of Wells Fargo and JP Morgan combined is $700 billion. And that's just two. You got the entire industry there at $500 billion. You get just two, and they are $700 billion. So, like, help me understand how this group of people is putting this group of people out of business, and they didn't really like my question. But I guess my question to you is this, given the size and scale of Wells Fargo, how do you take technology and actually implement it?
Because at a company like W&D size, we can go grab technology and not everyone says sign me up for it, but we can kind of push it into a workforce of 1,200 people. Whereas given your size and scale, getting people to adopt technology, to use it, to be smarter, more insightful, more customer focused, is a really difficult thing I would imagine. How do you be technologically innovative? Given your size and scale?
Kara McShane
Really, everything's difficult, right?
Willy Walker
That’s for sure.
Kara McShane
So, it's an imperative. Whether it's hard or not, you don't have the option. So, every industry, every company, every business, you're either a disruptor or you're being disrupted. So, you have to figure out which one you are. And if you're not investing in technology and you're not thinking about ways that technology can make your business easier and make the client experience easier and increase efficiency in all those things, then you're going backwards.
So, of course it's harder in a larger place. But the good news about technology is when other people around you are advancing, you can catch up like exponentially. Like you don't have to move from the land line, the rotary phone, all the way to the cell phone, right? I mean you don't have to go to the cordless phone and then to the print phone and then to the cell phone, right? You can go from the land line to the smartphones.
So, I would say to all those people that haven't paid attention or haven't invested in technology that you can catch up. The FinTech’s are an important part of the arena, right? They're doing really incredible work. And big banks like ours can capitalize on that work. So, it's probably easier like you said Willy for your institution and the size of your institution to do that. But it doesn't mean that it can't be done. Sometimes it just takes longer. And so, I think it's important to not just for the client experience, but also for the employee experience, right? We need to make our employees lives easier, right? We need to get rid of the paper and the processing and the... we need to do all of those things in order to keep our talent. So, it's critical all around. We're making the investments, and it's something that you'll see over time.
Willy Walker
Roll that response into back to the office, and what your thoughts are as it relates to bringing your team back into the office, what 2022 looks like as we have the... omicron variant is spooling up, and every time we seem to get ready to say, all right, olly olly oxen free, everyone come back to the office, all of a sudden something else comes up. And we're like well, maybe we will stay in this hybrid for a little bit longer. So, what's your view on that Kara?
Kara McShane
Even though you can't tell, I'm actually in the office right now. So, this is a very nice conference room. This is not a normal conference room. So, I picked the nicest conference room to do this from. But we're at our Hudson Yards offices, and I've been coming into the office over the last few weeks, five days a week. We're starting to see more and more in terms of badge swipes. Our official return to office is slated for January across the company.
Look, inertia is a hard thing to overcome. When I talk to people in the commercial real estate industry and many of our clients either never left or were back very, very quickly. Because they were incented to be, we’re commercial real estate, they're commercial real estate owners and operators and they want... they need to put their money where their mouth is and walk the walk. So, it is harder the longer that you're out. But however long it takes across the board, I am a believer that the office, the return to office comes back. Whether there’s more flexibility or, a hybrid approach initially. I think over time, we get back to where we were. And if you look around the rest of the world that in parts of Asia, people, are a 100% in office. So, I think technology and touchless technology and green buildings and clean air and safety and all those things are incredibly important. And obviously, we have to put the safety of our employees as a priority. But that's going to help companies that have prioritized space and amenities and those types of things. This is going to take a while to play out, but I think we're going to get there.
Kara McShane
I would love to hear if Kristy has a different view.
Willy Walker
What I want to hear from Kristy, first of all, you got a lot of people in the Wells Fargo home mortgage division and them all getting back to work both in cities across the country as well as some of your big processing facilities in Iowa and other places. But I was actually going to ask you from the seat you sit in as chairwoman of the Mortgage Bankers Association, we're going to have conventions in 2022? I mean that's a big piece of the P&L as it relates the income from the Mortgage Bankers Association; you going to be able to pull off your conventions?
Kristy Fercho
We are. I mean we went back last August. We had the first regulatory conference in September. Then we followed that up with the annual conference in San Diego -- 3,500 people attended and you have to show your vaccination card or proof of a negative test. And I got to tell you Willy, it wasn't only because I was being installed as chair that it had such great energy. I think people were just so thankful to be back together again, and back in person. I have never experienced energy like that at an MBA conference. And it was absolutely amazing. And I got to meet, I've been in this seat now 16 months. I met my team for the first time in person when we were there.
And so, I do think the MBA is planning to go back in conferences. Obviously, with omicron popping up and different states having now new different requirements. We're watching that very closely. The CREF conference is actually our next conference coming up here, the second weekend, in February, back in San Diego. And so right now, that is still planning to be in person and registrations are strong for the event. So, to your audience, if you haven't registered yet for CREF, plug for the MBA we look forward to seeing you there. But I do think in person is really important for industry conferences like this. And the networking I mean, there's no substitute from being able to sit across the table from someone and have a beer and get deals done. I think that's actually how work is always gotten done and I think it will continue to be there's nothing that substitutes for that personal interaction.
But I do believe I did a little different viewing here. I actually believe that this hybrid is the new way of the future. I think that we've been in it now eighteen, nineteen months, and I actually think you will see people... People want that flexibility. Goes back to what you were saying earlier, Kara, about this war for talent. I think talent is going to dictate how they want to engage and how they want to operate. And if I have more capacity to do my work, working from home and not having a three-hour commute like some people in Manhattan now, when you look at the round trip. If I can be more productive working from home, and then going in or meeting with people when I need to, I think people want that flexibility. So, I am a proponent of going back. I get my energy from people, but I also recognize, you see, I'm sitting at home today.
Willy Walker
And you're also in the single-family lending market and work from homes really, really like people want more space, they want new mortgages. It's all good.
Kristy Fercho
That's exactly right. So, keep doing it right buy a bigger house so that you can have a private office.
Willy Walker
You got it. I love it. That's where it takes away from. That's exactly I love it. I agree to get down to talking their own books. I thought I had a unified Wells Fargo view here. But I'm..
Kara McShane
I thought it good too. Kristy, what the heck?
Kristy Fercho
Sorry
Willy Walker
We are out of time. I am just super thankful to the two of you. I see both of you often in industry events and on boards, and it's a joy to see both of you in your roles doing all the things that you're doing, representing this industry so well and representing Wells Fargo so well. Thank you so much for taking the time. I wish both of you an extremely happy holiday season. And I will see both of you early in the new year at real estate roundtable, Mortgage Bankers Association, a bunch of other things. So, thank you both and everybody thanks for joining us today. Hope everyone has a great holiday season and we'll be back.
Kara McShane
Thank you. Willy. Happy holidays, everyone. Thank you so much.
Willy Walker
Bye-bye.
Kristy Fercho
Bye.
