Newmark Group Inc at Wolfe Research Broker Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : <_ALACRA_META_ABSTRACT>Hello. I am really excited to introduce our multifamily GSE lending panel. We really wanted to do this panel because, often when you listen to an earnings call, one or two questions will be spent on this business. We really think if you looked inside of the [serious] services companies, this is a material business line. It's also a very resilient and defensive business line that's worth spending a conversation on. I am thrilled to have Jeff Day, who is the Chief Strategy Officer and President, Head of Multifamily Capital Markets at Newmark. Mr. Day previously served as the CEO of Berkeley Point, from 2006 until the combination with Newmark in 2017. People who read our preview and may have followed Newmark from the IPO, can know this is a very significant part of the Company. We also have Ted Patch from Walker & Dunlop with over 30 years of commercial residential experience. He is the Executive Vice President and Group Head of Multifamily Finance at Walker & Dunlop, overseeing Fannie Mae and Freddie Mac production platforms. As I'm sure all listeners know, Walker & Dunlop is an amazing franchise in multifamily lending. I forgot to do this in the last panel, (Conference Instructions) So, really enjoying -- kind of just spending some time to step back and focus on the business line. Maybe, Jeff, just a little bit of education, starting with you to step back, what really drives volume for your business? Is it refinancings? Is it purchases? Is there a better way to frame it?

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : It makes a ton of sense. And then maybe for Ted, we've had some meaningful macro input changes for multifamily and this actually just came up in our last panel. Interest rates are higher, but rent growth appears to be just a lot stronger than any of us thought it would be. What have either of those drivers done to multifamily lending demand?

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : Maybe, to frame it for both of you. And I could share with you a little bit that came up in the last panel. What do you think would happen if rates rose another 100 basis points from here? And maybe the second question is what will be the implications if rent growth turned negative?

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : Yes. Something that came up in the last meeting, and I wanted to run this by you guys and then see what implications you thought it might have, was that there's just more straight equity that's in the market than has historically been in the past. And you just have buyers that can invest at a lower LTV than they have in the past. A, do you agree with that? B, how does that potentially impact your business?

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : I guess the one concern would be, does that reduce the appetite for debt? But the other -- the flip side of this -- and, Jeff, you and I have talked about this before -- is does it potentially increase just the appetite for a different type of debt, which would be GSE, which you guys are just -- both companies so good at placing?

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : I also -- and pardon me, I do know sometimes I am throwing out scenarios that are darker than the status quo. But I think the investors that are in the market right now are really looking at downside scenarios. And what I wanted to hit, since both of you have such a great level of experience, if we go back to '08 and '09, or '01-'02, I think both are relevant. If you could speak to the resiliency of these businesses, both multi-family lending overall and GSE lending.

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : And we're getting some neat write-in questions, but just to finish on the GSEs, they've increased their cap substantially for 2022. Maybe a couple of questions on that. Is that just -- is there any risk of them not reaching that volume? Is it just that simple?

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : And this is really helpful because I'm trying to get the point across that this is arguably even potentially a countercyclical part of the business that both of your companies have. A couple of pieces on this. Can we frame the profitability of GSE debt -- GSE debt placement relative to other multifamily lending? And maybe if we could put servicing fees into the mix. And then [my idea] is this something we're trying to get smarter here at Wolfe, is (inaudible) GSE servicing can actually be a bit of a rate hedge given what can happen with escrow deposits?

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : All right. I am going to -- I've got more, but I'm going to hit some of the write-ins. So, I'm going to read this one out. Assuming 60% LTV, and given changes in spreads and base rents on a year-to-date basis -- this is kind of like an SEC question. IRR math suggests that as the cap rates need to backup 100 bps roughly in the private market. Would the participants allow that this change in cap rates is happening, or perhaps from a price discovery perspective, over the next three to six months?

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : Maybe, to rephrase the question that came up in the last panel. It sounds weird, but a 3% 10-year, actually if you go back not even 40 years, 30 years, isn't that high a number. If we go further from now, it could have a larger impact on cap rates, which you'd -- it's almost like you break through a base threshold and then it becomes more relevant.

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : Yes, or maybe another way to put it is that levered buyer, maybe he needed 100 basis points more cap rate, but then there's this less levered underbidder who can now come in and, I don't know, buy it for 50 more rather than 100. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 10, 2022 / 2:30PM, NMRK.OQ - Newmark Group Inc at Wolfe Research Broker Conference (Virtual)

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : And then the other thing that came up in the last was just like -- from an IRR perspective, the rental earn-ins are just so much bigger than people thought they were this year. More of the value is in the residual rather than the current yield that people are willing to do that.

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : I had two others. One, this probably came up the last panel, too, because it was part of the discussion. Is rent control coming up in any discussions?

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : And then another one -- I think this is (inaudible). The question is, I think both companies are involved in SFR, single-family rental lending. Can you comment on the opportunity for that sector? And has any of the challenging press impacted it? You might have seen there is a [60 minutes] and there's been a lot around it. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 10, 2022 / 2:30PM, NMRK.OQ - Newmark Group Inc at Wolfe Research Broker Conference (Virtual)

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : Ted, I just wanted to clarify, you made some comment of it being as big as multifamily. Do you mean (multiple speakers)?

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : And dumb questions -- do GSE -- I think they do -- do GSEs do deals on SFR, A? And B, I was thinking like -- what I was getting wrong in my brain, Ted, was that obviously the truly institutional single-family rental orders are small relative to the mom and pops. My two was, is it a fit with your small balance lending business?

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : Got it. Okay. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 10, 2022 / 2:30PM, NMRK.OQ - Newmark Group Inc at Wolfe Research Broker Conference (Virtual)

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : And you can do the construction with common parts and, yes, there's all sorts of efficiencies you can come up with.

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : We can't wait to actually see some of that product. Before we run out of time, it's a multifamily lending, we have to have one conservatorship question.

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : But in March, the FHFA director made some comments on potentially ending it. For both of you, what do you think is the likelihood and timing? Maybe a couple other pieces or a second, what do you think it would do to your business if it were to happen? And then how important is the composition of government, either executive or legislative, to that outcome? Sounds more like an (inaudible) question. Sorry about that.

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : And, Jeff, I'm sorry, who is short on capital?

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : Okay.

Question: Andrew Rosivach - Wolfe Research, LLC - Analyst : Yeah, no, totally not the subject of this call, but if anybody looks at what Walker & Dunlop has done to diversify, I mean, what you guys are doing in investment sales is incredible [non sequitur]. We could have spent 40 minutes just on conservatorship. So, maybe that will be next year's panel. Gentlemen, thank you so much for your time. This was an absolute pleasure. I think we all learned a lot. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 10, 2022 / 2:30PM, NMRK.OQ - Newmark Group Inc at Wolfe Research Broker Conference (Virtual)