Come on in: An interview with Wachovia's Commercial Real Estate Team

RMA Journal, The, June, 2003 by Jim Nelson, Beverly Foster

Wachovia Corporation divides its CRE operation into Real. Estate Financial Services, Real Estate Capital Markets, and Real Estate Corporate Finance. Their strategies and policies continue to evolve as technology opens new doors and as best practices are adopted during mergers. Michael Slocum, William Green, and Lawrence Gray each report to someone different. One of the three is in' another city. Yet, it all seems to work. Jim Nelson, RMA's director of Credit Risk, conversed with Mike, Bill, and Lawrence over a conference call in late March to find out more about Wachovia's approach to commercial real estate.

Jim: Let's begin by learning about your three areas.

Mike: The three of us report to different people: I report to Ben Jenkins, head of our general bank--Wachovia's Wholesale and Retail banking areas; Bill reports to Torn Wickwire, head of our Structured Products Group; and Lawrence reports to Kevin Roche in the Investment Banking Division. Broadly speaking, Lawrence and I have direct client coverage responsibilities, and Bill has product and service development and execution responsibilities.

My area is responsible for client coverage of private commercial developers and homebuilders--both public and private--principally domiciled in our footprint. These responsibilities include general relationship management, cross-selling activities, and balance sheet debt.

Bill: As Mike mentioned, Real Estate Capital Markets fundamentally houses the products that exist behind the coverage models that Mike and Lawrence's team puts in place. We deal primarily with products that don't have a good asset liability match on our balance sheet but that our clients want to satisfy in the marketplace. Some examples:

* Long-term loans originating for a securitization.

* Direct placement on mortgage banking.

* Tax credit equity, for which we will take principal position, then trade out.

* Sale-leaseback transactions, for which we act as a prinicipal and an agent.

An exceptionally large commercial mortgage servicing platform, extraneous from what we do on our balance sheet, serves to bring everything together for us.

* Synthetic lease financing.

Lawrence: Real Estate Corporate Finance is the primary coverage group for the public real estate companies, primarily the REIT [real estate investment trust] sector. We're also the primary group to execute portfolio sale, asset sale, or private equity placement transactions for both the public company relationships managed in Real Estate Corporate Finance and the private real estate company relationships managed in Real Estate Financial Services.

With regard to the public company clients, we focus on broad-based product relationships that require three elements working in unison: a financial advisory strategy, a lending strategy, and an equity research coverage strategy. We ultimately succeed by having all of the support resources of the firm geared toward a particular target client set.

Bill, Mike, and I constitute three of the primary members of the Real Estate Operating Committee, which meets quarterly to discuss our overall real estate business and our real estate loan portfolio. We have integrated our different businesses to view the real estate business as a whole, and the Real Estate Operating Committee helps ensure that we are all on the same page and that the right hand knows what the left hand is up to.

Jim: What was the strategy behind the decision to divide commercial real estate the way it is?

Lawrence: The easiest way to think about it is that our target client segments are divided based on the product suite that they typically use and by the percentage need of those different product areas. Public companies are very active users of public equity, public debt, corporate debt, CMBS [commercial mortgage-backed securities], mortgage placement, public M&A, portfolio sale, and asset sale products. As a result, these clients are covered by the Real Estate Corporate Finance Group, which has the responsibility to deliver this wide range of products in a coordinated manner.

For the most part, these product areas also are in the same division of Wachovia as the Corporate Finance Group. This division of Wachovia is known as Corporate and Investment Banking. On occasion we also will work with Mike's REFS group, which is housed in our General Bank Division, to deliver products that are not housed in the Corporate and Investment Banking division. Say, for example, one of our public clients enters into a joint venture transaction and needs project-level financing for transactions within the joint venture, such as an apartment complex in Atlanta. We would look at the construction loan for that project with Mike's group, because our group is not set up from the balance sheet perspective to do construction financing and Mike's group is.

Jim: Who are your peer institutions?

Lawrence: Bank of America is probably closest in terms of the overall product menu. Although groups like JPMorgan Chase or Deutsche Bank may all have corporate lending, CMBS, and investment banking capabilities, they do very little of the type of construction lending that Wachovia does and they have no broad retail brokerage capability. Additionally, neither Merrill Lynch nor Morgan Stanley do any of the construction-lending related projects we do and very little of the corporate lending.