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Category ArchiveWells Fargo

Varsity Letters: Chris Lee and Matt Salem on KKR’s Debt Strategies

Global investment firm Kohlberg Kravis Roberts & Co. was founded in 1976—so the story goes—when Henry Kravis and George Roberts dined together at (the now defunct) Joe and Rose restaurant on Third Avenue between East 46th and East 47th Streets. Today, KKR has $168 billion in assets under management (as of Dec.31, 2017).

The firm has had a private equity real estate strategy in place since 1981, but more recently it is being recognized as an increasingly powerful force in the debt space,  too.

The firm has two debt strategies; KKR Real Estate Finance Trust (KREF)—an externally managed real estate investment trust (REIT) that originates senior commercial mortgage loans—and KKR Real Estate Credit Opportunity Partners (RECOP), which purchases junior tranches of commercial mortgage-backed securities.

“What takes several people years to build, in terms of size and breadth, they’ve accomplished in a couple of years,” said A.J. Sfarra, a managing director at Wells Fargo Securities. “They’ve raised a $1 billion B-piece fund and a mortgage REIT.”

KREF currently has a total market capitalization of $1.1 billion and a total portfolio size of $2.5 billion. It originated $1.5 billion of loans last year alone—$800 million in the tristate area—playing in the large loan, transitional and value-add space and competing with private lenders such as Square Mile Capital Management, Blackstone and TPG.

In November of last year, it raised a $1.1 billion fund for its RECOP strategy and is the most active buyer of CMBS B-pieces in the market, with an impressive 35 percent of market share. In 2017, it bought junior tranches on 12 deals, comprising $10.9 billion in principal balance. For all transactions,  KKR satisfied either a portion or the entire risk retention requirement, retaining $949 million in face value of the bonds.

Chris Lee and Matt Salem, the firm’s co-heads of real estate credit, lead KKR’s debt business from the company’s headquarters at 9 West 57th Street between Fifth Avenue and Avenue of the Americas.

A “frustrated Cowboys fan,” Lee hails from Dallas. After studying economics at Emory University he got his industry start with a summer internship at J.P. Morgan Chase Securities, which then led to him to join Goldman Sachs’ commercial mortgage group as an analyst in 1990. He remained there until 2009 when he moved to Apollo Global Management, then to KKR in 2012.

“I like the competitive nature of it, where you’re out competing every day against very savvy investors to create transactions,” Lee—who turns 40 next month—said of his draw to commercial real estate. “I also like the personalities in real estate. You meet a lot of colorful people, and it’s one of the industries where you continuously interact, whether on the finance side or the development side.”

Jeff Fastov, a senior managing director at Square Mile Capital Management, was co-head of lending at Goldman Sachs when the young Lee joined the bulge-bracket bank, and Lee’s first boss out of college. “His raw intelligence is immediately apparent, and he’s incredibly personable and well-liked,” Fastov said of his protégé. “So when you put these two [attributes] together he’s a formidable competitor because people really like to do business with him.”

Salem, 44, is also a New York City transplant. A Kansas City native (and die-hard Kansas Jayhawks fan), he studied economics at Bates College in Maine and—bucking the traditional route of most Wall Street programs—moved back home after college instead to seek employment.

After “being turned down a bunch of times,” by local banks in his hometown, Salem took a job at Midland Loan Services in 1996. Its platform was growing and it was hiring college kids to assist in its expansion, he recalled. Three years later, he took a position at Travelers Insurance—owned by Citigroup at the time—and moved to New York City. It was there that Salem was tasked with investing in high-yield real estate debt and early mezzanine loans, before segwaying—serendipitously, perhaps—into buying CMBS B-pieces.

When Citi sold Travelers, Salem tried the sell side out for size, working at Morgan Stanley, before joining Goldman Sachs in 2006 as a CMBS trader and ultimately running CMBS trading for the investment bank through the crisis. In 2011, he joined Rialto Capital Management to build out its performing businesses, including high-yield lending platforms—such as preferred equity and mezzanine loans—as well as CMBS B-piece investing.

mattandchris 149 Varsity Letters: Chris Lee and Matt Salem on KKRs Debt Strategies
Matt Salem. Yvonne Albinowski/For Commercial Observer

Meanwhile, over at KKR, Lee and KKR’s head of real estate, Ralph Rosenberg, were planning the next iteration of the firm’s real estate business.

“When I got here in 2012 we were figuring out where we wanted to start the business, so we started it in opportunistic real estate because we thought that would be the area we could differentiate ourselves the most,” Lee said. “The goal was to have an integrated business as a solutions provider where we could provide both equity and debt.”

KKR raised its first equity value-add fund—the $1.5 billion KKR Real Estate Partners Americas, or REPA—at the end of 2013. (“We bought a number of hotels in that fund as the hospitality recovery was starting to take hold,” Lee said. “So a lot of it was a buy-fix-sell strategy where we were buying assets that had broken capital structures or broken operations, fixing them then selling them.”) And it raised its $2 billion successor, REPA II, last year.

But Lee and Rosenberg wanted to further expand the business that KKR had evolved to include a credit business. They already knew that Salem was the man for the job.

“Matt had demonstrated the ability to lead and manage a team,” Lee said. “Rialto had a very active business across multiple products and we had very complementary skills. There was a view that we’d be able to do one plus one equals three if we put our different backgrounds together.”

Salem joined KKR, along with nine members of his Rialto team, in 2014.

“I thought it was an absolutely perfect move for him,” Sfarra said of Salem’s move to KKR, “and in way I couldn’t see him anyplace else. KKR is a world-class organization and he fits that mold perfectly.”

Since then, Lee and Salem have been off to the races, finding opportunity in the heightened regulatory environment and leveraging off KKR’s existing infrastructure.

“We both had a very consistent view of where the market opportunity was, and that was direct, transitional lending,” Salem said. “We didn’t think the banks were in a place to commit that capital anymore, and we thought that we had a different approach in being fully integrated into a global asset manager, and being able to draw not only from an experienced bench of private equity and credit professionals but also from those focused on real estate equity within our own team.

“We think like property owners and we can be flexible,” Salem continued. “So there was a great opportunity to commit capital both from a relative value perspective for our investors as well as differentiating ourselves in the market to our clients who are borrowers and property owners.”

KKR’s lending portfolio is heavily weighted toward office and multifamily assets (the opposite is true for hotels, which comprise less than 5 percent of KKR’s business) and it’s carving out a niche for itself in value-add plays in acquisitions as well as construction loan take-outs where leasing is taking longer than expected.

“We have tremendous range in our business,” Lee said. “This year we’ve quoted loans from $40 million up to $400 million and from Libor plus mid-200s to Libor plus 400. Borrowers are buying different properties and executing different business plans so being able to deliver a range of solutions across what they’re doing in their platform helps us to build that relationship and have more connectivity with them, as well as provide us with a better opportunity to prove our experience.”

Recent transactions include a $180 million loan on PIMCO and Zeller’s Fifth Street Towers—a 1.1-million-square-foot Class-A building in downtown Minneapolis. Like most of KKR’s loans, the deal included an initial funding component, in this case $130 million in upfront funding and $52 million in future funding. PIMCO purchased the building in 2015 and had implemented its business plan with some success but leasing was a little slower than expected and—midway through its business plan—it didn’t have access to additional capital to continue to lease the property. KKR stepped in, refinanced the existing loan and gave PIMCO the capital and runway to lease the building up further, closing the deal within three weeks.

The financing was arranged by Eastdil Secured, which has worked with KKR on multiple transactions.

“Chris can understand risks in a transaction very quickly,” said Grant Frankel, a managing director at Eastdil. “He’s very good at understanding the transactions where it makes sense to stretch, and which ones have the quantitative or qualitative intangibles that—as a lender—you may be willing to push a little harder on. He has a very good sense for that.”

Frankel said that the KKR team is easy to work with, too. “Chris and Matt’s originators are very collegial, very smart and they are all pleasant people,” he said. “They’ve built a really good culture. We [at Eastdil] have a similar culture from a collegiality perspective, so it works well.”

Closer to home, KKR made an inventory loan on the Zaha Hadid-designed apartments at 520 West 28th Street to Related Companies. The $200 million loan was collateralized by the property’s 30 remaining condos that were unsold at the time.

“It’s a very special project,” said Greg Gushee, an executive vice president at Related. “KKR quickly understood the structure, the value and our business plan and were extremely flexible in structuring something that would allow us to pursue that plan.”

Flexibility is one of Salem and Lee’s key selling points in making KKR stand out from the herd, Gushee said.  “Some lenders get very fixated on their loan documents when there’s a twist or turn in a deal,” Gushee said. “Chris just says, ‘Okay. Let’s see what makes sense to do here…’ He’s always flexible and open to doing what makes sense for the asset.”  

And, “they can come up with a structure very quickly, get a term sheet to you within days and they can close within 30 days, easily,” Gushee said. “[KKR is] the place to go if you want great execution. They look at the situation and they can customize the solution.” 

Like everyone else in the debt space today, KKR is having to compete with a variety of capital sources for deals.

“It’s competitive, we wouldn’t argue with that, but it’s still a relationship business and it comes down to how you can help your borrower achieve their goal,” Lee said. “A lot of our borrowers aren’t looking to finance a property that is already stabilized; they’re looking for help to execute a business plan. Because we execute a lot of these business plans ourselves we can be very constructive in helping them to solve a capital issue.”

And while relationships are important, so are the cost of funds—something that definitely works to KKR’s advantage.

“Being part of a global asset management firm is extremely helpful for us and we think we have top-tier cost of capital in terms of what we receive from our lending counterparties,” Lee said. “We also have other ways to enhance returns because we have access to different tools at our disposal in terms of the way we finance ourselves, through our capital markets team and our $45 billion corporate credit business. A lot of those synergies accrue to the benefit of our company, KREF, and its shareholders. But that’s how you compete—on borrower experience and on price.”

Salem sees KKR’s speed of execution as the biggest differentiator in its segment of the market: “We’re a small team and not as rigid as [other lenders] so you don’t have to go through layers and layers of investment committee approvals and bank processes to get things changed if business plans evolve,” he said. “Things change in these buildings and they need flexibility and a lender that’s going to be able to work with them through these changes.”

KKR’s other vertical in its debt business, CMBS B-piece buying, has Salem’s name written all over it as a veteran in the space. Most recently, at Rialto, Salem had led a dominant team in the space.

The opportunity was driven by Dodd-Frank and risk retention regulations in the CMBS fixed-rate conduit market, specifically the carve-out that allows banks to pass some of  their risk retention to a third-party purchaser. 

mattandchris 058 Varsity Letters: Chris Lee and Matt Salem on KKRs Debt Strategies
Chris Lee. Yvonne Albinowski/For Commercial Observer

“We thought it was a great opportunity because the banks weren’t going to want to hold that risk and we have the expertise to do it,” Salem explained. “We can create a retention vehicle with our relationships with like-minded, long-dated investors. Combining the institutional client base of KKR with our broad internal underwriting resources across private equity, corporate credit and real estate works well. We draw from all these resources and do all of the underwriting and diligence, which makes us very credible investors in the space.”

Sfarra has known Salem for 15 years. He first met Salem when he was at Citi and buying B-pieces from Wells Fargo. Sfarra hired Salem at Morgan Stanley and sold him B-pieces at Rialto and KKR. Additionally, Wells Fargo took KREF mortgage REIT public last year, leading the underwriting group. “He’s been a B-piece buyer, he’s been a colleague, he’s been a client and he’s a really good friend as well,” Sfarra said.

Further cementing their relationship, Wells Fargo also sold KKR its very first B-piece. “We’re really thrilled to support their business,” Sfarra said. “What they’ve done is built a really successful B-piece business in a really short period of time and the only way you can really do that is by having the capital to do it and by having great relationships. Their word is their bond so people want to transact with them and they’re very smart guys.”

Fastov met Salem when he was on the mortgage desk at Goldman Sachs. “He’s an incredibly smart guy, and very straightforward,” he said. “The B-piece business is one part real estate and one part capital markets which is why he’s so effective at buying CMBS B-pieces because you need both of these skills.”

And while KREF and RECOP continue to have success, so does KKR’s real estate equity business. The opportunity has evolved since 2011 from investing in broken capital structures coming out of post-crisis distress to more thematic investing, with KKR finding macro themes of interest and applying them through the real estate sector.

It also presents opportunities to lend to some of its competitors in the debt space.

Square Mile and KKR teamed up last June on a California office deal, with Square Mile providing a $92 million loan for KKR’s acquisition of 180 Grand—a 15-story, 279,000-square foot-office building located in the Lake Merritt submarket of Downtown Oakland.

“There was a lot of trust that we could deliver on the terms we offered and that we’d focus on what mattered in the transaction,” Fastov said. “When we agreed to do the deal together, Chris said, ‘Let’s stay in touch if there are any real issues in the documentation,’ and guess what? There were none. It’s an example of KKR doing a lot of different things, just as we are, and there are opportunities to be lenders to each other.”

Maybe it’s that out-of-state charm, but—as well as being highly respected deal counterparties—Lee and Salem are known for being all around good people and family guys.

Frankel describes Lee as “a good guy, smart and pretty cerebral. He’s a straight shooter and just a pleasant person you enjoy doing business with.”

“I get Chris’ holiday card every year and his kids are exceedingly cute. If Matt would send me his holiday cards I could comment there, but he doesn’t. So…that’s an issue,” Fastov said, laughing.

As for the future of KKR’s real estate credit business, “I think there’s a lot of growth ahead of us,” Salem said. “We’re one of the newer businesses at KKR. The firm views real estate and real estate credit as strategically important and a growth initiative, and so we’ll have resources and capital available to us to grow.” O.K., KKR.

Source: commercial

Wells Fargo Renews Flagship Branch Lease in Midtown East

Wells Fargo has renewed its lease for its long-time flagship location at 437 Madison Avenue, Commercial Observer can first report.

The bank signed a five-year renewal for its 7,206-square-foot space at the William Kaufman Organization building, which spans the blockfront between East 49th and East 50th Streets. The lease includes 4,328 square feet of retail space on the ground floor and 2,878 square feet for offices on the lower level. The asking rent was $500 per square foot for the ground-floor space, a WKO press release indicates.

Wells Fargo has been a tenant in the 40-story, 850,000-square-foot building since 2003.

Michael Lenchner of Sage Realty Corporation, the leasing and management division of WKO, represented the landlord in the deal. In a prepared statement, Lenchner touted the building’s “visibility, high foot traffic and the convenience of being in close proximity to Rockefeller Center and Grand Central Terminal.” CBRE’s Annette Healey represented Wells Fargo. A CBRE spokeswoman said the broker declined to comment.

In 2016, Sage Realty completed a $60 million building-wide redevelopment of the property, which includes a redesigned lobby and arcade area, a new plaza, renovated elevators, upgraded building systems and a 15th-floor “sky lounge” with outdoor conference rooms and sunrise yoga classes.

WKO owns the building with Travelers Companies (the former developed the property and Travelers has been a partner since 1994). Tenants include Mitchell Silberberg & Knupp, which signed a lease for more than 18,500 square feet last month, as well as Citizens Bank, Omnicom Group, Medallion Financial, Kekst and Company and Carnegie Corporation of New York.

Source: commercial

Surging Economy, Lack of International Travel Could Hamper Hotel Sector

The United States economy is as robust as it’s been in decades.

The Bureau of Labor Statistics reported last week that the country added 200,000 jobs in January, which exceeded expectations and marked 88 straight months of job growth; the unemployment rate has remained steady at 4.1 percent for the last four months—its lowest level in 17 years; average hourly wages for private sector workers climbed 2.9 percent on the year—the strongest year-over-year shift since June 2009—and 0.2 percent from the previous month.

Historically, a strong economy has spurred strong travel and tourism numbers that boost the hospitality real estate sector—led by domestic travel and buoyed by international travel, which has been a mainstay export for the U.S. for years.

For the last two years, however, the trajectory of international travel has dipped significantly, and the U.S.’ current economic standing, coupled with its turbulent political environment, has some hospitality industry professionals and economists noticing some fractures that could negatively impact the sector.

“International tourism is definitely down,” said Chris Muoio, a senior quantitative strategist at real estate research firm Ten-X. “It’s affecting select, gateway markets disproportionately, and it’s really coming at a time when these markets have seen large expansions in supply. It’s not drastic right now, but it’s definitely having an effect.”

The U.S.’s total market share of long-haul travel fell to 11.9 percent last year, down from 12.9 percent in 2016 and from 13.6 percent in 2015, according to the U.S. Travel Association. The U.S. was joined only by Turkey—a country currently in political turmoil, having faced a military coup on July 15, 2016—as the only two countries out of the world’s top 12 destinations to have seen a significant drop in inbound international travel over the last two years—Turkey (6.7 percent) and the U.S. (6 percent). In comparison, Saudi Arabia saw its arrivals climb 20.3 percent from 2015 to 2017.

Nine of the U.S.’s top 10 source countries for international arrivals reported significant declines from 2015 to 2017—the only country whose travelers didn’t soften on the U.S. as a vacation destination was South Korea, which reported no change, according to data from the travel association. Had the U.S. maintained its market share of visitors, the hospitality sector would have had $32.3 billion in additional spending and 100,000 more jobs. In a separate report from the Commerce Department in early January, traveler spending fell 3.3 percent in 2017—through November 2017—equating to $4.6 billion in losses and 40,000 lost jobs.

“I think the damage is done,” Muoio said. “Even if the White House softens and changes its message, I think international travel sees right through it. As long as this administration is in place, I think there’s going to be a tepid, cooler response toward traveling to the U.S. It’s just become a less desirable destination based off the rhetoric and attitude that’s been put out there.”

Muoio added, “I don’t see tourism rebounding significantly unless [the U.S. dollar depreciates against other currencies]. It would honestly depend on whether [President Donald Trump] gets a second term. Four years of this attitude isn’t lasting, whereas a decade is more lasting. It’s definitely having a chilling effect on hospitality.”

Despite the losses in international travel, the hotel sector has remained steady for some time. Average daily room rates (ADR) have hit an all-time high—although it’s slowed considerably since 2014, according to data from research firm STR.

Revenue growth declined year-over-year in the first quarter of 2017 for the first time since 2010—although it was a small drop—caused by a slight dip in demand, stagnant occupancy levels and continued increases in hotel room supply across the U.S., according to an August 2017 report from Wells Fargo. Occupancy levels at a national level have been flat since 2014, hovering around 65 percent, and supply growth dipped, but the number of rooms still reached a record-high level in the second quarter of 2017, according to data from STR.

“In the last handful of months, we’ve signed up or executed on a few billion dollars in hotel deals,” said Dustin Stolly, the vice chair and co-head of Newmark Knight Frank’s debt and structured finance group for the New York tri-state region. “We’re seeing significant interest in financing hotel assets at all levels of the cycle, from fixed-rate assets that have stabilized cash flow to assets that have come out of renovations where lenders have gauged forward projections. Investors are definitely starting to look at hotels and be more active.”

In June 2017, STR reported it expected supply to outpace demand by 3 basis points on the year—3 to 2.7 percent—which could drive down room rates and create a cash flow issue should there be an economic downturn. Mike Barnello, the president and CEO of Bethesda, Maryland-based LaSalle Hotel Properties, told Commercial Real Estate Direct in June 2017, “When we get to this part of the cycle and we see the supply move up and continue to ramp and demand soften, that’s when we get more and more concerned.”

Demand from leisure travelers—heavily domestic—who book individually has climbed 37 percent while group bookings have seen tepid growth at 2 percent, according to a September 2017 U.S. lodging industry overview report from Cushman & Wakefield.

“Things are great right now, but back-to-back [down years for international travel] creates a concern that can be turned around,” said Chip Rogers, the CEO of the Asian American Hotel Owners Association. “We have a president who’s a hotelier. He could spread a message that America is open for business. International travel is the best and cleanest export that we have and creates and sustains many, many jobs in the U.S. If the message is the U.S. is the greatest place to visit, we would be very happy.”

That is exactly what Trump tried to say in front of a crowd of about 1,600 at the World Economic Forum in Davos, Switzerland, on Jan. 26, when he declared the U.S. is “open for business, and we are competitive once again,” touting the future of the U.S.’s energy and manufacturing exports. That assertion, however, doesn’t ring true in the hospitality sector.

Just a few days before the one-year anniversary of Trump’s inauguration, 10 business and trade associations—including the American Hotel and Lodging Association (AHLA), the Asian American Hotel Owners Association (AAHOA), the U.S. Travel Association as well as the U.S. Chamber of Commerce—created a travel industry group called the Visit U.S. Coalition that’s aimed at staving off and reversing the U.S.’s growing unpopularity as a tourist destination.

“We are certainly concerned about the statistics,” said Craig Kalkut, the vice president of government affairs at the AHLA, who added that his organization is also concerned about smaller hotels near national parks that could be affected by the loss of revenue from international travelers. “It’s important for the hotel industry but also the businesses that surround [and occupy] hotels and the economy overall, so it’s time to take some action. We want to head this off and turn things around as best we can. All these associations are nervous enough that they want to be involved. We want a more welcoming message for the world, and we want to turn things around.”

Some members of associations within the Visit U.S. Coalition acknowledged the negative impacts of certain policy initiatives and rhetoric from the Trump administration but also pointed to indicators such as the strong U.S. dollar as a main culprit for the downturn. The U.S. dollar is at its weakest point in almost two years, having fallen 0.07 points to 89.16 on the U.S. Dollar Currency Index as of Feb. 4—its lowest level since November 2014, after peaking from a high of 102.15 on March 3, 2017—although it still remains strong against foreign currencies.

“When we look at the last five to 10 years, international tourism has been a hockey puck,” said Patrick Denihan, a co-CEO of hotel developer Denihan Hospitality Group. “I would say that right now we have no concern [about the dip in international travel], but I do have a concern in the way the administration is dealing with immigration. Ten to 12 percent of our business is in the international market.”

Denihan added, “It would be nice if the current administration were taking a different position. How much stronger would it be? I don’t know. But, we always like to have more business if we can get it.”  

The tight labor market, coupled with potential wage accelerations for hotel service employees—who are typically on the lower end of the wage scale—as well as potential tax hurdles for some markets, could also have an affect on operating costs.

“If the health of the labor market shifts and wages stagnate or contract, hotel fundamentals are the first to turn because of consumer spending,” Muoio said. “I would say the downside risks are bigger than the upside risks in terms of hotel operating. If there’s a downturn shock, this current supply overhang becomes a larger problem.”

Major indexes have taken a step back after getting off to a fast start to kick off the year, hinting that volatility has risen as strong wage figures have created some concerns about a pickup in inflation and a subsequent tightening of monetary policy. Outgoing Federal Reserve Chair Janet Yellen went so far as to question commercial real estate prices on CBS’ Sunday Morning in an interview recorded on Feb. 2, saying asset prices in general are “quite high relative to rents. Now, is that a bubble or is it too high? And there it’s very hard to tell. But it is a source of some concern that asset valuations are so high.”

It remains to be seen what could come of the hospitality sector, should an economic downturn swing into effect and domestic tourism take a hit, but one thing holds true: International tourism will not be there to help pick up the slack.

“We think this a great time to reverse this [downward travel] trend. For the first time ever, we have a hotel owner as a president,” Rogers said. “He has the largest platform of communication in the world with the ability to champion travel. He knows what it means to put more heads in beds.”

Source: commercial

Citing Customer Abuses, Regulator Orders Wells Fargo Not to Grow

Wells Fargo, America’s largest originator of commercial real estate loans, was shackled into unprecedented regulatory handcuffs on Friday, when the Federal Reserve condemned the bank’s leadership for allowing a series of sales scandals to fester unchecked.

The measure, submitted to the company’s board of directors on the last day of Janet Yellen‘s tenure as the Fed’s chairwoman, prohibits Wells from growing its balance sheet beyond its size at the end of 2017. The order is indefinite, pending the Fed’s determination that Wells has put its house in order.

The Fed faulted Wells’ board of directors for failing to prevent one of the largest consumer finance scandals in recent memory. Between 2011 and 2015, employees of the bank, struggling to earn steep incentives and to meet unrealistic sales targets, opened more than 2 million unauthorized accounts for unwitting individual clients.

More recently, the bank acknowledged that its auto lending division had forced hundreds of thousands of customers to buy car insurance that they didn’t need.

“It is incumbent upon the board of directors…to oversee an adequate risk management framework for the entire firm,” Michael Gibson, the Fed’s regulatory chief wrote, in a letter to the Wells Fargo board. “As events of the past few years have confirmed, Wells Fargo’s board’s performance of [its] oversight role did not meet our supervisory expectations.”

In the bank’s 2016 annual report—its most recent—Wells Fargo reported $507 billion in outstanding U.S. commercial and industrial real estate loans, including real estate mortgages and real estate construction and lease financing. The bank also won master servicer agreements on more than 60 percent of new commercial mortgage backed securities deals that year.

In addition to the growth prohibition, the Fed’s order demands that the bank submit plans to improve board oversight and regulatory compliance within 60 days, and to undergo a review of its progress by the end of September, 2018.

In a statement, the bank’s CEO, Timothy Sloan, pledged that Wells Fargo will respond proactively to the penalties.

“We take this order seriously and are focused on addressing all of the Federal Reserve’s concerns,” Sloan said. “It is important to note that the consent order is [related]…to prior issues where we have already made significant progress.”

By market close on Monday, Wells’ shares had fallen more than 8.5 percent below their closing price on Friday.

In a conference call with investors that day, the bank said that by curtailing deposits from financial institutions and commercial clients, Wells would still have the bandwidth to write new commercial real estate loans.

“We’re continuing to serve customers, make loans—including commercial real estate loans—and take deposits and will meet the requirements of” the Fed’s order, a Wells Fargo spokeswoman wrote in an email.

Christopher Whalen, the banker and consultant behind Whalen Global Advisors, opined that the Fed deserves some blame itself for fostering the environment that allowed Wells’ scandals to metastasize.

“The Fed has created this problem by letting these banks get so big,” Whalen said, citing the Fed’s giving its blessing to 2008 marriage of Wells Fargo and Wachovia. “It’s all because the Fed is paranoid about the treasury market. If they let primary dealers go down, there would be no one left to sell Uncle Sam’s debt.”

On the other hand, according to the analyst, the order could be a blessing in disguise for Sloan if he uses the growth limit as an excuse to cut bank on less profitable segments.

“Wells is gigantic,” Whalen said. “Telling them they can’t get any bigger, you’re doing them a favor.”

A representative from the Federal Reserve did not immediately respond to a request for comment.

Source: commercial

Wells Fargo Provides $80M Refi for G-Holdings’ LIC Resi Tower

Wells Fargo has provided an $80 million loan to New York-based G-Holdings Corporation to refinance Aurora, a 30-story luxury residential building located at 29-11 Queens Plaza North in Long Island City, Queens, according to records filed yesterday with the New York City Department of Finance.

The Dec. 7 financing replaces $80 million in previous Wells Fargo debt—including two building loans and a project loan—that closed in December 2013 and funded construction of the project.

Wells Fargo split the debt into three substitute mortgages, the first being a $43.3 million advance in funds to the borrower—which was then assigned to Transamerica Financial Life Insurance Company, a private holding company for several life insurance and investment firms. The company is a subsidiary of Aegon N.V., a life insurance company headquartered in the Netherlands. Aegon acquired Transamerica in 1999.

Built in 2016, the property is located between 29th Street and 41st Avenue with 132 rental units above a 160-key Marriott Courtyard hotel that opened in May. Monthly rents for the apartments, which are on floors 15 through 29, range from $2,650 for one-bedrooms to $4,200 for two-bedrooms, according to the property’s website.

A representative for Wells Fargo did not immediately return a request for comment. Officials at G- Holdings could not immediately be reached for comment.


Source: commercial

TF Cornerstone Lands $144M Wells Fargo Refi for 45 Wall Street

Wells Fargo has provided TF Cornerstone with a $144 million Freddie Mac financing package to refinance the developer’s residential skyscraper at 45 Wall Street, according to property records filed today with New York City Department of Finance.

The loan, which closed on Dec. 15, replaces a $134 million Fannie Mae loan that was assigned to J.P. Morgan Chase on Nov. 30. Wells Fargo’s $144 million Freddie Mac refinance paid that loan off, and the bank provided an additional $9.8 million in proceeds, records show.

buildingphoto 55 TF Cornerstone Lands $144M Wells Fargo Refi for 45 Wall Street
Entrance to 45 Wall Street. Courtesy: CoStar Group.

J.P Morgan provided a modification in the form of a first mortgage in order to give the borrower time to refinance its maturing Fannie Mae debt—which was then assigned to Wells Fargo two weeks later.

The 27-story, 493,187-square-foot residential high-rise building—located between William and Broad Streets in the Financial District—was built in 1958 and is comprised of 435 residential and five commercial units, according to PropertyShark. Eight of the residential units are vacant, according to TF Cornerstone’s website. Monthly rents at the property run from $2,845 for studios to $6,849 for three-bedrooms.

The building’s use was converted from office to residential in 1996, and is the former headquarters of Atlantic Insurance Company, according to CoStar Group. Chase Bank and Tourbillon are the building’s largest commercial tenants, occupying 8,341 square feet and 2,952 square feet, respectively.

Representatives for Wells Fargo and for TF Cornerstone did not provide comment before publication. 


Source: commercial

Amid Flat Market, Wells Fargo Ekes Out First Prize for 2017 NYC Commercial Lending

The Wells Fargo wagon pulled ahead of its Big Apple competition this year, as the global bank slid into first place among originators of commercial loans in New York City, according to new data from CrediFi.

The San Francisco-based institution wrote 49 commercial real estate loans cumulatively worth about $4 billion in New York City in 2017, edging out Morgan Stanley and Deutsche Bank, which held the top spot a year before. Signature Bank and JPMorgan Chase, which each originated nearly 400 commercial financings with much smaller average loan amounts, rounded out the top five.

The achievement represents less of a resounding Wells Fargo success than a slide in the fortunes of its competitors, the data show.

“In terms of raw dollar amount, Wells Fargo isn’t originating more in New York City now than it did in the first nine months of 2016,” the CrediFi report says. “But while financing by Wells Fargo remains stable, several other top lenders saw their origination decline this year, pushing Wells…to the top.”

While overall commercial lending in city was flat for the year, residential lenders found fewer opportunities to dig out their checkbooks. Compared with 2016 numbers, multifamily lending was down 19 percent to $26.3 billion in the city, according to the report.

Wells Fargo’s claim on the ranking’s No. 1 spot will come as a welcome counterpoint to an embarrassing stretch of bad headlines for America’s third-largest financial institution. Last September, the Consumer Financial Protection Bureau charged the bank $100 million in fines for creating around 2 million unauthorized consumer bank and credit accounts. Just two months later, Wells was forced to reach a $50 million settlement in response to accusations it had overcharged residential borrowers for post-default appraisals.

A spokesman for Wells did not immediately respond to a request for comment.

Meanwhile, two fresher faces had banner years of their own. LoanCore Capital Credit REIT, an investment vehicle of privately held LoanCore Capital, saw originations balloon nearly sevenfold during the year, growing to $400 million in the third quarter from just $60 million in the first.

And Madison Realty Capital found a home on CrediFi’s quarterly top-10 list for the first time in the third quarter, inching ahead of Bank of the Ozarks and Citigroup for the eighth slot in the standings.

“It’s been an active year, and we’ve definitely been filling the void in the market in terms of speciality finance and construction financing,” said Josh Zegen, one of the firm’s co-founders. “We’ve been finding some unique opportunities.”

Zegen cited Madison’s $300 million loan on Ceruzzi Holdings138 East 50th Street and a $270 million construction financing on All Year Management‘s apartment project in the old Rheingold Brewery building in Bushwick as two of the deals that rocketed his company onto the top-10 list.


Source: commercial

Menswear Company, Risk Management Nonprofit Ink 27K-SF in Leases at 1407 Broadway

Landlord Shorenstein Properties has snagged an upscale men’s clothier and a risk management nonprofit group as two new tenants spanning 26,580 square feet at 1407 Broadway in the Garment District, according to CBRE.

David Donahue, which produces dress shirts, ties and sport coats, has leased 13,735 square feet for 10 years on the entire 32nd floor of the 43-story office tower. The firm will relocate from nearby 141 West 36th Street. Corey Abdo of Coldwell Banker Commercial Advisors represented the clothing maker. Abdo didn’t immediately provide a comment.

In the second deal, the Risk Insurance Management Society took 12,845 square feet on the entire 29th floor of the office tower between West 38th and West 39th Streets. The nonprofit, which is “dedicated to educating, engaging and advocating for the global risk community,” will move from 5 Bryant Park. CBRE’s Laurence Briody and Brad Auerbach, along with Brad Needleman of Newmark Knight Frank, represented the tenant. A spokesman for NKF didn’t immediately respond to a request for comment.

Asking rent for both spaces was in the mid-$60s per square foot. CBRE’s Peter Turchin, Gregg Rothkin, Brett Shannon, Ben Fastenberg, Keith Caggiano, Ross Zimbalist handled both transactions for Shorenstein Properties.

“1407 Broadway is a highly flexible property with a very desirable location,” said Turchin in a prepared statement. “David Donahue sought high-quality office and showroom space reflective of their brand, and [Risk Insurance Management Society] was able to accommodate all of their employees onto a smaller, more efficient full floor.”

The 1.1-million-square-foot office tower recently got a $30 million renovation that included a new lobby, an upgraded facade and new retail and elevators. Over the course of the past year and a half, the building’s ground floor has acquired a roster of new retail tenants, like Mighty Quinn’s, Gregory’s Coffee, Juice Generation, Wells FargoNum Pang and Dig Inn.  


Source: commercial

Related Purchases Pacific Center in the South Bay of Los Angeles for $107 Million

Related Fund Management, a subsidiary of Related Companiespurchased the Pacific Center in Torrance, Calif. earlier this month, Commercial Observer has learned. The 306,765-square-foot office building located in the South Bay—part of the Los Angeles metropolitan area—was nabbed from Stream Realty for $106.8 million, according to a source familiar with the deal.

“This is the undisputed nicest property of this kind in the area,” Ryan Gallagher of HFF, who represented Stream Realty, told CO, pointing to its location as well as property upgrades. Stream, headquartered in Dallas, with offices in Sansunk, spent over $6 million for a full exterior landscape, lobby, bathroom and corridor upgrades after purchasing the property in 2015 for $68.5 million.

Proximity to the far costlier and in-demand coastal communities of Santa Monica, Venice and Playa Vista—dubbed “Silicon Beach” for the confluence of major tech companies like Google and Facebook and startups setting up shop there—also adds to its marketability according to Gallagher, who said vacancy rates in Silicon Beach are a miniscule 6 percent.

The Center at 21250 Hawthorne Boulevard sits at the heavily trafficked intersection of Hawthorne and Torrance Boulevards across from the Del Amo Fashion Center, the 2.3-million-square-foot super-regional shopping center which recently underwent a $500 million renovation.

The eight-story building is currently 91 percent leased and counts Bank of America, Morgan Stanley, Wells Fargo and Barrister Executive Suites among its tenants.

“We viewed the Pacific Center as a great asset with a diverse roster of marquee tenants and an excellent location,” a spokeswoman for Related Fund Management told CO, which plans on upgrading amenities including the addition of a fitness center and on-site café.

The Real Deal first reported news of the sale.


Source: commercial

Insurance Brokerage Inks 34K-SF Direct Deal to Remain in Midtown East Building

Insurance brokerage and consulting company USI Insurance Services has signed a 34,080-square-foot lease at Sapir Organization’s 261 Madison Avenue, Commercial Observer has learned.

The company previously occupied the entire fifth floor and a portion of the sixth floor of the 28-story building between East 38th and East 39th Streets as a subtenant starting in 2012 via a deal with defunct magazine publisher Source Interlink. Now USI has signed a deal directly with the Sapir Organization for the same space, according to information provided by Cushman & Wakefield. A spokeswoman for the brokerage declined to disclose the terms of the deal.

USI recently agreed to purchased Wells Fargo Insurance Services USA, the insurance brokerage and consulting arm of the bank. That new division is planning to move into USI’s digs.

“USI is a dynamic and fast-growing organization,” C&W’s David Itzkowitz, who handled the deal for the tenant with colleague Jack Keesser, said in a statement. “Their relationship with the ownership of 261 Madison Avenue has been excellent during their time as a subtenant, and the new lease will enable USI to continue on this path for the next several years.”

Existing tenants at the 383,934-square-foot building include Coca Cola North America, Epix Entertainment and Signature Bank.

Sapir Organization completed a more than $15 million renovation of the building last year. It included enhancement of the building’s facade,installation of thermal pane glass windows, upgrades to the lobby and storefronts and modernization of elevators.  

Alex Sapir and Eli Joseb of Sapir Organization handled the deal for the landlord in-house.

“We are very pleased to be continuing the relationship with USI and hope to have them grow in the property over the coming years,” Joseb said in a prepared statement.


Source: commercial