The early June news that Wells Fargo Bank was acquiring McLean, VA-based Reilly Mortgage perked up certain ears–less because of the merger itself than for who was doing the merging. The commercial real estate side of San Francisco-based Wells is not exactly a news magnet, certainly as far as acquisitions go. Ed Blakey, executive VP at Wells and head of the commercial mortgage group, says that indeed, the perception is out there but says it’s off base. Acquisitive or not, the firm’s buy boosts its roughly $35 billion in annual loan production by another hefty $10 billion and provides a vehicle for capturing longer-term clients. For the full reasoning behind the strategy, read on: Define the breadth and depth of Wells Fargo for us.

Blakey: On an annual basis, Wells Fargo collectively generates $34 billion or $35 billion in new loan production through three different areas of wholesale banking: commercial mortgage, which is my area, and two other related real estate organizations. One is the real estate group, headed by Larry Chapman. The other is real estate merchant banking, headed by Mike Myers. Commercial mortgage represents roughly a third of the $35 billion, but the dominant dollar volume comes from the real estate group. It’s the most established real estate operation within Wells Fargo; it’s existed as a discreet business unit for some 30 years. The other two have been around for about 10. What are their specialized focuses?

Blakey: Larry Chapman will tell you his group is focused on everything from medium-sized transactions to very large, multi-bank credit facilities that we would lead and sell down to our participating banks. It’s focused more on institutional borrowers and lending opportunities, public REITs and larger customers. Our merchant bank is focused more on opportunistic lending–either borrowers or transactions that need a higher degree of leverage. That group also does more structured funding where we might underwrite an entire high-leverage transaction and split it up into multiple branches. Both of those groups tend to be more short-term and floating rate in nature, and in the case of the real estate group, more institutional and senior-debt oriented. My group has its roots in permanent debt, although much of that was outside of multifamily. We focus in large part on CMBS, so non-recourse, longer-term debt is our key focus. We do some portfolio lending but usually in the context of complementing our permanent-debt focus. So what specifically does Reilly bring to the party?

Blakey: Despite having a very big national real estate franchise–the three parts of our organization operate in approximately 30 different locations around the country; and despite that national presence and the deep customer base; and despite doing a large amount of construction and short-term financing, we have never had a strong presence in multifamily as it relates to permanent debt. The reason for that has been that the agencies, Freddie Mac and Fannie Mae in particular, have over the past decade dominated that sector. Reilly, with its national multifamily platform, will round out our product set in a meaningful way and allow us to retain customers through the full life cycle of their financing. In terms of additional revenues?

Blakey: We don’t disclose specific revenue matters, but I can tell you that Reilly has a servicing portfolio of approximately $10 billion and annual new-loan production of roughly $1.5 billion to $1.6 billion. So as a percentage of our overall transaction flow that’s not insignificant. But we believe the marriage of the two will be accretive and so that $5 billion or $6 billion become materially more given time and integration. Reilly will be a big contributor to our P&L. You’re not known for being aggressively acquisitive. So why this move?

Blakey: I think that perception might be accurate relative to our commercial real estate platform and the way we have or have not projected ourselves from a media perspective. But as a company, the current Wells Fargo itself is a [1998] merger with Norwest, and both organizations have made their mark through acquisitions over the years. We’re an active buyer of companies, banks and specialized lending units, and have been for many years. So the perception to the contrary may be incorrect. As it pertains to commercial real estate in particular, our platform varies from other large commercial banks because we tend to be a lender more for smaller or medium-sized transactions. We clearly have the ability, capital base and balance sheet to underwrite very large transactions, and we do. But as a matter of general approach, if you were to look at the transaction count that comprises that $35 billion against that of some other banks, you’d find a much larger number of smaller deals. By definition, that tends not to make headlines. So will Reilly be followed by more acquisitions?

Blakey: We have no plans, but it’s fair to say we’re committed to growth and to providing better and more solutions and growing our customer base. We’re always open to opportunities. To what extent may the merger have been a response to an influx of multifamily business from the shift taking place in the single-family sector?

Blakey: Our interest in Reilly has nothing to do with a specific market cycle. It’s not based on the notion of a bubble or that multifamily will outperform single family. Those cycles exist all the time and eventually things change. This was a longer-term strategy. How will integration take place?

Blakey: Any integration takes time. The reality is that you’re bringing cultures and personalities together. People need time to get acquainted and to understand where the opportunities are and how best to execute for those. One of the key drivers is the cultural fit. Even if the products and services are good, if there isn’t that fit it’s less of an opportunity. We’re shooting for a fairly quick close, late July or early August, and we should see a positive impact on each others operations in a matter of months.

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