In the $400 billion US commercial real estate lending market, Wells Fargo & Co has clearly become one of the largest competitors. Based in San Francisco, Wells Fargo along with The Blackstone Group recently reached a global transaction deal worth billions, as announced through a Business Wire press release.
In looking at bank statistics, GE Capital was one of the 50 biggest lenders for commercial real estate in the US. Selling out a significant portion of its GE Capital subsidiary is part of the plan established by General Electric Co to withdraw from the financial services arena so that attention can be turned to its primary business of industrial manufacturing.
Buying Performing First Mortgage Loans
As part of the US’ portion of the deal, Wells Fargo will purchase performing first mortgage commercial real estate loans with an estimated value of $9 billion. In addition, Wells Fargo agreed it would assist Blackstone and its affiliates in the financing of purchases that include $3.3 billion of US properties and $4.6 billion for first mortgage loans.
The portfolio of performing loans that will be purchased by Wells Fargo is in addition to its currently leading commercial real estate platform. As such, outstanding loans will increase roughly 10.6 percent.
At the end of the last year, Wells Fargo had on its books $122.5 billion of commercial real estate loans, making it the largest lender. Second to Wells Fargo is JPMorgan Chase which had approximately $82 billion of loans on its books. However, there is an additional $24.4 billion recorded for Wells Fargo specific to unused loan commitments outstanding, $8 billion higher than outstanding loans for JPMorgan Chase. All first quarter 2015 financial data was provided by The Street.
Competitive CRE Market
Also the highest in two years is the $44 billion of real estate loan applications sitting with Wells Fargo. As stated by John Shrewsberry, Wells Fargo’s chief financial officer, the commercial real estate market has become increasingly more competitive, which is why the corporation is being somewhat careful when choosing the best spots for competing when it comes to financing deals.
Although Shrewsberry was saying that continuing commercial real estate growth via originating loans is quite challenging. As reported by Morningstar, Wells Fargo is expected in the next few quarters to purchase even more loan portfolios. As expected, this will push the organization even further in the lead.
Shrewsberry added that identifying the organic component of commercial real estate will be difficult in the current deal with GE because that company’s portfolio, along with the incremental loan to Blackstone will have a major impact in both second and third quarters of 2015.
Regarding the selloff by GE Capital, a $4.6 billion commercial mortgage loan portfolio from GE Capital Real Estate will be acquired by Blackstone, which is comprised of a total of 82 first mortgage loans. The $4 billion in secured financing to Blackstone coupled with the $9 billion in loans being purchased from GE will give Wells Fargo’s books a big boost by the second or third quarter.